NATURAL GAS SYSTEMS, INC.
EMPLOYMENT AGREEMENT
ROBERT S. HERLIN
THIS AGREEMENT ("AGREEMENT") is entered into as of April 4, 2005 (the
"EFFECTIVE DATE"), by and between ROBERT S. HERLIN (the "EXECUTIVE") and NATURAL
GAS SYSTEMS, INC., a Nevada corporation (the "COMPANY"). The Agreement
supercedes any and all prior agreements, written or oral, including but not
limited to the Executive's prior employment agreement with the Company and its
predecessor in interest, Natural Gas Systems, a Delaware corporation, other than
stock options granted under the Company's 2003 Stock Option Plan of Natural Gas
Systems, Delaware, which was assumed by the Company, as referenced herein.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITION. For the term of his employment under
this Agreement (the "Employment"), the Company agrees to employ the
Executive in the position of President and Chief Executive Officer. The
Executive shall report to the Company's Board of Directors. Executive
shall not be obligated to relocate away from Houston, Texas.
(b) OBLIGATIONS TO THE COMPANY. During the term of
Employment under this Agreement, Executive shall devote his/her full
business efforts and time to the Company. The foregoing shall not
preclude the Executive from engaging in appropriate civic, charitable
or religious activities or from devoting a reasonable amount of time to
private investments or from serving on the boards of directors of other
entities, as long as such activities and/or services do not interfere
or conflict with his/her responsibilities to the Company. The Executive
shall comply with the Company's policies and rules, as they may be in
effect from time to time during his Employment.
For purposes of this paragraph 1(b), the Company
hereby consents and approves of the activities described in EXHIBIT A
hereto.
(c) NO CONFLICTING OBLIGATIONS. The Executive
represents and warrants to the Company that he is under no obligations
or commitments, whether contractual or otherwise, that are inconsistent
with his obligations under this Agreement.
(d) COMMENCEMENT DATE. This Agreement shall take
effect upon the Effective date.
2. CASH AND INCENTIVE COMPENSATION.
For clarification, it is understood by all parties that other
than as specified herein, the Company is not obligated to award any future
grants of stock options or other form of equity compensation to Executive during
Executive's Employment with the Company.
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(a) SALARY. The Company shall pay the Executive as
compensation for his services an initial base salary at a gross annual
rate of $180,000.00, increasing to a $210,000.00 after one year from
the Effective Date, with possible additional increases on an annual
basis as determined by the Board of directors in their sole discretion.
Such salary shall be payable in accordance with the Company's standard
payroll procedures. The annual compensation specified in this
Subsection (a), together with any increases in such compensation that
the Company may grant from time to time, is referred to in this
Agreement as "BASE SALARY."
(b) INCENTIVE BONUSES. The Executive shall be
eligible to receive an annual incentive bonus of up to 100% of Base
Salary based on reasonable criteria (with input from Executive)
established by the Company's Board of Directors (the "BOARD") or the
Compensation Committee of the Board, payable in cash or the fair value
of securities equivalent to such cash amount. The determinations of the
Board or its Compensation Committee with respect to the award of such
bonus shall be final and binding. The Executive shall not be entitled
to an incentive bonus if he has resigned or been terminated for Cause
(as defined below) by the Company before the date when such bonus is
payable.
(c) STOCK OPTIONS. Subject to the approval of the
Board or the Compensation Committee of the Board, the Company shall
grant the Executive stock options aggregating Five Hundred Thousand
(500,000) shares of the Company's Common Stock. Such options shall be
granted as soon as reasonably practicable after the date of this
Agreement. The term of such option shall be 10 years, subject to
earlier expiration in the event of the termination of the Executive's
Employment. The Executive shall vest over a four year period, on an
installment basis determined by the Board or the Compensation
Committee. The grant(s) of such options shall be subject to the other
terms and conditions set forth in the Company's 2004 Stock Plan and
Stock Option Agreement, attached hereto as EXHIBITS B AND C,
respectively.
(d) WARRANTS. Subject to the approval of the Board of
the Compensation Committee of the Board, the Company shall grant the
Executive warrants aggregating Two Hundred Eighty Seven Thousand Five
Hundred (287,500) shares of the Company's Common Stock. The grant of
such warrants shall be subject to the terms and conditions set forth in
the Warrant Agreement, attached hereto as EXHIBIT D.
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(d) BONUS FOR PRIOR YEAR. In lieu of the cash bonus
provided for in the prior employment contract between the Company and
Executive, and subject to applicable security laws and approval of the
Board or the Compensation Committee, the Company agrees to issue
250,000 warrants to Tatum Partners to satisfy Executive's and Company's
obligation to Tatum Partners under the Resource Agreement, dated on or
about September 2003, without reducing any amount of the 250,000 stock
options previously granted to Executive under the 2003 Stock Option
Plan.
3. VACATION AND EMPLOYEE BENEFITS.
Executive shall be entitled to fifteen (15) days of
vacation and five (5) personal days per year, to be taken in such
amounts and at such times as shall be mutually convenient for Executive
and the Company. Any vacation days exceeding five (5) days not taken by
Executive in one year shall be forfeited and not carried forward to
subsequent years. During his Employment, the Executive shall be
eligible to participate in the employee benefit plans maintained by the
Company, subject in each case to the generally applicable terms and
conditions of the plan in question and to the determinations of any
person or committee administering such plan.
4. BUSINESS EXPENSES.
During his Employment, the Executive shall be
authorized to incur necessary and reasonable travel, entertainment and
other business expenses in connection with his duties hereunder. The
Company shall reimburse the Executive for such expenses upon
presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Company's generally
applicable policies.
5. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT. The Company may
terminate the Executive's Employment at any time and for any reason (or
no reason), and with or without Cause, by giving the Executive ten
day's notice in writing. The Executive may terminate his Employment by
giving the Company ten days' advance notice in writing. The Executive's
Employment shall terminate automatically in the event of his death. The
termination of the Executive's Employment shall not limit or otherwise
affect his obligations under Section 7.
(b) EMPLOYMENT AT WILL. The Executive's Employment
with the Company shall be "at will," meaning that either the Executive
or the Company shall be entitled to terminate the Executive's
Employment at any time and for any reason, with or without Cause. Any
contrary representations that may have been made to the Executive shall
be superseded by this Agreement. This Agreement shall constitute the
full and complete agreement between the Executive and the Company on
the "at will" nature of the Executive's Employment, which may only be
changed in an express written agreement signed by the Executive and a
duly authorized officer of the Company.
(c) RIGHTS UPON TERMINATION. Except as expressly
provided in Section 6, upon the termination of the Executive's
Employment, the Executive shall only be entitled to the compensation,
benefits and expense reimbursements that the Executive has earned or
accrued under this Agreement before the effective date of the
termination. Termination payments pursuant to Section 6 shall fully
discharge all responsibilities of Company to Executive except for the
Company's responsibilities listed in Sections 2, 3, 4, 5, 8, 9, 10 and
Exhibits B, C and D herein.
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(d) CONSTRUCTIVE TERMINATION. The term "CONSTRUCTIVE
TERMINATION" shall mean any of the following: (i) any breach by the
Company of any material provision of this Agreement, including, without
limitation, the assignment to the Executive of duties inconsistent with
his position specified in Section 1(a) hereof or any breach by the
Company of such Section, which is not cured within 60 days after
written notice of same by Executive (except that such cure period shall
be fifteen days with respect to D&O Insurance described in Section
10(h) hereof, unless such breach is due to the actions or inactions of
the Executive), describing in detail the breach asserted and stating
that it constitutes notice pursuant to this Section 5(d); or (ii)
relocation of Executive's offices in excess of 20 miles from its
current location; or (iii) a substantial reduction of the
responsibilities, authority or scope of work of Executive.
6. TERMINATION BENEFITS.
(a) GENERAL RELEASE. Any other provision of this
Agreement notwithstanding, Subsection (b) below shall not apply unless
the Executive: (i) has executed a general release fully discharging all
responsibilities of the Company to the Executive for all claims except
for those noted in 5 (c) above (in a form prescribed by the Company),
and (ii) has returned all property of the Company in the Executive's
possession, and (iii) is in material compliance with the restrictive
covenants in Section 7 hereof .
(b) SEVERANCE PAY. If the Company terminates the
Executive's Employment other than for Cause or Permanent Disability, or
if the Executive is subject to a Constructive Termination, then the
Company shall pay the Executive his Base Salary ("SEVERANCE PAY") for a
period of one year following the termination of his Employment (the
"CONTINUATION PERIOD"). Such Severance Pay shall be paid at the rate in
effect at the time of the termination of Employment and in accordance
with the Company's standard payroll procedures. In the event that (i)
Executive is paid Severance Pay and Executive, AND (ii) Executive
enters into similar employment prior to the end of the Continuation
Period, then the Company may elect, at the Company's sole option and
discretion, to terminate all Restrictive Covenant obligations of
Executive under subsections 7(b) and 7(c) below in return for a
reduction of fifty percent (50%) of the remaining Severance Pay
obligations to Executive.
(c) DEFINITION OF "CAUSE." For all purposes under
this Agreement, "CAUSE" shall mean:
(i) A material breach by the Executive of any written
agreement between the Executive and the Company, provided that the
Company has given written notice of such breach which notice describes
in detail the breach asserted and stating that it constitutes notice
pursuant to this Section 6(c) and which breach, if capable of being
cured, has not been cured within thirty (30) days after such notice;
(ii) The Executive's conviction of, or plea of
"guilty" or "no contest" to, a felony under the laws of the United
States or any state thereof;
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(iii) A material failure by the Executive to comply
with the Company's lawful written policies or rules which causes
material harm to the Company, provided that the Company has given
written notice of such breach which notice describes in detail the
breach asserted and stating that it constitutes notice pursuant to this
Section 6(c) and which breach, if capable of being cured, has not been
cured within thirty (30) days after such notice;
(iii) The Executive's fraud, gross negligence or
willful misconduct; or
(iv) A continued failure by the Executive to perform
his lawful and reasonable assigned duties, provided that the Company
has given written notice of such breach which notice describes in
detail the breach asserted and stating that it constitutes notice
pursuant to this Section 6(c) and which breach, if capable of being
cured, has not been cured within thirty (30) days after such notice.
(d) DEFINITION OF "PERMANENT DISABILITY." For all
purposes under this Agreement, "PERMANENT DISABILITY" shall mean the
Executive's inability to perform the essential functions of the
Executive's position, with or without reasonable accommodation, for a
period of at least 90 consecutive days because of a physical or mental
impairment.
7. RESTRICTIVE COVENANTS.
(A) CONFIDENTIAL INFORMATION
(i) During Executive's Employment and at all times
thereafter, Executive shall not, without the prior express written
consent of the Board (except as may be required in connection with any
judicial or administrative proceeding or inquiry or by law ) disclose
to any person, other than an officer or director of the Company or a
person to whom disclosure is reasonably necessary or appropriate in
connection with the performance by Executive of his duties as CEO and
President, any Confidential Information (defined below) with respect to
the business and affairs of the Company or any of its subsidiaries,
unless such disclosure is subject to a confidentiality agreement or the
confidential information has been previously disclosed through no fault
of Executive.
(ii) Executive acknowledges that he has and will have
access to proprietary information, trade secrets, and confidential
material (including lists of key personnel, customers, clients,
vendors, suppliers, distributors or consultants) of the Company (the
"CONFIDENTIAL Information"). Executive agrees, without limitation in
time or until such information shall become public other than by the
Executive's unauthorized disclosure, to maintain the confidentiality of
the Confidential Information and refrain from divulging, disclosing, or
otherwise using in any respect the Confidential Information to the
detriment of the Company and any of its subsidiaries, affiliates,
successors or assigns, or for any other purpose or no purpose, unless
such disclosure is subject to a confidentiality agreement or such
Confidential Information is previously disclosed through no fault of
Executive.
(B) NO SOLICITATION. For a period of one (1) year
after he ceases to be employed by the Company, Executive agrees that he
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will not, directly or indirectly, for his benefit or for the benefit of
any other person, firm or entity, do any of the following:
(i) solicit from any client doing business with the
Company as of Executive's termination, business of the same or of a
similar nature to the business of the Company with such client, if such
business is expected to directly compete with the Company;
(ii) solicit from any known potential client of the
Company business of the same or of a similar nature to that which has
been the subject of a known written or oral bid, offer or proposal by
the Company, or of substantial preparation with a view to making such a
bid, proposal or offer, within six (6) months prior to Executive's
termination, if such business is expected to directly compete with the
Company;
(iii) solicit the employment or services of, or hire,
any person who was known to be employed by the Company upon termination
of Executive's Employment, or within six (6) months prior thereto,
other than Executive's personal secretary; or
(iv) otherwise knowingly interfere with the business
or accounts of the Company.
For the purposes of (b)(i) through (iv) above and (c)
below, "compete" is defined to mean engagement in the same or
essentially similar activities as the Company within the same field,
parish or county as the Company.
(C) COVENANT NOT TO COMPETE. During the term hereof
and for a period of one (1) year following the termination of this
Agreement, Executive shall not directly or indirectly engage in, or own
any interest in any business which engages in, (i) the business of the
Company or any of its subsidiaries as of the date of this Agreement
that is expected to directly compete with the Company or (ii) any other
business which the Company or any of its subsidiaries shall have
acquired by purchase, merger or otherwise prior to the date of
termination in which the Company or any of its subsidiaries does
business that is expected to compete to with the Company provided,
however, that this sentence shall not prohibit Executive's ownership of
not more than five (5) percent of the voting stock of any publicly held
corporation. For clarification, Executive can work in the same line of
business as the Company and its subsidiaries, including working in the
same state, provided that Executive does not directly complete with the
Company.
(D) SURVIVAL. The covenants contained in this Section
7 shall survive any termination of Executive's Employment.
8. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. This Agreement shall be
binding upon any successor (whether direct or indirect and whether by
purchase, lease, merger, consolidation, liquidation or otherwise) to
all or substantially all of the Company's business and/or assets. For
all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets that becomes bound by
this Agreement.
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(e) EXECUTIVE'S SUCCESSORS. This Agreement and all
rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees.
9. ARBITRATION.
(a) SCOPE OF ARBITRATION REQUIREMENT. The parties
hereby waive their rights to a trial before a judge or jury and agree
to arbitrate before a neutral arbitrator any and all claims or disputes
arising out of this Agreement and any and all claims arising from or
relating to the Executive's Employment, including (but not limited to)
claims against any current or former employee, director or agent of the
Company, claims of wrongful termination, retaliation, discrimination,
harassment, breach of contract, breach of the covenant of good faith
and fair dealing, defamation, invasion of privacy, fraud,
misrepresentation, constructive discharge or failure to provide a leave
of absence, or claims regarding commissions, stock options or bonuses,
infliction of emotional distress or unfair business practices.
(b) PROCEDURE. The arbitrator's decision shall be
written and shall include the findings of fact and law that support the
decision. The arbitrator's decision shall be final and binding on both
parties, except to the extent applicable law allows for judicial review
of arbitration awards. The arbitrator may award any remedies that would
otherwise be available to the parties if they were to bring the dispute
in court. The arbitration shall be conducted in accordance with the
National Rules for the Resolution of Employment Disputes of the
American Arbitration Association. The arbitration shall take place in
Houston, Texas.
(c) COSTS. The parties shall share the costs of
arbitration equally. Both the Company and the Executive shall be
responsible for their own attorneys' fees. Notwithstanding the
forgoing, the non-prevailing party shall reimburse the prevailing party
for arbitration costs and reasonable attorney's fees, to the extent
allowable under applicable law.
(d) APPLICABILITY. This Section 9 shall not apply to
(i) workers' compensation or unemployment insurance claims or (ii)
claims concerning the validity, infringement or enforceability of any
trade secret, patent right, copyright or any other trade secret or
intellectual property held or sought by either the Executive or the
Company (whether or not arising under the restrictive covenants of
Section 7 hereof).
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10. MISCELLANEOUS PROVISIONS
(a) NOTICE. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed
to have been duly given when personally delivered or when mailed by
U.S. registered or certified mail, return receipt requested and postage
prepaid. In the case of the Executive, mailed notices shall be
addressed to him at the home address that he most recently communicated
to the Company in writing. In the case of the Company, mailed notices
shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
(b) MODIFICATIONS AND WAIVERS. No provision of this
Agreement shall be modified, waived or discharged unless the
modification, waiver or discharge is agreed to in writing and signed by
the Executive and by an authorized officer of the Company (other than
the Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(c) WHOLE AGREEMENT. This Agreement supersedes any
previous offer letter or employment agreement. No other agreements,
representations or understandings (whether oral or written and whether
express or implied) which are not expressly set forth in this Agreement
have been made or entered into by either party with respect to the
subject matter hereof. This Agreement and the Exhibits and agreements
referenced herein contain the entire understanding of the parties with
respect to the subject matter hereof.
(d) WITHHOLDING TAXES. All payments made under this
Agreement shall be subject to reduction to reflect taxes or other
charges required to be withheld by law.
(e) CHOICE OF LAW AND SEVERABILITY. This Agreement
shall be interpreted in accordance with the laws of the State of Texas
(except their provisions governing the choice of law). If any provision
of this Agreement becomes or is deemed invalid, illegal or
unenforceable in any applicable jurisdiction by reason of the scope,
extent or duration of its coverage, then such provision shall be deemed
amended to the minimum extent necessary to conform to applicable law so
as to be valid and enforceable or, if such provision cannot be so
amended without materially altering the intention of the parties, then
such provision shall be stricken and the remainder of this Agreement
shall continue in full force and effect. If any provision of this
Agreement is rendered illegal by any present or future statute, law,
ordinance or regulation (collectively the "LAW"), then such provision
shall be curtailed or limited only to the minimum extent necessary to
bring such provision into compliance with the Law. All the other terms
and provisions of this Agreement shall continue in full force and
effect without impairment or limitation.
(f) NO ASSIGNMENT. This Agreement and all rights and
obligations of the Executive hereunder are personal to the Executive
and may not be transferred or assigned by the Executive at any time.
The Company may assign its rights under this Agreement to any entity
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that assumes the Company's obligations hereunder in connection with any
sale or transfer of all or a substantial portion of the Company's
assets to such entity.
(g) COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
(h) INDEMNIFICATION. As an officer of the Company,
Executive will be protected by the indemnification provisions of
Article VIII of the Company's Certificate of Incorporation. In
addition, the Company has purchased and currently maintains insurance
protecting its officers and directors against certain losses arising
out of actual or threatened actions, suits or proceedings to which such
persons may be made or threatened or be made parties ("D&O INSURANCE").
The Company covenants to continue D&O Insurance coverage at current
levels for the duration of Executive's service and for two (2) years
thereafter. .
IN WITNESS WHEREOF, each of the parties has executed this employment
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
----------------------------
Robert S. Herlin, Executive
NATURAL GAS SYSTEMS, INC.
------------------------------
By: Laird Cagan
Title: Chairman
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EXHIBIT A
OTHER INTERESTS
In accordance with Section 1 (b) of the Employment Agreement dated as
of March __, 2005, (the "Agreement"), the Company hereby consents and approves
of the following business interests conducted by Executive that are not directly
related to Company matters:
Executive serves the board of directors of Boots and Coots Group, Inc., a
publicly owned well service company that is not in direct or indirect
competition with the Company. The Company recognizes that it may benefit from
such activities, in that they broaden Executive's corporate governance
experience and extends Executive's exposure to industry. Executive currently
devotes a minimal amount of time per month on such activities and does not
believe that such service materially and adversely impacts his ability to
perform under the Agreement.
Executive is a partner with Tatum CFO Partners, a provider of contract CFO's and
other C level executives to industry and Tatum provides ongoing services to the
Company pursuant to a Services Agreement. Executive was introduced to the
Company through Tatum CFO Partners and intends to maintain that relationship,
however, Executive has not in the past, during his Employment with the Company,
and does not intend during the term of the Agreement to expend any material
business time or effort to such relationship, including the provision of
services to other companies. The Tatum CFO Partner services are valuable to the
Company by providing immediate resources in the areas of finance, accounting,
information services, management issues, human resources and other issues.
Executive currently owns direct minor oil and gas interests through a family
entity, none of which are directly or indirectly competitive with the Company's
interests. Executive agrees to advise the Company of any contemplated
investments that might be construed to be competitive with Company's interests,
prior to making such additional investments. Such ownership does not utilize a
material amount of Executive's time and none of Executive's business time or
efforts.
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EXHIBIT B
2004 STOCK OPTION PLAN
EXHIBIT C
2004 STOCK OPTION AGREEMENT
EXHIBIT D
STOCK OPTION AGREEMENT
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