UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: April 8, 2005
Date of Earliest Event Reported: April 4, 2005
NATURAL GAS SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada
(State or Other Jurisdiction of Incorporation)
0-27862 80-0028196
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(Commission File Number) (I.R.S. Employer Identification No.)
820 Gessner, Suite 1340, Houston, Texas 77024
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(Address of Principal Executive Offices) (Zip Code)
(713) 935-0122
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425).
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12).
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b)).
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c)).
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ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
Executive Employment Agreement: Robert S. Herlin
On September 23, 2003, Natural Gas Systems, Inc., a Delaware corporation ("Old
NGS"), a subsidiary of Natural Gas Systems, a Nevada corporation (the
"Company"), entered into an Executive Employment Contract (the "Original Herlin
Employment Contract") with Robert S. Herlin for Mr. Herlin to serve as President
and Chief Executive Officer of the Company. Pursuant to the Original Herlin
Employment Contract, Mr. Herlin was granted a stock option to purchase 250,000
shares of Old NGS common stock with an exercise price equal to $0.001 that vests
over four years, that were to be cancelled when the Company granted warrants to
Tatum CFO Partners, LLP, a provider of contract CFO's and other executive level
executives ("Tatum"), in connection with Herlin's status as a partner of Tatum
and certain other services to be provided by Tatum. In addition, under the
Original Herlin Employment Contract Mr. Herlin received an annual salary of
$180,000, an annual discretionary bonus of up to $180,000, a six month severance
package, and purchased founders' stock of 1,000,000 shares of common stock of
Old NGS, with Old NGS having a repurchase right under a reverse vesting
arrangement over 27 months (the "Stock Purchase Agreement"). The Original Herlin
Employment Contract and Stock Purchase Agreement were assumed by the Company
when a subsidiary of the Company merged with Old NGS in May 2004. In addition,
the stock options were exchanged in the merger for stock options exercisable for
shares of Company common stock.
On April 4, 2005, the Company made effective an Executive Employment
Contract (the "New Herlin Employment Contract") with Mr. Herlin. The New Herlin
Employment Contract supersedes the Original Herlin Employment Contract. Pursuant
to the New Herlin Employment Contract, Mr. Herlin will continue to serve as
President and Chief Executive Officer of the Company. He will receive $180,000
annual salary, which shall increase to $210,000 at the end of one year, and a
one year severance package. Mr. Herlin is also eligible to receive an annual
discretionary bonus equal to 100% of his annual salary. As a bonus for fiscal
2004, Mr. Herlin will retain the 250,000 stock options granted to him under the
Original Employment Agreement. The Company has entered into a new agreement with
Tatum, which supercedes the original agreement with Tatum and provides for the
Company to grant Tatum a warrant to purchase 250,000 shares of Company common
stock, exercisable at $0.001 exercisable for five years. We refer you to
"Restated and Amended Agreement with Tatum Partners".
In addition, on April 4, 2005, the Company made effective a grant to
Mr. Herlin for a stock option to purchase 500,000 shares of Company common
stock, with an exercise price equal to $1.80 that vests over four years ("Herlin
Stock Option Agreement"), as well as an additional grant of a warrant to
purchase 287,500 shares of Company common stock, with an exercise price equal to
$1.80 that vests over four years ("Herlin Warrant Agreement"). A copy of the New
Herlin Employment Contract, Herlin Stock Option Agreement, and Herlin Warrant
Agreement are attached hereto as Exhibits 10.1, 10.2 and 10.3, respectively, and
are incorporated herein by reference to this Item 1.01. The foregoing summary
does not purport to be complete and is qualified in its entirety by reference to
the New Herlin Employment Contract, Herlin Stock Option Agreement, and Herlin
Warrant Agreement.
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Restated and Amended Agreement with Tatum Partners.
On or about September 23, 2003, Old NGS entered into a Resources
Agreement with Tatum CFO Partners, LLP (the "Original Tatum Contract"). The
Original Tatum Contract provided for Tatum to provide the services of its
partner, Robert S. Herlin to Old NGS and provide access to various Tatum
resources in exchange for sharing of Mr. Herlin's compensation from Old NGS. The
Original Tatum Contract was assumed by the Company when a subsidiary of the
Company merged with Old NGS in May 2004.
On April 4, 2005, the Company made effective an Amended and Restated
Resources Agreement (the "Amended and Restated Tatum Contract") with Tatum.
Pursuant to the Amended and Restated Tatum Contract, Tatum will receive $12,000
per year for access to its services. In addition, the Company granted a warrant
to purchase 250,000 shares of Company common stock, exercisable at $0.001 per
share and exercisable for a period of five years, under the terms of the Tatum
Warrant Agreement (the "Tatum Warrant Agreement").
A copy of the Amended and Restated Tatum Contract and the Tatum Warrant
Agreement is attached hereto as Exhibits 10.5 and 10.5, respectively, and is
incorporated herein by reference to this Item 1.01. The foregoing summary does
not purport to be complete and is qualified in its entirety by reference to the
Amended and Restated Tatum Contract and Tatum Warrant Agreement.
Executive Employment Agreement: Sterling H. McDonald
On November 10, 2003, Old NGS entered into an Executive Employment
Contract with Sterling H. McDonald for Mr. McDonald to serve as Chief Financial
Officer of the Company (the "Original McDonald Employment Contract"). The
Original McDonald Employment Contract provided for a grant of a stock option to
purchase 250,000 shares of common stock of Old NGS, with an exercise price of
$0.25 that vests over fifty months. In addition, under the Original McDonald
Employment Contract Mr. McDonald received an annual salary of $120,000, an
annual discretionary bonus, and a maximum six month severance package. The
Original McDonald Employment Contract was assumed by the Company when a
subsidiary of the Company merged with Old NGS in May 2004. In addition, the
stock options were exchanged in the merger for stock options exercisable for
shares of Company common stock.
On April 4, 2005, the Company made effective an Executive Employment
Contract (the "New McDonald Employment Contract") with Mr. McDonald. The New
McDonald Employment Contract supersedes the Original McDonald Employment
Contract, with the exception the Mr. McDonald shall retain the stock options
under the terms previously granted. Pursuant to the New McDonald Employment
Contract, Mr. McDonald will continue to serve as the Chief Financial Officer of
the Company. In addition, Mr. McDonald will receive $150,000 annual salary. Mr.
McDonald is also eligible to receive an annual discretionary bonus equal to 75%
of his annual salary, and a six month severance package which may be increased
to one year under conditions related to a change of control. In addition, on
April 4, 2005, Mr. McDonald was granted a stock option to purchase 350,000
shares of Company common stock, with an exercise price equal to $1.80 that vests
over four years ("McDonald Stock Option Agreement").
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A copy of the New McDonald Employment Contract and McDonald Stock Option
Agreement are attached hereto as Exhibits 10.6 and 10.7, respectively and are
incorporated herein by reference to this Item 1.01. The foregoing summary does
not purport to be complete and is qualified in its entirety by reference to the
New McDonald Employment Contract and McDonald Stock Option Agreement.
ITEM 1.02 TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT.
The New Herlin Employment Contract supersedes the Original Herlin
Employment Contract in its entirety. To the extent applicable, the discussion
above regarding the supersession of the Original Herlin Employment Contract by
the New Herlin Employment Contract is incorporated herein by reference to this
Item 1.02.
The New McDonald Employment Contract supersedes the Original McDonald
Employment Contract in its entirety. To the extent applicable, the discussion
above regarding the supersession of the Original McDonald Employment Contract by
the New McDonald Employment Contract is incorporated herein by reference to this
Item 1.02.
ITEM 3.02 UNREGISTERED SALE OF EQUITY SECURITIES
On April 4, 2005, the Company made effective a grant to Tatum a warrant
to purchase 250,000 shares of Company common stock. In addition, the Company
made effective a grant to Mr. Herlin a stock option to purchase 500,000 shares
of Company common stock and a warrant to purchase 287,500 shares of Company
common stock. The Company also made effective a grant to Mr. McDonald a stock
option to purchase 350,000 shares of Company common stock. The Company granted
the foregoing securities pursuant to certain exemptions from registration
provided by Rule 506 of Regulation D and Section 4(2) and Section 4(6) of the
Securities Act of 1933, as amended.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
Exhibits.
The following exhibit is filed as an exhibit to this Current Report on
Form 8-K:
EXHIBIT NO. DESCRIPTION
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10.1 Executive Employment Agreement, Robert S. Herlin, dated April 4,
2005.
10.2 Herlin Stock Option Agreement, dated April 4, 2005
10.3 Herlin Warrant Agreement, dated April 4, 2005
10.4 Amended and Restated Tatum Resources Agreement, dated April 4,
2005
10.5 Tatum Warrant Agreement, dated April 4, 2005
10.6 Executive Employment Agreement, Sterling H. McDonald, dated
April 4, 2005.
10.7 McDonald Stock Option Agreement, dated April 4, 2005
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATURAL GAS SYSTEMS, INC.
Date: April 8, 2005 By: /s/ Robert Herlin
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Robert Herlin, Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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10.1 Executive Employment Agreement, Robert S. Herlin, dated April 4,
2005.
10.2 Herlin Stock Option Agreement, dated April 4, 2005
10.3 Herlin Warrant Agreement, dated April 4, 2005
10.4 Amended and Restated Tatum Resources Agreement, dated April 4,
2005
10.5 Tatum Warrant Agreement, dated April 4, 2005
10.6 Executive Employment Agreement, Sterling H. McDonald, dated
April 4, 2005.
10.7 McDonald Stock Option Agreement, dated April 4, 2005
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