EXHIBIT 10.2


 


NATURAL GAS SYSTEMS, INC.


 


REGISTRATION RIGHTS AGREEMENT


 


THIS
REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is made as of                   ,
2004, 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 a private placement of up to $16 million of common stock the
Company has sold to the Holders pursuant to one or more Registrable Common
Stock Subscription Agreements.


 


B.            The
sale of the Common Shares 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 issued and sold by the Company pursuant to the Registrable Common Stock
Subscription Agreements (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.


 


(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.


 


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(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 and 1.4 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,
the Company will:


 


(i)            promptly
give to each Holder written notice thereof at least 15 days prior to the
initial filing of the registration statement relating to such offering; and


 


(ii)           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 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


 


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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.


 


1.3           Form S-3.  In addition to the rights and obligations set
forth in subsection 1.2 above, if Initiating Holders request 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 $5,000,000 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 its best 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 90 days
following the effective date of, a registration statement pursuant to
subsection 1.2, provided that the Company is actively employing in good faith
all reasonable efforts to cause such registration statement to become
effective;


 


(c)           if the
Company 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 Initiating Holders 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.


 


In
the event such Initiating 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 Initiating Holders and shall be
reasonably acceptable to the Company.  The
Company shall give written notice to all Holders of the receipt of a request
for registration pursuant to this subsection 1.3 and shall provide a
reasonable opportunity for 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
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein.  The Company shall
(together with all 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 all Holders, and the number of shares of Registrable Securities that may
be included in the registration and underwriting shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the respective
amounts


 


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of Registrable
Securities held by such Holders; provided, however, that the number of shares
of Registrable Securities 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 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 Initiating 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.


 


(b)           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.


 


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.


 


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(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.


 


(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


 


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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.


 


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;


 


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(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


 


(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.


 


(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


 


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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.


 


(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


 


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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.


 


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, after 90 days after the effective date of the first
registration filed by the Company for an offering of its securities to the
general public;


 


(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 (at any time after 90 days after
the effective date of the first registration statement filed by the Company for
an offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), 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.


 


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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 are subordinated to and
expressly subject to the rights granted to certain other holders of the Company’s
securities pursuant to those certain Registration Rights Agreements entered
into between September 2003 and June 2004.


 


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.


 


1.11         “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.


 


1.12         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.


 


1.12         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.


 


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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.


 


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.  Except as set forth
below, this Agreement and the other documents 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 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.


 


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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:

  	
   

  	
   

  
	
   

  	
  Robert
  S. Herlin, President and CEO

  
	
   

  
	
  Date:

  	
   

  	
  ,
  2004

  
	
   

  
	
  “HOLDER”

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  
	
  Print:

  	
   

  	
   

  
	
   

  
	
  Date:

  	
   

  	
  ,
  2004

  
									



 


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