Document:

Form of Warrant Issued Pursuant to Securities Purchase Agreement

 EXHIBIT 10.3 
  
 NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. 
  
 COMMON STOCK PURCHASE WARRANT 
  
 To Purchase                      Shares of Common Stock of 
  
 NORTH AMERICAN TECHNOLOGIES GROUP, INC. 
  
 THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,
                     (the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on the three year anniversary of the Initial Exercise Date (the “Termination
Date”) but not thereafter, to subscribe for and purchase from North American Technologies Group, Inc., a Delaware corporation (the “Company”), up to
                     shares (the “Warrant Shares”) of Common Stock, par value $0.001 per share, of the Company (the
“Common Stock”). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). 
  
 Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated December 28, 2005, among the Company and the purchasers signatory thereto. 
  
 Section 2. Exercise. 
  
 a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in
whole or in part, at any time or times on or after the Initial 

  

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Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed
hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company); provided, however, within 5 Trading Days of
the date said Notice of Exercise is delivered to the Company, the Holder shall have surrendered this Warrant to the Company and the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer
or cashier’s check drawn on a United States bank. 
  
 b) Exercise Price. The exercise price of the Common Stock under this Warrant shall be $0.18, subject to adjustment hereunder (the “Exercise Price”). 
  
 c) Cashless Exercise. If at any time after one year from the date of issuance of this Warrant there
is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the
Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: 
  

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

  
 Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c). 
  
 d) Exercise Limitations. A Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 2(c) or otherwise, to the extent that after giving effect to such issuance after exercise, such Holder (together with such Holder’s affiliates), as set forth on the applicable Notice of Exercise, would beneficially own
in excess of 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such issuance. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its
affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by such Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities
of the Company (including, without limitation, any other shares of Debentures or Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such Holder or any of 

  

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its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act, it being acknowledged by a Holder that the Company is not representing to such Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and such Holder is
solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other
securities owned by such Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of a Holder, and the submission of a Notice of Exercise shall be deemed to be each Holder’s determination of whether this
Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the
Company’s most recently filed Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of
shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. In any case,
the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by such Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. 
  
 e) Mechanics of Exercise. 
  
 i.
Authorization of Warrant Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be
duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). 
  
 ii. Delivery of Certificates Upon Exercise.
Certificates for shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent
Commission system if the Company is a participant in such system, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within ten (10) Trading Days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant and payment of the aggregate Exercise Price as set forth above (“Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received
by the 

  

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Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vii)
prior to the issuance of such shares, have been paid. 
  
 iii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new
Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. 
  
 iv. Rescission Rights. If the Company fails to cause
its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to this Section 2(e)(iv) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

  
 v. Compensation for Buy-In on Failure to
Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant
to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with
the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant
Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause
(1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the 

  

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Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof. 
  
 vi. No Fractional Shares or Scrip. No fractional
shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price. 
  
 vii. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names
as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 
  
 viii. Closing of Books. The Company will not close
its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof. 
  
 Section 3. Certain Adjustments. 
  
 a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (A) pays a stock dividend or
otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities exercisable, convertible or payable in shares of Common Stock (a “Common Stock Equivalent” which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Warrant), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of 

  

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

									
	Base Exercise Price	  	=	  	Exercise Price     x	  	 X + Y

	  	 
	 	  	 	  	 	  	X + Z	  	 

  
 Where: 
  

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

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

  

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a number of Warrant Shares based upon the Base Exercise Price regardless of whether the Holder accurately refers to the Base Exercise Price in the Notice of
Conversion. 
  
 c) Pro Rata Distributions.
If the Company, at any time prior to the Termination Date, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record
date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in
good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. 
  
 d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of
this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder, upon exercise of this
Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and/or any additional consideration (the “Alternate Consideration”) receivable upon or as
a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. For purposes of any such
exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given
any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate 

  

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

  
 i. Adjustment to Exercise Price.
Whenever the Exercise Price is adjusted pursuant to this Section 3, the Company shall promptly mail to each Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such
adjustment. If the Company issues a variable rate security the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or
exercised. 
  
 ii. Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be 

  

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

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

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 e) Authorized Shares. 
  
 The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants
that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the
Trading Market upon which the Common Stock may be listed. 
  
 Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company
will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. 
  
 Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in
the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 
  
 f) Jurisdiction. All questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement. 
  
 g) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities laws. 
  
 h) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right 

  

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or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the
Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including,
but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 
  
 i) Notices. Any notice, request or other document
required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. 
  
 j) Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder
to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company. 
  
 k) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law
would be adequate. 
  
 l) Successors and
Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. 
  
 m) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder. 
  
 n) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. 
  
 o) Headings. The headings used in this Warrant are
for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 
  
 ******************** 
  

 12 

 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly
authorized. 
  
 Dated: December 30, 2005 
  

			
	NORTH AMERICAN TECHNOLOGIES GROUP, INC.
		
	 By:
	 	/s/    HENRY W. SULLIVAN        
	 Name:
	 	Henry W. Sullivan
	 Title:
	 	President

  

 13 

 NOTICE OF EXERCISE 
  

	TO:	NORTH AMERICAN TECHNOLOGIES GROUP, INC. 

  
 (1) The undersigned hereby elects to purchase                 
Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. 
  
 (2) Payment shall take the form of (check applicable box): 
  
  ̈ in lawful money of the United States; or 
  
  ̈ the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in
subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c). 
  
 (3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such
other name as is specified below: 
  
 __________________________________ 
  
 The Warrant Shares shall be
delivered to the following: 
  
 __________________________________ 
  
 __________________________________ 
  
 __________________________________ 
  
 (4) Accredited
Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended. 
  

			
	 [SIGNATURE OF HOLDER]

			
		
	 Name of Investing Entity:  
	  	 

			
	Signature of Authorized Signatory of Investing Entity:  	  	 

			
	 Name of Authorized Signatory:  
	  	 

			
	 Title of Authorized Signatory:  
	  	 

			
	 Date:  
	  	 

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

  
 Dated:
                    ,          
  

			
		
	 Holder’s Signature:
	 	 
		
	 Holder’s Address:
	 	 
		
	 	 	 

  
 Signature Guaranteed:
                                        
                                        

  
 NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should
file proper evidence of authority to assign the foregoing Warrant.Custodial and Security Agreement dated December 28, 2005

 EXHIBIT 10.4 
  
 CUSTODIAL AND SECURITY AGREEMENT 
  
 THIS CUSTODIAL AND SECURITY AGREEMENT (this “Agreement”) is made as of December 28, 2005, by and among
North American Technologies Group, Inc., a Delaware corporation with an address at 14315 West Hardy Road, Houston, TX 77060 (the “Company”), the purchasers signatory hereto (each individually, a “Purchaser,” and
collectively, the “Purchasers”), and Feldman Weinstein LLP, , as custodial agent for and for the benefit of the Purchasers, with an address at 420 Lexington Avenue, Suite 2620, New York, New York 10170 (the
“Custodian”). Capitalized terms used but not defined herein shall have the meanings set forth in the Securities Purchase Agreement referred to in the first recital. 
  
 W I T N E S S E
T H: 
  
 WHEREAS, the Company and each
Purchaser has entered into the Securities Purchase Agreement of even date herewith (the “Purchase Agreement”), pursuant to which the Purchasers are purchasing the Company’s 7% Convertible Debentures due December 31, 2006
(collectively, the “Debentures”) and Warrants; and 
  
 WHEREAS, in order to induce the Purchasers to enter into the Purchase Agreement and to purchase the Debentures, and as a condition precedent thereto, the Company has agreed to secure the payment and performance of its obligations
under the Purchase Agreement, the Debentures, this Agreement and the other Transaction Documents by granting to the Purchasers a first priority security interest in certain of the cash proceeds from the sale of the Debentures; and 
  
 WHEREAS, the Company and the Purchasers have requested that the
Custodian hold the gross cash proceeds from the sale of the Debentures for the benefit of the Purchasers, as secured parties, in accordance with the terms hereof; 
  
 NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 
  
 1. Closing. 
  
 (a) Upon the Custodian’s receipt from the Purchasers of, in the aggregate, $5,000,000 into its escrow account (the “Escrow
Account”), together with each Purchaser’s executed counterparts of this Agreement, the Purchase Agreement and the Registration Rights Agreement, the Custodian shall telephonically advise the Company, or the Company’s designated
attorney or agent, of its receipt of such funds and such documents. 

 (b) Wire transfers to the Custodian shall be made as follows: 
  
 STERLING NATIONAL BANK 
 622 3RD AVENUE 
 NEW YORK, NY 10017 
 ACCOUNT NAME: FELDMAN WEINSTEIN LLP 
 ABA ROUTING NO: 026007773 
 ACCT NO: 0814180101 
 REMARK: NATK/[FUND NAME] 
  
 (c) The Company, upon receipt of the telephonic notice
described in Section 1(a) above, shall deliver to the Custodian the certificates representing the Debentures and the Warrants to be issued to each Purchaser at the Closing together with: 
  
 (i) a counterpart of the Registration Rights Agreement, as
amended and restated, duly executed by the Company; 
  
 (ii) a counterpart of the Purchase Agreement, duly executed by the Company; and 
  
 (iii) a counterpart of this Agreement, duly executed by the Company. 
  
 (d) In the event that the foregoing items have not been delivered to the Custodian by the Company within
five (5) Trading Days after the Custodian has received all of the Subscription Amounts (net of any permitted deductions pursuant to the Purchase Agreement), then each Purchaser shall have an independent and separate right to demand and receive
the return of its Subscription Amount. 
  
 (e)
Once the Custodian receives all of the items required to be delivered hereunder, it shall wire $1,500,000 of the gross proceeds raised pursuant to the Purchase Agreement per the written instructions of the Company as provided in Section 2(b)
and the remaining balance (the “Secured Proceeds”) shall be initially transferred into a separate non-interest bearing custodian deposit account of the Custodian (the “Custodial Account”). Thereafter, the Custodial
Account shall be maintained by the Custodian in accordance with the terms of this Agreement and may be invested, if possible, in an interest-bearing government securities or commercial money market fund made available by the Custodian’s bank or
as otherwise directed in a writing executed by the Company. The Custodian, by its execution and delivery of this Agreement, hereby agrees to accept receipt of the Secured Proceeds and to hold such proceeds for the benefit of the Purchasers, as
secured parties. 
  
 (f) After transferring the
Secured Proceeds into the Custodial Account, the Custodian shall then arrange to have originals or counterpart originals of the Purchase Agreement, the Warrants, the Debentures, the Registration Rights Agreement, and this Agreement delivered
to the appropriate parties. 

 (g) The Custodian shall hold the Secured Proceeds in the Custodial Account, for the
benefit of each Purchaser, and not release such proceeds except as provided herein. 
  
 (h) The parties hereto acknowledge that there may be a second closing pursuant to Section 2.4 of the Purchase Agreement, in the
amount of $1,500,000, to be closed in the manner set forth therein. Such proceeds, if any, shall also be deposited in the Custodial Account and be part of the Secured Proceeds, and shall be disbursed in the same manner as all other Secured Proceeds.

  
 2. Release of Secured Proceeds. 
  
 (a) Release Upon Voluntary Conversion of Debentures.
Each Purchaser shall be deemed to have funded to the Company an amount (such Purchaser’s “Pro Rata Amount”) equal to the amount distributed by the Custodian to the Company hereunder multiplied by a fraction, the numerator of
which is the amount of Debentures such Purchaser has agreed to purchase pursuant to the Securities Purchase Agreement and the denominator of which is the aggregate amount of Debentures all Purchasers have agreed to purchase pursuant to the
Securities Purchase Agreement. Upon the conversion by a Purchaser of all or part of the principal amount of the Debenture(s) held by such Purchaser in excess of Purchaser’s Pro Rata Amount (the “Converted Principal Amount”),
such Purchaser and the Company shall promptly thereafter execute a joint certificate to the Custodian certifying that such Converted Principal Amount has been converted by the Purchaser (a “Conversion Certificate”, such release upon
Conversion shall be a “Conversion Release” and such date of a Conversion Release shall be the “Conversion Release Date”). Promptly after its receipt of a Conversion Certificate, the Custodian shall release out of
the Secured Proceeds to the account specified in the written instructions of the Company, an amount equal to the Converted Principal Amount. 
  
 (b) Release on Instruction. At any time prior to the Custodian receiving a notice from a Purchaser pursuant to Section 2(c)(i)
or 2(c)(ii), upon the Company delivering to the Custodian a certificate of the Company requesting a release of funds which certificate shall be executed by Scott Kaufman and Goh Yong Siang, the Custodian shall be obligated to provide the requested
funds to the Company out of the Secured Proceeds (not to exceed $6,500,000 in the aggregate) no later than three (3) Business Days after the receipt by the Custodian of the Company’s request for additional proceeds. Upon fulfillment of the
foregoing conditions, the Custodian shall release, to the account of the Company that portion of the Secured Proceeds specified in the Company’s request for funds. If less than all of the Secured Proceeds are released, the remaining amount, for
purposes of calculating each Purchaser’s rights hereunder, shall be re-allocated according to such Purchaser’s pro rata portion. 
  
 (c) Release Upon an Event of Default. 
  
 (i) If, on the Maturity Date of the Debentures (as defined in the Debenture), any Debentures shall remain unpaid, then upon receipt by the

 
Custodian of a written notice from a Purchaser holding such Debentures certifying that such Debentures remain unpaid, the Custodian shall release to such
Purchaser its pro rata portion of the Secured Proceeds remaining in the Custodial Account relating to such Purchaser (but not more than the amount due under such Debentures then held by such Purchaser and amounts due under the Purchase Agreement to
such Purchaser), and such Secured Proceeds shall be applied to reduce amounts due and owing to such Purchaser with respect to the Debentures and the Purchase Agreement as follows: first, to the payment of fees and expenses including liquidated
damages; second, to interest payable in cash with respect to the Debentures; and third, to the outstanding principal under the Debentures. 
  
 (ii) At any time after the occurrence of an Event of Default, any Purchaser may, at its option, deliver a certificate to the Custodian and
the Company specifying the nature of the Event of Default. If, within ten days after its receipt of such certificate, the Custodian shall not have received written notice from the Company that it disputes the occurrence of such Event of Default,
then the Custodian shall release to such Purchaser such Purchaser’s pro rata portion of the Secured Proceeds remaining in the Custodial Account. In the event that the Company does deliver a timely notice to the Custodian and the Purchaser that
it disputes such determination, then such dispute shall be resolved between the Company and the Purchaser by arbitration conducted as follows: the arbitration shall be conducted in New York, New York, before an arbitration panel of three
arbitrators, one of whom shall be selected by the Purchaser, one of whom shall be selected by the Company, with the remaining arbitrator to be agreed upon by the first two. The arbitration shall be conducted in accordance with the commercial
arbitration rules of the American Arbitration Association then in effect. Any arbitration decision or award shall be final and conclusive as to the parties to this Agreement and their successors and assigns; judgment upon such decision or award may
be entered in any competent court. In the event that the arbitration shall be decided in favor of the applicable Purchaser, then upon delivery of a written copy of such decision by the Purchaser to the Custodian, the Custodian shall promptly release
the Purchaser’s pro rata portion of the remaining Secured Proceeds to the Purchaser. 
  
 (iii) If the Company has not executed an agreement with Union Pacific Railway Company as described in Section 5.9 of the Purchase
Agreement on or before February 15, 2006, any Purchaser may demand the return of their Pro-Rata Amount of the Custodial Account in a writing addressed to the Custodian. 

 3. Security Agreement. 
  
 (a) Grant. The Company hereby unconditionally and irrevocably grants to the Purchasers, to secure the
payment and performance in full when due of all of the Obligations (as said term is defined below), a continuing first priority security interest in, and so pledges and assigns to the Purchasers all of, the Custodial Account, the Secured Proceeds
and any interest that accrues thereon (“Collateral”). “Obligations” means all present and future indebtedness, obligations, covenants, duties and liabilities of any kind or nature of the Company to the Purchasers
(or any of them) under this Agreement, the Debentures and the other Transaction Documents, in each case whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or
not jointly owed with others. Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Obligations and would be owed by the Company to the Purchasers under the Transaction
Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company or any of the Company’s Subsidiaries. 
  
 (b) Further Assurances. The Company agrees that at
any time and from time to time, at the expense of the Company, the Company shall promptly execute and deliver all further instruments, documents and/or control agreements and take all further action, that may be necessary or desirable, or that the
Purchasers may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable any Purchaser to exercise and enforce its rights and remedies hereunder with respect to any of the
Collateral. 
  
 (c) Rights and Remedies.
At any time after the occurrence of an Event of Default, and without any other notice to or demand upon the Company, the Purchasers shall have, in any jurisdiction in which enforcement hereof is sought, in addition to all other rights and remedies,
the rights and remedies of a secured party under the Uniform Commercial Code in effect from time to time in the State of New York (the “UCC”) and any additional rights and remedies which may be provided to a secured party in any
applicable jurisdiction. 
  
 (d) Power of
Attorney. The Company hereby irrevocably constitutes and appoints the Purchasers, and each of them, and any officer, partner, member or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full
irrevocable power and authority in the name, place and stead of the Company or in their own names, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and
instruments that may be necessary or useful to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives said attorneys the power and right, on behalf of the Company, without notice to or assent by
the Company, at any time after the occurrence of an Event of Default, to sell, transfer, pledge, make any agreement with respect to or otherwise dispose of or deal with any of the Collateral in such manner as is consistent with the UCC and as fully
and completely as though the Purchasers were the absolute owners thereof for all purposes, and to do, at the Company’s expense, at any time or from time to time, all acts and things which the Purchasers deem necessary or useful to protect,
preserve or realize upon the Collateral and the security interest of the 

 
Purchasers therein, in order to effect the intent of this Agreement, all at least as fully and effectively as the Company might do. 
  
 (e) Intentionally Omitted. 
  
 (f) Marshalling. All rights and remedies of the
Purchasers hereunder and in respect of the Collateral and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising. To the extent that it lawfully may, the Company hereby agrees
that it will not invoke any law relating to the marshalling of assets which might cause a delay in or impede the enforcement of the rights and remedies of the Purchasers under this Agreement, the Debentures, the other Transaction Documents or under
any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and to the extent that it lawfully may,
the Company hereby irrevocably waives the benefits of all such law. 
  
 (g) No Waiver, etc. The Purchasers shall not be deemed to have waived any of their rights or remedies in respect of the Obligations or the Collateral unless such waiver shall be in writing and signed by the
Purchasers. No delay or omission on the part of the Purchasers in exercising any right or remedy shall operate as a waiver of such right or remedy or any other right or remedy. A waiver on any one occasion shall not be construed as a bar to or
waiver of any right or remedy on any future occasion. All rights and remedies of the Purchasers with respect to the Obligations or the Collateral, whether evidenced hereby or by any other document or instrument, shall be cumulative and may be
exercised singularly, alternatively, successively or concurrently at such time or at such times as the Purchasers deem expedient. 
  
 (h) Certain Defined Terms. Terms used in this Section 3 but not otherwise defined in this Agreement that are defined in the
UCC (as such term is hereinafter defined) shall have the respective meanings given such terms therein; provided, however, that if a term is defined in Article 9 of the UCC differently than in another Article of the UCC, then such term
shall have the meaning specified in Article 9. “UCC” means the Uniform Commercial Code in effect from time to time in the State of New York. 
  
 4. Conditions to Custodian’s Duties. The acceptance by the Custodian of its duties as such under this Agreement is subject to the following
terms and conditions, which all of the parties to this Agreement hereby agree shall govern and control with respect to the rights, duties, liabilities and immunities of the Custodian: 
  
 (a) The Custodian is not a party to, nor is it bound by, any other agreement by which the other parties
hereto may be bound (whether or not it has knowledge of such), other than as expressly herein set forth. 
  
 (b) The Custodian shall be protected in acting upon any written notice, request, waiver, consent, receipt or other document which the
Custodian, in good faith, believes to be genuine and what it purports to be. No waiver or any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or 

 
succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be
deemed an extension of the time for performance of any other obligation or act. If the Custodian reasonably requires other or further instruments in connection with this Agreement or obligations in respect hereto, the necessary parties hereto shall
join in furnishing such instruments. 
  
 (c) The
Custodian shall be indemnified and held harmless by the Company and the Purchasers, jointly and severally, from and against any and all loss, expense, fees (including attorneys’ fees) and damages that may be incurred by the Custodian as a
result of its agreeing to act in such capacity and its performance of this Agreement. The Custodian shall not be obligated to any party for any error in judgment or for any act done or steps taken or omitted by it in good faith, or for any mistake
of fact or law, or for anything which it may do or refrain from doing in connection therewith, except as a result of its own gross negligence or willful misconduct. This indemnity includes the costs of enforcing the indemnification (including
attorneys’ fees). 
  
 (d) The Custodian may
consult with or retain legal counsel in connection with any dispute or question as to the construction of any of the provisions hereof or with regard to its duties and shall be held harmless and protected by the Company and the Purchasers in acting
in good faith in accordance with the instructions of such counsel. Such counsel’s fees and expenses shall be paid as set forth in Section 4(f) hereof. The Custodian may represent itself at its usual rates. 
  
 (e) The Custodian shall not be responsible or liable for the
default or misconduct of its agents, attorneys or employees, if they are selected with reasonable care. 
  
 (f) The Company will pay the Custodian’s fees (at the Custodian’s customary hourly rate for legal services) and out-of-pocket
disbursements for time spent in performing its duties under this Agreement, and if any of Custodian’s invoices are not paid in full within 30 days, the Custodian is directed to pay itself directly from the Custodial Account; provided that if
fees are taken directly from the Custodial Account by the Custodian, the Purchasers shall have no claim against the Custodian for such funds but shall have a claim against the Company for reimbursement. The Company shall promptly replenish any funds
that are disbursed to the Custodian from the Custodial Account. 
  
 (g) The Custodian shall have no obligation to seek to maximize the rate of interest on the Secured Proceeds, and shall be without liability to any person in respect thereof. 
  
 (h) No modification of this Agreement shall, without the
consent of the Custodian and all other parties hereto, modify the provisions of this Agreement relating to the duties, obligations or rights of the Custodian. This Agreement is the final expression of, and contains the entire agreement between, the
parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. 

 5. Conflict with Respect to Collateral. 
  
 (a) In the event that the Custodian at any time receives or
becomes aware of conflicting demands or claims with respect to the Collateral, this Agreement or its duties hereunder, the Custodian shall have the right to discontinue and refrain from any and all activities on its part under this Agreement or in
connection herewith until such conflict is resolved to its satisfaction. 
  
 (b) The Custodian shall have the further right to commence or defend any action or proceedings for the determination of such conflict. The Company and the Purchasers jointly and severally agree to pay all costs,
damages, judgments and expenses, including reasonable attorneys’ fees, suffered or incurred by the Custodian in connection with or arising out of this Agreement and the transactions described herein in the event of bona fide conflicting claims
or demands, including, but without limiting the generality of the foregoing, a suit in interpleader brought by the Custodian. In the event that the Custodian files a suit in interpleader, it shall thereupon be fully released and discharged from all
further obligations to perform any and all duties or obligations imposed upon it by this Agreement (except it may not release the Collateral except as designated by the court). 
  
 6. Acknowledgement. All parties hereto agree that the Custodian is counsel for Midsummer Capital, LLC
(“Midsummer”) and shall be entitled to represent Midsummer with respect to the Purchase Agreement and the transactions contemplated thereunder; and the Company and each other Purchaser hereby waives any right or claim to object to
such legal representation by Custodian of Midsummer in connection with this transaction. 
  
 7. Resignation of Custodian. The Custodian may at any time resign hereunder by giving written notice of its resignation to the Company and the Purchasers, at least ten (10) days prior to the date specified
for such resignation to take effect, and upon the effective date of such resignation, all property then held by the Custodian hereunder shall be delivered by it to such Person as may be designated by the Company and the Purchasers, in writing,
whereupon all the Custodian’s obligations hereunder shall cease and terminate. If no such Person shall have been designated by such date, all obligations of the Custodian hereunder shall, nevertheless, cease and terminate. The Custodian’s
sole responsibility thereafter shall be to keep safely all property then held by it and to deliver the same to a Person designated by the parties hereto or in accordance with the directions of a final order or judgment of a court of competent
jurisdiction, or to file a suit in interpleader as provided in Section 5 above. 
  
 8. Interest on Secured Proceeds. The Custodian shall have no obligation to any party to maintain any level of interest on the Secured Proceeds. In the absence of an Event of Default, all accrued interest, if
any, shall be payable to the Company or its assignees at the direction of the Company when actual paid. 
  
 9. Successors and Assigns. The Purchasers may assign their rights hereunder in connection with the transfer of Debentures. The Company may
not assign its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, administrators, successors and permitted assigns. 

 10. Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, AND THE PARTIES AGREE AND CONSENT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS LOCATED IN NEW YORK COUNTY, NEW YORK IN ANY ACTION OR PROCEEDING HEREUNDER, AND TO SERVICE OF PROCESS BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED (WHICH SHALL CONSTITUTE “PERSONAL SERVICE”). THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. 
  
 11.
Amendment. No provision of this Agreement may be amended or waived without the prior written consent of the Company and all the Purchasers; provided, however, that any provision relating to the duties, obligations and
rights of the Custodian shall in addition require the approval of the Custodian, as provided in Section 4 above. 
  
 12. Notices. All notices or other communications between the parties contemplated under, or relating to, this Agreement shall be in writing, shall
be signed by each person giving such notice or communication, and shall be delivered by hand, reputable overnight courier or by certified mail, return receipt requested, to the parties at their respective addresses set forth in the Securities
Purchase Agreement or to such other address as to which the sending party has received written notice in accordance with this Section 12. 
  
 IN WITNESS WHEREOF, the parties hereto have duly executed this Custodial and Security Agreement as of the day and year first above written. 
  

			
	NORTH AMERICAN TECHNOLOGIES GROUP, INC.
		
	 By:
	 	/s/    HENRY W. SULLIVAN        
	 Name:
	 	Henry W. Sullivan
	 Title:
	 	President
	
	CUSTODIAN:
		
	 By:
	 	/s/    JOSEPH SMITH        

			
	 Name of Investing Entity:
	 	 Sponsor Investments, LLC

			
	 By:
	 	 Herakles Investments, Inc., Managing Member

	Signature of Authorized Signatory of Investing Entity:
	
	/s/

			
	 Name of Authorized Signatory:
	 	 
	 Title of Authorized Signatory:
	 	 

			
	Name of Investing Entity: Crestview Capital Master, LLC
	
	Signature of Authorized Signatory of Investing Entity:
		
	  	 	/s/    DANIEL
WARSH        
	 Name of Authorized Signatory:
	 	Daniel Warsh
	 Title of Authorized Signatory:
	 	 
	
	Name of Investing Entity: Midsummer Investment Ltd.
	
	Signature of Authorized Signatory of Investing Entity:
		
	 	 	/s/    MICHEL A.
AMSALEM        
	 Name of Authorized Signatory:
	 	Michel A. Amsalem
	 Title of Authorized Signatory:
	 	 
		
	 Name of Investing Entity: Islandia, LP
	 	 
	
	Signature of Authorized Signatory of Investing Entity:
		
	 	 	/s/
	 Name of Authorized Signatory:
	 	 
	 Title of Authorized Signatory:

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