WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement") is made effective as of January
1, 2005 between Natural Gas Systems, Inc., a Nevada corporation (the "Company"),
and Xxxxx CFO Partners, LLP, a Georgia limited liability partnership ("Holder").
R E C I T A L S
WHEREAS, the Company and Holder have entered into a certain Amended and
Restated Xxxxx Resources Agreement, of even date herewith ("Resources
Agreement"), where the Holder has agreed to provide certain resources to the
Company; and
WHEREAS, as partial consideration for Holder's commitments in the
Resources Agreement, the Company proposes to issue to Holder a warrant entitling
the holder thereof to purchase up to TWO HUNDRED SIXTY-TWO THOUSAND FIVE HUNDRED
(262,500) shares of common stock, no par value, of the Company (the "Shares" or
the "Common Stock");
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
A G R E E M E N T
1. Form of Warrant. The warrant to be delivered pursuant to this Agreement
(the "Warrant") shall be in the form set forth in Exhibit A attached hereto and
made a part hereof.
2. Right to Exercise Warrant. The Warrant may be exercised from the date
of this Agreement until 11:59 P.M. (Eastern Standard Time) on the date that is
five (5) years after the date of this Agreement (the "Expiration Date"). To the
extent the Warrant has not been exercised on or before the Expiration Date, it
shall expire.
The Warrant shall entitle its holder to purchase from the Company one or
more Shares, up to an aggregate of 262,500 (each an "Exercise Share"), at an
exercise price of $0.001 per Share, subject to adjustment as set forth below
("Exercise Price").
The Company shall not be required to issue fractional shares of Common
Stock upon the exercise of the Warrant or to deliver a substitute Warrant
following a partial exercise which evidences fractional shares of capital stock.
In the event that a fraction of an Exercise Share would, except for the
provisions of this paragraph 2, be issuable upon the exercise of the Warrant,
the Company shall pay to the Holder exercising the Warrant an amount in cash
equal to such fraction multiplied by the current market value of the Exercise
Share. For purposes of this paragraph 2, the current market value shall be
determined as follows:
(a) if the Shares are traded in the over-the-counter market and not
on any national securities exchange and not in the NASDAQ Reporting System, the
average of the mean between the last bid and asked prices per share, as reported
by the National Quotation Bureau, Inc., or an equivalent generally accepted
reporting service, for the last business day prior to the date on which the
Warrant is exercised, or, if not so reported, the average of the closing bid and
asked prices for a Share as furnished to the Company by any member of the
National Association of Securities Dealers, Inc., selected by the Company for
that purpose;
(b) if the Shares are listed or traded on a national securities
exchange or in the NASDAQ Reporting System, the closing price on the principal
national securities exchange on which they are so listed or traded or in the
NASDAQ Reporting System, as the case may be, on the last business day prior to
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the date of the exercise of the Warrant. The closing price referred to in this
Clause (b) shall be the last reported sales price or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case on the national securities exchange on which the Shares
are then listed on in the NASDAQ Reporting System; or
(c) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
3. Mutilated or Missing Warrant Certificates. In case the Warrant shall be
mutilated, lost, stolen or destroyed prior to the Expiration Date, the Company
shall issue and deliver, in exchange and substitution for and upon cancellation
of the mutilated Warrant, or in lieu of and in substitution for the Warrant
lost, stolen or destroyed, a new Warrant of like tenor and representing an
equivalent right or interest.
4. Reservation of Shares. The Company will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued Shares or its authorized and issued Shares held in its treasury for
the purpose of enabling it to satisfy its obligation to issue Exercise Shares
upon exercise of the Warrant, the full number of Exercise Shares deliverable
upon the exercise of the Warrant in full.
The Company covenants that all Exercise Shares which may be issued upon
exercise of the Warrant will be validly issued, fully paid and non-assessable
outstanding Shares of the Company.
5. Rights of Holder. The Holder shall not, by virtue of anything contained
in this Warrant Agreement or otherwise, prior to exercise of the Warrant, be
entitled to any right whatsoever, either in law or equity, of a stockholder of
the Company, including without limitation, the right to receive dividends or to
vote or to consent or to receive notice as a stockholder in respect of the
meetings of stockholders or the election of directors of the Company of any
other matter.
6. Investment Intent; Accredited Investor. Holder represents and warrants
to the Company that Holder is acquiring the Warrant for investment purposes and
with no present intention of distributing or reselling any portion of the
Warrant. Holder represents that it is an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Securities Act (the "Act") and has
executed and delivered the Investment Representation Statement that accompanies
this Agreement.
7. Certificates to Bear Legend. The Warrant shall bear the following
legend by which each holder shall be bound:
"THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
The Exercise Shares and the certificate or certificates evidencing any
such Exercise Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE."
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The Warrant or Exercise Shares, as the case may be, without such legend
shall be issued if such Warrant or Exercise Shares are sold pursuant to an
effective registration statement under the Act or if the Company has received an
opinion from counsel reasonably satisfactory to counsel for the Company that
such legend is no longer required under the Act.
8. Adjustment of Number of Shares and Class of Capital Stock Purchasable.
The number of Exercise Shares and class of capital stock purchasable under the
Warrant are subject to adjustment from time to time as set forth in this Section
8.
(a) Adjustment for Change in Capital Stock. If the Company:
(i) pays a dividend or makes a distribution on its Common Stock,
in each case, in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines its outstanding shares of Common Stock into a smaller
number of shares; or
(iv) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock;
then the number and classes of Exercise Shares purchasable upon exercise of the
Warrant in effect immediately prior to such action shall be adjusted so that the
holder of the Warrant thereafter exercised may receive the number and classes of
shares of capital stock of the Company which such holder would have owned
immediately following such action if such holder had exercised the Warrant
immediately prior to such action.
For a dividend or distribution the adjustment shall become effective
immediately after the record date for the dividend or distribution. For a
subdivision, combination or reclassification, the adjustment shall become
effective immediately after the effective date of the subdivision, combination
or reclassification.
If after an adjustment the holder of the Warrant upon exercise of it
may receive shares of two or more classes of capital stock of the Company, the
Board of Directors of the Company shall in good faith determine the allocation
of the adjusted Exercise Price between or among the classes of capital stock.
After such allocation, that portion of the Exercise Price applicable to each
share of each such class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to the Exercise Shares in
this Agreement. Notwithstanding the allocation of the Exercise Price between or
among shares of capital stock as provided by this Section 8(a), the Warrant may
only be exercised in full by payment of the entire Exercise Price in effect at
the time of such exercise.
(b) Consolidation, Merger or Sale of the Company. If the Company is
a party to a consolidation, merger or transfer of assets which reclassifies or
changes its outstanding Common Stock, the successor corporation (or corporation
controlling the successor corporation or the Company, as the case may be) shall
by operation of law assume the Company's obligations under this Agreement. Upon
consummation of such transaction, the Warrant shall automatically become
exercisable for the kind and amount of securities, cash or other assets which
the holder of the Warrant would have owned immediately after the consolidation,
merger or transfer if the holder had exercised the Warrant immediately before
the effective date of such transaction. As a condition to the consummation of
such transaction, the Company shall arrange for the person or entity obligated
to issue securities or deliver cash or other assets upon exercise of the Warrant
to, concurrently with the consummation of such transaction, assume the Company's
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obligations hereunder by executing an instrument so providing and further
providing for adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided for in this Section 8.
9. Successors. All the covenants and provisions of this Agreement by or
for the benefit of the Company or Holder shall bind and inure to the benefit of
their respective successor and assigns hereunder.
10. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all proposes be deemed to
be an original, and such counterparts shall together constitute by one and the
same instrument.
11. Notices. All notices or other communications under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand
or mailed by certified mail, postage prepaid, return receipt requested,
addressed as follows: if to the Company: Natural Gas Systems, Inc., Xxx Xxxxxxxx
Xxxx Xxxxx, 000 Xxxxxxx, Xxxxx 0000. Xxxxxxx, XX 00000 , Attention: Chief
Executive Officer, and to the Holder: at 4501 Circle 75 Parkway, Ste. A-1164,
Xxxxxxx, Xxxxxxx 00000, Attn: Mr. Xxxxx Xxxxx.
Either the Company or the Holder may from time to time change the address
to which notices to it are to be mailed hereunder by notice in accordance with
the provisions of this Paragraph 11.
12. Severability. If for any reason any provision, paragraph or term of
this Agreement is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Agreement shall be deemed to be severable.
13. Governing Law and Venue. This Agreement shall be deemed to be a
contract made under the laws of the State of Texas and for all purposes shall be
governed and construed in accordance with the laws of said State, except to the
extent that the corporation law of the State of Nevada applies, in which case
the law of Nevada shall govern to that extent. Any proceeding arising under this
Agreement shall be instituted in the courts (federal or state) in Houston,
Texas.
14. Headings. Paragraphs and subparagraph headings, used herein are
included herein for convenience of reference only and shall not affect the
construction of this Agreement nor constitute a part of this Agreement for any
other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the date and year first above written.
COMPANY HOLDER:
NATURAL GAS SYSTEMS, INC. XXXXX CFO PARTNERS, LLP
By: _________________________________ By: ______________________________
Xxxxxx X. Xxxxxx, President Name: ____________________________
Title:___________________
Tax ID: __________________________
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EXHIBIT A
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT
TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE CORPORATION
AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
NATURAL GAS SYSTEMS, INC
Initial Number of Shares: 262,500
Exercise Price: $0.001 per share
Date of Grant: January 1, 2005
Expiration Date: January 1, 2010
THIS CERTIFIES THAT, XXXXX CFO PARTNERS, LLP, or any person or entity to whom
the interest in this Warrant is lawfully transferred ("Holder") is entitled to
purchase the above number (as adjusted pursuant to Section 4 hereof) of fully
paid and non-assessable shares of the Common Stock (the "Shares") of Natural Gas
Systems, Inc., a Nevada corporation (the "Company), having an Exercise Price as
set forth above, subject to the provisions and upon the terms and conditions set
forth herein and in the Warrant Agreement dated January 1, 2005. The exercise
price, as adjusted from time to time as provided herein, is referred to as the
"Exercise Price."
1. Term. The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time commencing on the Date of Grant and ending on the
Expiration Date, after which time the Warrant shall be void.
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to
Section 1 hereof, the right to purchase Shares represented by this Warrant may
be exercised by Holder, in whole or in part, for the total number of Shares
remaining available for exercise by the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A duly executed) at the
principal office of the Company and by the payment to the Company, by check made
payable to the Company drawn on a United States bank and for United States
funds, or by delivery to the Company of evidence of cancellation of indebtedness
of the Company to such Holder, of an amount equal to the then applicable
Exercise Price per share multiplied by the number of Shares then being purchased
or by net exercise pursuant to Section 6 hereof. In the event of any exercise of
the purchase right represented by this Warrant, certificates for the Shares so
purchased shall be promptly delivered to Holder and, unless this Warrant has
been fully exercised or has expired, a new Warrant representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be promptly delivered to Holder.
3. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be the Exercise Price, as adjusted from time to time pursuant to
Section 4 hereof.
4. Reclassification, Reorganization, Consolidation or Merger. In the case
of any reclassification of the Shares, or any reorganization, consolidation or
merger of the Company with or into another corporation (other than a merger or
reorganization with respect to which the Company is the continuing corporation
and which does not result in any reclassification of the Shares), the Company,
or such successor corporation, as the case may be, shall execute a new warrant
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providing that the Holder shall have the right to exercise such new warrant and
upon such exercise to receive, in lieu of each Share theretofore issuable upon
exercise of this Warrant, the number and kind of securities, money and property
receivable upon such reclassification, reorganization, consolidation or merger
by a holder of Shares for each Share. Such new warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4 including, without limitation,
adjustments to the Exercise Price and to the number of Shares issuable upon
exercise of this Warrant. The provisions of this Section 4 shall similarly apply
to successive reclassifications, reorganizations, consolidations or mergers.
5. Transferability and Negotiability of Warrant. This Warrant may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). Subject to the provisions of this Section 5, title to
this Warrant may be transferred in the same manner as a negotiable instrument
transferable by endorsement and delivery.
6. Net Exercise. In lieu of exercising this Warrant for cash, the Holder
may elect to exchange this Warrant for Shares equal to the value of this Warrant
by surrender of this Warrant, together with notice of such election, at the
principal office of the Company, in which event the Company shall issue to the
holder a number of Shares computed using the following formula:
X = Y (A-B)
A
Where :
X= the number of Shares to be issued to the holder.
Y= the number of Shares purchasable under this Warrant.
A= value per share of one Share determined in accordance with
Section 2 of the Warrant Agreement.
B= the Exercise Price (as adjusted).
7. Warrant Agreement. This warrant is being issued pursuant to that
certain Warrant Agreement of even date herewith between the initial Holder and
the Company, and the terms of that Warrant Agreement are hereby incorporated
herein by reference. To the extent the terms of this Warrant conflict with the
terms provided for the same in the Warrant Agreement, the terms of the Warrant
Agreement shall govern.
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8. Miscellaneous. The Company covenants that it will at all times reserve
and keep available, solely for the purpose of issue upon the exercise hereof, a
sufficient number of Shares to permit the exercise hereof in full. Such Shares,
when issued in compliance with the provisions of this Warrant and the Company's
Certificate of Incorporation, will be duly authorized, validly issued, fully
paid and non-assessable. No Holder of this Warrant, as such, shall, prior to the
exercise of this Warrant, be entitled to vote or receive dividends or be deemed
to be a stockholder of the Company for any purpose, nor shall anything contained
in this Warrant be construed to confer upon Holder, as such, any rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action, receive notice of meetings, receive dividends or subscription
rights, or otherwise. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in
the case of any such loss, theft or destruction, upon delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, upon surrender and cancellation of such Warrant,
the Company at its expense will execute and deliver, in lieu thereof, a new
Warrant of like date and tenor. The terms and provisions of this Warrant shall
inure to the benefit of, and be binding upon, the Company and the Holder hereof
and their respective successors and assigns. This Warrant shall be governed by
and construed under the laws of the State of Texas, except to the extent that
the corporation law of the State of Nevada would apply, in which case the law of
the State of Nevada shall apply to such extent.
HOLDER: COMPANY:
XXXXX CFO PARTNERS, LLP NATURAL GAS SYSTEMS, INC. A NEVADA CORPORATION
By: __________________________ By: _____________________________
Name: ________________________ Xxxxxx X. Xxxxxx, President
Title:________________________
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NOTICE OF EXERCISE
TO: NATURAL GAS SYSTEMS, INC.
1. The undersigned hereby elects to purchase _________ shares of the
Common Stock of NATURAL GAS SYSTEMS, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, together with all applicable transfer taxes, if any.
2. The undersigned hereby elects to purchase __________ shares of the
Common Stock of NATURAL GAS SYSTEMS, INC. pursuant to the terms of the attached
Warrant on a net exercise basis in accordance with Section 6.
3. Please issue a certificate or certificates representing said shares of
the Common Stock in the name of the undersigned or in such other name as is
specified below and, if this Notice of Exercise is for fewer than all shares
that may be purchased under the attached Warrant, please issue a new Warrant on
the same terms for the unexercised balance in the name of the undersigned.
Name:___________________________________
Tax ID:___________________
Address:________________________________
________________________________
________________________________
________________________________
________________________________
Signed:__________________________________
Date:___________________
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INVESTMENT REPRESENTATION STATEMENT
PURCHASER : XXXXX CFO PARTNERS, LLP
COMPANY : NATURAL GAS SYSTEMS, INC.
SECURITY : COMMON STOCK
AMOUNT : 262,500 SHARES
DATE : January 1, 2005
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Company the following:
(a) I am aware of the Company's business affairs and financial condition,
and have acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933, as amended ("Securities Act").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. In addition, I understand that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel for the Purchaser
satisfactory to the Company or receipt of a no-action letter from the Securities
and Exchange Commission.
(d) I am aware of the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: the availability of certain public information about the Company; the
resale occurring not less than one year after the party has purchased and paid
for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended); and the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein.
(e) I further understand that at the time I wish to sell the Securities
there may be no public market upon which to make such a sale, and that, even if
such a public market then exists, the Company may not be satisfying the current
public information requirements of Rule 144, and that, in such event, I may be
precluded from selling the Securities under Rule 144 even if the one-year
minimum holding period had been satisfied.
(f) I further understand that in the event all of the requirements of Rule
144 are not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
Date: January 1, 2005 XXXXX CFO PARTNERS, LLP
By:
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Name:
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Title:
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