NATURAL GAS SYSTEMS, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of April 4, 2005, by and
between STERLING MCDONALD (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 the stock options granted under
the Company's 2003 Stock Option Plan of Natural Gas Systems, Delaware, which was
assumed by the Company.
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 Chief Financial Officer. The Executive shall report to the
Company's CEO and Board of Directors, or to such other person as the
Company subsequently may determine.
(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. Executive may provide material work for
companies or third parties, if and only if such work is disclosed in
writing and Executive receives consent from the Board at a duly-held
meeting of the Board of Directors of the Company or if such work is
described in Exhibit D hereto. The Executive shall comply with the
Company's policies and rules, as they may be in effect from time to time
during his Employment.
(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.
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.
(a) SALARY. The Company shall pay the Executive as compensation for
his services a base salary at a gross annual rate of $150,000.00,
effective January 1, 2005, which may be increased annually at the election
and sole discretion of the board of directors. 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 be
considered for an annual incentive bonus of up to 75% of base salary based
on objective or subjective criteria established by the Company's Board of
Directors (the "Board") or the Compensation Committee of the Board. The
determinations of the Board or its Compensation Committee with respect to
such bonus, if any, shall be final and binding. The Executive shall not be
entitled to an incentive bonus if he is not employed by the Company on the
date when such bonus is payable.
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(c) STOCK OPTIONS. In addition to the 250,000 stock options
previously granted to the Executive under the Company's 2003 Stock Option
Plan, an subject to the approval of the Board or the Compensation
Committee of the Board, the Company shall grant the Executive a stock
option covering an additional Three Hundred Fifty Thousand (350,000)
shares of the Company's Common Stock. Such option shall be granted as soon
as reasonably practicable after the date of this Agreement. The exercise
price of such option shall be equal to the fair market value of such stock
on the date of grant or 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 in the option shares
in equal quarterly installments of 1/16th per quarter over the next four
years of continuous service. The grant of such option shall be subject to
the other terms and conditions set forth in the Company's 2004 Stock Plan
and in the Stock Option Agreement, attached hereto as EXHIBITS A AND B,
respectively.
3. VACATION AND EXECUTIVE 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. TERM 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) 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
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specified in Section 1(a) hereof or any breach by the Company of such
Section, which is not cured within 45 days after written notice of same by
Executive (except that such cure period shall be fifteen days with respect
to any breach of 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(c); 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.
(d) 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 under this Agreement before the effective
date of the termination. The payments under this Agreement shall fully
discharge all responsibilities of the Company to the Executive.
6. TERMINATION BENEFITS.
(a) GENERAL RELEASE. Any other provision of this Agreement
notwithstanding, Subsections (b) and (c) below shall not apply unless the
Executive (i) has executed a general release of all claims (in a form
prescribed by the Company) and (ii) has returned all property of the
Company in the Executive's possession.
(b) SEVERANCE PAY. If the Company terminates the Executive's
Employment for any reason other than Cause or Permanent Disability, or if
the Executive subject to a Constructive Termination, then the Company
shall pay the Executive his Base Salary and maintain and pay his medical
benefit and long-term disability coverage for a period of six (6) months
following the termination of his Employment (the "Continuation Period").
Such Base Salary 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.
(c) DEFINITION OF "CAUSE." For all purposes under this Agreement,
"Cause" shall mean:
(i) An unauthorized use or disclosure by the Executive of the
Company's confidential information or trade secrets, which use or
disclosure causes material harm to the Company;
(ii) A material breach by the Executive of any agreement between the
Executive and the Company;
(iii) A material failure by the Executive to comply with the
Company's written policies or rules;
(iv) 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;
(v) The Executive's gross negligence or willful misconduct; or
(vi) A continued failure by the Executive to perform assigned duties
after receiving written notification of such failure from the Board of
Directors.
(d) DEFINITION OF "PERMANENT DISABILITY." For all purposes under
this Agreement, "Permanent Disability" shall mean the Executive's
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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.
(e) CHANGE IN CONTROL. In the event that a Change in Control of the
Company occurs as a result of a sale or merger of the Company and the
Executive is terminated or is subject to a Constructive Termination within
one year following such event, then the Executive shall be paid an
additional severance payment equal to six months of Base Salary, paid in
monthly increments, (the "CHANGE IN CONTROL PAYMENT"), provided that if
the Executive obtains similar employment before the end of the six months,
then the remaining amount of the Change in Control Payment will be reduced
by half. "Change in Control" shall mean: (1) The consummation of a merger
or consolidation of the Company with or into another entity or any other
corporate reorganization, if persons who were not controlling stockholders
of the Company immediately prior to such merger, consolidation or other
reorganization own immediately after such merger, consolidation or other
reorganization 50% or more of the voting power of the outstanding
securities of each of (A) the continuing or surviving entity and (B) any
direct or indirect parent corporation of such continuing or surviving
entity; OR (2)The sale, transfer or other disposition of all or
substantially all of the Company's assets. A Change in Control shall not
occur if its sole purpose is to change the state of the Company's
incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the Company's
securities immediately before such transaction.
7. NON-SOLICITATION AND CONFIDENTIAL INFORMATION.
(a) NON-SOLICITATION. During the period commencing on the date of
this Agreement and continuing until the first anniversary of the date when
the Executive's Employment terminated for any reason, the Executive shall
not directly or indirectly, personally or through others, solicit or
attempt to solicit (on the Executive's own behalf or on behalf of any
other person or entity) either (i) the employment of any employee or
consultant of the Company or any of the Company's affiliates or (ii) the
business of any current or recent customer or working interest partner
with whom the Company is engaged in one or more documented projects or
relationships.
(b) CONFIDENTIAL INFORMATION. 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) 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 CFO, 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. 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 or unless such Confidential Information is required to be
released by law.
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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.
(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.
(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 Confidential Information
held or sought by either the Executive or the Company.
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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 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.
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(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.
----------------------------
Sterling H. McDonald
NATURAL GAS SYSTEMS, INC.
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By Robert S. Herlin
Title: CEO and President
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EXHIBIT A
STOCK OPTION PLAN
EXHIBIT B
STOCK OPTION AGREEMENT
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