Document:

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                                                                     EXHIBIT 4.1
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                              PUBLIC STORAGE, INC.

                       FLEET NATIONAL BANK, AS DEPOSITARY

                                       AND

                        THE HOLDERS FROM TIME TO TIME OF
                    THE DEPOSITARY RECEIPTS DESCRIBED HEREIN
                      RELATING TO Series S PREFERRED STOCK

                                -----------------
                                DEPOSIT AGREEMENT
                                -----------------

                          Dated as of October 31, 2001

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                                TABLE OF CONTENTS

                                    ARTICLE I

                                   Definitions

                                   ARTICLE II

                       Form of Receipts, Deposit of Stock,
                        Execution and Delivery, Transfer,

                      Surrender and Redemption of Receipts

                                                                        Page
                                                                       ----

SECTION 2.1  Form and Transfer of Receipts .........................     2
SECTION 2.2  Deposit of Stock; Execution and Delivery of
                            Receipts in Respect Thereof ............     4
SECTION 2.3  Registration of Transfer of Receipts ..................     4
SECTION 2.4  Split-ups and Combinations of Receipts; Surrender
                            of Receipts and Withdrawal of Stock.....     4
SECTION 2.5  Limitations on Execution and Delivery, Transfer,
                            Surrender and Exchange of Receipts .....     6
SECTION 2.6  Lost Receipts, etc ....................................     6
SECTION 2.7  Cancellation and Destruction of Surrendered Receipts ..     6
SECTION 2.8  Redemption of Stock ...................................     6

                                   ARTICLE III

                             Certain Obligations of
                       Holders of Receipts and the Company

SECTION 3.1  Filing Proofs, Certificates and Other Information .....     8
SECTION 3.2  Payment of Taxes or Other Governmental Charges ........     8
SECTION 3.3  Warranty as to Stock ..................................     9

                                   ARTICLE IV

                        The Deposited Securities; Notices

SECTION 4.1  Cash Distributions ....................................     9
SECTION 4.2  Distributions Other than Cash, Rights Preferences
                            or Privileges ..........................     9

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SECTION 4.3  Subscription Rights, Preferences or Privileges .............   10
SECTION 4.4  Notice of Dividends, etc.; Fixing Record Date for
                    Holders of Receipts .................................   11
SECTION 4.5  Voting Rights ..............................................   11
SECTION 4.6  Changes Affecting Deposited Securities and
                    Reclassifications, Recapitalizations, etc ...........   12
SECTION 4.7  Delivery of Reports ........................................   12
SECTION 4.8  List of Receipt Holders ....................................   12

                                   ARTICLE V

                        The Depositary, the Depositary's
                     Agents, the Registrar and the Company

SECTION 5.1  Maintenance of Offices, Agencies and Transfer Books
                    by the Depositary; Registrar ........................   13
SECTION 5.2  Prevention of or Delay in Performance by the Depositary, the
                    Depositary's Agents, the Registrar or the Company ...   14
SECTION 5.3  Obligation of the Depositary, the Depositary's Agents,
                    the Registrar and the Company .......................   14
SECTION 5.4  Resignation and Removal of the Depositary; Appointment
                    of Successor Depositary .............................   16
SECTION 5.5  Corporate Notices and Reports ..............................   17
SECTION 5.6  Indemnification by the Company .............................   17
SECTION 5.7  Charges and Expenses .......................................   17
SECTION 5.8  Tax Compliance .............................................   17

                                   ARTICLE VI

                            Amendment and Termination

SECTION 6.1  Amendment ..................................................   18
SECTION 6.2  Termination ................................................   18

                                   ARTICLE VII

                                  Miscellaneous

SECTION 7.1  Counterparts ...............................................   19
SECTION 7.2  Exclusive Benefit of Parties ...............................   19

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SECTION 7.3  Invalidity of Provisions .................................   19
SECTION 7.4  Notices ..................................................   19
SECTION 7.5  Appointment of Registrar .................................   20
SECTION 7.6  Holders of Receipts are Parties ..........................   20
SECTION 7.7  Governing Law ............................................   20
SECTION 7.8  Inspection of Deposit Agreement ..........................   20
SECTION 7.9  Headings .................................................   20

                            Form of Depositary Shares

Form of Face of Receipt ...............................................   A-1
Form of Reverse of Receipt ............................................   A-3

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                  DEPOSIT AGREEMENT, dated as of October 31, 2001, among PUBLIC
STORAGE, INC., a California corporation (the "Company"), Fleet National Bank, a
national banking association (the "Depositary"), and the holders from time to
time of the Receipts described herein.

                  WHEREAS, it is desired to provide, as hereinafter set forth in
this Deposit Agreement, for the deposit of shares of Series S Preferred Stock of
the Company with the Depositary for the purposes set forth in this Deposit
Agreement and for the issuance hereunder of Receipts evidencing Depositary
Shares in respect of the Stock so deposited; and

                  WHEREAS, the Receipts are to be substantially in the form of
Exhibit A annexed hereto, with appropriate insertions, modifications and
omissions, as hereinafter provided in this Deposit Agreement;

                  NOW, THEREFORE, in consideration of the promises contained
herein, the receipt and sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:

                                   ARTICLE I

                                  Definitions

                  The following definitions shall, for all purposes, unless
otherwise indicated, apply to the respective terms used in this Deposit
Agreement:

                  "Certificate" shall mean the Certificate of Determination
filed with the Secretary of State of the State of California establishing the
Stock as a series of preferred stock of the Company.

                  "Deposit Agreement" shall mean this Deposit Agreement, as
amended or supplemented from time to time.

                  "Depositary" shall mean Fleet National Bank and any successor
as Depositary hereunder.

                  "Depositary Shares" shall mean Depositary Shares, each
representing 1/1,000 of a share of Stock and evidenced by a Receipt.

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                  "Depositary's Agent" shall mean an agent appointed by the
Depositary pursuant to Section 5.1 and shall include the Registrar if such
Registrar is not the Depositary.

                  "Depositary's Office" shall mean the principal office of the
Depositary at which at any particular time its depositary receipt business shall
be administered.

                  "Receipt" shall mean one of the Depositary Receipts,
substantially in the form set forth as Exhibit A hereto, issued hereunder,
whether in definitive or temporary form and evidencing the number of Depositary
Shares held of record by the record holder of such Depositary Shares.

                  "record holder" or "holder" as applied to a Receipt shall mean
the person in whose name a Receipt is registered on the books of the Depositary
maintained for such purpose.

                  "Registrar" shall mean the Depositary or such other bank or
trust company which shall be appointed to register ownership and transfers of
Receipts as herein provided.

                  "Securities Act" shall mean the Securities Act of 1933, as
amended.

                  "Stock" shall mean shares of the Company's 7.875% Cumulative
Preferred Stock, Series S, $.01 par value per share.

                                   ARTICLE II

                      Form of Receipts, Deposit of Stock,
                       Execution and Delivery, Transfer,
                      Surrender and Redemption of Receipts

                  SECTION 2.1 Form and Transfer of Receipts. Definitive Receipts
shall be engraved or printed or lithographed on steel-engraved borders, with
appropriate insertions, modifications and omissions, as hereinafter provided, if
and to the extent required by any securities exchange on which the Receipts are
listed. Pending the preparation of definitive Receipts or if definitive Receipts
are not required by any securities exchange on which the Receipts are listed,
the Depositary, upon the written order of the Company or any holder of Stock, as
the case may be, delivered in compliance with Section 2.2, shall execute and
deliver temporary Receipts which are printed, lithographed, typewritten,
mimeographed or otherwise substantially of the tenor of the definitive Receipts
in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the persons executing such
Receipts may determine,

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as evidenced by their execution of such Receipts. If temporary Receipts are
issued, the Company and the Depositary will cause definitive Receipts to be
prepared without unreasonable delay. After the preparation of definitive
Receipts, the temporary Receipts shall be exchangeable for definitive Receipts
upon surrender of the temporary Receipts at the Depositary's Office or at such
other place or places as the Depositary shall determine, without charge to the
holder. Upon surrender for cancellation of any one or more temporary Receipts,
the Depositary shall execute and deliver in exchange therefor definitive
Receipts representing the same number of Depositary Shares as represented by the
surrendered temporary Receipt or Receipts. Such exchange shall be made at the
Company's expense and without any charge to the holder therefor. Until so
exchanged, the temporary Receipts shall in all respects be entitled to the same
benefits under this Agreement, and with respect to the Stock, as definitive
Receipts.

                  Receipts shall be executed by the Depositary by the manual
and/or facsimile signature of a duly authorized officer of the Depositary. No
Receipt shall be entitled to any benefits under this Deposit Agreement or be
valid or obligatory for any purpose unless it shall have been executed in
accordance with the foregoing sentence. The Depositary shall record on its books
each Receipt so signed and delivered as hereinafter provided.

                  Receipts shall be in denominations of any number of whole
Depositary Shares. The Company shall deliver to the Depositary from time to time
such quantities of Receipts as the Depositary may request to enable the
Depositary to perform its obligations under this Deposit Agreement.

                  Receipts may be endorsed with or have incorporated in the text
thereof such legends or recitals or changes not inconsistent with the provisions
of this Deposit Agreement as may be required by the Depositary or required to
comply with any applicable law or any regulation thereunder or with the rules
and regulations of any securities exchange upon which the Stock, the Depositary
Shares or the Receipts may be listed or to conform with any usage with respect
thereto, or to indicate any special limitations or restrictions to which any
particular Receipts are subject.

                  Title to Depositary Shares evidenced by a Receipt, which is
properly endorsed or accompanied by a properly executed instrument of transfer,
shall be transferable by delivery with the same effect as in the case of a
negotiable instrument; provided, however, that until transfer of a Receipt shall
                       --------  -------
be registered on the books of the Depositary as provided in Section 2.3, the
Depositary may, notwithstanding any notice to the contrary, treat the record
holder thereof at such time as the absolute owner thereof for the purpose of
determining the person entitled to distributions of dividends or other
distributions or to any notice provided for in this Deposit Agreement and for
all other purposes.

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                  SECTION 2.2 Deposit of Stock; Execution and Delivery of
Receipts in Respect Thereof. Subject to the terms and conditions of this Deposit
Agreement, the Company or, subject to Section 2.4, any holder of Stock may from
time to time deposit shares of Stock under this Deposit Agreement by delivery to
the Depositary of a certificate or certificates for the Stock to be deposited,
properly endorsed or accompanied, if required by the Depositary, by a duly
executed instrument of transfer or endorsement, in form satisfactory to the
Depositary, together with all such certifications as may be required by the
Depositary in accordance with the provisions of this Deposit Agreement, and
together with a written order of the Company or such holder, as the case may be,
directing the Depositary to execute and deliver to, or upon the written order
of, the person or persons stated in such order a Receipt or Receipts for the
number of Depositary Shares representing such deposited Stock.

                  Deposited Stock shall be held by the Depositary at the
Depositary's Office or at such other place or places as the Depositary shall
determine.

                  Upon receipt by the Depositary of a certificate or
certificates for Stock deposited in accordance with the provisions of this
Section, together with the other documents required as above specified, and upon
recordation of the Stock on the books of the Company in the name of the
Depositary or its nominee, the Depositary, subject to the terms and conditions
of this Deposit Agreement, shall execute and deliver, to or upon the order of
the person or persons named in the written order delivered to the Depositary
referred to in the first paragraph of this Section, a Receipt or Receipts for
the whole number of Depositary Shares representing, in the aggregate, the Stock
so deposited and registered in such name or names as may be requested by such
person or persons. The Depositary shall execute and deliver such Receipt or
Receipts at the Depositary's Office or such other offices, if any, as the
Depositary may designate. Delivery at other offices shall be at the risk and
expense of the person requesting such delivery.

                  SECTION 2.3 Registration of Transfer of Receipts. Subject to
the terms and conditions of this Deposit Agreement, the Depositary shall
register on its books from time to time transfers of Receipts upon any surrender
thereof by the holder in person or by a duly authorized attorney, properly
endorsed or accompanied by a properly executed instrument of transfer.
Thereupon, the Depositary shall execute a new Receipt or Receipts evidencing the
same aggregate number of Depositary Shares as those evidenced by the Receipt or
Receipts surrendered and deliver such new Receipt or Receipts to or upon the
order of the person entitled thereto.

                  SECTION 2.4 Split-ups and Combinations of Receipts; Surrender
of Receipts and Withdrawal of Stock. Upon surrender of a Receipt or Receipts at
the Depositary's Office or at such other offices as it may designate for the
purpose of effecting a split-up or combination of such Receipt or Receipts, and
subject to the terms and conditions of this Deposit Agreement, the

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Depositary shall execute and deliver a new Receipt or Receipts in the authorized
denomination or denominations requested, evidencing the aggregate number of
Depositary Shares evidenced by the Receipt or Receipts surrendered; provided,
                                                                    --------
however, that the Depositary shall not issue any Receipt evidencing a fractional
-------
Depositary Share.

                  Any holder of a Receipt or Receipts representing any number of
whole shares of Stock may (unless the related Depositary Shares have previously
been called for redemption) withdraw the Stock and all money and other property,
if any, represented thereby by surrendering such Receipt or Receipts at the
Depositary's Office or at such other offices as the Depositary may designate for
such withdrawals and paying any unpaid amount due the Depositary. Thereafter,
without unreasonable delay, the Depositary shall deliver to such holder or to
the person or persons designated by such holder as hereinafter provided, the
number of whole shares of Stock and all money and other property, if any,
represented by the Receipt or Receipts so surrendered for withdrawal, but
holders of such whole shares of Stock will not thereafter be entitled to deposit
such Stock hereunder or to receive Depositary Shares therefor. If a Receipt
delivered by the holder to the Depositary in connection with such withdrawal
shall evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of whole shares of Stock to be so
withdrawn, the Depositary shall at the same time, in addition to such number of
whole shares of Stock and such money and other property, if any, to be so
withdrawn, deliver to such holder, or upon his order, a new Receipt evidencing
such excess number of Depositary Shares, provided, however, that the Depositary
                                         --------  -------
shall not issue any Receipt evidencing a fractional Depositary Share. Delivery
of the Stock and money and other property being withdrawn may be made by the
delivery of such certificates, documents of title and other instruments as the
Depositary may deem appropriate which, if required by the Depositary, shall be
properly endorsed or accompanied by proper instruments of transfer.

                  If the Stock and the money and other property being withdrawn
are to be delivered to a person or persons other than the record holder of the
Receipt or Receipts being surrendered for withdrawal of Stock, such holders
shall execute and deliver to the Depositary a written order so directing the
Depositary and the Depositary may require that the Receipt or Receipts
surrendered by such holder for withdrawal of such shares of Stock be properly
endorsed in blank or accompanied by a properly executed instrument of transfer
in blank.

                  Delivery of the Stock and the money and other property, if
any, represented by Receipts surrendered for withdrawal shall be made by the
Depositary at the Depositary's Office, except that, at the request, risk and
expense of the holder surrendering such Receipt or Receipts and for the account
of the holder thereof, such delivery may be made at such other place as may be
designated by such holder.

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                  SECTION 2.5 Limitations on Execution and Delivery, Transfer,
Surrender and Exchange of Receipts. As a condition precedent to the execution
and delivery, registration of transfer, split-up, combination, surrender or
exchange of any Receipt, the Depositary, any of the Depositary's Agents or the
Company may require payment to it of a sum sufficient for the payment (or, in
the event that the Depositary or the Company shall have made such payment, the
reimbursement to it) of any charges or expenses payable by the holder of a
Receipt pursuant to Sections 3.2 and 5.7, may require the production of evidence
satisfactory to it as to the identity and genuineness of any signature, and may
also require compliance with such regulations, if any, as the Depositary or the
Company may establish consistent with the provisions of this Deposit Agreement.

                  The deposit of Stock may be refused, the delivery of Receipts
against Stock may be suspended, the registration of transfer of Receipts may be
refused and the registration of transfer, surrender or exchange of outstanding
Receipts may be suspended (i) during any period when the register of
stockholders of the Company is closed, or (ii) if any such action is deemed
necessary or advisable by the Depositary, any of the Depositary's Agents or the
Company at any time or from time to time because of any requirement of law or of
any government or governmental body or commission or under any provision of this
Deposit Agreement.

                  SECTION 2.6 Lost Receipts, etc. In case any receipt shall be
mutilated, destroyed, lost or stolen, the Depositary in its reasonable
discretion may execute and deliver a Receipt of like form and tenor in exchange
and substitution for such mutilated Receipt, or in lieu of and in substitution
for such destroyed, lost or stolen Receipt, upon (i) the filing by the holder
thereof with the Depositary of evidence reasonably satisfactory to the
Depositary of such destruction or loss or theft of such Receipt, of the
authenticity thereof and of his or her ownership thereof, (ii) the furnishing of
the Depositary with indemnification reasonably satisfactory to it and the
Company and (iii) the payment of any reasonable expense (including reasonable
fees, charges and expenses of the Depositary) in connection with such execution
and delivery.

                  SECTION 2.7 Cancellation and Destruction of Surrendered
Receipts. All Receipts surrendered to the Depositary or any Depositary's Agent
shall be cancelled by the Depositary. Except as prohibited by applicable law or
regulation, the Company is authorized to destroy all Receipts so cancelled.

                  SECTION 2.8 Redemption of Stock. Whenever the Company shall be
permitted and shall elect to redeem shares of Stock in accordance with the
provisions of the Certificate, it shall (unless otherwise agreed to in writing
with the Depositary) give or cause to be given to the Depositary not less than
60 days' notice of the date of such proposed redemption or exchange of Stock and
of the number of such shares held by the Depositary to be so redeemed and the

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applicable redemption price, as set forth in the Certificate, which notice shall
be accompanied by a certificate from the Company stating that such redemption of
Stock is in accordance with the provisions of the Certificate. Notice of
redemption of Stock will also be given by the Company by publication in a
newspaper of general circulation in the County of Los Angeles and the City of
New York, such publication to be made once a week for two successive weeks
commencing not less than 30 nor more than 60 days prior to the redemption date,
and the Depositary will publish a notice of redemption of the Depositary Shares
containing the same type of information and in the same manner as the Company's
notice of redemption. On the date of such redemption, provided that the Company
shall then have paid or caused to be paid in full to the Depositary the
redemption price of the Stock to be redeemed, plus an amount equal to any
accrued and unpaid dividends thereon to the date fixed for redemption, in
accordance with the provisions of the Certificate, the Depositary shall redeem
the number of Depositary Shares representing such Stock. The Depositary shall
mail notice of the Company's redemption of Stock and the proposed simultaneous
redemption of the number of Depositary Shares representing the Stock to be
redeemed by first-class mail, postage prepaid, not less than 30 and not more
than 60 days prior to the date fixed for redemption of such Stock and Depositary
Shares (the "Redemption Date") to the record holders of the Receipts evidencing
the Depositary Shares to be so redeemed, at the address of such holders as they
appear on the records of the Depositary; but neither failure to mail any such
notice of redemption of Depositary Shares to one or more such holders nor any
defect in any notice of redemption of Depositary Shares to one or more such
holders shall affect the sufficiency of the proceedings for redemption as to the
other holders. The Company will provide the Depositary with the information
necessary for the Depositary to prepare such notice and each such notice shall
state: (i) the Redemption Date; (ii) the number of Depositary Shares to be
redeemed and, if less than all the Depositary Shares held by any such holder are
to be redeemed, the number of such Depositary Shares held by such holder to be
so redeemed; (iii) the redemption price per Depositary Share; (iv) the place or
places where Receipts evidencing Depositary Shares are to be surrendered for
payment of the redemption price; and (v) that dividends in respect of the Stock
represented by the Depositary Shares to be redeemed will cease to accrue on such
Redemption Date. In case less than all the outstanding Depositary Shares are to
be redeemed, the Depositary Shares to be so redeemed shall be determined pro
rata or by lot in a manner determined by the Board of Directors.

                  Notice having been mailed by the Depositary as aforesaid, from
and after the Redemption Date (unless the Company shall have failed to provide
the funds necessary to redeem the Stock evidenced by the Depositary Shares
called for redemption) (i) dividends on the shares of Stock so called for
redemption shall cease to accrue from and after such date, (ii) the Depositary
Shares being redeemed from such proceeds shall be deemed no longer to be
outstanding, (iii) all rights of the holders of Receipts evidencing such
Depositary Shares (except the right to receive the redemption price) shall, to
the extent of such Depositary Shares, cease and terminate, and (iv)

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upon surrender in accordance with such redemption notice of the Receipts
evidencing any such Depositary Shares called for redemption (properly endorsed
or assigned for transfer, if the Depositary or applicable law shall so require),
such Depositary Shares shall be redeemed by the Depositary at a redemption price
per Depositary Share equal to the same fraction of the redemption price per
share paid with respect to the shares of Stock as the fraction each Depositary
Share represents of a share of Stock plus the same fraction of all money and
other property, if any, represented by such Depositary Shares, including all
amounts paid by the Company in respect of dividends which on the Redemption Date
have accumulated on the shares of Stock to be so redeemed and have not
theretofore been paid. Any funds deposited by the Company with the Depositary
for any Depositary Shares that the holders thereof fail to redeem will be
returned to the Company after a period of five years from the date such funds
are so deposited.

                  If fewer than all of the Depositary Shares evidenced by a
Receipt are called for redemption, the Depositary will deliver to the holder of
such Receipt upon its surrender to the Depositary, together with the redemption
payment, a new Receipt evidencing the Depositary Shares evidenced by such prior
Receipt and not called for redemption, provided, however, that the Depositary
                                       --------  -------
shall not issue any Receipt evidencing a fractional Depositary Share.

                                   ARTICLE III

                             Certain Obligations of
                       Holders of Receipts and the Company

                  SECTION 3.1 Filing Proofs, Certificates and Other Information.
Any holder of a Receipt may be required from time to time to file such proof of
residence, or other matters or other information, to execute such certificates
and to make such representations and warranties as the Depositary or the Company
may reasonably deem necessary or proper or otherwise reasonably request. The
Depositary or the Company may withhold the delivery, or delay the registration
of transfer, redemption or exchange, of any Receipt or the withdrawal or
conversion of the Stock represented by the Depositary Shares evidenced by any
Receipt or the distribution of any dividend or other distribution or the sale of
any rights or of the proceeds thereof until such proof or other information is
filed or such certificates are executed or such representations and warranties
are made.

                  SECTION 3.2 Payment of Taxes or Other Governmental Charges.
Holders of Receipts shall be obligated to make payments to the Depositary of
certain charges and expenses, as provided in Section 5.7. Registration of
transfer of any Receipt or any withdrawal of Stock and all money or other
property, if any, represented by the Depositary Shares evidenced by such

                                       8

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Receipt may be refused until any such payment due is made, and any dividends,
interest payments or other distributions may be withheld or any part of or all
the Stock or other property represented by the Depositary Shares evidenced by
such Receipt and not theretofore sold may be sold for the account of the holder
thereof (after attempting by reasonable means to notify such holder prior to
such sale), and such dividends, interest payments or other distributions or the
proceeds of any such sale may be applied to any payment of such charges or
expenses, the holder of such Receipt remaining liable for any deficiency.

                  SECTION 3.3 Warranty as to Stock. The Company hereby
represents and warrants that the Stock, when issued, will be duly authorized,
validly issued, fully paid and nonassessable. Such representation and warranty
shall survive the deposit of the Stock and the issuance of Receipts.

                                   ARTICLE IV

                        The Deposited Securities; Notices

                  SECTION 4.1 Cash Distributions. Whenever the Depositary shall
receive any cash dividend or other cash distribution on Stock, the Depositary
shall, subject to Sections 3.1 and 3.2, distribute to record holders of Receipts
on the record date fixed pursuant to Section 4.4 such amounts of such dividend
or distribution as are, as nearly as practicable, in proportion to the
respective numbers of Depositary Shares evidenced by the Receipts held by such
holders; provided, however, that in case the Company or the Depositary shall be
         --------  -------
required to withhold and shall withhold from any cash dividend or other cash
distribution in respect of the Stock an amount on account of taxes or as
otherwise required by law, regulation or court process, the amount made
available for distribution or distributed in respect of Depositary Shares shall
be reduced accordingly. In the event that the calculation of any such cash
dividend or other cash distribution to be paid to any record holder on the
aggregate number of Depositary Receipts held by such holder results in an amount
which is a fraction of a cent, the amount the Depositary shall distribute to
such record holder shall be rounded to the next highest whole cent if such
fraction of a cent is equal to or greater than $.005, otherwise such fractional
interest shall be disregarded; and upon request of the Depositary, the Company
shall pay the additional amount to the Depositary for distribution.

                  SECTION 4.2 Distributions Other than Cash, Rights, Preferences
or Privileges. Whenever the Depositary shall receive any distribution other than
cash, rights, preferences or privileges upon Stock, the Depositary shall,
subject to Sections 3.1 and 3.2, distribute to record holders of Receipts on the
record date fixed pursuant to Section 4.4 such amounts of the securities

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or property received by it as are, as nearly as practicable, in proportion to
the respective numbers of Depositary Shares evidenced by the Receipts held by
such holders, in any manner that the Depositary may deem equitable and
practicable for accomplishing such distribution. If in the opinion of the
Depositary such distribution cannot be made proportionately among such record
holders, or if for any other reason (including any requirement that the Company
or the Depositary withhold an amount on account of taxes) the Depositary deems
such distribution not to be feasible, the Depositary may, with the approval of
the Company, adopt such method as it deems equitable and practicable for the
purpose of effecting such distribution, including the sale (at public or private
sale) of the securities or property thus received, or any part thereof, at such
place or places and upon such terms as it may deem equitable and appropriate.
The net proceeds of any such sale shall, subject to Sections 3.1 and 3.2, be
distributed or made available for distribution, as the case may be, by the
Depositary to record holders of Receipts as provided by Section 4.1 in the case
of a distribution received in cash.

                  SECTION 4.3 Subscription Rights, Preferences or Privileges. If
the Company shall at any time offer or cause to be offered to the persons in
whose names Stock is recorded on the books of the Company any rights,
preferences or privileges to subscribe for or to purchase any securities or any
rights, preferences or privileges of any other nature, such rights, preferences
or privileges shall in each such instance be made available by the Depositary to
the record holders of Receipts in such manner as the Depositary may determine,
either by the issue to such record holders of warrants representing such rights,
preferences or privileges or by such other method as may be approved by the
Depositary in its discretion with the approval of the Company; provided,
                                                               --------
however, that (i) if at the time of issue or offer of any such rights,
-------
preferences or privileges the Depositary determines that it is not lawful or
(after consultation with the Company) not feasible to make such rights,
preferences or privileges available to holders of Receipts by the issue of
warrants or otherwise, or (ii) if and to the extent so instructed by holders of
Receipts who do not desire to execute such rights, preferences or privileges,
then the Depositary, in its discretion (with approval of the Company, in any
case where the Depositary has determined that it is not feasible to make such
rights, preferences or privileges available), may, if applicable laws or the
terms of such rights, preferences or privileges permit such transfer, sell such
rights, preferences or privileges at public or private sale, at such place or
places and upon such terms as it may deem proper. The net proceeds of any such
sale shall, subject to Sections 3.1 and 3.2, be distributed by the Depositary to
the record holders of Receipts entitled thereto as provided by Section 4.1 in
the case of a distribution received in cash.

                  If registration under the Securities Act of the securities to
which any rights, preferences or privileges relate is required in order for
holders of Receipts to be offered or sold the securities to which such rights,

                                       10

<PAGE>

preferences or privileges relate, the Company will file promptly a registration
statement pursuant to the Securities Act with respect to such rights,
preferences or privileges and securities and use its best efforts and take all
steps available to it to cause such registration statement to become effective
sufficiently in advance of the expiration of such rights, preferences or
privileges to enable such holders to exercise such rights, preferences or
privileges. In no event shall the Depositary make available to the holders of
Receipts any right, preference or privilege to subscribe for or to purchase any
securities unless and until it has received written notice from the Company that
such registration statement shall have become effective, or that the offering
and sale of such securities to such holders are exempt from registration under
the provisions of the Securities Act and the Company shall have provided to the
Depositary an opinion of counsel reasonably satisfactory to the Depositary to
such effect.

                  If any other action under the laws of any jurisdiction or any
governmental or administrative authorization, consent or permit is required in
order for such rights, preferences or privileges to be made available to holders
of Receipts, the Company will use its reasonable best efforts to take such
action or obtain such authorization, consent or permit sufficiently in advance
of the expiration of such rights, preferences or privileges to enable such
holders to exercise such rights, preferences or privileges.

                  SECTION 4.4 Notice of Dividends, etc.; Fixing Record Date for
Holders of Receipts. Whenever any cash dividend or other cash distribution shall
become payable or any distribution other than cash shall be made, or if rights,
preferences or privileges shall at any time be offered, with respect to Stock,
or whenever the Depositary shall receive notice of any meeting at which holders
of Stock are entitled to vote or of which holders of Stock are entitled to
notice, or whenever the Depositary and the Company shall decide it is
appropriate, the Depositary shall in each such instance fix a record date (which
shall be the same date as the record date fixed by the Company with respect to
or otherwise in accordance with the terms of the Stock) for the determination of
the holders of Receipts who shall be entitled to receive such dividend,
distribution, rights, preferences or privileges or the net proceeds of the sale
thereof, or to give instructions for the exercise of voting rights at any such
meeting, or who shall be entitled to notice of such meeting or for any other
appropriate reasons.

                  SECTION 4.5 Voting Rights. Upon receipt of notice of any
meeting at which the holders of Stock are entitled to vote, the Depositary
shall, as soon as practicable thereafter, mail to the record holders of Receipts
a notice which shall contain (i) such information as is contained in such notice
of meeting and (ii) a statement that the holders may, subject to any applicable
restrictions, instruct the Depositary as to the exercise of the voting rights
pertaining to the amount of Stock represented by their respective Depositary
Shares (including an express indication that instructions may be given to the
Depositary to give a discretionary proxy to a person designated by the Company)
and a brief statement as to the manner in which such instructions may be given.
Upon the written request of the holders of Receipts on the relevant record date,
the Depositary

                                       11

<PAGE>

shall use its best efforts to vote or cause to be voted, in accordance with the
instructions set forth in such requests, the maximum number of whole shares of
Stock represented by the Depositary Shares evidenced by all Receipts as to which
any particular voting instructions are received. The Company hereby agrees to
take all action which may be deemed necessary by the Depositary in order to
enable the Depositary to vote such Stock or cause such Stock to be voted. In the
absence of specific instructions from the holder of a Receipt, the Depositary
will not vote (but, at its discretion, may appear at any meeting with respect to
such Stock unless directed to the contrary by the holders of all the Receipts)
to the extent of the Stock represented by the Depositary Shares evidenced by
such Receipt.

                  SECTION 4.6 Changes Affecting Deposited Securities and
Reclassifications, Recapitalizations, etc. Upon any change in par value or
liquidation preference, split-up, combination or any other reclassification of
the Stock, or upon any recapitalization, reorganization, merger or consolidation
affecting the Company or to which it is a party, the Depositary may in its
discretion with the approval (not to be unreasonably withheld) of, and shall
upon the instructions of, the Company, and (in either case) in such manner as
the Depositary may deem equitable, (i) make such adjustments in the fraction of
an interest in one share of Stock represented by one Depositary Share as may be
necessary (as certified by the Company) fully to reflect the effects of such
change in par value or liquidation preference, split-up, combination or other
reclassification of Stock, or of such recapitalization, reorganization, merger
or consolidation and (ii) treat any securities which shall be received by the
Depositary in exchange for or upon conversion of or in respect of the Stock as
new deposited securities so received in exchange for or upon conversion or in
respect of such Stock. In any such case, the Depositary may in its discretion,
with the approval of the Company, execute and deliver additional Receipts or may
call for the surrender of all outstanding Receipts to be exchanged for new
Receipts specifically describing such new deposited securities. Anything to the
contrary herein notwithstanding, holders of Receipts shall have the right from
and after the effective date of any such change in par value or liquidation
preference, split-up, combination or other reclassification of the Stock or any
such recapitalization, reorganization, merger or consolidation to surrender such
Receipts to the Depositary with instructions to convert, exchange or surrender
the Stock represented thereby only into or for, as the case may be, the kind and
amount of shares of stock and other securities and property and cash into which
the Stock represented by such Receipts would have been converted or for which
such Stock would have been exchanged or surrendered had such Receipt been
surrendered immediately prior to the effective date of such transaction.

                  SECTION 4.7 Delivery of Reports. The Depositary shall furnish
to holders of Receipts any reports and communications received from the Company
which are received by the Depositary as the holder of Stock.

                                       12

<PAGE>

                  SECTION 4.8 List of Receipt Holders. Promptly upon request
from time to time by the Company, the Depositary shall furnish to it a list, as
of the most recent practicable date, of the names, addresses and holdings of
Depositary Shares of all record holders of Receipts. The Company shall be
entitled to receive such list four times annually without charge.

                                    ARTICLE V

                        The Depositary, the Depositary's
                      Agents, the Registrar and the Company

                  SECTION 5.1 Maintenance of Offices, Agencies and Transfer
Books by the Depositary; Registrar. Upon execution of this Deposit Agreement,
the Depositary shall maintain at the Depositary's office facilities for the
execution and delivery, registration and registration of transfer, surrender and
exchange of Receipts, and at the offices of the Depositary's Agents, if any,
facilities for the delivery, registration of transfer, surrender and exchange of
Receipts, all in accordance with the provisions of this Deposit Agreement.

                  The Depositary shall keep books at the Depositary's Office for
the registration and registration of transfer of Receipts, which books during
normal business hours shall be open for inspection by the record holders of
Receipts; provided that any such holder requesting to exercise such right shall
certify to the Depositary that such inspection shall be for a proper purpose
reasonably related to such person's interest as an owner of Depositary Shares
evidenced by the Receipts.

                  The Depositary may close such books, at any time or from time
to time, when deemed expedient by it in connection with the performance of its
duties hereunder.

                  The Depositary may, with the approval of the Company, appoint
a Registrar for registration of the Receipts or the Depositary Shares evidenced
thereby. If the Receipts or the Depositary Shares evidenced thereby or the Stock
represented by such Depositary Shares shall be listed on one or more national
securities exchanges, the Depositary will appoint a Registrar (acceptable to the
Company) for registration of such Receipts or Depositary Shares in accordance
with any requirements of such exchange. Such Registrar (which may be the
Depositary if so permitted by the requirements of any such exchange) may be
removed and a substitute registrar appointed by the Depositary upon the request
or with the approval of the Company. If the Receipts, such Depositary Shares or
such Stock are listed on one or more other stock exchanges, the Depositary will,
at the request and at the expense of the Company, arrange such facilities for
the delivery, registration, registration of transfer, surrender and exchange of
such Receipts, such

                                       13

<PAGE>

Depositary Shares or such Stock as may be required by law or applicable
securities exchange regulation.

                  The Depositary may from time to time appoint Depositary's
Agents to act in any respect for the Depositary for the purposes of this Deposit
Agreement and may at any time appoint additional Depositary's Agents and vary or
terminate the appointment of such Depositary's Agents. The Depositary will
notify the Company of any such action.

                  SECTION 5.2 Prevention of or Delay in Performance by the
Depositary, the Depositary's Agents, the Registrar or the Company. Neither the
Depositary nor any Depositary's Agent nor the Registrar nor the Company shall
incur any liability to any holder of any Receipt if by reason of any provision
of any present or future law, or regulation thereunder, of the United States of
America or of any other governmental authority or, in the case of the
Depositary, the Depositary's Agent or the Registrar, by reason of any provision,
present or future, of the Company's Articles of Incorporation or by reason of
any act of God or war or other circumstance beyond the control of the relevant
party, the Depositary, the Depositary's Agent, the Registrar or the Company
shall be prevented, delayed or forbidden from, or subjected to any penalty on
account of, doing or performing any act or thing which the terms of this Deposit
Agreement provide shall be done or performed; nor shall the Depositary, any
Depositary's Agent, the Registrar or the Company incur liability to any holder
of a Receipt (i) by reason of any nonperformance or delay, caused as aforesaid,
in the performance of any act or thing which the terms of this Deposit Agreement
shall provide shall or may be done or performed, or (ii) by reason of any
exercise of, or failure to exercise, any discretion provided for in this Deposit
Agreement except, in the case of any such exercise or failure to exercise
discretion not caused as aforesaid, if caused by the gross negligence or willful
misconduct of the party charged with such exercise or failure to exercise.

                  SECTION 5.3 Obligation of the Depositary, the Depositary's
Agents, the Registrar and the Company. Neither the Depositary nor any
Depositary's Agent nor the Registrar nor the Company assumes any obligation or
shall be subject to any liability under this Deposit Agreement or any Receipt to
holders of Receipts other than for its gross negligence, willful misconduct or
bad faith.

                  Neither the Depositary nor any Depositary's Agent nor the
Registrar nor the Company shall be under any obligation to appear in, prosecute
or defend any action, suit or other proceeding in respect of the Stock, the
Depositary Shares or the Receipts which in its reasonable opinion may involve it
in expense or liability unless indemnity reasonably satisfactory to it against
expense and liability be furnished as often as may be reasonably required.

                                       14

<PAGE>

                  Neither the Depositary nor any Depositary's Agent nor the
Registrar nor the Company shall be liable for any action or any failure to act
by it in reliance upon the written advice of legal counsel or accountants, or
information from any person presenting Stock for deposit, any holder of a
Receipt or any other person believed by it in good faith to be competent to give
such information. The Depositary, any Depositary's Agent, the Registrar and the
Company may each rely and shall each be protected in acting upon any written
notice, request, direction or other document reasonably believed by it to be
genuine and to have been signed or presented by the proper party or parties.

                  The Depositary shall not be responsible for any failure to
carry out any instruction to vote any of the shares of Stock or for the manner
or effect of any such vote made, as long as any such action or non-action is in
good faith. The Depositary will indemnify the Company and hold it harmless from
any loss, liability or expense (including the reasonable costs and expenses of
defending itself) which may arise out of acts performed or omitted by the
Depositary, including when such Depositary acts as Registrar, or the
Depositary's Agents in connection with this Agreement due to its or their gross
negligence, willful misconduct or bad faith. The indemnification obligations of
the Depositary set forth in this Section 5.3 shall survive any termination of
this Agreement and any succession of any Depositary.

                  The Depositary, its parent, affiliates or subsidiaries, the
Depositary's Agents, and the Registrar may own, buy, sell and deal in any class
of securities of the Company and its affiliates and in Receipts or Depositary
Shares or become pecuniarily interested in any transaction in which the Company
or its affiliates may be interested or contract with or lend money to or
otherwise act as fully or as freely as if it were not the Depositary, parent,
affiliate or subsidiary or Depositary's Agent or Registrar hereunder. The
Depositary may also act as trustee, transfer agent or registrar of any of the
securities of the Company and its affiliates.

                  It is intended that neither the Depositary nor any
Depositary's Agent nor the Registrar, acting as the Depositary's Agent or
Registrar, as the case may be, shall be deemed to be an "issuer" of the
securities under the federal securities laws or applicable state securities
laws, it being expressly understood and agreed that the Depositary, any
Depositary's Agent and the Registrar are acting only in a ministerial capacity
as Depositary or Registrar for the Stock.

                  Neither the Depositary (or its officers, directors, employees
or agents) nor any Depositary's Agent nor the Registrar makes any representation
or has any responsibility as to the validity of the registration statement
pursuant to which the Depositary Shares are registered under the Securities Act,
the Stock, the Depositary Shares or the Receipts (except for its
counter-signatures thereon) or any instruments referred to therein or herein, or
as to the correctness of any statement made therein or herein.

                                       15

<PAGE>

                  The Depositary assumes no responsibility for the correctness
of the description that appears in the Receipts, which can be taken as a
statement of the Company summarizing certain provisions of this Deposit
Agreement. Notwithstanding any other provision herein or in the Receipts, the
Depositary makes no warranties or representations as to the validity or
genuineness of any Stock at any time deposited with the Depositary hereunder or
of the Depositary Shares, as to the validity or sufficiency of this Deposit
Agreement, as to the value of the Depositary Shares or as to any right, title or
interest of the record holders of Receipts in and to the Depositary Shares. The
Depositary shall not be accountable for the use or application by the Company of
the Depositary Shares or the Receipts or the proceeds thereof.

                  SECTION 5.4 Resignation and Removal of the Depositary;
Appointment of Successor Depositary. The Depositary may at any time resign as
Depositary hereunder by delivering notice of its election to do so to the
Company, such resignation to take effect upon the appointment of a successor
Depositary and its acceptance of such appointment as hereinafter provided.

                  The Depositary may at any time be removed by the Company by
notice of such removal delivered to the Depositary, such removal to take effect
upon the appointment of a successor Depositary and its acceptance of such
appointment as hereinafter provided.

                  In case at any time the Depositary acting hereunder shall
resign or be removed, the Company shall, within 60 days after the delivery of
the notice of resignation or removal, as the case may be, appoint a successor
Depositary, which shall be a bank or trust company having its principal office
in the United States of America and having a combined capital and surplus of at
least $150,000,000. If no successor Depositary shall have been so appointed and
have accepted appointment within 60 days after delivery of such notice, the
resigning or removed Depositary may petition any court of competent jurisdiction
for the appointment of a successor Depositary. Every successor Depositary shall
execute and deliver to its predecessor and to the Company an instrument in
writing accepting its appointment hereunder, and thereupon such successor
Depositary, without any further act or deed, shall become fully vested with all
the rights, powers, duties and obligations of its predecessor and for all
purposes shall be the Depositary under this Deposit Agreement, and such
predecessor, upon payment of all sums due it and on the written request of the
Company, shall execute and deliver an instrument transferring to such successor
all rights and powers of such predecessor hereunder, shall duly assign, transfer
and deliver all right, title and interest in the Stock and any moneys or
property held hereunder to such successor, and shall deliver to such successor a
list of the record holders of all outstanding Receipts and such records, books
and other information in its possession relating thereto. Any successor
Depositary shall promptly mail notice of its appointment to the record holders
of Receipts.

                                       16

<PAGE>

                  Any corporation into or with which the Depositary may be
merged, consolidated or converted shall be the successor of such Depositary
without the execution or filing of any document or any further act, and notice
thereof shall not be required hereunder. Such successor Depositary may
authenticate the Receipts in the name of the predecessor Depositary or in the
name of the successor Depositary.

                  SECTION 5.5 Corporate Notices and Reports. The Company agrees
that it will deliver to the Depositary, and the Depositary will, promptly after
receipt thereof, transmit to the record holders of Receipts, in each case at the
addresses recorded in the Depositary's books, copies of all notices and reports
(including without limitation financial statements) required by law or by the
rules of any national securities exchange upon which the Stock, the Depositary
Shares or the Receipts are listed, to be furnished to the record holders of
Receipts. Such transmission will be at the Company's expense and the Company
will provide the Depositary with such number of copies of such documents as the
Depositary may reasonably request.

                  SECTION 5.6 Indemnification by the Company. The Company shall
indemnify the Depositary, any Depositary's Agent and the Registrar against, and
hold each of them harmless from, any loss, liability or expense (including the
reasonable costs and expenses of defending itself) which may arise out of acts
performed or omitted in connection with this Deposit Agreement and the Receipts
by the Depositary, any Registrar or any of their respective agents (including
any Depositary's Agent), except for any liability arising out of gross
negligence, willful misconduct or bad faith on the respective parts of any such
person or persons. The obligations of the Company set forth in this Section 5.6
shall survive any succession of any Depositary or Depositary's Agent.

                  SECTION 5.7 Charges and Expenses. The Company shall pay all
transfer and other taxes and governmental charges arising solely from the
existence of the depositary arrangements. The Company shall pay charges of the
Depositary in connection with the initial deposit of the Stock and the initial
issuance of the Depositary Shares, all withdrawals of shares of the Stock by
owners of Depositary Shares, and any redemption of the Stock at the option of
the Company. All other transfer and other taxes and governmental charges shall
be at the expense of holders of Depositary Shares. If, at the request of a
holder of Receipts, the Depositary incurs charges or expenses for which it is
not otherwise liable hereunder, such holder will be liable for such charges and
expenses. All other charges and expenses of the Depositary and any Depositary's
Agent hereunder (including, in each case, reasonable fees and expenses of
counsel) incident to the performance of their respective obligations hereunder
will be paid upon consultation and agreement between the Depositary and the
Company as to the amount and nature of such charges and expenses. The Depositary
shall present its statement for charges and expenses to the Company at such
intervals as the Company and the Depositary may agree.

                                       17

<PAGE>

                  SECTION 5.8 Tax Compliance. The Depositary, on its own behalf
and on behalf of the Company, will comply with all applicable certification,
information reporting and withholding (including "backup" withholding)
requirements imposed by applicable tax laws, regulations or administrative
practice with respect to (i) any payments made with respect to the Depositary
Shares or (ii) the issuance, delivery, holding, transfer, redemption or exercise
of rights under the Depositary Receipts or the Depositary Shares. Such
compliance shall include, without limitation, the preparation and timely filing
of required returns and the timely payment of all amounts required to be
withheld to the appropriate taxing authority or its designated agent.

                  The Depositary shall comply with any direction received from
the Company with respect to the application of such requirements to particular
payments or holders or in other particular circumstances, and may for purposes
of this Agreement rely on any such direction in accordance with the provisions
of Section 5.3 hereof.

                  The Depositary shall maintain all appropriate records
documenting compliance with such requirements, and shall make such records
available on request to the Company or to its authorized representatives.

                                   ARTICLE VI

                            Amendment and Termination

             SECTION 6.1 Amendment. The form of the Receipts and any
provisions of this Deposit Agreement may at any time and from time to time be
amended by agreement between the Company and the Depositary in any respect which
they may deem necessary or desirable; provided, however, that no such amendment
(other than any change in the fees of any Depositary or Registrar, which shall
go into effect not sooner than three months after notice thereof to the holders
of the Receipts) which shall materially adversely alter the rights of the
holders of Receipts shall be effective unless such amendment shall have been
approved by the holders of at least a majority of the Depositary Shares then
outstanding. Every holder of an outstanding Receipt at the time any such
amendment becomes effective shall be deemed, by continuing to hold such Receipt,
to be bound by the Deposit Agreement as amended thereby. Notwithstanding the
foregoing, in no event may any amendment impair the right of any holder of any
Depositary Shares, upon surrender of the Receipts evidencing such Depositary
Shares and subject to any conditions specified in this Deposit Agreement, to
receive shares of Stock and any money or other property represented thereby,
except in order to comply with mandatory provisions of applicable law.

                                       18

<PAGE>

                  SECTION 6.2 Termination. This Deposit Agreement may be
terminated by the Company at any time upon not less than 60 days' prior written
notice to the Depositary, in which case, on a date that is not later than 30
days after the date of such notice, the Depositary shall deliver or make
available for delivery to holders of Depositary Shares, upon surrender of the
Receipts evidencing such Depositary Shares, such number of whole or fractional
shares of Stock as are represented by such Depositary Shares. This Deposit
Agreement will automatically terminate after (i) all outstanding Depositary
Shares have been redeemed pursuant to Section 2.8 or (ii) there shall have been
made a final distribution in respect of the Stock in connection with any
liquidation, dissolution or winding up of the Company and such distribution
shall have been distributed to the holders of Depositary Receipts pursuant to
Section 4.1 or 4.2, as applicable.

                  Upon the termination of this Deposit Agreement, the Company
shall be discharged from all obligations under this Deposit Agreement except for
its obligations to the Depositary, the Registrar and any Depositary's Agent
under Sections 5.6 and 5.7.

                                   ARTICLE VII

                                  Miscellaneous

                  SECTION 7.1 Counterparts. This Deposit Agreement may be
executed in any number of counterparts, and by each of the parties hereto on
separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed an original, but all such counterparts taken together
shall constitute one and the same instrument.

                  SECTION 7.2 Exclusive Benefit of Parties. This Deposit
Agreement is for the exclusive benefit of the parties hereto, and their
respective successors hereunder, and shall not be deemed to give any legal or
equitable right, remedy or claim to any other person whatsoever.

                  SECTION 7.3 Invalidity of Provisions. In case any one or more
of the provisions contained in this Deposit Agreement or in the Receipts should
be or become invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein or
therein shall in no way be affected, prejudiced or disturbed thereby.

                  SECTION 7.4 Notices. Any and all notices to be given to the
Company hereunder or under the Receipts shall be in writing and shall be deemed
to have been duly given if personally delivered or sent by mail, or by telegram
or facsimile transmission confirmed by letter, addressed to the Company at:

                                       19

<PAGE>

                  Public Storage, Inc.
                  701 Western Avenue, 2nd Floor
                  Glendale, California  91201-2397
                  Facsimile No.:  (818) 244-9267

or at any other address of which the Company shall have notified the Depositary
in writing.

                  Any and all notices to be given to the Depositary hereunder or
under the Receipts shall be in writing and shall be deemed to have been duly
given if personally delivered or sent by mail or by telegram or facsimile
transmission confirmed by letter, addressed to the Depositary at the
Depositary's Office, at:

                  Fleet National Bank
                  150 Royall Street
                  Mail Stop: 45-02-62
                  Canton, MA  02021
                  Attention:  Client Administration
                  Facsimile No.:  (617) 575-2549

or at any other address of which the Depositary shall have notified the Company
in writing.

                  Any and all notices to be given to any record holder of a
Receipt hereunder or under the Receipts shall be in writing and shall be deemed
to have been duly given if personally delivered or sent by mail, or by telegram
or facsimile transmission confirmed by letter, addressed to such record holder
at the address of such record holder as it appears on the books of the
Depositary, or if such holder shall have filed with the Depositary a written
request that notices intended for such holder be mailed to some other address,
at the address designated in such request.

                  Delivery of a notice sent by mail or by telegram or facsimile
transmission shall be deemed to be effected at the time when a duly addressed
letter containing the same (or a confirmation thereof in the case of a telegram
or facsimile transmission) is deposited for mailing by first class mail, postage
prepaid. The Depositary or the Company may, however, act upon any telegram or
facsimile transmission received by it from the other or from any holder of a
Receipt, notwithstanding that such telegram or facsimile transmission shall not
subsequently be confirmed by letter or as aforesaid.

                                       20

<PAGE>

                  SECTION 7.5 Appointment of Registrar. The Company hereby also
appoints the Depositary as Registrar in respect of the Receipts and the
Depositary hereby accepts such appointments.

                  SECTION 7.6 Holders of Receipts Are Parties. The holders of
Receipts from time to time shall be parties to this Deposit Agreement and shall
be bound by all of the terms and conditions hereof and of the Receipts by
acceptance of delivery thereof.

                  SECTION 7.7 Governing Law. THIS DEPOSIT AGREEMENT AND THE
RECEIPTS AND ALL RIGHTS HEREUNDER AND THEREUNDER AND PROVISIONS HEREOF AND
THEREOF SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
APPLICABLE TO CONTRACTS MADE IN AND TO BE PERFORMED IN THE STATE OF NEW YORK,
INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW.

                  SECTION 7.8 Inspection of Deposit Agreement. Copies of this
Deposit Agreement shall be filed with the Depositary and the Depositary's Agent
and shall be open to inspection during business hours at the Depositary's Office
or respective offices of the Depositary's Agent, if any, by any holder of a
Receipt.

                  SECTION 7.9 Headings. The headings of articles and sections in
this Deposit Agreement and in the form of the Receipt set forth in Exhibit A
hereto have been inserted for convenience only and are not to be regarded as a
part of this Deposit Agreement or the Receipts or to have any bearing upon the
meaning or interpretation of any provision contained herein or in the Receipts.

                                       21

<PAGE>

                  IN WITNESS WHEREOF, the Company and the Depositary have duly
executed this Agreement as of the day and year first above set forth, and all
holders of Receipts shall become parties hereto by and upon acceptance by them
of delivery of Receipts issued in accordance with the terms hereof.

                                            PUBLIC STORAGE, INC.

Attested by:

-------------------------------             ------------------------------------
John Reyes                                  David Goldberg
Senior Vice President, Chief Financial      Vice President and Senior Counsel
  Officer and Assistant Secretary

Attested by:                                FLEET NATIONAL BANK

-------------------------------             ------------------------------------
Name:                                       Name:
Title:                                      Title:

                                       22

<PAGE>

ANNEX A

                  TEMPORARY RECEIPT EXCHANGEABLE FOR DEFINITIVE
                    ENGRAVED RECEIPT WHEN READY FOR DELIVERY

The Shares represented by this Depositary Receipt are subject to restrictions on
ownership and transfer for the purpose of this Corporation's maintenance of its
status as a Real Estate Investment Trust under the Internal Revenue Code of
1986, as amended. Except as set forth in this Corporation's Articles of
Incorporation or Bylaws, no person may Beneficially Own (i) more than 2.0% of
the outstanding shares of Common Stock of this Corporation, or (ii) more than
9.9% of the outstanding shares of any series of Preferred Stock or Equity Stock
of this Corporation, with certain further restrictions and exceptions as are set
forth in this Corporation's Articles of Incorporation or Bylaws. Any Person who
attempts to own or Beneficially Own Shares in excess of the above limitations
must immediately notify this Corporation. All capitalized terms in this legend
have the meanings defined in this Corporation's Articles of Incorporation or
Bylaws. If any of the restrictions on transfer or ownership set forth in the
Articles of Incorporation or Bylaws are violated, the Shares represented hereby
will be automatically transferred to the Trustee of a Trust for the benefit of a
Charitable Beneficiary pursuant to the terms of the Articles of Incorporation or
Bylaws. In addition, attempted transfers of Shares in violation of the
limitations described above (as modified or expanded upon in this Corporation's
Articles of Incorporation or Bylaws), may be void ab initio. This Corporation
will furnish to the holder hereof, upon request and without charge, a complete
written statement of the terms and conditions of these restrictions. Requests
for such documents may be directed to the corporate secretary.

                                                   DEPOSITARY SHARES

                                                   THIS DEPOSITARY RECEIPT
                                                   IS TRANSFERABLE IN BOSTON,
                                                   MA OR NEW YORK, NY

                                                   CUSIP [           ]
                                                     SEE REVERSE FOR
                                                   CERTAIN DEFINITIONS
DEPOSITARY RECEIPT FOR DEPOSITARY
   SHARES EACH REPRESENTING 1/1,000th OF A
   SHARE OF 7.875% CUMULATIVE PREFERRED STOCK,
   SERIES S

                      OF
                PUBLIC STORAGE, INC.
                INCORPORATED UNDER THE
         LAWS OF THE STATE OF CALIFORNIA

                                       A-1

<PAGE>

          FLEET NATIONAL BANK, as Depositary (the "Depositary"),
hereby certifies that

is the registered owner of _____________________________ DEPOSITARY SHARES

("Depositary Shares"), each Depositary Share representing a 1/1,000 interest in
one share of 7.875% Cumulative Preferred Stock, Series S (the "Stock"), of
Public Storage, Inc., a California corporation (the "Corporation"), on deposit
with the Depositary, subject to the terms and entitled to the benefits of the
Deposit Agreement dated as of October 31, 2001 (the "Deposit Agreement"),
between the Corporation and the Depositary. By accepting this Depositary
Receipt, the holder hereof becomes a party to and agrees to be bound by all the
terms and conditions of the Deposit Agreement. This Depositary Receipt shall not
be valid or obligatory for any purpose or be entitled to any benefits under the
Deposit Agreement unless it shall have been executed by the Depositary by the
manual and/or facsimile signature of a duly authorized officer or, if executed
in facsimile by the Depositary, countersigned by a Registrar in respect of the
Depositary Receipts by a duly authorized officer.

The Corporation is authorized to issue Common Stock, one or more series of
Preferred Stock, one or more series of Equity Stock and Depositary Shares. The
Corporation will furnish without charge to each receiptholder, who so requests
in writing, a statement of the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes of shares and upon the holders
thereof, a copy of the Corporation's Bylaws and a copy of the Deposit Agreement.
Any such request shall be made to the Corporation at the principal office of the
Corporation at 701 Western Avenue, Glendale, California 91201-2397, Attention:
Secretary.

This Depositary Receipt is continued on the reverse hereof and the additional
provisions set forth therein (including, without limitation, those relating to
redemption) for all purposes have the same effect as if set forth at this place.

Dated:
                                                Countersigned

                                                FLEET NATIONAL BANK

                                                Depositary, Transfer Agent and
                                                Registrar

                                                By:
                                                   -----------------------------
                                                      Authorized

Officer

                                       A-2

<PAGE>

                  THE SHARES REPRESENTED BY THIS DEPOSITARY RECEIPT ARE SUBJECT
TO THE PROVISIONS OF THE ARTICLES AND BYLAWS, INCLUDING BUT NOT LIMITED TO (1)
SECTION (C) OF THE CERTIFICATE OF DETERMINATION RELATING TO THE STOCK, WHICH
CONFERS UPON THE BOARD THE RIGHT, ON OR AFTER OCTOBER 31, 2006, TO CALL FOR
REDEMPTION THE STOCK, (2) ARTICLE XI, SECTION 7 OF THE BYLAWS, WHICH CONFERS
UPON THE BOARD THE RIGHT TO REFUSE TO REGISTER THE TRANSFER OF AND/OR TO CALL
FOR REDEMPTION THE SHARES REPRESENTED BY THIS CERTIFICATE IF NECESSARY IN ITS
OPINION TO MAINTAIN THE CORPORATION'S QUALIFICATION AS A "REAL ESTATE INVESTMENT
TRUST" UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND (3) THE
PROVISIONS OF THE ARTICLES AND BYLAWS, WHICH SET FORTH OWNERSHIP LIMITATION
PROVISIONS DESIGNED TO MAINTAIN SUCH QUALIFICATION.

                  1. The Deposit Agreement. Depositary Receipts, of which this
Depositary Receipt is one, are made available upon the terms and conditions set
forth in the Deposit Agreement, dated as of October 31, 2001 (the "Deposit
Agreement"), among the Company, the Depositary and all holders from time to time
of Depositary Receipts. The Deposit Agreement (copies of which are on file at
the principal office maintained by the Depositary which at the time of the
execution of the Deposit Agreement is located at 150 Royall Street, Mail Stop:
45-02-62, Canton, MA 02021 (the "Depositary's Office") and at the office of any
agent of the Depositary) sets forth the rights of holders of Depositary Receipts
and the rights and duties of the Depositary. The statements made on the face and
the reverse of this Depositary Receipt are summaries of certain provisions of
the Deposit Agreement and are subject to the detailed provisions thereof, to
which reference is hereby made. In the event of any conflict between the
provisions of this Depositary Receipt and the provisions of the Deposit
Agreement, the provisions of the Deposit Agreement will govern.

                  2. Definitions. Unless otherwise expressly herein provided,
all defined terms used in this summary of the Deposit Agreement shall have the
meanings ascribed thereto in the Deposit Agreement.

                  3. Redemption of Stock. Whenever the Company shall elect to
redeem shares of Stock, it shall (unless otherwise agreed in writing with the
Depositary) give the Depositary not less than 60 days' notice of the date of
such proposed redemption and of the number of such shares of Stock held by the
Depositary to be so redeemed and the applicable redemption price. The Depositary
shall mail, first-class postage prepaid, notice of the redemption of Stock and
the proposed simultaneous redemption of Depositary Shares representing the Stock
to be redeemed, not less than 30 and not more than 60 days prior to the date
fixed for redemption of such Stock and Depositary Shares, to the record holders
of the Depositary Receipts evidencing the Depositary Shares to be so redeemed,
at the addresses of such holders as the same appear on the records of the
Depositary. Any such notice shall also be published in the same manner as
notices of redemption of the Stock are required to be published by the Company.
On the date of such redemption, the Depositary shall redeem the number of
Depositary Shares representing such redeemed Stock; provided, that the Company
shall then have paid or caused to be paid in full to the Depositary

                                       A-3

<PAGE>

the redemption price of the Stock to be redeemed, plus any accrued and unpaid
dividends payable with respect thereto to the date of any such redemption. In
case fewer than all the outstanding Depositary Shares are to be redeemed, the
Depositary Shares to be redeemed shall be determined pro rata or by lot in a
manner determined by the Board of Directors. Notice having been mailed as
aforesaid, from and after the Redemption Date (unless the Company shall have
failed to provide the funds necessary to redeem the shares of Stock evidenced by
the Depositary Shares called for redemption), dividends on the shares of Stock
so called for redemption shall cease to accrue, the Depositary Shares called for
redemption shall be deemed no longer to be outstanding and all rights of the
holders of Depositary Receipts evidencing such Depositary Shares (except the
right to receive the redemption price) shall, to the extent of such Depositary
Shares, cease and terminate. Upon surrender in accordance with said notice of
the Depositary Receipts evidencing such Depositary Shares (properly endorsed or
assigned for transfer, if the Depositary or applicable law shall so require),
such Depositary Shares shall be redeemed at a redemption price per Depositary
Share equal to the same fraction of the redemption price per share paid with
respect to the shares of Stock as the fraction each Depositary Share represents
of a share of Stock plus the same fraction of all money and other property, if
any, represented by such Depositary Shares, including all amounts paid by the
Company in respect of dividends which on the Redemption Date have accumulated on
the shares of Stock to be so redeemed and have not theretofore been paid. The
foregoing is subject further to the terms and conditions of the Certificate of
Determination. If fewer than all of the Depositary Shares evidenced by this
Depositary Receipt are called for redemption, the Depositary will deliver to the
holder of this Depositary Receipt upon its surrender to the Depositary, together
with the redemption payment, a new Depositary Receipt evidencing the Depositary
Shares evidenced by such prior Depositary Receipt and not called for redemption.

                  4. Surrender of Depositary Receipts and Withdrawal of Stock.
Upon surrender of this Depositary Receipt to the Depositary at the Depositary's
Office or at such other offices as the Depositary may designate, and subject to
the provisions of the Deposit Agreement, the holder hereof is entitled to
withdraw, and to obtain delivery, without unreasonable delay, to or upon the
order of such holder, any or all of the Stock (but only in whole shares of
Stock) and all money and other property, if any, at the time represented by the
Depositary Shares evidenced by this Depositary Receipt; provided, however, that,
in the event this Depositary Receipt shall evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the whole
number of shares of Stock to be withdrawn, the Depositary shall, in addition to
such whole number of shares of Stock and such money and other property, if any,
to be withdrawn, deliver, to or upon the order of such holder, a new Depositary
Receipt or Depositary Receipts evidencing such excess number of whole Depositary
Shares.

                  5. Transfers, Split-ups, Combinations. Subject to the Deposit
Agreement, this Depositary Receipt is transferable on the books of the
Depositary upon surrender of this Depositary Receipt to the Depositary, properly
endorsed or accompanied by a properly executed instrument of transfer, and upon
such transfer

                                       A-4

<PAGE>

the Depositary shall sign and deliver a Depositary Receipt or Depositary
Receipts to or upon the order of the person entitled thereto, all as provided in
and subject to the Deposit Agreement. This Depositary Receipt may be split into
other Depositary Receipts or combined with other Depositary Receipts into one
Depositary Receipt evidencing the same aggregate number of Depositary Shares
evidenced by the Depositary Receipt or Depositary Receipts surrendered;
provided, however, that the Depositary shall not issue any Depositary Receipt
evidencing a fractional Depositary Share.

                  6. Conditions to Signing and Delivery, Transfer, etc., of
Depositary Receipts. Prior to the execution and delivery, registration of
transfer, split-up, combination, surrender or exchange of this Depositary
Receipt, the Depositary, any of the Depositary's Agents or the Company may
require any or all of the following: (i) payment to it of a sum sufficient for
the payment (or, in the event that the Depositary or the Company shall have made
such payment, the reimbursement to it) of any tax or other governmental charge
with respect thereto; (ii) production of proof satisfactory to it as to the
identity and genuineness of any signature; and (iii) compliance with such
reasonable regulations, if any, as the Depositary or the Company may establish
not inconsistent with the Deposit Agreement.

                  7. Suspension of Delivery, Transfer, etc. The deposit of Stock
may be refused, the delivery of this Depositary Receipt against Stock may be
suspended, the registration of transfer of Depositary Receipts may be refused
and the registration of transfer, surrender or exchange of this Depositary
Receipt may be suspended (i) during any period when the register of stockholders
of the Company is closed or (ii) if any such action is deemed necessary or
advisable by the Depositary, any of the Depositary's Agents or the Company at
any time or from time to time because of any requirement of law or of any
government or governmental body or commission, or under any provision of the
Deposit Agreement.

                  8. Amendment. The form of the Depositary Receipts and any
provision of the Deposit Agreement may at any time and from time to time be
amended by agreement between the Company and the Depositary in any respect that
they may deem necessary or desirable; provided, however, that no such amendment
(other than any changes in the fees of any Depositary or Registrar which shall
go into effect not sooner than three months after Notice thereof to the holders
of the Depositary Receipts) which shall materially adversely alter the rights of
holders of Depositary Receipts shall be effective unless such amendment shall
have been approved by at least a majority of the Depositary Shares then
outstanding. The holder of this Depositary Receipt at the time any such
amendment becomes effective shall be deemed, by continuing to hold this
Depositary Receipt, to be bound by the Deposit Agreement as amended thereby. In
no event shall any amendment impair the right of the owner of the Depositary
Shares evidenced by this Depositary Receipt to surrender this Depositary Receipt
with instructions to the Depositary to deliver to the holder the Stock and all
money and other property, if any, represented thereby, except in order to comply
with mandatory provisions of applicable law.

                                       A-5

<PAGE>

                  9. Charges and Expenses. The Company will pay all transfer and
other taxes and governmental charges arising solely from the existence of the
depositary arrangement, except such charges as are expressly provided in the
Deposit Agreement to be at the expense of holders of Depositary Receipts.

                  10. Title to Depositary Receipts. Title to this Depositary
Receipt, when properly endorsed or accompanied by a properly executed instrument
of transfer, is transferable by delivery with the same effect as in the case of
a negotiable instrument; provided, however, that the Depositary may,
notwithstanding any notice to the contrary, treat the record holder hereof at
such time as the absolute owner hereof for the purpose of determining the person
entitled to distribution of dividends or other distributions or to any notice
provided for in the Deposit Agreement and for all other purposes.

                  11. Dividends and Distributions. Whenever the Depositary shall
receive any cash dividend or other cash distribution on the Stock, the
Depositary shall, subject to the provisions of the Deposit Agreement, distribute
to record holders of Depositary Receipts such amounts of such sums as are, as
nearly as practicable, in proportion to the respective numbers of Depositary
Shares evidenced by the Depositary Receipts held by such holders; provided,
however, that in case the Company or the Depositary shall be required by law to
withhold and does withhold from any cash dividend or other cash distribution in
respect of the Stock an amount on account of taxes or as otherwise required by
law, regulation or court process, the amount made available for distribution or
distributed in respect of Depositary Shares shall be reduced accordingly. In the
event that the calculation of any such cash dividend or other cash distribution
to be paid to any record holder on the aggregate number of Depositary Receipts
held by such holder results in an amount which is a fraction of a cent, the
amount the Depositary shall distribute to such record holder shall be rounded to
the next highest whole cent; and upon request of the Depositary, the Company
shall pay the additional amount to the Depositary for distribution.

                  12. Subscription Rights, Preferences or Privileges. If the
Company shall at any time offer or cause to be offered to the persons in whose
name Stock is registered on the books of the Company any rights, preferences or
privileges to subscribe for or to purchase any securities or any rights,
preferences or privileges of any other nature, such rights, preferences or
privileges shall in each such instance, subject to the provisions of the Deposit
Agreement, be made available by the Depositary to the record holders of
Depositary Receipts in such manner as the Depositary shall determine.

                  13. Notice of Dividends, Fixing of Record Date. Whenever (i)
any cash dividend or other cash distribution shall become payable, or any
distribution other than cash shall be made, or any rights, preferences or
privileges shall at any time be offered, with respect to the Stock, or (ii) the
Depositary shall receive notice of any meeting at which holders of Stock are
entitled to vote or of which holders of Stock are entitled to notice or whenever
the Depositary and the Company shall

                                       A-6

<PAGE>

decide it is appropriate, the Depositary shall in each such instance fix a
record date (which shall be the same date as the record date fixed by the
Company with respect to the Stock) for the determination of the holders of
Depositary Receipts (x) who shall be entitled to receive such dividend,
distribution, rights, preferences or privileges or the net proceeds of the sale
thereof, or (y) who shall be entitled to give instructions for the exercise of
voting rights at any such meeting or to receive notice of such meeting or for
any other appropriate reasons.

                  14. Voting Rights. Upon receipt of notice of any meeting at
which the holders of Stock are entitled to vote, the Depositary shall, as soon
as practicable thereafter, mail to the record holders of Depositary Receipts a
notice, which shall contain (i) such information as is contained in such notice
of meeting, (ii) a statement that the holders may, subject to any applicable
restrictions, instruct the Depositary as to the exercise of the voting rights
pertaining to the Stock represented by their respective Depositary Shares, and
(iii) a brief statement as to the manner in which such instructions may be
given. Upon the written request of a holder of this Depositary Receipt on such
record date the Depositary shall use its best efforts to vote or cause to be
voted the Stock represented by the Depositary Shares evidenced by this
Depositary Receipt in accordance with the instructions set forth in such
request. The Company hereby agrees to take all action that may be deemed
necessary by the Depositary in order to enable the Depositary to vote such Stock
or cause such Stock to be voted. In the absence of specific instructions from
the holder of this Depositary Receipt, the Depositary will abstain from voting
to the extent of the Stock represented by the Depositary Shares evidenced by
this Depositary Receipt.

                  15. Reports, Inspection of Transfer Books. The Depositary
shall transmit to the record holders of Depositary Receipts copies of all
reports and communications received from the Company that are received by the
Depositary as the holder of Stock. The Depositary shall keep books at the
Corporate Office for the registration and transfer of Depositary Receipts, which
books at all reasonable times will be open for inspection by the record holders
of Depositary Receipts; provided that any such holder requesting to exercise
such right shall certify to the Depositary that such inspection shall be for a
proper purpose reasonably related to such person's interest as an owner of
Depositary Shares.

                  16. Liability of the Depositary, the Depositary's Agents, the
Registrar and the Company. Neither the Depositary nor any Depositary's Agent nor
the Registrar nor the Company shall incur any liability to any holder of this
Depositary Receipt, if by reason of any provision of any present or future law
or regulation thereunder of any governmental authority or, in the case of the
Depositary, the Registrar or any Depositary's Agent, by reason of any provision
present or future, of the Articles of Incorporation or by reason of any act of
God or war or other circumstances beyond the control of the relevant party, the
Depositary, any Depositary's Agent, the Registrar or the Company shall be
prevented or forbidden from doing or performing any act or thing that the terms
of the Deposit Agreement provide shall be done or performed; nor shall the
Depositary, any Depositary's

                                       A-7

<PAGE>

Agent, the Registrar or the Company incur any liability to any holder of this
Depositary Receipt (i) by reason of any nonperformance or delay, caused as
aforesaid, in the performance of any act or thing that the terms of the Deposit
Agreement provide shall or may be done or performed, or (ii) by reason of any
exercise of, or failure to exercise, any discretion provided for in the Deposit
Agreement except if such exercise or failure to exercise discretion is caused by
its gross negligence or willful misconduct.

                  17. Obligations of the Depositary, the Depositary's Agents,
the Registrar and the Company. Neither the Depositary nor any Depositary's Agent
nor the Registrar nor the Company assumes any obligation or shall be subject to
any liability under the Deposit Agreement or this Depositary Receipt to the
holder hereof or other persons, other than for its gross negligence, willful
misconduct or bad faith.

                  Neither the Depositary nor any Depositary's Agent nor the
Registrar nor the Company shall be under any obligation to appear in, prosecute
or defend any action, suit or other proceeding with respect to Stock, Depositary
Shares or Depositary Receipts or Common Stock that in its opinion may involve it
in expense or liability, unless indemnity satisfactory to it against all expense
and liability be furnished as often as may be required.

                  Neither the Depositary nor any Depositary's Agent nor the
Registrar nor the Company will be liable for any action or failure to act by it
in reliance upon the advice of or information from legal counsel, accountants,
any person presenting Stock for deposit, any holder of this Depositary Receipt
or any other person believed by it in good faith to be competent to give such
advice or information.

                  18. Termination of Deposit Agreement. Whenever so directed by
the Company upon not less than 60 days' prior written notice, the Depositary
will terminate the Deposit Agreement by mailing notice of such termination to
the record holders of all Depositary Receipts then outstanding at least 30 days
after the date of such notice. Upon the termination of the Deposit Agreement,
the Company shall be discharged to all obligations thereunder except for its
obligations to the Depositary, any Depositary's Agent and any Registrar under
Sections 5.6 and 5.7 of the Deposit Agreement.

                  19. Governing Law. The Deposit Agreement and this Depositary
Receipt and all rights thereunder and hereunder and provisions thereof and
hereof shall be governed by, and construed in accordance with, the law of the
State of New York, including without limitation Section 5-1401 of the New York
General Obligations Law.

                                       A-8

<PAGE>

         The following abbreviations, when used in the inscription on the face
of this Depositary Receipt, shall be construed as though they were written out
in full according to applicable laws or regulations:

TEN COM - as tenants in common            UNIF GIFT MIN ACT -____ Custodian ____
TEN ENT - as tenants by the entireties            (Cust)                 (Minor)
JT TEN  - as joint tenants with right             under Uniform Gifts to Minors
             of survivorship and not as           Act ____________
             tenants in common                          (State)

                                 UNIF TRF MIN ACT -___ Custodian (until age ___)
                                                  (Cust)
                                              ___ under Uniform Transfers
                                             (Minor)
                                             to Minors Act _______________
                                                              (State)

    Additional abbreviations may also be used though not in the above list.

                                       A-9

<PAGE>

      For Value Received, ____________________ hereby sell, assign and transfer
unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
         IDENTIFYING NUMBER OF ASSIGNEE

______________________________________
______________________________________
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE

________________________ Depositary Shares represented by the within Depositary
Receipt, and do hereby irrevocably constitute and appoint
________________________ Attorney to transfer the said Depositary Shares on the
books of the within named Depositary with full power of substitution in the
premises.

Dated _______________________________        Signed

                                             ---------------------------------
                                             NOTICE: THE SIGNATURE TO THIS
                                             ASSIGNMENT MUST CORRESPOND WITH THE
                                             NAME AS WRITTEN UPON THE FACE OF
                                             THIS DEPOSITARY RECEIPT IN EVERY
                                             PARTICULAR, WITHOUT ALTERATION OR
                                             ENLARGEMENT OR ANY CHANGE WHATEVER.

SIGNATURE(S) GUARANTEED

By   ______________________________________
      THE SIGNATURE(S) SHOULD BE GUARANTEED
      BY AN ELIGIBLE GUARANTOR INSTITUTION
      (BANKS, STOCKBROKERS, SAVINGS AND LOAN
      ASSOCIATIONS AND CREDIT UNIONS WITH
      MEMBERSHIP IN AN APPROVED SIGNATURE
      GUARANTEE MEDALLION PROGRAM), PURSUANT
      TO S.E.C. RULE 17Ad-15.

                                       A-10<PAGE>

                                                                    Exhibit 10.1

                         SECURITIES PURCHASE AGREEMENT

    This Agreement, dated effective October 2, 2001, is between NORTH AMERICAN
TECHNOLOGIES GROUP, INC., a Delaware corporation (the "Company"), and AVALANCHE
RESOURCES, LTD., a Texas limited partnership (the "Purchaser").

    1.  Sale and Purchase of Common Stock.

        (a) Consideration for Issuance.

            (i) Subject to the terms and conditions of this Agreement, the
Company agrees to issue and sell to Purchaser the Required Number (defined
below) of shares of the Company's common stock, and in exchange for the issuance
to Purchaser of the Required Number of such shares Purchaser agrees to pay the
Company the amount of $500,000.00 (the "Cash Consideration") and to transfer and
assign to the Company 235,294 shares of the common stock of Universal Display
Corporation, a Pennsylvania corporation ("Universal Display") and Warrant
#PP2000-62 (the "Warrant") issued by Universal Display for the purchase of
235,294 shares of the common stock of Universal Display upon the terms and
conditions of the Warrant. The shares of Universal Display common stock to be
transferred and assigned to the Company are referred to in this Agreement as the
"Universal Display Shares." The Universal Display Shares and the Warrant are
referred to collectively in this Agreement as the "Universal Display
Securities." The Required Number of shares of the Company's common stock to be
issued to Purchaser pursuant to this Agreement are referred to in this Agreement
as the "Purchased Shares." The term "Common Stock" means the shares of common
stock of the Company of the par value of $.001 each.

            (ii) The Cash Consideration shall be payable as provided in
Paragraph 6(a). The Universal Display Securities shall be transferred and
assigned to the Company at the Closing (as defined below).

            (iii) The Required Number shall be determined immediately prior to
the issuance of the Purchased Shares from the following formula:

             X = .55 (Outstanding Shares) - 1,000,000
                 ____________________________________
                                 .45

    where:

        "X" equals the Required Number; and
<PAGE>

        "Outstanding Shares" equals: (A) the number of shares of Common Stock
outstanding immediately prior to the issuance of the Purchased Shares; plus (B)
the number of additional shares of Common Stock which would be outstanding if
all shares of capital stock (including all accrued dividends thereon)
convertible or exchangeable into shares of Common Stock and outstanding
immediately prior to the issuance of the Purchased Shares were converted or
exchanged into shares of Common Stock immediately prior to the issuance of the
Purchased Shares; plus (C) the number of additional shares of Common Stock which
would be outstanding if all notes (including all accrued interest thereon)
convertible into shares of Common Stock and outstanding immediately prior to the
issuance of the Purchased Shares were converted into shares of Common Stock
immediately prior to the issuance of the Purchased Shares; plus (D) the number
of additional shares of Common Stock which would be outstanding if all options,
warrants or any other rights to acquire shares of Common Stock and outstanding
immediately prior to the issuance of the Purchased Shares were exercised
immediately prior to the issuance of the Purchased Shares, whether or not such
rights are then exercisable pursuant to the terms of such rights.  For purposes
of computing the Required Number, the number of Outstanding Shares shall be
computed in each instance specified above on the basis that all shares of Common
Stock issuable pursuant to the conversion, exchange, or exercise rights
specified above were issued and outstanding immediately prior to the issuance of
the Purchased Shares.  The parties agree that the Required Number is
approximately 22,000,000. The term "Convertible Notes" means all notes
convertible into shares of Common Stock.  The term "Options" means all
Convertible Notes and all options, warrants or any other rights to acquire
shares of Common Stock.

        (b) Issuance.  The Company agrees to issue the Purchased Shares to
Purchaser within ten days after the Company completes the Required Transactions
(defined below), but in any event not later than January 31, 2002.  The Company
shall be deemed to have issued the Purchased Shares to Purchaser upon the
Company's delivery of instructions to its transfer agent to issue a certificate
to Purchaser for the Purchased Shares provided such certificate is issued to
Purchaser not later than February 28, 2002.  The date the Company delivers such
instructions to the transfer agent after the Company's completion of the
Required Transactions is referred to in this Agreement as the "Issuance Date."

    2.  Loan. At the Closing, Purchaser agrees to loan the principal amount of
$500,000.00 to the Company, which loan (the "Loan") shall be repayable by the
Company pursuant to the terms of the promissory note in the form of that
attached hereto as Exhibit A (the "Note"). The Company agrees to execute the
Note at the Closing.

    3.  Additional Terms of Purchase/Sale.

        (a) Security Documents.  The Company's payment of the Note and the
Company's obligation to issue the Purchased Shares after the Closing shall be
secured by a lien and security interest in all assets of the Company owned at
the Closing or acquired after the Closing pursuant to the Security Agreement in
the form of that attached hereto as Exhibit B (the "Security Agreement").  The
Company shall execute the Security Agreement at the Closing.
<PAGE>

        (b) Proxy.  At the Closing the Company shall deliver or cause to be
delivered to Purchaser a proxy executed by each person listed on the attached
Exhibit C with respect to the shares of voting securities of the Company owned
by such person as set forth on Exhibit C.  Each proxy shall be in the form of
that attached hereto as Exhibit D.

        (c) Directors. At the Closing, the Company shall have taken all action
required under applicable law, its articles of incorporation and bylaws (the
"Governance Documents") and any agreement to which the Company or its assets are
bound (the "Applicable Agreements") to increase the number of directors of the
Company to eleven and to enable Purchaser to elect designees of Purchaser as six
of the eleven directors (the "Purchaser's Designees") at the Closing and
continuing thereafter from time to time until the issuance of the Purchased
Shares.

    4.  Closing. The closing of the purchase and sale of the Purchased Shares
hereunder (the "Closing") shall occur on the full execution of this Agreement.
At the Closing:

        (a) Non-Cash Consideration.  Purchaser shall execute such assignments
or other documents as may be effective to transfer ownership of the Universal
Display Securities to the Company, together with Purchaser's delivery to the
Company of the Warrant and the certificate(s) evidencing the Universal Display
Shares.

        (b) Certification.  Purchaser shall deliver to the Company the
Accredited Investor Certification in the form attached hereto as Exhibit E.

        (c) Loan Funding.  Purchaser shall advance the Company $500,000.00
pursuant to the Loan and the Company shall execute the Note and the Security
Documents.

        (d) Company Acts. The Company shall perform its obligations specified in
Paragraph 3.

        (e) Additional Acts.  The parties shall take such other actions as may
required to effect the closing of the transactions contemplated hereby.

    5.  The Company's Obligations after the Closing.

        (a) Approvals.  Not later than January 31, 2002:

            (i) The Company shall have submitted to and shall have obtained from
all holders of the Company's shares of capital stock and Options all approvals,
consents, agreements and other actions of the holders as may be required for the
Company to effect the "Required Transactions."

            (ii) The Company shall have obtained any other approvals, consents,
agreements and other actions as may be required by applicable law, the
Governance Documents and Applicable Agreements for the Company to effect the
Required Transactions.
<PAGE>

        (b) Required Transactions. The "Required Transactions" are the
following:

            (i) The exchange of each share of preferred stock of the Company,
including all dividends accrued on such shares as of the Issuance Date, into a
new class of preferred stock (the "New Preferred Stock") that has the
designation, preferences, rights and limitations stated in the attached Exhibit
F.

            (ii) The amendment to each Option (except the Convertible Notes) to
provide that the Option is convertible after the Issuance Date into shares of
New Preferred Stock.

            (iii) The agreement of each holder of a Convertible Note amending
the Convertible Note to provide either that (a) the principal and all interest
accrued thereon as of the Issuance Date is convertible into shares of New
Preferred Stock at a price agreed to by Purchaser and the holder of the
Convertible Note, or (b) the maturity date of the Convertible Note is extended
for two years after the maturity date specified in the note and that no payments
of principal or interest shall be due under the note prior to its maturity as
extended.

The Company shall fully perform and complete the Required Transactions not later
than January 31, 2002.

    6.  Purchaser's Obligations after the Closing.

        (a) Payment of Cash Consideration.  Purchaser shall pay the Cash
Consideration to the Company on the Issuance Date.  Such payment may be effected
by Purchaser's cancellation of all amounts owed under the Note.

        (b) Approvals. After the Closing Purchaser shall vote all Common Stock
as to which Purchaser has the right to vote (including Common Stock which is
subject to the proxies specified in Paragraph 3(b)) for the Required
Transactions and shall cause Purchaser's Designees on the Company's board of
directors to approve and authorize the Required Transactions or to not block or
oppose the approval and authorization of the Required Transactions by the other
directors.

    7.  Restrictions on Purchased Shares.

        (a) Restricted Securities.  Upon issuance the Purchased Shares will be
"restricted securities" as that term is defined under Rule 144 of the Securities
Act of 1933, as amended (the "Securities Act"), and, accordingly, may not be
offered for sale or sold or otherwise transferred in a transaction which would
constitute a sale thereof within the meaning of the Securities Act unless: (i)
such security has been registered for sale under the Securities Act and
registered or qualified under applicable state securities laws relating to the
offer and sale of securities; or (ii) exemptions from the registration
requirements of the Securities Act and the registration or qualification
requirements of all such state securities laws are available and the
<PAGE>

Company shall have received an opinion of counsel that the proposed sale or
other disposition of such securities may be effected without registration under
the Securities Act and would not result in any violation of any applicable state
securities laws relating to the registration or qualification of securities for
sale, such counsel and such opinion to be satisfactory to the Company. As
restricted securities, the Purchased Shares will be subject to significant
restrictions upon resale.

        (b) Private Placement.  The parties agree that the Purchased Shares
subject to this Agreement are offered (the "Offering") by the Company as a
private placement transaction pursuant to Section 4(2) of the Securities Act.

    8.  Representations and Warranties of Purchaser. Purchaser represents and
warrants to the Company as follows:

        (a) Organization and Standing of Purchaser. Purchaser is a duly
organized and validly existing limited partnership in good standing under the
laws of Texas with adequate power and authority to conduct the business in which
it is now engaged and has the corporate power and authority to enter into this
Agreement and each of the Exhibits attached hereto, and is duly qualified and
licensed to do business as a foreign limited partnership in such other states or
jurisdictions as is necessary to enable it to carry on its business, except
where failure to do so would not have a material adverse effect on its business.

        (b) Power and Authority.  The execution and delivery of this Agreement
and any Exhibit attached hereto and the transactions contemplated thereby have
been duly authorized by the partners of Purchaser and will not constitute or
result in a breach or default under, or conflict with, any order, ruling or
regulation of any court or other tribunal or of any governmental commission or
agency, or any agreement or other undertaking, to which Purchaser is a party or
by which Purchaser is bound, and, if Purchaser is not an individual, will not
violate any provision of the partnership agreement of Purchaser.  The signatures
on this Agreement and Exhibit E attached hereto are genuine, and the signatory
has been duly authorized to execute the same.  No other act or proceeding on the
part of Purchaser or any partner therein is necessary to authorize this
Agreement or the consummation of the transactions contemplated thereby. When
duly executed and delivered by the parties hereto, this Agreement will
constitute a valid and legally binding obligation of Purchaser enforceable
against it in accordance with its terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency, moratorium, reorganization or other
similar laws and legal and equitable principles limiting or affecting the rights
of creditors generally; and/or (ii) general principles of equity, regardless of
whether considered in a proceeding in equity or at law.

        (c) Accredited Investor.  Purchaser has such knowledge and experience
in business and financial matters such that such Partner is capable of
evaluating the merits and risks of purchasing the Purchased Shares.  Purchaser
is an "accredited investor" as that term is defined in Rule 501 of Regulation D
of the Securities Act and satisfies the suitability standards identified in this
Agreement.
<PAGE>

        (d) Loss of Investment.  Purchaser's overall commitment to investments
which are not readily marketable is not disproportionate to its net worth and
its investment in the Company will not cause such overall commitment to become
excessive.  Purchaser can afford to bear the loss of its entire investment in
the Company and has adequate means of providing for its current needs and has no
need for liquidity in his investment in the Company.

        (e) Special Suitability.  Purchaser satisfies any special suitability
or other applicable requirements applicable to residents or domiciliaries of
Texas.

        (f) Investment Intent.

            (i) Purchaser has been advised that this Offering has not been
registered with, or reviewed by, the Securities and Exchange Commission ("SEC")
because this Offering is intended to be a non-public offering pursuant to
Section 4(2) and Rule 506 of Regulation D of the Securities Act.  Purchaser
represents that the Purchased Shares are being purchased for Purchaser's own
account and not on behalf of any other person, for investment purposes only and
not with a view towards distribution or resale to others.  Purchaser agrees that
Purchaser will not attempt to sell, transfer, assign, pledge or otherwise
dispose of all or any portion of the Purchased Shares unless the Purchased
Shares to be disposed of are registered under the Securities Act or unless in
the opinion of counsel an exemption from such registration is available, such
counsel and such opinion to be satisfactory to the Company.  Purchaser
understands that the Purchased Shares have not been registered under the
Securities Act by reason of a claimed exemption under the provisions of the
Securities Act which depends, in part, upon Purchaser's investment intention;
and

            (ii) the Purchased Shares and any certificates issued in replacement
therefor shall bear the following legend, in addition to any other legend
required by law or otherwise:

     "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
     UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES REPRESENTED
     BY THIS CERTIFICATE HAVE BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT,
     AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE
     TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO
     THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE
     SECURITIES ACT OF 1933, AS AMENDED, OR THE RULES AND REGULATIONS
     THEREUNDER."

        (g) State Securities Laws.  Purchaser understands that no securities
administrator of any state has made any finding or determination relating to the
fairness of this investment and that no securities administrator of any state
has recommended or endorsed, or will recommend or endorse, the offering of the
Purchased Shares.
<PAGE>

        (h) No General Solicitation.  Purchaser acknowledges that no general
solicitation or general advertising (including communications published in any
newspaper, magazine or other broadcast) has been received by it and that no
public solicitation or advertisement with respect to the offering of the
Purchased Shares has been made to it.

        (i) Advice of Tax and Legal Advisors. Purchaser has relied solely upon
the advice of its own tax and legal advisors with respect to the tax and other
legal aspects of this investment.

        (j) Access to Information. Purchaser has had access to all material and
relevant information concerning the Company, its management, financial
condition, capitalization, market information, properties and prospects
necessary to enable Purchaser to make an informed investment decision with
respect to its investment in the Purchased Shares. Purchaser has carefully read
and reviewed, and is familiar with and understands the contents thereof and
hereof, including, without limitation, the risk factors described in this
Agreement. Purchaser acknowledges that it has had the opportunity to ask
questions of and receive answers from, and to obtain additional information
from, representatives of the Company concerning the terms and conditions of the
acquisition of the Purchased Shares and the present and proposed business and
financial condition of the Company, and has had all such questions answered to
its satisfaction and has been supplied all information requested.

        (k) SEC Reports.  Purchaser acknowledges that it has been advised of
the availability of and has carefully reviewed a copy of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2000 and its Quarterly
Report on Form 10-QSB for the three months ended June 30, 2001 (collectively,
the "SEC Reports").

        (l) Universal Display Securities.  Purchaser owns the Universal
Display Securities free from any setoff, claim, restriction, lien, security
interest or encumbrance; that the Universal Display Securities are freely
transferable, Purchaser has been advised that the Universal Display Registration
Statement on Form S-3 filed with the SEC on May 14, 2001 has been declared
effective, and Purchaser has received no notice from Universal Display or
otherwise that sales may not be made thereunder, whether as a result of a black-
out, lock-up or otherwise.

    9.  Understanding of Investment Risks. An investment in the Purchased Shares
should not be made by a purchaser who cannot afford the loss of the entire
consideration paid for the Purchased Shares. Purchaser acknowledges that the
Purchased Shares offered hereby have not been approved or disapproved by the
SEC, or any state securities commissions, nor has the SEC or any state
securities commission passed upon the adequacy or accuracy of this Agreement or
any exhibit hereto. Prior to making an investment in the Purchased Shares,
Purchaser has fully considered, among other things, the business risks discussed
in the Company's SEC Reports.

    10. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchaser as follows:
<PAGE>

        (a) Organization and Standing of the Company.  The Company is a duly
organized and validly existing corporation in good standing under the laws of
Delaware with adequate power and authority to conduct the business in which it
is now engaged and has the corporate power and authority to enter into this
Agreement and perform its obligations under this Agreement, subject, however, to
Paragraph 11.  The Company is duly qualified and licensed to do business as a
foreign corporation in such other states or jurisdictions as is necessary to
enable it to carry on its business, except where failure to do so would not have
a material adverse effect on its business.

        (b) Corporate Power and Authority.  The execution and delivery of this
Agreement and each of the Exhibits attached hereto and the transactions
contemplated thereby have been duly authorized by the Board of Directors of the
Company.  Subject to Paragraph 7, no other corporate act or proceeding on the
part of the Company is  necessary to authorize this Agreement or the
consummation of the transactions contemplated thereby. When duly executed and
delivered by the parties hereto, this Agreement will constitute a valid and
legally binding obligation of the Company enforceable against it in accordance
with its terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization or other similar laws and legal and
equitable principles limiting or affecting the rights of creditors generally;
and/or (ii) general principles of equity, regardless of whether considered in a
proceeding in equity or at law.

        (c) Issuance of Securities.  Upon their issuance and for the
consideration set forth in and in accordance with the terms of this Agreement,
the Purchased Shares shall be duly and validly issued, fully paid and
nonassessable.

        (d) SEC Reports; Absence of Certain Events.  The Company has timely
filed all reports required to be filed with the SEC pursuant to the Securities
Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules promulgated thereunder, and has previously advised Purchaser of the
availability of true and complete copies of such SEC Reports.  Such SEC Reports,
as of their respective dates, complied in all materials respects with the
applicable requirements of the Securities Act and the Exchange Act, as the case
may be, and none of such SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.  Except as set forth in the SEC Reports,
there has not been any fact, event, circumstance or change affecting or relating
to the Company which has had or is reasonably likely to have, individually or in
the aggregate, a material adverse effect on the Company; provided, however, that
a material adverse effect shall not include any adverse effect following the
date of this Agreement which is solely attributable to (i) the announcement or
pendency of the transactions contemplated by this Agreement or (ii) changes in
national economic conditions or industry conditions generally.

        (e) Attached hereto as Schedule 10(e) is a list of the number of
outstanding shares of capital stock of the Company and the debt issued by the
Company which is convertible into shares of capital stock of the Company,
including in each instance the dividends that would
<PAGE>

be in arrears, and unpaid interest that would have accrued, as of December 31,
2001 if the Company did not pay any dividends or interest between the date of
this Agreement and December 31, 2001.

    11. Required Actions. The parties recognize that the Company has not
obtained (but must obtain not later than January 31, 2002) the approvals,
consents, agreements and other actions as may be required for the Company to
effect the Required Transactions pursuant to Paragraph 5.

    12. IMPORTANT CONSIDERATIONS: SUITABILITY STANDARDS - WHO SHOULD INVEST.

        (a) INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK AND
IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED
FOR LIQUIDITY IN THEIR INVESTMENT.  A substantial number of state securities
commissions have established investor suitability standards for the marketing
within their respective jurisdictions of restricted securities. Some have also
established minimum dollar levels for purchases in their states.  The reasons
for these standards appear to be, among others, the relative lack of liquidity
of securities of such programs as compared with other securities investments.
Investment in the Purchased Shares involves a high degree of risk and is
suitable only for persons of substantial financial means who have no need for
liquidity in their investments.

        (b) The Company requires, as a general investor suitability standard,
that Purchaser and the general partner of Purchaser represent in writing: (a) it
is acquiring the Purchased Shares for investment and not with a view to resale
or distribution; (b) it can bear the economic risk of losing its entire
investment; (c) its overall commitment to investments which are not readily
marketable is not disproportionate to its net worth, and an investment in the
Purchased Shares will not cause such overall commitment to become excessive; (d)
it has adequate means of providing for its current needs and has no need for
liquidity in this investment in the Purchased Shares; (e) it has evaluated all
the risks of investment in the Company; and (f) it has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of investing in the Company or is relying on its own purchaser
representative, in making an investment decision.

        (c) The suitability standards referred to above represent minimum
suitability requirements for prospective purchasers and the satisfaction of such
standards by a prospective purchaser does not necessarily mean that the
Purchased Shares is a suitable investment for such purchaser. The Company may,
in circumstances it deems appropriate, modify such requirements. The Company may
also reject subscriptions for whatever reasons, in its sole discretion, it deems
appropriate.

        (d) THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY THE COMPANY DOES
NOT CONSTITUTE A DETERMINATION BY THE COMPANY THAT AN INVESTMENT IN THE COMMON
STOCK IS SUITABLE FOR A PROSPECTIVE
<PAGE>

PURCHASER. THE FINAL DETERMINATION OF THE SUITABILITY OF INVESTMENT IN THE
COMMON STOCK MUST BE MADE BY PURCHASER AND ITS ADVISERS.

    13. Additional Investment Considerations.

        (a) IN MAKING AN INVESTMENT DECISION, PURCHASER MUST RELY ON ITS OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED.  THE PURCHASED SHARES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.  ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

        (b) THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.  THE PURCHASER AND EACH OF THE SHAREHOLDERS
SHOULD BE AWARE THAT IT MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

    14. Post-Closing Funding/Investments.

        (a) Ventures.  For a period of at least one year after the Closing,
the chief executive officer of Purchaser's general partner shall serve as an
executive officer of the Company responsible for the Company's sale or other
disposition of the Universal Display Securities, including any securities
acquired through the exercise of the Warrant, and finding suitable investments
for a venture subsidiary to be created by the Company.  The Company's Board of
Directors will may form an investment committee to approve, price and oversee
any transaction of the venture subsidiary.  The committee will consist of five
members, three members to be designated by Purchaser's Designees and two members
to be designated by directors who are not Purchaser's Designees, and the
subsidiary's investments will be funded with debt or another non-equity type of
funding source.

        (b) Additional Funds. The parties recognize that the Company will need
additional working capital to fund its operations.  After the Closing Purchaser
will attempt to locate additional sources of capital to provide not less than $2
million of additional working capital as needed by the Company.  The working
capital may be provided as cash or third-party debt or a combination of cash or
third-party debt and may be provided by Purchaser or its affiliates directly or
by third parties.  However, Purchaser will have no liability to the Company if
such third-party sources are not located or if Purchaser or its affiliates do
not provide the additional working capital directly.

    15. Registration Rights. The Company agrees as follows:
<PAGE>

        (a) Certain Additional Defined Terms. For the purpose of this Paragraph
15, the following definitions shall apply:

            (i) "Exchange Act" shall mean the Securities Exchange Act of 1934.

            (ii) "Registration Statement" shall mean the Registration Statement
of the Company filed with the SEC pursuant to the provisions of Paragraph 15(b)
of this Agreement which covers the resale of Purchased Shares on an appropriate
form then permitted by the SEC to be used for such registration and the sales
contemplated to be made thereby under the Securities Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to such
Registration Statement, including any pre- and post- effective amendments
thereto, in each case including the prospectus contained therein, all exhibits
thereto and all materials incorporated by reference therein.

            (iii) "Restricted Stock" shall mean the Purchased Shares and any
additional shares of Common Stock or other equity securities of the Company
issued or issuable after the date hereof in respect of any such securities by
way of a stock dividend or stock split, in connection with a combination,
exchange, reorganization, recapitalization or reclassification of Company's
securities, or pursuant to a merger, division, consolidation or other similar
business transaction or combination involving the Company; provided that as to
any particular shares of Restricted Stock, such securities shall cease to
constitute Restricted Stock (A) when a registration statement with respect to
the sale of such securities shall have become effective under the Securities Act
and such securities shall have been disposed of thereunder, or (B) when and to
the extent such securities are permitted to be distributed pursuant to Rule 144
(or any successor provision to such Rule) under the Securities Act or are
otherwise freely transferable to the public without further registration under
the Securities Act.

        (b) Piggyback Registration Rights.

            (i) The Company shall advise Purchaser by written notice prior to
the filing of a Registration Statement under the Securities Act (excluding
registration on Forms S-8, S-4, 10 or any successor forms thereto), covering
securities of the Company to be offered and sold by any holder of securities of
the Company, and shall, upon the request of Purchaser given within five (5)
business days of the notice given by the Company, include in any such
Registration Statement such information as may be required to permit a public
offering of the Restricted Stock purchased hereby. Purchaser shall furnish such
information as may be reasonably requested by the Company in order to include
such Restricted Stock in the Registration Statement. Notwithstanding the
foregoing, the Company may withdraw any registration statement referred to in
this Paragraph 15(b) without thereby incurring liability to the holders of the
Restricted Stock.

            (ii) Notwithstanding anything to the contrary contained herein, the
Company's obligation in this Paragraph 15(b) shall extend only to the inclusion
of the Restricted Stock in a Registration Statement filed under the Securities
Act.  The Company shall have no obligation to assure the terms and conditions of
distribution, to obtain a commitment from an
<PAGE>

underwriter relative to the sale of the Restricted Stock or to otherwise assume
any responsibility for the manner, price or terms of the distribution of the
Restricted Stock. Furthermore, the Company shall not be restricted in any manner
from including within the Registration Statement or the distribution, issuance
or resale of any of its or any other securities.

            (iii)  Notwithstanding anything to the contrary contained herein, if
the offer of shares on a Registration Statement on which the Purchaser proposes
to register Restricted Stock is an underwritten registration and the managing
underwriters advise the Company in writing that in their reasonable opinion the
amount of Restricted Stock requested to be included in such registration exceeds
the amount which can be sold in an orderly manner in such offering within a
price range acceptable to the holder causing the registration statement to be
filed, the Company shall include in such registration (i) first, the shares
owned by the holder of common stock causing the Registration Statement to be
filed proposes to sell, and (ii) second, the Restricted Stock requested to be
included in such registration, up to the amount permitted by the managing
underwriter.

        (c) Registration Procedures.  Whenever it is obligated to register any
Restricted Stock pursuant to this Agreement, the Company shall:

            (i) prepare and file with the Commission a Registration Statement
with respect to the Restricted Stock in the manner set forth in Paragraph 15(b)
hereof and use its best efforts to cause such Registration Statement to become
effective as promptly as possible and to remain effective for that period
identified in Paragraph 15(c)(vii) hereafter;

            (ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
the period specified in Paragraph 15(c)(vii) below and to comply with the
provisions of the Securities Act with respect to the disposition of all
Restricted Stock covered by such Registration Statement in accordance with the
intended method of disposition set forth in such Registration Statement for such
period;

            (iii)  furnish to Purchaser and to each underwriter, if any, such
number of copies of the Registration Statement and the prospectus included
therein (including each preliminary prospectus), as such person may reasonably
request in order to facilitate the public sale or other disposition of the
Restricted Stock covered by such Registration Statement;

            (iv) use its best efforts to register or qualify the Restricted
Stock covered by such Registration Statement under the securities or blue sky
laws of such jurisdictions as Purchaser, or, in the case of an underwritten
public offering, the managing underwriter shall reasonably request; provided,
however, that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in any
such jurisdiction;

            (v) immediately notify Purchaser and each underwriter, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the
<PAGE>

happening of any event as a result of which the prospectus contained in such
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required or necessary to be
stated therein in order to make the statements contained therein not misleading
in light of the circumstances under which they were made; and

            (vi) make available for inspection by Purchaser, any underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney, accountant or other agent retained by Purchaser or underwriter,
all financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company's officers, directors and employees to supply
all information reasonably requested by Purchaser, underwriter, attorney,
accountant or agent in connection with such Registration Statement;

            (vii)  for purposes of Paragraphs 15(c)(i) and 15(c)(ii) above, the
period of distribution of Restricted Stock shall be deemed to extend until the
earlier of: (A) in an underwritten public offering of all of the Restricted
Stock, the period in which each underwriter has completed the distribution of
all securities purchased by it; (B) in any other registration, the earlier of
the period in which all shares of Restricted Stock covered thereby shall have
been sold or two (2) years from the effective date of the first Registration
Statement filed by the Company with the SEC pursuant to this Agreement;

            (viii) if the Purchased Shares are listed on any securities exchange
or automated quotation system, the Company shall use its best efforts to list
(with the listing application being made at the time of the filing of such
Registration Statement or as soon thereafter as is reasonably practicable) the
Restricted Stock covered by such Registration Statement on such exchange or
automated quotation system;

            (ix) enter into normal and customary underwriting arrangements or an
underwriting agreement and take all other reasonable and customary actions if
Purchaser sell their shares of Restricted Stock pursuant to an underwriting
(however, in no event shall the Company, in connection with such underwriting,
be required to undertake any special audit of a fiscal period in which an audit
is normally not required);

            (x) notify Purchaser of any threat by the SEC or state securities
commission to undertake a stop order with respect to sales under the
Registration Statement; and

            (xi) cooperate in the timely removal of any restrictive legends from
the shares of Restricted Stock in connection with the resale of such shares
covered by an effective Registration Statement.

        (d) Expenses.

            (i) For the purposes of this Paragraph 15(d), the term "Registration
Expenses" shall mean: all expenses incurred by the Company in complying with
Paragraph 15(b) of this Agreement, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the
<PAGE>

Company, "blue sky" fees, fees of the National Association of Securities
Dealers, Inc. ("NASD"), fees and expenses of listing shares of Restricted Stock
on any securities exchange or automated quotation system on which the Company's
shares are listed and fees of transfer agents and registrars. The term "Selling
Expenses" shall mean: all underwriting discounts and selling commissions
applicable to the sale of Restricted Stock and all accountable or non-
accountable expenses paid to any underwriter in respect of the sale of
Restricted Stock.

            (ii) Except as otherwise provided herein, the Company will pay all
Registration Expenses in connection with the Registration Statements filed
pursuant to Paragraph 15(b) of this Agreement.  All Selling Expenses in
connection with any Registration Statements filed pursuant to Paragraph 15(b) of
this Agreement shall be borne by the participating holders of Restricted Stock
either solely or, if applicable, in proportion to the number of shares sold by
each selling stockholder whose Shares are covered by such registration
statement, or by such persons other than the Company (except to the extent the
Company may be a seller) as they may agree.

        (e) Obligations of Purchaser.

            (i) In connection with each registration hereunder, Purchaser,
should it elect to participate in resales under such registration, will furnish
to the Company in writing such information with respect to Purchaser and the
securities held by Purchaser, and the proposed distribution by it as shall be
reasonably requested by the Company in order to assure compliance with federal
and applicable state securities laws, as a condition precedent to including
Purchaser's Restricted Stock in the Registration Statement. Purchaser also shall
promptly notify the Company of any changes in such information included in the
Registration Statement or prospectus as a result of which there is an untrue
statement of material fact or an omission to state any material fact required or
necessary to be stated therein in order to make the statements contained therein
not misleading in light of the circumstances then existing.

            (ii) In connection with each registration pursuant to this
Agreement, Purchaser agrees that it will not effect sales of any Restricted
Stock until notified by the Company of the effectiveness of the Registration
Statement, and thereafter will suspend such sales after receipt of telegraphic
or written notice from the Company to suspend sales to permit the Company to
correct or update a Registration Statement or prospectus. At the end of any
period during which the Company is obligated to keep a Registration Statement
current, Purchaser shall discontinue sales of Restricted Stock pursuant to such
Registration Statement upon receipt of notice from the Company of its intention
to remove from registration the Restricted Stock covered by such Registration
Statement which remain unsold, and Purchaser shall notify the Company of the
number of shares registered which remain unsold immediately upon receipt of such
notice from the Company.

        (f) Information Blackout, Holdbacks and Lock-Ups.

            (i) At any time when a Registration Statement effected pursuant to
Paragraph 15(b) relating to Restricted Stock is effective, upon written notice
from the Company to Purchaser that the Company has determined in good faith that
the sale of Restricted Stock
<PAGE>

pursuant to the Registration Statement would require disclosure of non-public
material information, Purchaser shall suspend sales of Restricted Stock pursuant
to such Registration Statement until such time as the Company notifies Purchaser
that such material information has been disclosed to the public or has ceased to
be material or that sales pursuant to such Registration Statement may otherwise
be resumed.

            (ii) Notwithstanding any other provision of this Agreement,
Purchaser shall not effect any public sale or distribution (including sales
pursuant to Rule 144), if and when available, of equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, during the thirty (30) days prior to the commencement of any
primary offering to be undertaken by the Company of shares of its unissued
common stock (the "Primary Offering"), which may also include other securities,
and ending 120 days after completion of any such Primary Offering, unless the
Company, in the case of a non-underwritten Primary Offering, or the managing
underwriter, in the case of an underwritten Primary Offering, otherwise agree.

        (g) Indemnification.

            (i) The Company agrees to indemnify, to the extent permitted by law,
Purchaser, its partners and each Person who controls Purchaser (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses caused by any untrue statement of material fact contained in any
Registration Statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
furnished to the Company by or on behalf of Purchaser for use therein or by
Purchaser's failure to deliver a copy of the Registration Statement or
prospectus or any amendments or supplements thereto after the Company has
furnished Purchaser with a sufficient number of copies of the same.

            (ii) In connection with any Registration Statement in which
Purchaser is participating, Purchaser shall furnish to the Company in writing
such information and affidavits as the Company reasonably requests for use in
connection with any such Registration Statement or prospectus and, to the extent
permitted by law, shall indemnify the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from:
(i) any untrue or alleged untrue statement of material fact contained in the
Registration Statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (but only to the extent that such untrue statement or omission
is contained in any information or affidavit so furnished by Purchaser); or (ii)
any disposition of the Restricted Stock in a manner that fails to comply with
the permitted methods of distribution identified within the Registration
Statement.

            (iii) Any person entitled to indemnification hereunder shall (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks
<PAGE>

indemnification (provided that the failure to give prompt notice shall not
impair any Person's right to indemnification hereunder to the extent such
failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.

            (iv) The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and shall survive the transfer of securities.  The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.

    16. Notices. All notices, requests, consents or other communications
required or permitted hereunder shall be in writing and shall be hand delivered
or mailed first class postage prepaid, registered or certified mail, or sent by
a nationally recognized overnight courier such as federal express, to the
following addresses:

               If to the Company:

               NORTH AMERICAN TECHNOLOGIES GROUP, INC.
               14315 W. Hardy Road
               Houston, TX  77060
               Attention:   Henry W. Sullivan
                            President and Chief Executive
               Telephone:   281-847-0029
               Facsimile:   281-847-1791

               With a copy to:
               John F. Reilly, Esquire
               Buchanan Ingersoll Professional Corporation
               Eleven Penn Center
               1835 Market Street, 14th Floor
               Philadelphia, PA  19103
               Telephone:   215-665-3879
               Facsimile:   215-665-8760

<PAGE>

               If to Purchaser:

               AVALANCHE RESOURCES, LTD.
               P.O. Box 140978
               Dallas, Texas 75214
               Attention:   Kevin Maddox
               Telephone:   214-673-6980

               With a copy to:
               John O. Langdon
               Goins, Underkofler, Crawford & Langdon, LLP
               1601 Elm Street, Suite 3300
               Dallas, Texas 75201
               Telephone:   214-969-5454
               Facsimile:   214.969.5902

Unless specified otherwise, such notices and other communications shall for all
purposes of this Agreement be treated as being effective upon being delivered
personally or, if sent by mail, five days after the same has been deposited in a
regularly maintained receptacle for the deposit of United States mail, addressed
as set forth above, and postage prepaid or, if sent by a nationally recognized
overnight courier, on the next business day after the date of mailing, addressed
as set forth above.

    17. Survival. The representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Closing.

    18. Parties in Interest. This Agreement, including the representations,
warranties and agreements of each party in this Agreement, shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.

    19. Attorneys Fees. The prevailing party in any suit brought to enforce or
interpret this Agreement shall be entitled to recover a reasonable attorneys fee
and necessary disbursements in addition to any other relief awarded.

    20. Entire Agreement. This Agreement, and any other documents executed
contemporaneously herewith, constitute the entire agreement between the parties,
and supersede any prior agreement and understanding, relating to the subject
matter of this Agreement. There are no unwritten oral representations,
warranties, agreements or understandings between the parties.

    21. Headings. The headings in this Agreement are for reference purposes only
and shall not be considered in any construction or interpretation of this
Agreement.

    22. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Texas.
<PAGE>

    23. Counterpart and Facsimile Signatures. This Agreement may be signed in
counterparts and all counterparts together shall become effective only when the
counterpart(s) have been executed and delivered by and on behalf of the Company
and Purchaser. Facsimile signatures to this Agreement shall be deemed to be
original signatures.

                                   NORTH AMERICAN TECHNOLOGIES GROUP, INC.

                                   By:  /s/  Henry W. Sullivan
                                        --------------------------------------
                                        Henry W. Sullivan, President and Chief
                                        Executive Officer

                                   AVALANCHE RESOURCES, LTD.

                                   By:  AVALANCHE MANAGEMENT CORPORATION,
                                        General Partner

                                   By:  /s/ Kevin Maddox
                                        --------------------------------------
                                        Kevin Maddox, President
<PAGE>

                                   EXHIBIT A

                                     NOTE
                        (Secured by Security Agreement)

Date: October 2, 2001

Maker: North American Technologies Group, Inc., a Delaware corporation

       MAKER'S MAILING ADDRESS:    14315 W. HARDY ROAD
                                    Houston, TX  77060

Payee: Avalanche Resources, Ltd., a Texas limited partnership

Place for Payment (including county):   1601 Elm Street, Suite 3300
                                        Dallas, Texas  75201
                                        Dallas County

Principal Amount:  $500,000.00

Annual Interest Rate on Unpaid Principal from Date:  Zero

Annual Interest Rate on Matured, Unpaid Amounts:  12%

Terms of Payment:

    Concurrently with Maker's execution of this note Maker and Payee have
executed a Securities Purchase Agreement relating to Payee's purchase of the
Purchased Shares (as defined in the Securities Purchase Agreement) from Maker.

    The principal of this note is payable on January 31, 2002.  Maker may
pay this note prior to January 31, 2002 only if Maker concurrently with such
prepayment issues the Purchased Shares to Payee pursuant to the Securities
Purchase Agreement.  This note may also be cancelled in accordance with Section
6(a) of the Securities Purchase Agreement.

    Maker promises to pay to the order of Payee at the place for payment
and according to the terms of payment the principal amount plus interest at the
rates stated above. All unpaid amounts shall be due by January 31, 2002.

Security for Payment

    A Security Interest Created and Granted in the following Security Agreement:

    Date:  October 2, 2001
<PAGE>

    Debtor:  Maker

    Secured Party:  Payee

    Collateral:  As set forth in the Security Agreement

Additional Provisions:

    If Maker defaults in the payment of this note or in the performance of any
obligation in any instrument securing or collateral to it, then Payee may
declare the unpaid principal balance and earned interest on this note
immediately due. Maker and each surety, endorser, and guarantor waive all
demands for payment, presentations for payment, notices of intention to
accelerate maturity, notices of acceleration of maturity, protests, and notices
of protest, to the extent permitted by law.

    If this note or any instrument securing or collateral to it is given to an
attorney for collection or enforcement, or if suit is brought for collection or
enforcement, or if it is collected or enforced through probate, bankruptcy, or
other judicial proceeding, then Maker shall pay Payee all costs of collection
and enforcement, including reasonable attorneys fees and court costs, in
addition to other amounts due. Reasonable attorneys fees shall be 5% of all
amounts due unless either party pleads otherwise.

    Interest on the debt evidenced by this note shall not exceed the maximum
amount of nonusurious interest that may be contracted for, taken, reserved,
charged or received under law; any interest in excess of that maximum amount
shall be credited on the principal of the debt or, if that has been paid,
refunded. On any acceleration or required or permitted prepayment, any such
excess shall be canceled automatically as of the acceleration or prepayment or,
if already paid, credited on the principal of the debt or, if the principal of
the debt has been paid, refunded. This provision overrides other provisions in
this and all other instruments concerning the debt.

    This note shall be governed and construed in accordance with the laws of
Texas.

    When the context requires, singular nouns and pronouns include the plural.

                                        NORTH AMERICAN TECHNOLOGIES GROUP, INC.

                                        By:___________________________________
                                           Henry W. Sullivan, President and
                                           Chief Executive Officer
<PAGE>

                                   EXHIBIT B

                               SECURITY AGREEMENT

    1.  Date.   October 2, 2001

    2.  Parties.

        (a) Secured Party:   Avalanche Resources, Ltd.
                             P. O. Box 140978
                             Dallas, TX 75214

        (b) Debtor:          North American Technologies Group, Inc.
                             14315 W. HARDY ROAD
                             Houston, TX  77060

    3.  Security Interest. Subject to the applicable terms of this agreement,
debtor assigns and grants to secured party a security interest and lien in the
collateral to secure the payment and the performance of the obligation.

    4.  Obligation. The following obligations (obligation) are secured by this
agreement:

        (a) Debts.  (i) The indebtedness of debtor to secured party evidenced
by the promissory note dated on the date of this agreement executed by debtor
payable to the order of secured party in the original principal amount of
$500,000.00.  (ii) All debt, obligations, liabilities and agreements of debtor
to secured party set forth in or arising from the Securities Purchase Agreement
dated on the date of this agreement and between debtor and secured party.  (iii)
All renewals, extensions or rearrangements of any of the above.

        (b) Costs.  All costs incurred by secured party to obtain, preserve,
perfect and enforce this security agreement and security interest, collect the
obligation, and maintain, preserve, collect and enforce the collateral,
including but not limited to taxes, assessments, insurance premiums repairs,
reasonable attorney's fees and legal expenses incurred in connection with the
preservation and enforcement of this security agreement and security interest,
rent, storage costs and expenses of sale.

    5. Collateral. The security interest is granted in the following
(collateral): All accounts, inventory, equipment, documents, chattel paper,
instruments, general intangibles, investment property, and any other property of
debtor of every type, kind and description, whether now owned or hereafter
acquired, including the Universal Display Securities and Warrant (as defined in
the Securities Purchase Agreement) and all proceeds thereof, including but not
limited to all insurance proceeds of the foregoing.
<PAGE>

    6.  Debtor's Representations.

        (a) Ownership.  Debtor owns, or will use the proceeds of any loans by
secured party to become the owner of, the collateral.

        (b) Intentionally left blank.

        (c) Claims.  All account debtors and other obligors whose debts or
obligations are part of the collateral have no right to setoffs, counterclaims
or adjustments, and no defense in connection therewith.

        (d) Financial Statements.  All balance sheets, earnings statements and
other financial data which have been or hereafter may be furnished to secured
party to induce it to permit the obligation or to make this agreement or in
conjunction herewith truly represent or shall truly represent the financial
condition and operations of debtor as of the dates and for the periods shown
thereon; and all other information, reports, papers and data furnished to
secured party are or shall be, at the time furnished, accurate and correct in
all respects and complete insofar as necessary to give secured party a true and
accurate knowledge of the subject matter.

        (e) Power and Authority. Debtor has full power and authority to make
this agreement.

    7.  Debtor's Covenants.

        (a) Obligation/This Agreement.  Debtor shall perform promptly all of
its agreements herein and in any other agreements between it and secured party.

        (b) Ownership.  At the time debtor grants to secured party a security
interest in any collateral, debtor shall be the absolute owner thereof and shall
have the right to grant such security interest. Debtor shall defend the
collateral against all claims and demands of all persons at any time claiming
any interest therein adverse to secured party other than claims arising from
liens or interests created prior to the date of this agreement, to which Secured
Party's security interest shall be subject. Debtor shall keep the collateral
free from all liens and security interests created following the date hereof
except for taxes not yet due and this security interest.

        (c) Insurance. Debtor shall insure the collateral with companies
acceptable to secured party against such casualties and in such amounts as
secured party shall require. All insurance policies shall be written for the
benefit of debtor and secured party as their interests may appear, or in other
form satisfactory to secured party, and such policies or certificates evidencing
the same shall be furnished to secured party. All policies of insurance shall
provide for written notice to secured party at least l0 days prior to
cancellation. Risk of loss or damage is debtor's to the extent of any deficiency
in any effective insurance coverage.
<PAGE>

        (d) Maintenance. Debtor shall keep all collateral which constitutes
goods in good condition and repair.

        (e) Costs. Debtor shall pay all costs necessary to obtain, preserve,
perfect, defend and enforce this security interest, collect the obligation, and
preserve, defend, enforce and collect the collateral, including but not limited
to taxes, assessments, insurance premiums, repairs, reasonable attorney's fees
for the preservation, defense and enforcement of this security interest, rent,
storage costs and expenses of sales.  Whether collateral is or is not in secured
party's possession, and without any obligation to do so and without waiving
debtor's default for failure to make any such payment, secured party at its
option may pay any such costs and expenses, discharge encumbrances on
collateral, and pay for insurance of collateral and such payment shall be a part
of the obligation.  Debtor agrees to reimburse secured party on demand for any
reasonable costs so incurred.

        (f) Information/Inspection. Debtor shall (i) furnish secured party
upon request any financial statements of debtor or reports to debtor by
accountants or others pertaining to debtor's business as soon as available, and
any information with respect to collateral requested by secured party; (ii)
allow secured party to inspect the collateral, at any time and wherever located,
and to inspect and copy, or furnish secured party with copies of, all records
relating to collateral and the obligation; (iii) furnish secured party such
information as secured party may request to identify inventory, accounts and
general intangibles in collateral, at the time and in the form requested by
secured party; and (iv) deliver upon request to secured party shipping and
delivery receipts evidencing the shipment of goods and invoices evidencing the
receipt of, and the payment for, inventory in collateral.

        (g) Additional Documents.  Debtor shall sign any papers furnished by
secured party and take any other actions which are necessary in the judgment of
secured party to obtain, maintain and perfect this security interest.

        (h) Parties Liable.  Debtor will preserve the liability of all
obligors on any collateral, will preserve the priority of all security therefor,
and upon secured party's request will deliver to secured party the original
certificates of title on all motor vehicles securing the collateral.  Secured
party shall have no duty to preserve such liability or security, but may do so
at the expense of debtor, without waiving debtor's default.

        (i) Modification. Without the written consent of secured party, debtor
shall not agree to any modification of any of the terms of any accounts,
contracts, chattel paper, general intangibles or instruments in collateral.

        (j) Debtor Notification.  At any time following a default hereunder or
under the note secured party may notify persons obligated on any collateral to
make payments directly to secured party and secured party may take control of
all proceeds of any collateral. Until secured party elects to exercise such
rights, debtor, as agent of secured party, shall collect and enforce all
payments owed on collateral.
<PAGE>

        (k) Receipts/Rejected Goods. Upon secured party's demand following a
default hereunder or under the note, debtor will deposit, upon receipt and in
the form received, with any necessary indorsement, all payments received as
proceeds of collateral, in a special bank account in a bank of secured party's
choice over which secured party alone shall have power of withdrawal.  The funds
in said account shall secure the obligation.  Secured party is authorized to
make any indorsement in debtor's name and behalf. Pending such deposit, debtor
shall not mingle any such payments with any of debtor's other funds or property,
but will hold them separate and upon an express trust for secured party.
Secured party may from time to time apply the whole or any part of the funds in
the special account against the obligation.

        (l) Records.  Debtor at all times will maintain accurate books and
records covering the collateral. Debtor immediately will mark all books and
records with an entry showing the assignment of all accounts in collateral to
secured party and secured party is hereby given the right to audit the books and
records of debtor relating to collateral at any time and from time to time.

        (m) Disposition.  If disposition of any collateral gives rise to an
account, chattel paper or instrument, debtor immediately shall notify secured
party, and upon request of secured party shall assign or indorse the same to
secured party.  No collateral may be sold, leased, manufactured, processed or
otherwise disposed of by debtor in any manner without the prior written consent
of secured party, except inventory sold, leased, manufactured, processed or
consumed in the ordinary course of business.

        (n) Accounts.  Each account in collateral will represent the valid and
legally enforceable obligation of third parties.

        (o) Location.  Debtor shall give secured party written notice of each
office of debtor in which records of debtor pertaining to accounts in collateral
are kept, and of any change of any such location. If no such notice is given,
all records of debtor pertaining to accounts and all inventory are and shall be
kept at debtor's address shown above.

        (p) Changes.  Debtor will notify secured party immediately of any
material change in the collateral, of a change in any manner warranted or
represented by debtor in this agreement or furnished to secured party, and of
any event of default.

        (q) Use/Removal.  Debtor will not use the collateral illegally or
permit the collateral to be affixed to real or personal property without the
written consent of secured party.  Debtor will keep all collateral at debtor's
address shown above.

        (r) Possession.  If the collateral is chattel paper, documents,
instruments or investment securities or other instruments, secured party may
deliver a copy of this agreement to the broker or seller thereof, or any person
in possession thereof, and such delivery shall constitute notice to such person
of secured party's security interest therein and shall constitute debtor s
instruction to such person to deliver to secured party certificates or other
evidence of the same as soon as available.  Debtor will deliver all investment
securities and other instruments, documents
<PAGE>

and chattel paper which are part of the collateral and in debtor's possession to
the secured party immediately, or if hereafter acquired, immediately following
acquisition, appropriately indorsed to secured party's order or with appropriate
executed powers. Debtor waives presentment, demand, notice of dishonor, protest,
and all other notices with respect thereof.

        (s) Chattel Paper.  Debtor has perfected or will perfect a security
interest by means satisfactory to secured party in goods covered by chattel
paper in collateral.

        (t) Intentionally left blank.

        (u) Change of Name. Without the written consent of secured party, debtor
shall not change its name or the state of its incorporation.

        (v) Power of Attorney. Debtor appoints secured party debtor's
attorney-in-fact with full power in debtor's name and behalf to do every act
which debtor is obligated to do or may be required to do hereunder; however,
nothing in this paragraph shall be construed to obligate secured party to take
any action hereunder.

        (w) Waivers.  Debtor waives notice of the creation, advance, increase,
existence, extension or renewal of, and of any indulgence with respect to, the
obligation; waives presentment, demand, notice of dishonor, and protest; waives
notice of the amount of the obligation outstanding at any time, notice of any
change in financial condition of any person liable for the obligation or any
part thereof, and all other notices respecting the obligation; and agrees that
maturity of the obligation and any part thereof may be accelerated, extended or
renewed one or more times by secured party in its discretion, without notice to
debtor.

        (x) Other Parties/Collateral.  No renewal or extension of or any other
indulgence with respect to the obligation or any part thereof, no release of any
security, no release of any person (including any maker, indorser, guarantor or
surety) liable on the obligation, no delay in enforcement of payment, and no
delay or omission or lack of diligence or care in exercising any right or power
with respect to the obligation or any security therefor or guaranty thereof or
under this agreement shall in any manner impair or affect the rights of secured
party under the law, hereunder, or under any other agreement pertaining to the
collateral. Secured party need not file suit or assert a claim for personal
judgment against any person for any part of the obligation or seek to realize
upon any other security for the obligation before foreclosing upon the
collateral for the purpose of paying the obligation.  Debtor waives any right to
the benefit of or to require or control application of any other security or
proceeds thereof, and agrees that secured party shall have no duty or obligation
to debtor to apply to the obligation any such other security or proceeds
thereof.

    8.  Rights and Powers of Secured Party.

        (a) General.  Secured party before or after default and without
liability to debtor may: obtain from any person information regarding debtor or
debtor's business, which information any such person also may furnish without
liability to debtor; require debtor to give
<PAGE>

possession or control of any collateral to secured party; indorse as debtor's
agent any instruments, documents or chattel paper in collateral or representing
proceeds of collateral; contact account debtors directly to verify information
furnished by debtor; release collateral in its possession to any debtor,
temporarily or otherwise; reject as unsatisfactory any property hereafter
offered by debtor as collateral; set standards from time to time to govern what
may be used as after acquired collateral, designate, from time to time, a
certain percent of the collateral as the loan value and require debtor to
maintain the obligation at or below such figure; take control of funds generated
by the collateral and use same to reduce any part of the obligation. Secured
party shall not be liable for failure to collect any account or instrument, or
for any act or omission on the part of the secured party, its officers, agents
or employees, except willful misconduct. The foregoing rights and powers of
secured party will be in addition to, and not a limitation upon, any rights and
powers of secured party given by law, elsewhere in this agreement, or otherwise.

        (b) Convertible Securities.  Secured party may present for conversion
any instrument or investment security in collateral which is convertible into
any other instrument or investment or a combination thereof and cash, but
secured party shall not have any duty to present for conversion any instrument
in collateral unless it shall have received from debtor detailed written
instructions to that effect at a time reasonably far in advance of the final
conversion date to make such conversion possible.

    9.  Default.

        (a) Events of Default. The following are events of default hereunder:

            (i) default in the timely payment or the performance of any part of
the obligation or in performance or observance of the terms and conditions
herein;

            (ii) any warranty, representation or statement made or furnished to
secured party herein, heretofore, or hereafter proves to have been false in any
material respect when made or furnished;

            (iii) acceleration of the maturity of debt of debtor to any other
person;

            (iv) substantial change in any fact warranted or represented in this
agreement or in any other agreement between debtor and secured party or in any
statement, schedule, or other writing furnished in connection therewith;

            (v) loss, theft, destruction or encumbrance or sale or transfer of
any collateral in violation hereof, or substantial damage to any collateral;

            (vi) dissolution, merger or consolidation, termination of existence,
insolvency or business failure of debtor; commencement of proceedings for the
appointment of a receiver for any property of debtor, or commission of an act of
bankruptcy by debtor; commencement of any proceeding under any bankruptcy or
insolvency law by or against debtor (or any corporate action shall be taken to
effect same), or any partnership of which debtor is a
<PAGE>

partner or by or against any person liable upon the obligation or any part
thereof, or liable upon collateral;

            (vii) levy on, seizure or attachment of any property of debtor; or

            (viii) a judgment against debtor becomes final.

        (b) Remedies.  When an event of default occurs, and at any time
thereafter, secured party without notice or demand may declare the obligation in
whole or in part immediately due and may enforce payment of the same and
exercise any rights under the UCC, rights and remedies of secured party under
this agreement, or otherwise.  Secured party may require debtor to assemble the
collateral and make it available to secured party at a place which is reasonably
convenient to both parties.  Unless the collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, secured party will give debtor reasonable notice of the time and place
of any public sale thereof or of the time after which any private sale or other
intended disposition thereof is to be made.  Expenses of retaking, holding,
preparing for sale, selling, leasing or the like shall include secured party's
reasonable attorney's fees.  Secured party shall be entitled to immediate
possession of all books and records evidencing any accounts or general
intangibles or pertaining to chattel paper covered by this agreement and shall
have the authority to enter upon any premises upon which any of the same, or any
collateral, may be situated and to remove the same therefrom without liability.
Secured party may surrender any insurance policies in collateral and receive the
unearned premium thereon.  Debtor shall be entitled to any surplus and shall be
liable to secured party for any deficiency.  The proceeds of any disposition
after default available to satisfy the obligation shall be applied to the
obligation in such order and in such manner as secured party in its discretion
shall decide.  If, in the opinion of secured party, there is any question that a
public sale or distribution of any collateral will violate any state or federal
securities law, secured party (i) may offer and sell securities privately to
purchasers who will agree to take them for investment purposes and not with a
view to distribution and who will agree to imposition of restrictive legends on
the certificates representing the security, or (ii) may sell such securities in
an intrastate offering under Section 3(a)(11) of the Securities Act of 1933, and
any sale so made in good faith by secured party shall be deemed to be
"commercially reasonable."

    10. General.

        (a) Parties Bound.  Secured party's rights hereunder shall inure to
the benefit of its successors and assigns, and in the event of any assignment or
transfer of any of the obligation or the collateral, secured party thereafter
shall be fully discharged from any responsibility with respect to the collateral
so assigned or transferred, but secured party shall retain all rights and powers
hereby given with respect to any of the obligation or collateral not so assigned
or transferred.  All representations, warranties and agreements of debtor if
more than one are joint and several, and all shall be binding upon the personal
representatives, heirs, successors and assigns of debtor.
<PAGE>

        (b) Waiver. No delay of secured party in exercising any power or right
shall operate as a waiver thereof; nor shall any single or partial exercise of
any power or right preclude other or further exercise thereof or the exercise of
any other power or right.  No waiver by secured party of any right hereunder or
of any default by debtor shall be binding upon secured party unless in writing,
and no failure by secured party to exercise any power or right hereunder or
waiver of any default by debtor shall operate as a waiver of any other or
further exercise of such right or power or of any further default.

        (c) Agreement Continuing. This agreement shall constitute a continuing
agreement, applying to all future as well as existing transactions, whether or
not of the character contemplated at the date of this agreement, and if all
transactions between secured party and debtor shall be closed at any time shall
be equally applicable to any new transactions thereafter. Provisions of this
agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties.

        (d) Definitions.  Unless the context indicates otherwise, definitions
in the UCC apply to words and phrases in this agreement; if UCC definitions
conflict, Chapter 9 definitions apply.

        (e) Notice. Notice shall be deemed reasonable if mailed postage prepaid
at least 5 days before the related action (or if the UCC elsewhere specifies a
longer period, such longer period) to the address of debtor given above.

        (f) Interest. No agreement relating to the obligation shall be construed
to be a contract for or to authorize charging or receiving, or require the
payment or permit the collection of, interest at a rate or in an amount above
that authorized by law. Interest payable under any agreement above that
authorized by law shall be reduced automatically to the highest amount permitted
by law. This provision shall override and supersede all other provisions of any
agreement relating to the obligation.

        (g) Modifications. No provision hereof shall be modified or limited
except by a written agreement expressly referring hereto and to the provisions
so modified or limited and signed by the debtor and secured party, nor by course
of conduct, usage of trade, or by the law merchant.

        (h) Severability.  The unenforceability of any provision of this
agreement shall not affect the enforceability or validity of any other
provision.

        (i) Gender and Number.  Where appropriate, the use of one gender shall
be construed to include the others or any of them, and the singular number shall
be construed to include the plural, and vice versa.

        (j) Applicable Law. This agreement shall be construed according to the
laws of Texas.
<PAGE>

        (k) Financing Statement.  A carbon, photographic or other reproduction
of this agreement or any financing statement covering the collateral shall be
sufficient as a financing statement.

                                         NORTH AMERICAN TECHNOLOGIES GROUP, INC.

                                         By:____________________________________
                                            Henry W. Sullivan, President and
                                            Chief Executive Officer
<PAGE>

                                   EXHIBIT C

   SHAREHOLDER                  A.  Type of Shares       Number of Shares

Bank of America                 Series F Preferred          3,349,033
                                Series GI Preferred           880,667
                                Series GII Preferred        1,748,690

Harrison Interests, Ltd.        Series F Preferred            336,817
                                Series GI Preferred            88,368
                                Series GII Preferred          339,122

Henry Sullivan                  Series GII Preferred           43,416
                                       Common                 436,769

Douglas Williamson                     Common                 137,000

Ed Knight                              Common                  16,165

<PAGE>

                                   EXHIBIT D

                                     PROXY

     The undersigned holder of North American Technologies Group, Inc. (the
"Company") common stock or convertible preferred stock, hereby constitutes and
appoints Avalanche Resources, Ltd., with full power of substitution, as an
irrevocable proxy, to vote all shares of the common stock or preferred stock of
the Company, which the undersigned would be entitled to vote as follows:

     1.  The undersigned agrees to and hereby grants a proxy to vote, or to
execute and deliver written consents or otherwise act with respect to, the
shares now owned by the undersigned in connection with any vote or written
consent of stockholders relating to the election of persons nominated by
Avalanche Resources, Ltd., for election as directors to the Board of Directors
of the Company following the date hereof, as fully, to the same extent and with
the same effect as the undersigned might or could do under any applicable laws
or regulations governing rights and powers of stockholders of a corporation
organized under the laws of the State of Delaware.

     2.  The undersigned agrees to and hereby grants a proxy to vote, or to
execute and deliver written consents or otherwise act with respect to, the
shares now owned by the undersigned in connection with any vote or written
consent of stockholders relating to the approval of all actions of the
stockholders of the Company necessary to effect any and all transactions
contemplated under a certain Securities Purchase Agreement dated as of October
2, 2001 between the Company and Avalanche Resources, Ltd., including, without
limitation, the amendment of the Company's Certificate of Incorporation and any
issuance of securities contemplated thereby, as fully, to the same extent and
with the same effect as the undersigned might or could do under any applicable
laws or regulations governing rights and powers of stockholders of a corporation
organized under the laws of the State of Delaware.
<PAGE>

     3.  This proxy shall terminate and be of no further force and effect as of
the issuance to Avalanche Resources, Ltd. of shares of common stock of the
Company pursuant to Securities Purchase Agreement dated as of October 2, 2001
between the Company and Avalanche Resources, Inc.

                              ____________________________________________
                              Name:
                              Date:  October ___, 2001

                              Votes held:

                              Common stock:_______________________________

                              Series F Preferred:_________________________

                              Series G Preferred:_________________________
<PAGE>

                                   EXHIBIT E

                               SECURITY AGREEMENT

    1.  Date.   October 2, 2001

    2.  Parties.

        (a) Secured Party:  Avalanche Resources, Ltd.
                            P. O. Box 140978
                            Dallas, TX 75214

        (b) Debtor:         North American Technologies Group, Inc.
                            14315 W. HARDY ROAD
                            Houston, TX  77060

    3.  Security Interest. Subject to the applicable terms of this agreement,
debtor assigns and grants to secured party a security interest and lien in the
collateral to secure the payment and the performance of the obligation.

    4.  Obligation.  The following obligations (obligation) are secured by this
agreement:

        (a) Debts. (i) The indebtedness of debtor to secured party evidenced by
the promissory note dated on the date of this agreement executed by debtor
payable to the order of secured party in the original principal amount of
$500,000.00. (ii) All debt, obligations, liabilities and agreements of debtor to
secured party set forth in or arising from the Securities Purchase Agreement
dated on the date of this agreement and between debtor and secured party. (iii)
All renewals, extensions or rearrangements of any of the above.

        (b) Costs. All costs incurred by secured party to obtain, preserve,
perfect and enforce this security agreement and security interest, collect the
obligation, and maintain, preserve, collect and enforce the collateral,
including but not limited to taxes, assessments, insurance premiums repairs,
reasonable attorney's fees and legal expenses incurred in connection with the
preservation and enforcement of this security agreement and security interest,
rent, storage costs and expenses of sale.

    5.  Collateral.  The security interest is granted in the following
(collateral): All accounts, inventory, equipment, documents, chattel paper,
instruments, general intangibles, investment property, and any other property of
debtor of every type, kind and description, whether now owned or hereafter
acquired, including the Universal Display Securities and
<PAGE>

Warrant (as defined in the Securities Purchase Agreement) and all proceeds
thereof, including but not limited to all insurance proceeds of the foregoing.

    6.  Debtor's Representations.

        (a) Ownership. Debtor owns, or will use the proceeds of any loans by
secured party to become the owner of, the collateral.

        (b)  Intentionally left blank.

        (c) Claims. All account debtors and other obligors whose debts or
obligations are part of the collateral have no right to setoffs, counterclaims
or adjustments, and no defense in connection therewith.

        (d) Financial Statements. All balance sheets, earnings statements and
other financial data which have been or hereafter may be furnished to secured
party to induce it to permit the obligation or to make this agreement or in
conjunction herewith truly represent or shall truly represent the financial
condition and operations of debtor as of the dates and for the periods shown
thereon; and all other information, reports, papers and data furnished to
secured party are or shall be, at the time furnished, accurate and correct in
all respects and complete insofar as necessary to give secured party a true and
accurate knowledge of the subject matter.

        (e) Power and Authority. Debtor has full power and authority to make
this agreement.

    7.  Debtor's Covenants.

        (a) Obligation/This Agreement.  Debtor shall perform promptly all of its
agreements herein and in any other agreements between it and secured party.

        (b) Ownership. At the time debtor grants to secured party a security
interest in any collateral, debtor shall be the absolute owner thereof and shall
have the right to grant such security interest. Debtor shall defend the
collateral against all claims and demands of all persons at any time claiming
any interest therein adverse to secured party other than claims arising from
liens or interests created prior to the date of this agreement, to which Secured
Party's security interest shall be subject. Debtor shall keep the collateral
free from all liens and security interests created following the date hereof
except for taxes not yet due and this security interest.

        (c) Insurance. Debtor shall insure the collateral with companies
acceptable to secured party against such casualties and in such amounts as
secured party shall require. All insurance policies shall be written for the
benefit of debtor and secured party as their interests may appear, or in other
form satisfactory to secured party, and such policies or certificates evidencing
the same shall be furnished to secured party. All policies of insurance shall
provide for written notice to secured party at least l0 days prior to
cancellation. Risk of loss or damage is debtor's to the extent of any deficiency
in any effective insurance coverage.
<PAGE>

        (d) Maintenance. Debtor shall keep all collateral which constitutes
goods in good condition and repair.

        (e) Costs. Debtor shall pay all costs necessary to obtain, preserve,
perfect, defend and enforce this security interest, collect the obligation, and
preserve, defend, enforce and collect the collateral, including but not limited
to taxes, assessments, insurance premiums, repairs, reasonable attorney's fees
for the preservation, defense and enforcement of this security interest, rent,
storage costs and expenses of sales. Whether collateral is or is not in secured
party's possession, and without any obligation to do so and without waiving
debtor's default for failure to make any such payment, secured party at its
option may pay any such costs and expenses, discharge encumbrances on
collateral, and pay for insurance of collateral and such payment shall be a part
of the obligation. Debtor agrees to reimburse secured party on demand for any
reasonable costs so incurred.

        (f) Information/Inspection. Debtor shall (i) furnish secured party upon
request any financial statements of debtor or reports to debtor by accountants
or others pertaining to debtor's business as soon as available, and any
information with respect to collateral requested by secured party; (ii) allow
secured party to inspect the collateral, at any time and wherever located, and
to inspect and copy, or furnish secured party with copies of, all records
relating to collateral and the obligation; (iii) furnish secured party such
information as secured party may request to identify inventory, accounts and
general intangibles in collateral, at the time and in the form requested by
secured party; and (iv) deliver upon request to secured party shipping and
delivery receipts evidencing the shipment of goods and invoices evidencing the
receipt of, and the payment for, inventory in collateral.

        (g) Additional Documents. Debtor shall sign any papers furnished by
secured party and take any other actions which are necessary in the judgment of
secured party to obtain, maintain and perfect this security interest.

        (h) Parties Liable. Debtor will preserve the liability of all obligors
on any collateral, will preserve the priority of all security therefor, and upon
secured party's request will deliver to secured party the original certificates
of title on all motor vehicles securing the collateral. Secured party shall have
no duty to preserve such liability or security, but may do so at the expense of
debtor, without waiving debtor's default.

        (i) Modification. Without the written consent of secured party, debtor
shall not agree to any modification of any of the terms of any accounts,
contracts, chattel paper, general intangibles or instruments in collateral.

        (j) Debtor Notification. At any time following a default hereunder or
under the note secured party may notify persons obligated on any collateral to
make payments directly to secured party and secured party may take control of
all proceeds of any collateral. Until secured party elects to exercise such
rights, debtor, as agent of secured party, shall collect and enforce all
payments owed on collateral.
<PAGE>

        (k) Receipts/Rejected Goods. Upon secured party's demand following a
default hereunder or under the note, debtor will deposit, upon receipt and in
the form received, with any necessary indorsement, all payments received as
proceeds of collateral, in a special bank account in a bank of secured party's
choice over which secured party alone shall have power of withdrawal. The funds
in said account shall secure the obligation. Secured party is authorized to make
any indorsement in debtor's name and behalf. Pending such deposit, debtor shall
not mingle any such payments with any of debtor's other funds or property, but
will hold them separate and upon an express trust for secured party. Secured
party may from time to time apply the whole or any part of the funds in the
special account against the obligation.

        (l) Records. Debtor at all times will maintain accurate books and
records covering the collateral. Debtor immediately will mark all books and
records with an entry showing the assignment of all accounts in collateral to
secured party and secured party is hereby given the right to audit the books and
records of debtor relating to collateral at any time and from time to time.

        (m) Disposition. If disposition of any collateral gives rise to an
account, chattel paper or instrument, debtor immediately shall notify secured
party, and upon request of secured party shall assign or indorse the same to
secured party. No collateral may be sold, leased, manufactured, processed or
otherwise disposed of by debtor in any manner without the prior written consent
of secured party, except inventory sold, leased, manufactured, processed or
consumed in the ordinary course of business.

        (n) Accounts. Each account in collateral will represent the valid and
legally enforceable obligation of third parties.

        (o) Location. Debtor shall give secured party written notice of each
office of debtor in which records of debtor pertaining to accounts in collateral
are kept, and of any change of any such location. If no such notice is given,
all records of debtor pertaining to accounts and all inventory are and shall be
kept at debtor's address shown above.

        (p) Changes. Debtor will notify secured party immediately of any
material change in the collateral, of a change in any manner warranted or
represented by debtor in this agreement or furnished to secured party, and of
any event of default.

        (q) Use/Removal. Debtor will not use the collateral illegally or permit
the collateral to be affixed to real or personal property without the written
consent of secured party. Debtor will keep all collateral at debtor's address
shown above.

        (r) Possession. If the collateral is chattel paper, documents,
instruments or investment securities or other instruments, secured party may
deliver a copy of this agreement to the broker or seller thereof, or any person
in possession thereof, and such delivery shall constitute notice to such person
of secured party's security interest therein and shall constitute debtor s
instruction to such person to deliver to secured party certificates or other
evidence of the same as
<PAGE>

soon as available. Debtor will deliver all investment securities and other
instruments, documents and chattel paper which are part of the collateral and in
debtor's possession to the secured party immediately, or if hereafter acquired,
immediately following acquisition, appropriately indorsed to secured party's
order or with appropriate executed powers. Debtor waives presentment, demand,
notice of dishonor, protest, and all other notices with respect thereof.

        (s) Chattel Paper. Debtor has perfected or will perfect a security
interest by means satisfactory to secured party in goods covered by chattel
paper in collateral.

        (t)  Intentionally left blank.

        (u) Change of Name. Without the written consent of secured party, debtor
shall not change its name or the state of its incorporation.

        (v) Power of Attorney. Debtor appoints secured party debtor's attorney-
in-fact with full power in debtor's name and behalf to do every act which debtor
is obligated to do or may be required to do hereunder; however, nothing in this
paragraph shall be construed to obligate secured party to take any action
hereunder.

        (w) Waivers.  Debtor waives notice of the creation, advance, increase,
existence, extension or renewal of, and of any indulgence with respect to, the
obligation; waives presentment, demand, notice of dishonor, and protest; waives
notice of the amount of the obligation outstanding at any time, notice of any
change in financial condition of any person liable for the obligation or any
part thereof, and all other notices respecting the obligation; and agrees that
maturity of the obligation and any part thereof may be accelerated, extended or
renewed one or more times by secured party in its discretion, without notice to
debtor.

        (x) Other Parties/Collateral.  No renewal or extension of or any other
indulgence with respect to the obligation or any part thereof, no release of any
security, no release of any person (including any maker, indorser, guarantor or
surety) liable on the obligation, no delay in enforcement of payment, and no
delay or omission or lack of diligence or care in exercising any right or power
with respect to the obligation or any security therefor or guaranty thereof or
under this agreement shall in any manner impair or affect the rights of secured
party under the law, hereunder, or under any other agreement pertaining to the
collateral. Secured party need not file suit or assert a claim for personal
judgment against any person for any part of the obligation or seek to realize
upon any other security for the obligation before foreclosing upon the
collateral for the purpose of paying the obligation.  Debtor waives any right to
the benefit of or to require or control application of any other security or
proceeds thereof, and agrees that secured party shall have no duty or obligation
to debtor to apply to the obligation any such other security or proceeds
thereof.

    8.  Rights and Powers of Secured Party.

        (a) General. Secured party before or after default and without liability
to debtor may: obtain from any person information regarding debtor or debtor's
business, which
<PAGE>

information any such person also may furnish without liability to debtor;
require debtor to give possession or control of any collateral to secured party;
indorse as debtor's agent any instruments, documents or chattel paper in
collateral or representing proceeds of collateral; contact account debtors
directly to verify information furnished by debtor; release collateral in its
possession to any debtor, temporarily or otherwise; reject as unsatisfactory any
property hereafter offered by debtor as collateral; set standards from time to
time to govern what may be used as after acquired collateral, designate, from
time to time, a certain percent of the collateral as the loan value and require
debtor to maintain the obligation at or below such figure; take control of funds
generated by the collateral and use same to reduce any part of the obligation.
Secured party shall not be liable for failure to collect any account or
instrument, or for any act or omission on the part of the secured party, its
officers, agents or employees, except willful misconduct. The foregoing rights
and powers of secured party will be in addition to, and not a limitation upon,
any rights and powers of secured party given by law, elsewhere in this
agreement, or otherwise.

        (b) Convertible Securities. Secured party may present for conversion any
instrument or investment security in collateral which is convertible into any
other instrument or investment or a combination thereof and cash, but secured
party shall not have any duty to present for conversion any instrument in
collateral unless it shall have received from debtor detailed written
instructions to that effect at a time reasonably far in advance of the final
conversion date to make such conversion possible.

    9.  Default.

        (a) Events of Default.  The following are events of default hereunder:

            (i) default in the timely payment or the performance of any part of
the obligation or in performance or observance of the terms and conditions
herein;

            (ii) any warranty, representation or statement made or furnished to
secured party herein, heretofore, or hereafter proves to have been false in any
material respect when made or furnished;

            (iii) acceleration of the maturity of debt of debtor to any other
person;

            (iv) substantial change in any fact warranted or represented in this
agreement or in any other agreement between debtor and secured party or in any
statement, schedule, or other writing furnished in connection therewith;

            (v) loss, theft, destruction or encumbrance or sale or transfer of
any collateral in violation hereof, or substantial damage to any collateral;

            (vi) dissolution, merger or consolidation, termination of existence,
insolvency or business failure of debtor; commencement of proceedings for the
appointment of a receiver for any property of debtor, or commission of an act of
bankruptcy by debtor; commencement of any proceeding under any bankruptcy or
insolvency law by or against debtor
<PAGE>

(or any corporate action shall be taken to effect same), or any partnership of
which debtor is a partner or by or against any person liable upon the obligation
or any part thereof, or liable upon collateral;

            (vii) levy on, seizure or attachment of any property of debtor; or

            (viii)  a judgment against debtor becomes final.

        (b) Remedies. When an event of default occurs, and at any time
thereafter, secured party without notice or demand may declare the obligation in
whole or in part immediately due and may enforce payment of the same and
exercise any rights under the UCC, rights and remedies of secured party under
this agreement, or otherwise. Secured party may require debtor to assemble the
collateral and make it available to secured party at a place which is reasonably
convenient to both parties. Unless the collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, secured party will give debtor reasonable notice of the time and place
of any public sale thereof or of the time after which any private sale or other
intended disposition thereof is to be made. Expenses of retaking, holding,
preparing for sale, selling, leasing or the like shall include secured party's
reasonable attorney's fees. Secured party shall be entitled to immediate
possession of all books and records evidencing any accounts or general
intangibles or pertaining to chattel paper covered by this agreement and shall
have the authority to enter upon any premises upon which any of the same, or any
collateral, may be situated and to remove the same therefrom without liability.
Secured party may surrender any insurance policies in collateral and receive the
unearned premium thereon. Debtor shall be entitled to any surplus and shall be
liable to secured party for any deficiency. The proceeds of any disposition
after default available to satisfy the obligation shall be applied to the
obligation in such order and in such manner as secured party in its discretion
shall decide. If, in the opinion of secured party, there is any question that a
public sale or distribution of any collateral will violate any state or federal
securities law, secured party (i) may offer and sell securities privately to
purchasers who will agree to take them for investment purposes and not with a
view to distribution and who will agree to imposition of restrictive legends on
the certificates representing the security, or (ii) may sell such securities in
an intrastate offering under Section 3(a)(11) of the Securities Act of 1933, and
any sale so made in good faith by secured party shall be deemed to be
"commercially reasonable."

    10. General.

        (a) Parties Bound.  Secured party's rights hereunder shall inure to the
benefit of its successors and assigns, and in the event of any assignment or
transfer of any of the obligation or the collateral, secured party thereafter
shall be fully discharged from any responsibility with respect to the collateral
so assigned or transferred, but secured party shall retain all rights and powers
hereby given with respect to any of the obligation or collateral not so assigned
or transferred.  All representations, warranties and agreements of debtor if
more than one are joint and several, and all shall be binding upon the personal
representatives, heirs, successors and assigns of debtor.
<PAGE>

        (b) Waiver. No delay of secured party in exercising any power or right
shall operate as a waiver thereof; nor shall any single or partial exercise of
any power or right preclude other or further exercise thereof or the exercise of
any other power or right. No waiver by secured party of any right hereunder or
of any default by debtor shall be binding upon secured party unless in writing,
and no failure by secured party to exercise any power or right hereunder or
waiver of any default by debtor shall operate as a waiver of any other or
further exercise of such right or power or of any further default.

        (c) Agreement Continuing.  This agreement shall constitute a continuing
agreement, applying to all future as well as existing transactions, whether or
not of the character contemplated at the date of this agreement, and if all
transactions between secured party and debtor shall be closed at any time shall
be equally applicable to any new transactions thereafter.  Provisions of this
agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties.

        (d) Definitions. Unless the context indicates otherwise, definitions in
the UCC apply to words and phrases in this agreement; if UCC definitions
conflict, Chapter 9 definitions apply.

        (e) Notice. Notice shall be deemed reasonable if mailed postage prepaid
at least 5 days before the related action (or if the UCC elsewhere specifies a
longer period, such longer period) to the address of debtor given above.

        (f) Interest. No agreement relating to the obligation shall be construed
to be a contract for or to authorize charging or receiving, or require the
payment or permit the collection of, interest at a rate or in an amount above
that authorized by law. Interest payable under any agreement above that
authorized by law shall be reduced automatically to the highest amount permitted
by law. This provision shall override and supersede all other provisions of any
agreement relating to the obligation.

        (g) Modifications. No provision hereof shall be modified or limited
except by a written agreement expressly referring hereto and to the provisions
so modified or limited and signed by the debtor and secured party, nor by course
of conduct, usage of trade, or by the law merchant.

        (h) Severability. The unenforceability of any provision of this
agreement shall not affect the enforceability or validity of any other
provision.

        (i) Gender and Number. Where appropriate, the use of one gender shall be
construed to include the others or any of them, and the singular number shall be
construed to include the plural, and vice versa.

        (j) Applicable Law. This agreement shall be construed according to the
laws of Texas.
<PAGE>

        (k) Financing Statement. A carbon, photographic or other reproduction of
this agreement or any financing statement covering the collateral shall be
sufficient as a financing statement.

                                      NORTH AMERICAN TECHNOLOGIES GROUP, INC.

                                      By:______________________________________
                                         Henry W. Sullivan, President and Chief
                                         Executive Officer
<PAGE>

                                   EXHIBIT F

                    NORTH AMERICAN TECHNOLOGIES GROUP, INC.

                          CERTIFICATE OF DESIGNATION

                     SERIES J CONVERTIBLE PREFERRED STOCK

     HENRY W. SULLIVAN and JOHN F. REILLY do hereby certify that they are the
Chief Executive Officer and Secretary, respectively, of NORTH AMERICAN
TECHNOLOGIES GROUP, INC., a Delaware corporation (hereinafter referred to as the
"Corporation"); that, pursuant to the Corporation's Certificate of Incorporation
and Section 151 of the Delaware General Corporation Law, the Board of Directors
of the Corporation adopted the following resolutions on _______________, 2001:

     WHEREAS, the Corporation has determined to designate a new Series J
Convertible Preferred Stock pursuant to the authority granted in its Certificate
of Incorporation and Section 151 of the Delaware General Corporation Law.

     NOW, THEREFORE, the Corporation's Series J Preferred shall have the rights
and preferences set forth below:

     SERIES J CONVERTIBLE PREFERRED STOCK.  There is hereby created a series of
preferred stock designated as Convertible Preferred Stock, Series J (the "Series
J Preferred"), which will consist of ________ shares.  The Series J Preferred
shall have the preferences, voting powers, relative, participating, optional or
other special rights and privileges, and the qualifications, limitations and
restrictions as provided below:

     1.  DIVIDENDS AND DISTRIBUTIONS.

         (a) Beginning on the date of the issuance of the Series J Preferred,
the holders of shares of Series J Preferred shall be entitled to receive annual
dividends at a rate of 5% per annum of the Stated Value (as defined below) when,
as and if declared by the Board of Directors and not otherwise. The Board of
Directors may only declare such dividends, if at all, when the Corporation shall
have earned a net profit (exclusive of any gains realized on its resale of
certain securities acquired by the Corporation in conjunction with a Securities
Purchase Agreement dated October 2, 2001) of at least $1,000,000 during the
prior fiscal year and such dividends may be declared, if at all, and paid only
to the extent of one-half of the amount of the Corporation's net profit for the
prior fiscal year, less any gain on the sale of the securities described in this
sentence. Dividends shall be non-cumulative and shall be prior and in preference
to any declaration or payment of any dividend or other distribution on the
Corporation's common stock, par value $0.001 per share ("Common Stock") to the
extent specified in Section 1(b). The
<PAGE>

dividends on the Series J Preferred, if declared, shall be payable within 45
days of declaration (each a "Dividend Date"), except that if any such date is a
Saturday, Sunday or legal holiday (a "Non-Business Day") then such dividend
shall be payable on the next day that is not a Saturday, Sunday or legal holiday
on which banks in the State of Delaware are permitted to be closed (a "Business
Day") to holders of record as they appear on the stock books of the Corporation
on the applicable record date, which shall be not more than 60 nor less than 10
days preceding the payment date for such dividends, as fixed by the Board of
Directors (the "Record Date"). The dividends on the Series J Preferred shall be
payable only when, as and if declared by the Board of Directors out of funds
legally available therefor. Dividends, if declared, shall be payable in cash,
provided, however, that at the option of the Corporation, dividends may be paid
upon conversion of the Series J Preferred Stock, as provided in Section 3
hereof, in cash or in such number of shares of the Corporation's Common Stock
equal to the aggregate amount of the accrued dividends divided by the Conversion
Price (as defined herein). No dividends shall accrue on the Series J Preferred
unless and except to the extent, if any, the dividends are declared. The amount
of dividends payable for any period that is shorter or longer than a full year
shall be computed on the basis of a 360-day year of twelve 30-day months.

         (b) In the event the Board of Directors wishes to declare and pay a
dividend to the holders of the Corporation's Common Stock, it shall, prior to
the declaration and payment of any such dividend, be required to (i) declare and
pay one year's annual dividend to the holders of the Series J Preferred, if it
has not already done so during the year in which the dividend on the Common
Stock is desired to be paid, and (ii) pay the full amount of all declared and
unpaid dividends on the Series J Preferred as of such date.

     2.  LIQUIDATION RIGHTS.  In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, distributions
shall be made to the holders of Series J Preferred in respect of such Series J
Preferred, in the following manner:

         (a) SERIES J PREFERRED LIQUIDATION PREFERENCE.  The holders of the
Series J Preferred shall be entitled to be paid all amounts payable hereunder on
account of the liquidation of the Corporation, prior to the payment of any
amounts on account of the liquidation of the Corporation to the holders of any
other class or Series of preferred stock or common stock of the Corporation, out
of the assets of the Corporation available for distribution to holders of its
capital stock, a preferred distribution as set forth below.  The liquidation
preference payable to the holders of the Series J Preferred shall be equal to
the sum of (i) $1.00 per share (the "Stated Value"), as appropriately adjusted
to reflect any stock split, stock dividend, combination, recapitalization and
the like (collectively a "Recapitalization") of the Series J Preferred, plus
(ii) all declared but unpaid dividends (including any interest accrued thereon
calculated through the date of liquidation) (the sum of (i) and (ii) being
collectively referred to as the "Series J Liquidation Preference"). If, upon the
occurrence of a liquidation, dissolution or winding up, the assets and funds
thus distributed among the holders of the Series J Preferred shall be
insufficient to permit the payment to such holders of their full liquidation
preferences, then the entire assets and funds of the Corporation legally
available for distribution to the holders of capital stock shall be distributed,
pari passu, to the holders of the Series J Preferred.
<PAGE>

         (b) REMAINING ASSETS.  If assets are remaining after payment in full
of the Series J Liquidation Preference to all holders of the Series J Preferred,
then the holders of any other class or series of Preferred Stock, if any, shall
be entitled to their respective preferential amounts on liquidation, and
thereafter the holders of the Common Stock shall be entitled to share ratably in
all such remaining assets and surplus funds based on the number of shares of
Common Stock held by each.

         (c) VALUATION OF SECURITIES AND PROPERTY.  In the event the
Corporation proposes to distribute assets other than cash in connection with any
liquidation, dissolution or winding up of the Corporation, the value of the
assets to be distributed to the holders of shares of Series J Preferred shall be
determined in good faith by the Board of Directors.  Notwithstanding the
foregoing, any securities so distributed shall be valued as follows:

             (i) If the securities are traded on a national securities
     exchange or the NASDAQ National Market System ("NASDAQ/NMS") or actively
     traded over-the-counter (other than NASDAQ/NMS), the value of such
     securities shall be deemed to be the average of the security's closing
     prices on such exchange or NASDAQ/NMS over the thirty (30) calendar day
     period ending three (3) days prior to the distribution; and

             (ii) If there is no active public market, the value shall be the
     fair market value thereof as determined in good faith by the Board of
     Directors.

The method of valuation of securities subject to an investment letter or other
restrictions on free marketability shall be adjusted to make an appropriate
discount from the market value determined as above in clauses (i) or (ii) to
reflect the fair market value thereof as determined in good faith by the Board
of Directors.

     3.  CONVERSION.  The Series J Preferred is subject to conversion at the
times and on the terms set forth in this Section 3:

         (a)  RIGHT OF HOLDER TO CONVERT.

              (i) Election to Convert. Each share of Series J Preferred shall
initially be convertible, at the option of the holder thereof, at any time at
the principal office of the Corporation or any transfer agent for the Series J
Preferred, into one (1) fully paid and nonassessable share of Common Stock.
Upon such a conversion, the aggregate amount of any declared but unpaid
dividends (including any interest, if any, accrued thereon calculated as of the
date of conversion) on the Series J Preferred shall also be converted into
Common Stock at the Conversion Price.  The Conversion Price shall be equal to
the value of a share of Common Stock on the date of issuance of the Series J
Preferred, which value shall be calculated as follows:

              (A) If the Common Stock is traded on a national securities
     exchange or the NASDAQ National Market System ("NASDAQ/NMS") or actively
     traded over-the-counter (other than NASDAQ/NMS), the value of such
     securities shall be deemed to be the average of the security's closing
     prices on such exchange or NASDAQ/NMS or in
<PAGE>

     over-the-counter trading over the thirty (30) calendar day period ending
     three (3) days prior to the issuance date; and

              (B) If there is no active public market in the Common Stock, the
     value shall be the fair market value thereof as determined in good faith by
     the Board of Directors.

              (ii) Mechanics of Conversion. Before a holder of Series J
Preferred shall be entitled to convert the same into shares of Common Stock and
to receive certificates therefor, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the principal office of the Corporation
or of any transfer agent for the Series J Preferred, and shall give written
notice to the Corporation at such office that such holder elects to convert the
same. The Corporation shall, as soon as practicable after such delivery, issue
and deliver to such holder of the Series J Preferred, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of the Series J Preferred to be converted, and the holder or holders
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.

         (b)  ADJUSTMENTS.

              (i) Subdivisions, Combinations, or Consolidations of Common Stock.
In the event the outstanding shares of Common Stock shall be subdivided,
combined or consolidated, by stock split, reverse stock split, stock dividend,
combination or like event, into a greater or lesser number of shares of Common
Stock, the number of shares of Common Stock into which each share of Series J
Preferred may be converted and the Conversion Price in effect immediately prior
to such subdivision, combination, consolidation or stock dividend shall,
concurrently with the effectiveness of such subdivision, combination or
consolidation, be proportionately adjusted.

              (ii) Reclassifications.  In the case, at any time after the date
hereof, of any capital reorganization or any reclassification of the stock of
the Corporation (other than as a result of a stock dividend or subdivision,
split-up or combination of shares), or the consolidation or merger of the
Corporation with or into another person (other than a consolidation or merger in
which the Corporation is the continuing entity and which does not result in any
change in the Common Stock), the shares of the Series J Preferred shall, after
such reorganization, reclassification, consolidation or merger be convertible
into the kind and number of shares of stock or other securities or property of
the Corporation or otherwise to which such holder would have been entitled if
immediately prior to such reorganization, reclassification, consolidation or
merger such holder had converted its shares of the Series J Preferred Stock into
Common Stock.

              (iii)  Certificate as to Adjustments.  Upon the occurrence of each
adjustment or readjustment of the number of shares of Common Stock into which
each share of Series J Preferred may be converted and the Conversion Price
pursuant to this Section 3, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of the Series J Preferred so adjusted a certificate
<PAGE>

setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based.  The Corporation shall,
upon the written request at any time of any holder of a the Series J Preferred,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Conversion Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of the
Series J Preferred.

         (c) STATUS OF CONVERTED STOCK.  In case any shares of the Series J
Preferred shall be converted pursuant to Section 3 hereof, the shares so
converted shall, at the option of the Corporation, be canceled, and, if not
canceled, shall not be reissuable as shares of Series J Preferred but shall be
part of the authorized but unissued capital stock of the Corporation.

         (d) MISCELLANEOUS.  All calculations under this Section 3 shall be
made to the nearest cent or to the nearest whole share, as the case may be.

         (e) NO IMPAIRMENT.  The Corporation will not, through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 3 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of Series J Preferred against impairment.

         (f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION.  The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series J Preferred, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series J Preferred.  If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series J Preferred, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.

     4.  VOTING RIGHTS.  Except as otherwise required by law, the holders
of all of the Series J Preferred issued and outstanding, in the aggregate, shall
be entitled to the number of votes equal to the number of shares of Common Stock
into which shares of Series J Preferred are convertible on any record date, or,
if no such record date is established, at the date such vote is taken or any
written consent of stockholders is solicited, such votes to be counted together
with all other shares of stock of the Corporation having general voting power
and not separately as a class.  Fractional votes by the holders of the Series J
Preferred shall not, however, be permitted, and any fractional voting rights
shall (after aggregating all shares into which shares of Series J Preferred held
by each holder could be converted) be rounded to the nearest whole number.

     5. NOTICES OF RECORD DATE. In the event of any taking by the Corporation of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any right to subscribe for,
<PAGE>

purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation shall
mail to each holder of the Series J Preferred, at least twenty (20) days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend distribution or right.

     6. NOTICES. Any notice required by the provisions of the Certificate to be
given to the holders of the Series J Preferred shall be deemed given when
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his or her address appearing on the books of the
Corporation, or upon actual receipt when personally delivered or sent by
overnight or other courier delivery.

     7.  PROTECTIVE PROVISIONS.  So long as any shares of the Series J Preferred
are outstanding, the Corporation shall not, without first obtaining the approval
of the holders of at least a majority in interest of the Series J Preferred then
outstanding, voting as a separate class, take any action that:

         (i) alters the rights, preferences or privileges of the Series J
Preferred;

         (ii) increases or decreases the authorized number of shares of Series J
Preferred of the Corporation;

         (iii) creates any new class or series of shares that has a preference
over the Series J Preferred with respect to voting, dividends or liquidation
preferences; or

         (iv) reclassifies stock into shares having a preference over the
Series J Preferred with respect to voting, dividends or liquidation preferences.

     This Certificate may be delivered by facsimile and executed in one or more
counterparts, each of which shall constitute an original and all of which taken
together shall constitute one and the same Consent.
<PAGE>

     IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be duly executed by its President and attested to by its
Secretary and the corporate seal to be affixed hereto, this _____ day of
_________, 2001.

                                     NORTH AMERICAN TECHNOLOGIES
                                     GROUP, INC.

Date:  _____________, 2001           _____________________________________
                                     Henry W. Sullivan
                                     President and Chief Executive Officer

Date: _____________, 2001            _____________________________________
                                     John F. Reilly
                                     Secretary

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