NATURAL GAS SYSTEMS, INC. REGISTRATION RIGHTS AGREEMENT
NATURAL
GAS SYSTEMS, INC.
THIS
REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is
made as of January ____, 2005, by and among Natural Gas Systems, Inc., a Nevada
corporation (the “Company”), and
the undersigned holders of common stock of the Company together with their
qualifying transferees (the “Holders”).
RECITALS:
A. In
connection with the Company’s issuance of a note to Holders, the Company has
granted to the Holders warrants exercisable into Common Shares.
B. The
issuance of the note and the warrants is conditional upon the extension of the
rights set forth herein, and by this Agreement the Company and the Holders
desire to provide for certain rights as set forth herein.
NOW,
THEREFORE, in consideration of the foregoing and of the mutual promises and
covenants contained herein, the parties, severally and not jointly, hereby agree
as follows:
AGREEMENT:
NOW,
THEREFORE, in consideration of the foregoing and of the mutual promises and
covenants contained herein, the parties agree as follows:
1. Registration
Rights.
1.1 Definitions. As used
in this Agreement, the following terms shall have the following respective
meanings:
(a) The terms
“register”,
“registered” and
“registration” refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the “Securities
Act”), and
the declaration or ordering of the effectiveness of such registration
statement.
(b) The term
“Registrable
Securities” means
(i) any and all shares of Common Stock of the Company issuable upon the exercise
of that certain Warrant Agreement dated January __, 2005 (which shares of
Registrable Common Stock are referred to herein as the “Common
Shares”); (ii)
stock issued in lieu of the stock referred to in (i) in any reorganization which
has not been sold to the public; or (iii) stock issued in respect of the stock
referred to in (i) and (ii) as a result of a stock split, stock dividend,
recapitalization or the like, which has not been sold to the public;
provided,
however, that
Registrable Securities shall not include any Common Shares which have previously
been registered or which have been sold to the public either pursuant to a
registration statement or in a private transaction in which the transferor’s
rights under this Agreement are not assigned.
(c) The terms
“Holder” or
“Holders” means
any person or persons to whom Registrable Securities were originally issued or
qualifying transferees under subsection 1.9 hereof who hold Registrable
Securities.
(d) The term
“Initiating
Holders” means
any Holder or Holders, of 40% or greater of the aggregate of the Registrable
Securities then outstanding.
(e) The term
“SEC” means
the Securities and Exchange Commission.
(f) The term
“Registration
Expenses” shall
mean all expenses incurred by the Company in complying with subsections 1.2,
1.3, 1.4 and 1.5 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company.)
1.2 Company
Registration.
(a) Registration. If at
any time or from time to time, the Company shall determine to register any of
its securities, for its own account or the account of any of its shareholders,
other than a registration on Form S-8 relating solely to employee stock option
or purchase plans, or a registration on Form S-4 relating solely to a SEC Rule
145 transaction, or a registration pursuant to Section 1.3 hereof, the Company
will:
(i) promptly
give to each Holder written notice thereof at least 30 days prior to the initial
filing of the registration statement relating to such offering; and
(ii) use
commercially reasonable efforts to include in such registration (and
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made within 15 days after
receipt of such written notice from the Company, by any Holder or Holders,
except as set forth in subsection 1.2(b) below.
(b) Underwriting.
(i) If the
registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise the Holders as a
part of the written notice given pursuant to subsection 1.2(a)(i). In such event
the right of any Holder to registration pursuant to subsection 1.2 shall be
conditioned upon such Holder’s participation in such underwriting and the
inclusion of such Holder’s Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other
shareholders distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company.
(ii) Notwithstanding
any other provision of this subsection 1.2, if the underwriter managing such
public offering determines that marketing factors require a limitation of the
number of shares to be underwritten, the underwriter may limit the number of
Registrable Securities to be included in the registration and underwriting, or
may exclude Registrable Securities entirely from such registration and
underwriting. The Company shall so advise all Holders of Registrable Securities
which would otherwise be registered and underwritten pursuant hereto, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among Holders requesting
registration in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities held by each of such Holders as of the date of the
notice pursuant to subsection 1.2(a)(i) above; provided that, if and to the
extent not in conflict with any registration rights granted to other holders of
the Company’s securities in existence as of the date hereof, the number of
shares of Registrable Securities requested to be included in such underwriting
shall not be reduced unless the securities being sold by shareholders other than
the Holders are excluded from the Underwriting on a proportional basis. If any
Holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
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1.3 Form
S-3. In
addition to the rights and obligations set forth in subsection 1.2 above, if a
Holder requests that the Company file a registration statement on Form S-3 (or
any successor to Form S-3) for a public offering of shares of Registrable
Securities, the reasonably anticipated aggregate price to the public of which
(net of underwriting discounts and commissions) would exceed $1,000,000 and the
Company is then a registrant entitled to use Form S-3 to register the shares for
such an offering, the Company shall use commercially reasonable efforts to cause
such shares to be registered for the offering as soon as practicable on Form S-3
(or any successor form to Form S-3); provided, however the Company shall not be
required to effect a registration pursuant to this subsection 1.3:
(a) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities
Act;
(b) during
the period starting with the date of filing of, and ending on a date 60 days
following the effective date of, a registration statement pursuant to subsection
1.2, provided that the Company is actively employing in good faith commercially
reasonable efforts to cause such registration statement to become
effective;
(c) if the
Company at the request of a Holder has effected a registration pursuant to this
subsection 1.3 within a 12-month period from the date of such request;
or
(d) if the
Company shall furnish to such Holder a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be detrimental to the Company and its shareholders for
such registration statement to be filed on or before the date filing would be
required and it is therefore essential to defer the filing of such registration
statement, in which case the Company shall have the right to defer such filing
for a period of not more than 90 days after the furnishing of such a certificate
of deferral, provided that the Company may not defer such filing pursuant to
this subsection 1.3 more than once in any six month period.
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In the
event such Holders propose to offer the shares of Registrable Securities
pursuant to this subsection 1.3 by means of an underwriting, the proposed
underwriter(s) shall be selected by a majority in interest of the Holders and
shall be reasonably acceptable to the Company. The Company shall give written
notice to all other Holders and all other shareholders of the Company with
registration rights (collectively, the “Other
Holders”) of the
receipt of a request for registration pursuant to this subsection 1.3 and shall
provide a reasonable opportunity for the Other Holders to participate in the
registration. The right of any Holder to registration pursuant to this
subsection 1.3 shall be conditioned upon such Holder’s participation in such
underwriting and the inclusion of such Holder’s and/or such Other Holders’
Registrable Securities and/or other securities of the Company eligible for
registration in the underwriting (unless otherwise mutually agreed by a majority
in interest of the Holders and the Other Holders) to the extent provided herein.
The Company shall (together with the Holders and the Other Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters.
Notwithstanding any other provision of this subsection 1.3, if the underwriter
advises the Company in writing that marketing factors require a limitation of
the number of shares to be underwritten, the Company shall so advise the Holders
and the Other Holders of the number of shares of Registrable Securities and
other securities of the Company eligible for registration that may be included
in the registration and underwriting shall be allocated among the Holders and
Other Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities, and other securities of the Company eligible
for registration, to be included in such underwriting shall not be reduced
unless all other securities are first entirely excluded from the underwriting.
If any Holder of Registrable Securities or other disapproves of the terms of the
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. Any Registrable
Securities which are excluded from the underwriting by reason of the
underwriter’s marketing limitation or withdrawn from such underwriting shall be
withdrawn from such registration.
1.4 Expenses
of Registration. All
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to this Section 1 shall be borne by the
Company except as follows:
(a) The
Company shall not be required to pay for expenses of any registration proceeding
begun pursuant to subsection 1.3, the request for which has been subsequently
withdrawn by the Holders, in which latter such case, such expenses shall be
borne by the Holders requesting such withdrawal. In the event that a withdrawal
by the Holders is based on material adverse information relating to the Company
that is different from the information known or available to the Holders
requesting registration at the time of their request for registration under
subsection 1.3, such registration shall not be treated as a counted requested
registration for the purposes of subsection 1.3 hereof, and in which case, such
expenses shall be borne by the Company.
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(b) For each
registration, the Company shall not be required to pay fees or disbursements of
more than one firm of legal counsel to the Holders, such fees to not exceed
$10,000 in the aggregate.
(c) The
Company shall not be required to pay underwriters’ fees, discounts or
commissions relating to Registrable Securities, and all stock transfer taxes
applicable to the sale of Registrable Securities and fees and disbursements of
counsel for any Holder (other than fees and disbursements of counsel included in
the Registration Expenses).
1.5 Registration
Procedures. In the
case of each registration, qualification or compliance effected by the Company
pursuant to this Agreement, the Company will keep each Holder participating
therein advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. Except as
otherwise provided in subsection 1.4, at its expense the Company
will:
(a) with
respect to a demand made for registration pursuant to Section 1.3, prepare and
file with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for up to 120 days or if such registration statement is on Form S-3
(or any successor to Form S-3) and provides for sales of securities from time to
time pursuant to Rule 415 under the Securities Act for up to one
year.
(b) Prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration statement
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(c) Furnish,
without charge, to the Holders such numbers of copies of a prospectus, including
each preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by
them.
(d) Use its
best efforts to register and qualify the securities covered by such registration
statement under such other securities or Blue Sky laws of such jurisdictions as
shall be reasonably requested by the Holders or any managing underwriter,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the
event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement.
(f) Notify
each Holder of Registrable Securities covered by such registration statement at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act or the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
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(g) The
Company shall:
(i) make
available for inspection by a representative of the Holders, the managing
underwriter participating in any disposition pursuant to such registration
statement and one firm of attorneys designated by the Holders (upon execution of
customary confidentiality agreements reasonably satisfactory to the Company and
its counsel), at reasonable times and in reasonable manner, financial and other
records, documents and properties of the Company that are pertinent to the
conduct of due diligence customary for an underwritten offering, and cause the
officers, directors and employees of the Company to supply all information
reasonably requested by any such representative, underwriter or attorney in
connection with a registration statement as shall be necessary to enable such
persons to conduct a reasonable investigation within the meaning of Section 11
of the Securities Act;
(ii) use its
best efforts to cause all Registrable Securities covered by a registration
statement to be listed on any securities exchange or any automated quotation
system on which similar securities issued by the Company are then
listed;
(iii) cause to
be provided to the Holders that are selling Registrable Securities pursuant to
such registration statement and to the managing underwriter if any disposition
pursuant to such registration statement is an underwritten offering, upon the
effectiveness of such registration statement, a customary “10b-5” opinion
of independent counsel (an “Opinion”) and a
customary “cold comfort” letter of independent auditors (a “Comfort
Letter”) in
each case addressed to such Holders and managing underwriter, if
any;
(iv) notify in
writing the Holders that are selling Registrable Securities pursuant to such
registration statement and any managing underwriter if any disposition pursuant
to such registration statement is an underwritten offering, (A) when the
registration statement has become effective and when any post-effective
amendment thereto has been filed and becomes effective, (B) of any request by
the SEC or any state securities authority for amendments and supplements to the
registration statement or of any material request by the SEC or any state
securities authority for additional information after the registration statement
has become effective, (C) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose, (D) if, between
the effective date of the registration statement and the closing of any sale of
Registrable Securities covered thereby, the representations and warranties of
the Company contained in any underwriting agreement, securities sales agreement
or other similar agreement, including this Agreement, relating to disclosure
cease to be true and correct in all material respects or if the Company receives
any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose, (E) of the happening of any event during the period
the registration statement is effective such that such registration statement or
the related prospectus contains an untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to make
statements therein not misleading (in the case of a prospectus, in light of
circumstances under which they were made) and (F) of any determination by the
Company that a post-effective amendment to the registration statement would be
appropriate. The Holders hereby agree to suspend, and to cause any managing
underwriter to suspend, use of the prospectus contained in a registration
statement upon receipt of such notice under clause (C), (E) or (F) above until,
in the case of clause (C), such stop order is removed or rescinded or, in the
case of clauses (E) and (F), the Company has amended or supplemented such
prospectus to correct such misstatement or omission or otherwise.
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If the
notification relates to an event described in clause (C), the Company promptly
shall use its best efforts to obtain the withdrawal of the stop order. If the
notification relates to an event described in clauses (E) or (F), the Company
shall promptly prepare and furnish to such seller and each underwriter, if any,
a reasonable number of copies of a prospectus supplemented or amended so that,
as thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an 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 no misleading;
(v) provide
and cause to be maintained a transfer agent and registrar for all such
Registrable Securities covered by such registration statement not later than the
effective date of such registration statement;
(vi) deliver
promptly to each Holder participating in the offering and each underwriter, if
any, copies of all correspondence between the SEC and the Company, its counsel
or auditors and all memoranda relating to discussions with the SEC and its staff
with respect to the registration statement, other than those portions of any
such correspondence and memoranda which contain information subject to
attorney-client privilege with respect to the Company, and, upon receipt of such
confidentiality agreements as the Company may reasonably request, make
reasonably available for inspection by any Holder of such Registrable Securities
covered by such registration statement, by any underwriter, if any,
participating in any disposition to be effected pursuant to such registration
statement and by any attorney, accountant or other agent retained by any such
Holder or any such underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of the Company, and cause all of
the Company’s officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney, accountant or
agent in connection with such registration statement;
(vii) use its
best efforts to obtain the withdrawal of any order suspending the effectiveness
of the registration statement;
(viii) provide a
CUSIP number for all Registrable Securities not later than the effective date of
the registration statement;
(ix) make
reasonably available its employees and personnel and otherwise provide
reasonable assistance to the underwriters in the marketing of Registrable
Securities in any underwritten offering;
(x) promptly
prior to the filing of any document which is to be incorporated by reference
into the registration statement or the prospectus (after the initial filing of
such registration statement) provide copies of such document to counsel to the
seller of Registrable Securities and to the managing underwriter, if any, and
make the Company’s representatives reasonably available for discussion of such
document and make such changes in such document concerning such sellers prior to
the filing thereof as counsel for such sellers or underwriters may reasonably
request; and
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(xi) cooperate
with the sellers of Registrable Securities and the managing underwriter, if any,
to facilitate the timely preparation and delivery of certificates not bearing
any restrictive legends representing the Registrable Securities to be sold, and
cause such Registrable Securities to be issued in such denominations and
registered in such names in accordance with the underwriting agreement prior to
any sale of Registrable Securities to the underwriters or, if not an
underwritten offering, in accordance with the instructions of the sellers of
Registrable Securities at least three business days prior to any sale of
Registrable Securities.
1.6 Indemnification.
(a) The
Company will indemnify and hold harmless to the fullest extent permitted by law
each Holder of Registrable Securities and each of its officers, directors and
partners, and each person controlling such Holder, with respect to which such
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter of the Registrable Securities held by or issuable to such Holder,
against all claims, losses, expenses, damages and liabilities (or actions in
respect thereto) arising out of or based on (i) any untrue statement (or alleged
untrue statement) of a material fact contained in any registration statement
under which such securities were registered under the Securities Act or the
omission or alleged omission to state therein 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, final or summary prospectus, offering circular or other
document (including any related registration statement, notification or the
like) incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statement therein, in light of the
circumstances under which they were made, or not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or any state
securities law applicable to the Company or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such state law and relating to
action or inaction required of the Company in connection with any such
registration, qualification of compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
within a reasonable amount of time after incurred for any reasonable legal and
any other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.6(a) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability, or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld); and provided further, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Holder or underwriter specifically for use
therein.
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(b) Each
Holder will, if Registrable Securities held by or issuable to such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, severally and not jointly, indemnify and hold
harmless to the fullest extent permitted by law the Company, each of its
directors and officers, each underwriter, if any, of the Company’s securities
covered by such a registration statement, each person who controls the Company
within the meaning of the Securities Act, and each other such Holder, each of
its officers, directors and partners and each person controlling such Holder,
against all claims, losses, expenses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, partners, persons or
underwriters for any reasonable legal or any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by the Holder in an instrument duly executed by such
Holder specifically for use therein; provided, however, that the indemnity
agreement contained in this subsection 1.6(b) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Holder, (which consent shall
not be unreasonably withheld); provided further, that the total amount for which
any Holder shall be liable under this subsection 1.6(b) shall not in any event
exceed the net proceeds received by such Holder from the sale of Registrable
Securities held by such Holder in such registration; and provided further, that
a Holder will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Holder by an instrument
duly executed by the Company or underwriter specifically for use
therein.
(c) Each
party entitled to indemnification under this subsection 1.6 (the “Indemnified
Party”) shall
give notice to the party required to provide indemnification (the “Indemnifying
Party”)
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom; provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified Party may participate
in such defense at such party’s expense; and provided further, that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, except to the extent such
failure resulted in material prejudice to the Indemnifying Party; and provided
further, that an Indemnified Party (together with all other Indemnified Parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be paid by the
Indemnifying Party, if representation of such Indemnified Party by the counsel
retained by the Indemnifying Party would be inappropriate due to actual or
potential differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
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(d) If for
any reason the foregoing indemnity is unavailable or is insufficient to hold
harmless an indemnified party under Section 1.6, then each Indemnifying Party
shall contribute to the amount paid or payable by such Indemnified Party as a
result of any Claim in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party, on the one hand, and the Indemnified Party, on
the other hand, with respect to such offering of securities. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Indemnifying
Party or the Indemnified Party and the parties’ relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. If, however, the allocation provided in the second
preceding sentence is not permitted by applicable law, then each Indemnifying
Party shall contribute to the amount paid or payable by such Indemnified Party
in such proportion as is appropriate to reflect not only such relative faults,
but also any other relevant equitable considerations. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 1.6(d) were to be determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to in the preceding sentences of this Section 1.6(d).
The amount paid or payable in respect of any Claim shall be deemed to include
any legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such Claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the U.S.
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Notwithstanding anything in this
Section 1.6 to the contrary, no Indemnifying Party (other than the Company)
shall be required pursuant to this Section 1.6(d) to contribute any amount in
excess of the net proceeds received by such Indemnifying Party from the sale of
Registrable Securities in the offering to which the losses, claims, damages or
liabilities of the Indemnified Parties relate, less the amount of any
indemnification payment made pursuant to Section 1.6.
(e) The
indemnity agreements contained herein shall be in addition to any other rights
to indemnification or contribution which any Indemnified Party may have pursuant
to law or contract and shall remain operative and in full force and effect
regardless of any investigation made or omitted by, or on behalf of, any
Indemnified Party and shall survive the transfer of the Registrable Securities
by any such party.
1.7 Information
by Holder. Any
Holder or Holders of Registrable Securities included in any registration shall
promptly furnish to the Company such information regarding such Holder or
Holders and the distribution proposed by such Holder or Holders as the Company
may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to herein.
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1.8 Rule
144 Reporting. With a
view to making available to Holders the benefits of certain rules and
regulations of the SEC which may permit the sale of the Registrable Securities
to the public without registration, the Company agrees at all times
to:
(a) make and
keep public information available, as those terms are understood and defined in
SEC Rule 144;
(b) file with
the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements); and
(c) so long
as a Holder owns any Registrable Securities, to furnish to such Holder forthwith
upon request a written statement by the Company as to its compliance with the
reporting requirements of said Rule 144, and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as the
Holder may reasonably request in complying with any rule or regulation of the
SEC allowing the Holder to sell any such securities without
registration.
1.9 Transfer
of Registration Rights. A
Holder’s rights to cause the Company to register its securities and keep
information available, granted to it by the Company under subsections 1.2, 1.3
and 1.8, may be not be assigned except for an assignment (i) by such Holder of
at least 100,000 shares (as adjusted for stock splits, stock dividends,
recapitalizations and like events), (or such lesser number of shares as
represents all of the Registrable Shares then held by such Holder) or (ii) to
any constituent partners or members of a Holder which is a partnership or
limited liability company, or to affiliates (as such term is defined in Rule 405
of the Securities Act) of a Holder, provided, that (a) the Company is given
written notice by such Holder at the time of or within a reasonable time after
said transfer, stating the name and address of said transferee or assignee; and
identifying the securities with respect to which such registration rights are
being assigned; (b) the assignee or transferee of such rights agrees in writing
to be bound by the terms and conditions of this Agreement, and (c) solely as to
transfers pursuant to clause (iii) above, any transferees or assignees agree to
act through a single representative. The Company may prohibit the transfer of
any Holders’ rights under this subsection 1.9 to any proposed transferee or
assignee who the Company reasonably believes is a competitor of the Company, or
when such transfer may violate applicable securities laws.
1.10 Subordination
of Registration Rights.
Notwithstanding anything to the contrary, each Holder expressly agrees and
acknowledges that the rights granted to it pursuant to this Agreement subject to
the rights granted to certain other holders of the Company's securities pursuant
to those registration rights agreement in existence as of the date
hereof.
1.11 Limitations
on Subsequent Registration Rights. From
and after the date hereof, the Company shall not, without the prior written
consent of the Holders (which consent will not be unreasonably withheld) of not
less than a majority of the Registrable Securities then outstanding enter into
any agreement with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder to demand any
registration including any registration rights similar to those rights described
in subsection 1.3 or include such securities in any registration filed under
subsections 1.2 or 1.3 hereof if such inclusion would adversely affect the
rights of any Holder (or any qualifying transferee under subsection 1.9) under
such subsections.
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1.12 “Market
Stand-Off” Agreement. Each
Holder hereby agrees that, during the period of duration (not to exceed 90 days)
specified by the Company and an underwriter of common stock or other securities
of the Company following the effective date of public offering of securities ,
it shall not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase, pledge or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
any securities of the Company held by it at any time during such period except
common stock included in such registration pursuant to the terms of this
Agreement. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares of securities of every other person subject to the
foregoing restriction) until the end of such period.
1.13 Delay
of Registration. No
Holder shall have any rights to take any actions to restrain, enjoin, or
otherwise delay any registration as the result of any controversy that might
arise with respect to the interpretation or implementation of this Section
1.
1.14 Termination
of Registration Rights. No
holder shall be entitled to exercise any right provided for in this Section 1 at
any time when such Holder may sell all its shares in a three (3) month period
under Rule 144 of the Act.
2. General.
2.1 Waivers
and Amendments. With
the written consent of the record holders of at least a majority of the
Registrable Securities, the obligations of the Company and the rights of the
parties under this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively, and either for a specified
period of time or indefinitely), and with the same consent the Company, when
authorized by resolution of its Board of Directors, may enter into a
supplementary agreement for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement; provided,
however, that no such modification, amendment or waiver shall reduce the
aforesaid percentage of Registrable Securities without the consent of all of the
Holders of the Registrable Securities. . Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged or terminated only by
a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this subsection 3.1.
2.2 Governing
Law. This
Agreement shall be governed in all respects by the laws of the State of Nevada
without regard the principles of conflicts of law thereof.
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2.3 Successors
and Assigns. Except
as otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
2.4 Entire
Agreement. This
Agreement and the other documents (include Exhibits referenced herein) delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and this
Agreement shall supersede and cancel all prior agreements between the parties
hereto with regard to the subject matter hereof.
2.5 Notices,
etc. All
notices and other communications required or permitted hereunder shall be in
writing and shall be delivered by overnight courier service (receipt requested)
or mailed by first class mail, postage prepaid, certified or registered mail,
return receipt requested, addressed (a) if to any Holder , at such party’s
address as set forth in the Company’s records, or at such other address as such
party shall have furnished to the Company in writing, or (b) if to the Company,
at such address as the Company shall have furnished to the Holder in
writing.
2.6 Severability. In case
any provision of this Agreement shall be invalid, illegal, or unenforceable, the
validity, legality and enforceability of the remaining provisions of this
Agreement or any provision of the other Agreement s shall not in any way be
affected or impaired thereby.
2.7 Titles
and Subtitles. The
titles of the sections and subsections of this Agreement are for convenience of
reference only and are not to be considered in construing this
Agreement.
2.8 Counterparts. This
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one
instrument.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement on the date set
forth underneath their respective signatures below.
“COMPANY”
Natural
Gas Systems, Inc.,
a
Nevada corporation
By:
_________________________________
Xxxxxx X.
Xxxxxx, President and CEO
Date:
____________, 2005
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“HOLDER”
By:
_________________________________
Print:
_______________________________
Date:
_______________, 2005
14
