AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement"),
dated as of January __, 2006, by and among NATURAL GAS SYSTEMS, INC., a Nevada
corporation (the "Company"), and Rubicon Master Fund, a company organized under
the laws of the Cayman Islands (the "Buyer").
WHEREAS:
A. Pursuant to a Securities Purchase Agreement, by and among the parties
hereto (the "Original Securities Purchase Agreement"), on May 6, 2005 the
Company issued and sold to the Buyer 1.2 million shares of common stock, $0.001
par value (the "Common Stock"), of the Company (collectively, the "Original
Securities").
B. Concurrently with the Buyer's purchase of the Original Securities, the
Buyer and the Company entered into a Registration Rights Agreement, dated as of
May 6, 2005 (the "Original Registration Rights Agreement"), whereby the Company
agreed to provide certain registration rights under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "1933 Act"), and applicable state securities laws.
C. In connection with the Securities Purchase Agreement, dated as of the
date hereof, by and among the parties hereto (the "Second Securities Purchase
Agreement", and together with the Original Securities Purchase Agreement, the
"Securities Purchase Agreements"), the Company has agreed, upon the terms and
subject to the conditions set forth in the Second Securities Purchase Agreement,
to issue and sell to the Buyer One Hundred and Sixty Thousand (160,000) shares
of Common Stock of the Company (collectively, the "Second Securities", and
together with the Original Securities, the "Securities").
D. As a condition to the consummation of the transactions contemplated by
the Second Securities Purchase Agreement, the Company and the Buyer have agreed
to amend and restate in its entirety the Original Registration Rights Agreement
as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyer hereby
agree as follows:
1. Definitions.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Second Securities Purchase Agreement.
As used in this Agreement, the following terms shall have the following
meanings:
a. "Business Day" means any day other than Saturday, Sunday or any
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
b. "Closing Date" shall have the meaning set forth in the Second
Securities Purchase Agreement.
c. "Effective Date" means the date the Registration Statement has
been declared effective by the SEC.
d. "Effectiveness Deadline" means the date which is (i) in the event
that the Registration Statement is not subject to a review by the SEC, 120
calendar days after the Closing Date or (ii) in the event that the Registration
Statement is subject to a review by the SEC, 210 calendar days after the Closing
Date.
e. "Filing Deadline" means 60 calendar days after the Closing Date.
f. "Investor" means the Buyer or any transferee or assignee thereof
to whom the Buyer assigns its rights under this Agreement and who agrees to
become bound by the provisions of this Agreement in accordance with Section 9
and any transferee or assignee thereof to whom a transferee or assignee assigns
its rights under this Agreement and who agrees to become bound by the provisions
of this Agreement in accordance with Section 9.
g. "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
h. "register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.
i. "Registrable Securities" means the Securities and, to the extent
allowable under the 1933 Act and the rules promulgated thereunder (including
Rule 416), any share capital of the Company issued or issuable with respect to
the Securities as a result of any split, dividend, recapitalization, exchange or
similar event or otherwise.
j. "Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
Registrable Securities.
k. "Required Holders" means the holders of at least a majority of
the Registrable Securities.
l. "Required Registration Amount" means 100% of the number
Registrable Securities.
m. "Rule 415" means Rule 415 under the 1933 Act or any successor
rule providing for offering securities on a continuous or delayed basis.
n. "SEC" means the United States Securities and Exchange Commission.
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2. Registration.
a. Mandatory Registration. The Company has previously prepared and
filed with the SEC a Registration Statement on Form SB-2 covering the resale of,
among other shares, all of the Registrable Securities acquired by the Buyer
pursuant to the Original Securities Purchase Agreement. Such Registration
Statement is being reviewed by the SEC and has not yet been declared effective.
The Company agrees to prepare and, as soon as practicable but in no event later
than the Filing Deadline file with the SEC, an amendment to the Registration
Statement such that the Registration Statement also cover the resale of all of
the Registrable Securities. The Registration Statement ,as so amended, shall
register for resale at least the number of shares of Common Stock equal to the
Required Registration Amount as of date such amendment is initially filed with
the SEC. The Registration Statement, as so amended, shall contain (except if
otherwise reasonably directed by the Required Holders) the "Selling
Stockholders" and "Plan of Distribution" sections in substantially the form
attached hereto as Exhibit B. The Company shall use commercially reasonable
efforts to have the Registration Statement, as so amended declared effective by
the SEC as soon as practicable, but in no event later than the Effectiveness
Deadline.
b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and any increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Investor's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any Shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement. The Company shall have the right to include securities
other than Registrable Securities on the Registration Statement in its sole and
absolute discretion, including shares held by other investors and primary shares
being offered by the Company.
c. Legal Counsel. Subject to Section 5 hereof, the Required Holders
shall have the right to select one legal counsel to review any registration
pursuant to this Section 2 ("Legal Counsel"), which shall be Schulte Roth &
Zabel LLP or such other counsel as thereafter designated by the Required
Holders. The Company and Legal Counsel shall reasonably cooperate with each
other in performing the Company's obligations under this Agreement.
d. Ineligibility for Form S-3. The Company undertakes to register
the Registrable Securities on Form S-3 as soon as such form is available,
provided that, subject to the last sentence of Section 3(a), the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC. The Investors acknowledge
that Form S-3 is not currently available to the Company and that accordingly the
Registration Statement will be filed on a Form SB-2.
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e. Sufficient Number of Shares Registered. In the event the number
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities required to be
covered by such Registration Statement or an Investor's allocated portion of the
Registrable Securities pursuant to Section 2(b), the Company shall amend the
applicable Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover at least
the Required Registration Amount as of the trading day immediately preceding the
date of the filing of such amendment or new Registration Statement, in each
case, as soon as practicable, but in any event not later than fifteen (15) days
after the necessity therefor arises. The Company shall use commercially
reasonable efforts to cause such amendment and/or new Registration Statement to
become effective as soon as practicable following the filing thereof. For
purposes of the foregoing provision, the number of shares available under a
Registration Statement shall be deemed "insufficient to cover all of the
Registrable Securities" if at any time the number of shares of Common Stock
available for resale under the Registration Statement is less than the product
determined by multiplying (i) the Required Registration Amount as of such time
by (ii) 0.90.
f. Effect of Failure to File or Obtain and Maintain Effectiveness of
the Registration Statement or Other Breach. If the Company shall breach any term
or condition of this Agreement, including but not limited to (i) an amendment to
the Registration Statement covering all of the Registrable Securities required
to be covered thereby and required to be filed by the Company pursuant to this
Agreement (A) not being filed with the SEC on or before the Filing Deadline (a
"Filing Failure") or (B) not being declared effective by the SEC on or before
the Effectiveness Deadline (an "Effectiveness Failure") or (ii) on any day after
the Effective Date sales of all of the Registrable Securities required to be
included on such Registration Statement cannot be made (other than during an
Allowable Grace Period (as defined in Section 3(r)) pursuant to such
Registration Statement (including, without limitation, because of a failure to
keep such Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to such Registration Statement, to
register a sufficient number of shares of Common Stock or to maintain the
listing of the Common Stock) (a "Maintenance Failure"), then Buyer agrees that
its sole and exclusive remedy for such breach shall be to seek equitable relief,
and that in no event will Buyer be entitled to monetary damages (regardless of
whether it is able to obtain such specific performance); provided, however, that
with respect to any such future breach referenced above, the foregoing sentence
limiting the Buyer's sole and exclusive remedy to equitable relief shall not
apply in the event of the Company's willful, intentional and deliberate breach
of Sections 2(a), 2(d) or 2(e) hereof.
g. General Release. Except as provided in this Agreement with
reference to the Registrable Securities, it is the intention of the parties that
by entering into this Agreement, Buyer is forever relinquishing any claims
whatsoever that it may now or in the future have against the Company as a result
of the failure of the Company to have a Registration Statement covering all of
the Registrable Securities listed in the Registration Rights Agreement required
to be covered thereby be declared effective by the SEC or, if and when declared
effective, remain effective for any particular length of time. Accordingly,
Buyer hereby releases and forever discharges Company and its predecessors,
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successors, partners, assigns, employees, shareholders, owners, officers,
directors, agents, attorneys, subsidiaries, divisions, and affiliates, (jointly
referred to as "Released Parties") from any and all claims, demands, causes of
action, obligations, damages, attorneys' fees, costs and liabilities of any
nature whatsoever, including but not limited to Registration Delay Payments,
whether or not now known, suspected or asserted, which Buyer may have or claim
to have against the Released Parties relating in any manner to claims under the
Sections 2 or 3 hereof, and hereby covenants not to assert such claims, now or
in the future, through a lawsuit, an administrative proceeding or otherwise (the
"General Release"); provided, however, that with respect to any such future
breach of the Registration Rights Agreement under Sections 2(a), 2(d), 2(e), and
Section 3 of the Registration Rights Agreement, in the event said breach occurs
after May 1, 2007, the parties to this Agreement agree that Buyer shall be
entitled to seek to equitable relief, as its sole and exclusive remedy, of the
obligations of the Company in accordance with the terms and conditions of this
Agreement, as hereby amended in any court specified in Section 11 hereof;
provided further, however, that with respect to any such future breach
referenced above, the foregoing sentence limiting the Buyer's sole and exclusive
remedy to equitable relief shall not apply in the event of the Company's
willful, intentional and deliberate breach of Sections 2(a), 2(d) or 2(e)
hereof.
h. Waiver. With regards specifically to the General Release above,
Buyer waives all rights under Section 1542 of the Civil Code of California. That
section reads as follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
Notwithstanding the provisions of Section 1542 or any similar law of
any other state, and to provide a full and complete release of Released Parties,
Buyer expressly acknowledges that this Agreement and the General Release above,
in each case relating solely to claims under Sections 2 and 3 of this Agreement
is intended to include, without limitation, all claims which Buyer does not know
or suspect to exist in his favor at the time of execution of this Agreement, and
that the issuance of the Second Securities, under the Second Securities Purchase
Agreement, completely extinguishes all legal claims under Sections 2 and 3
hereof.
3. Related Obligations.
At such time as the Company is obligated to file a Registration Statement
with the SEC pursuant to Section 2(a), 2(d) or 2(e), the Company will use
commercially reasonable efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall submit to the SEC, within two (2) Business Days
after the Company learns that no review of a particular Registration Statement
will be made by the staff of the SEC or that the staff has no further comments
on a particular Registration Statement, as the case may be, a request for
acceleration of effectiveness of such Registration Statement to a time and date
not later than 48 hours after the submission of such request. The Company shall
keep each Registration Statement effective pursuant to Rule 415 at all times
until the earlier of (i) the date as of which the Investors may commence the
sale of Registrable Securities covered by such Registration Statement pursuant
to Rule 144 (or any successor thereto) promulgated under the 1933 Act or (ii)
the date on which the Investors shall have sold all of the Registrable
Securities covered by such Registration Statement (the "Registration Period").
The Company shall ensure that each Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein (in
the case of prospectuses, in the light of the circumstances in which they were
made) not misleading.
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b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company filing a report on Form 10-Q, Form 10-K or any analogous
report under the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the Company shall have incorporated such report by reference into such
Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the 1934 Act report is filed
which created the requirement for the Company to amend or supplement such
Registration Statement. The determination as to whether the filing of a
post-effective amendment is required (as opposed to a supplement) shall be made
by the Company in consultation with its legal counsel.
c. The Company shall (A) permit Legal Counsel to review and comment
upon (i) a Registration Statement at least five (5) Business Days prior to its
filing with the SEC and (ii) all amendments and supplements to all Registration
Statements (except for Annual Reports on Form 10-K, Reports on Form 10-Q,
Current Reports on Form 8K, and any similar or successor reports) within a
reasonable number of days prior to their filing with the SEC, and (B) not file
any Registration Statement or amendment or supplement thereto in a form to which
Legal Counsel reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably withheld. The Company shall furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by an Investor, and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto. The
Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations pursuant to this Section 3.
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d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if
requested by an Investor, all exhibits and each preliminary prospectus, (ii)
upon the effectiveness of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including copies of any
preliminary or final prospectus, as such Investor may reasonably request from
time to time in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
e. The Company shall use commercially reasonable efforts to (i)
register and qualify, unless an exemption from registration and qualification
applies, the resale by Investors of the Registrable Securities covered by a
Registration Statement under such other securities or "blue sky" laws of all
applicable jurisdictions in the United States, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of notice of the initiation or threatening of any proceeding for
such purpose.
f. The Company shall notify Legal Counsel and each Investor in
writing of the happening of any event, as promptly as practicable after becoming
aware of such event, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (provided that in no event shall such
notice contain any material, nonpublic information), and, subject to Section
3(q), promptly prepare a supplement or amendment to such Registration Statement
to correct such untrue statement or omission, and deliver ten (10) copies of
such supplement or amendment to Legal Counsel and each Investor (or such other
number of copies as Legal Counsel or such Investor may reasonably request). The
Company shall also promptly notify Legal Counsel and each Investor in writing
(i) when a prospectus or any prospectus supplement or post-effective amendment
has been filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such effectiveness shall be
delivered to Legal Counsel and each Investor by facsimile on the same day of
such effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
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g. The Company shall use commercially reasonable efforts to prevent
the issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of notice of the initiation or threat of any
proceeding for such purpose.
h. At the reasonable request of any Investor, in the event that the
Registrable Securities are being sold pursuant to an underwritten offering, the
Company shall furnish to such Investor, on the date of the effectiveness of the
Registration Statement and thereafter from time to time on such dates as an
Investor may reasonably request (i) a letter, dated such date, from the
Company's independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the Investors, and (ii) an
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the Investors.
i. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors (collectively, the "Inspectors"), all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall agree to hold in strict confidence
and shall not make any disclosure (except to an Investor) or use of any Record
or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is determined by the Company necessary to
avoid or correct a misstatement or omission in any Registration Statement or is
otherwise required under the 1933 Act, (b) the release of such Records is
ordered pursuant to a final, non-appealable subpoena or order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this Agreement. Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investors' ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.
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j. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
k. The Company shall use commercially reasonable efforts either to
secure the inclusion for quotation of all of the Registrable Securities on the
NASD's OTC Bulletin Board. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(k).
l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities to be offered pursuant to a
Registration Statement and enable such certificates to be in such denominations
or amounts, as the case may be, as the Investors may reasonably request and
registered in such names as the Investors may request.
m. If requested by an Investor, the Company shall (i) as soon as
reasonably practicable incorporate in a prospectus supplement or post-effective
amendment such information as an Investor reasonably requests to be included
therein relating to the sale and distribution of Registrable Securities,
including, without limitation, information with respect to the number of
Registrable Securities being offered or sold, the purchase price being paid
therefor and any other terms of the offering of the Registrable Securities to be
sold in such offering; (ii) as soon as reasonably practicable make all required
filings of such prospectus supplement or post-effective amendment after being
notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and (iii) as soon as reasonably practicable,
supplement or make amendments to any Registration Statement if reasonably
requested by an Investor holding any Registrable Securities.
n. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with, and in the manner provided by, the provisions of Rule 158 under the 1933
Act) covering a twelve-month period beginning not later than the first day of
the Company's fiscal quarter next following the effective date of a Registration
Statement.
o. The Company shall otherwise use commercially reasonable efforts
to comply with all applicable rules and regulations of the SEC in connection
with any registration hereunder.
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p. As soon as practicable after a Registration Statement which
covers Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC substantially in the form attached hereto as Exhibit A.
q. Notwithstanding anything to the contrary herein, at any time
after the Effective Date, the Company may delay the disclosure of material,
non-public information concerning the Company the disclosure of which at the
time is not, in the good faith opinion of the Board of Directors of the Company,
in the best interest of the Company and otherwise required (a "Grace Period");
provided, that the Company shall promptly (i) notify the Investors in writing of
the existence of material, non-public information giving rise to a Grace Period
(provided that in each notice the Company will not disclose the content of such
material, non-public information to the Investors) and the date on which the
Grace Period will begin, and (ii) notify the Investors in writing of the date on
which the Grace Period ends; and, provided further, that no Grace Period shall
exceed 15 consecutive days and during any three hundred sixty five (365) day
period such Grace Periods shall not exceed an aggregate of 45 days and the first
day of any Grace Period must be at least two (2) trading days after the last day
of any prior Grace Period (each, an "Allowable Grace Period"). Notwithstanding
the foregoing, the Allowable Grace Period shall be extended by up to one
additional 30 day period during any three hundred sixty five (365) day period in
the event that a post-effective amendment to the Registration Statement is
required to be filed and such amendment is reviewed by the SEC. For purposes of
determining the length of a Grace Period above, the Grace Period shall begin on
and include the date the Investors receive the notice referred to in clause (i)
and shall end on and include the later of the date the Investors receive the
notice referred to in clause (ii) and the date referred to in such notice. The
provisions of Section 3(g) hereof shall not be applicable during the period of
any Allowable Grace Period. Upon expiration of the Grace Period, the Company
shall again be bound by the first sentence of Section 3(f) with respect to the
information giving rise thereto unless such material, non-public information is
no longer applicable. Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Securities
Purchase Agreements in connection with any sale of Registrable Securities with
respect to which an Investor has entered into a contract for sale prior to the
Investor's receipt of the notice of a Grace Period and for which the Investor
has not yet settled.
r. The Company shall use commercially reasonable efforts to become
eligible to use a registration statement on Form S-3 for the registration of the
resale of Registrable Securities.
4. Obligations of the Investors.
a. At least five Business Days prior to the first anticipated filing
date of a Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the effectiveness of the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.
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b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreements
in connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f) and for which the Investor has not
yet settled.
d. Each Investor covenants and agrees that it will comply with the
prospectus delivery requirements of the 1933 Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.
5. Expenses of Registration.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be paid by the Company.
6. Indemnification.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, members, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
11
attorneys' fees, amounts paid in settlement or expenses, joint or several,
(collectively, "Claims") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in the light of the circumstances under which
the statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation of this
Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "Violations"). Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d); (ii) with respect to any
preliminary prospectus, shall not inure to the benefit of any such Person from
whom the Person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any Person controlling such
Person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(d), and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use giving rise to a
violation and such Indemnified Person, notwithstanding such advice, used it or
failed to deliver the correct prospectus as required by the 1933 Act and such
correct prospectus was timely made available pursuant to Section 3(d); (iii)
shall not be available to the extent such Claim is based on a failure of the
Investor to deliver or to cause to be delivered the prospectus made available by
the Company, including a corrected prospectus, if such prospectus or corrected
prospectus was timely made available by the Company pursuant to Section 3(d);
and (iv) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld or delayed. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
12
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement and each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each, an "Indemnified Party"), against any Claim or Indemnified Damages to
which any of them may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such Claim or Indemnified Damages arise out of or are
based upon any Violation, in each case to the extent, and only to the extent,
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and, subject to Section 6(c), such
Investor will reimburse any legal or other expenses reasonably incurred by an
Indemnified Party in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6(b)
and the agreement with respect to contribution contained in Section 7 shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld or delayed; provided, further, however, that the Investor
shall be liable under this Section 6(b) for only that amount of a Claim or
Indemnified Damages as does not exceed the net proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
13
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or Claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or Claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent, provided, however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the
Indemnified Party. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action.
d. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. Contribution.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no Person involved in the sale of Registrable Securities which Person is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) in connection with such sale shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.
14
8. Reports Under the 1934 Act.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to use
commercially reasonable efforts to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner (taking into account any
permitted extensions to file) all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains
subject to such requirements and the filing of such reports and other documents
is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company, if true, that it has complied with the reporting requirements of Rule
144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of Registration Rights.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of such Investor's Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act or applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreements.
10. Amendment of Registration Rights.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and the Required
Holders. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
15
11. Miscellaneous.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the such record owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) five Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Natural Gas Systems, Inc.
820 Gessner, Suite 1340
Houston, Texas 77024
Tel: 713-935-0122
Fax: 713-935-0199
Attention: Robert S. Herlin, President
With a copy to:
Troy & Gould Professional Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067-2367
Telephone: (310) 789-1255
Facsimile: (310) 201-4746
Attention: Lawrence Schnapp, Esq.
16
If to Legal Counsel:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Peter Halasz, Esq.
If to the Buyer, to its address and facsimile number set forth on the Schedule
of Buyers attached hereto, with copies to the Buyer's representatives as set
forth on the Schedule of Buyers, or to such other address and/or facsimile
number and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by the internal laws of
the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
17
e. This Agreement, the other Transaction Documents (as defined in
the Second Securities Purchase Agreement) and the instruments referenced herein
and therein constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the other Transaction Documents and the
instruments referenced herein and therein supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof, including but not limited to the Original Registration
Rights Agreement.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by the Required Holders.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
m. The obligations of each Investor hereunder are several and not
joint with the obligations of any other Investor, and no provision of this
Agreement is intended to confer any obligations on any Investor vis-a-vis any
other Investor. Nothing contained herein, and no action taken by any Investor
pursuant hereto, shall be deemed to constitute the Investors as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated herein.
[The remainder of the page is intentionally left blank]
18
IN WITNESS WHEREOF, the Buyer and the Company have caused their respective
signature page to this Amended and Restated Registration Rights Agreement to be
duly executed as of the date first written above.
NAME OF COMPANY
NATURAL GAS SYSTEMS, INC.
By: _________________________
Name:
Title:
IN WITNESS WHEREOF, the Buyer and the Company have caused their respective
signature page to this Amended and Restated Registration Rights Agreement to be
duly executed as of the date first written above.
BUYER:
RUBICON MASTER FUND
By: Rubicon Fund Management, LLP,
its Investment Manager
By: _________________________
Name:
Title:
SCHEDULE OF BUYERS
Buyer's Address and Buyer's Representative's Address
Buyer Facsimile Number and Facsimile Number
- ------------------- ---------------------------------- -------------------------------------
Rubicon Master Fund c/o Rubicon Fund Management LLP Schulte Roth & Zabel LLP
103 Mount St. 919 Third Avenue
London W1K2TJ New York, New York 10022
United Kingdom Telephone: (212) 756-2000
Facsimile No.: +44 207 074 4280 Facsimile: (212) 593-5955
Telephone No.: +44 207 074 4299 Attention: Peter Halasz, Esq.
Attn: William Callanan
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Transfer Agent]
[Address]
Attention:
Re: NATURAL GAS SYSTEMS, INC.
Ladies and Gentlemen:
We are counsel to NATURAL GAS SYSTEMS, INC., a Nevada corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Original Securities Purchase Agreement")
entered into by and among the Company and Rubicon Master Fund, a company
organized under the laws of the Cayman Islands (, the "Holder") pursuant to
which the Company issued 1.2 million shares of the Company's common stock,
$0.001 par value per share (the "Original Securities") and that certain
Securities Purchase Agreement (the "Second Securities Purchase Agreement", and
together with the Original Securities Purchase Agreement, the Securities
Purchase Agreements) entered into by and among the Company and the Holder
pursuant to which the Company issued _______ shares of the Company's common
stock, $0.001 par value per share (the "Second Securities", and together with
the Original Securities, the "Securities").
Pursuant to the Securities Purchase Agreements, the Company also has
entered into an Amended and Restated Registration Rights Agreement with the
Holder (the "Registration Rights Agreement") pursuant to which the Company
agreed, among other things, to register the Registrable Securities (as defined
in the Registration Rights Agreement), including the Securities, under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with the
Company's obligations under the Registration Rights Agreement, on ____________
___, 2005, the Company filed a Registration Statement on Form SB-2 (File No.
333-_____________) (the "Registration Statement") with the Securities and
Exchange Commission (the "SEC") relating to the Registrable Securities which
names the Holder as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
EXHIBIT A - 1
Notwithstanding anything to the contrary contained in this letter, we
neither express nor imply any opinion as to compliance by the Company with the
antifraud provisions of the California Corporate Securities Law, the Securities
Act of 1933 or the Securities Exchange Act of 1934, or the rules or regulations
under such law or any of such Acts
Very truly yours,
[ISSUER'S COUNSEL]
By: ___________________________
cc: Rubicon Master Fund
EXHIBIT A - 2
EXHIBIT B
SELLING STOCKHOLDERS
We are registering the shares of Common Stock in order to permit the
selling stockholders to offer the shares for resale from time to time. Except
for the ownership of the Common Stock issued pursuant to the Securities Purchase
Agreements or as otherwise set forth below, the selling stockholders have not
had any material relationship with us within the past three years.
The table below lists the selling stockholders and other information
regarding the beneficial ownership of the shares of Common Stock by each of the
selling stockholders. The second column lists the number of shares of Common
Stock beneficially owned by each selling stockholder as of ________, 2005.
In accordance with the terms of registration rights agreements with
certain of the selling stockholders, this prospectus generally covers the resale
of at least 100% of the Securities as of the trading day immediately preceding
the date the registration statement is initially filed with the SEC. The selling
stockholders may sell all, some or none of their shares in this offering. See
"Plan of Distribution."
Maximum Number of
Shares to be Sold
Number of Shares Owned Pursuant to this Number of Shares
Name of Selling Stockholder Prior to Offering Prospectus Owned After Offering
- ---------------------------------- -------------------------- ------------------------- ----------------------
Rubicon Master Fund (1)
(1) Pursuant to investment agreements, each of Rubicon Fund Management
Ltd., a company organized under the laws of the Cayman Islands, which we refer
to in this prospectus as Rubicon Fund Management Ltd, and Rubicon Fund
Management LLP, a limited liability partnership organized under the laws of the
United Kingdom, which we refer to in this prospectus as Rubicon Fund Management
LLP, Mr. Paul Anthony Brewer, Mr. Jeffrey Eugene Brummette, Mr. William Francis
Callanan, Mr. Vilas Gadkari, Mr. Robert Michael Greenshields and Mr. Horace
Joseph Leitch III share all investment and voting power with respect to the
securities held by Rubicon Master Fund. Mr. Brewer, Mr. Brummette, Mr. Callanan,
Mr. Gadkari, Mr. Greenshields and Mr. Leitch control both Rubicon Fund
Management Ltd and Rubicon Fund Management LLP. Each of Rubicon Fund Management
Ltd, Rubicon Fund Management LLP, Mr. Brewer, Mr. Brummette, Mr. Callanan, Mr.
Gadkari, Mr. Greenshields and Mr. Leitch disclaim beneficial ownership of these
securities.
EXHIBIT B - 1
PLAN OF DISTRIBUTION
We are registering shares of Common Stock to permit the resale of these
shares of Common Stock by the holders of such shares of Common Stock from time
to time after the date of this prospectus. We will not receive any of the
proceeds from the sale by the selling stockholders of the shares of Common
Stock. We will bear all fees and expenses incident to our obligation to register
the shares of Common Stock.
The selling stockholders may sell all or a portion of the shares of Common
Stock owned by them and offered hereby from time to time directly or through one
or more underwriters, broker-dealers or agents. If the shares of Common Stock
are sold through underwriters or broker-dealers, the selling stockholders will
be responsible for underwriting discounts or commissions or agent's commissions.
The shares of Common Stock may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of the sale, at varying prices
determined at the time of sale, or at negotiated prices. These sales may be
effected in transactions, which may involve crosses or block transactions,
o on any national securities exchange or quotation service on which
the securities may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in transactions otherwise than on these exchanges or systems or in
the over-the-counter market;
o through the writing of options, whether such options are listed on
an options exchange or otherwise;
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o sales pursuant to Rule 144;
o broker-dealers may agree with the selling securityholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
If the selling stockholders effect such transactions by selling shares of
Common Stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of the shares of Common Stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of the shares of Common Stock or otherwise, the selling stockholders
may enter into hedging transactions with broker-dealers or others, which may in
turn engage in short sales of the shares of Common Stock in the course of
hedging in positions they assume. The selling stockholders may also sell shares
of Common Stock short and deliver shares of Common Stock covered by this
prospectus to close out short positions and to return borrowed shares in
connection with such short sales. The selling stockholders may also loan or
pledge shares of Common Stock to broker-dealers or others that in turn may sell
such shares.
The selling stockholders may pledge or grant a security interest in some
or all of the shares of Common Stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of Common Stock from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended, amending, if
necessary, the list of selling stockholders to include the pledgee, transferee
or other successors in interest as selling stockholders under this prospectus.
The selling stockholders also may transfer and donate the shares of Common Stock
in other circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus, including, without limitation, in accordance with Section 2(f)
of the Securities Purchase Agreements.
The selling stockholders and any broker-dealer participating in the
distribution of the shares of Common Stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission paid, or any
discounts or concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of Common Stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of Common Stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.
Under the securities laws of some states, the shares of Common Stock may
be sold in such states only through registered or licensed brokers or dealers.
In addition, in some states the shares of Common Stock may not be sold unless
such shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling stockholder will sell any or
all of the shares of Common Stock registered pursuant to the shelf registration
statement, of which this prospectus forms a part.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the shares of Common Stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of Common
Stock to engage in market-making activities with respect to the shares of Common
Stock. All of the foregoing may affect the marketability of the shares of Common
Stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of Common Stock.
We will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration rights agreement, estimated to be $[ ] in total,
including, without limitation, Securities and Exchange Commission filing fees
and expenses of compliance with state securities or "blue sky" laws; provided,
however, that a selling stockholder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the selling stockholders against
liabilities, including some liabilities under the Securities Act, in accordance
with the registration rights agreements, or the selling stockholders will be
entitled to contribution. We may be indemnified by the selling stockholders
against civil liabilities, including liabilities under the Securities Act, that
may arise from any written information furnished to us by the selling
stockholder specifically for use in this prospectus, in accordance with the
related registration rights agreements, or we may be entitled to contribution.
Once sold under the shelf registration statement, of which this prospectus
forms a part, the shares of Common Stock will be freely tradable in the hands of
persons other than our affiliates.