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                            NATURAL GAS SYSTEMS, INC.

 

                              EMPLOYMENT AGREEMENT

 

                                ROBERT S. HERLIN

 

         THIS AGREEMENT ("AGREEMENT") is entered into as of April 4, 2005 (the

"EFFECTIVE DATE"), by and between ROBERT S. HERLIN (the "EXECUTIVE") and NATURAL

GAS SYSTEMS, INC., a Nevada corporation (the "COMPANY"). The Agreement

supercedes any and all prior agreements, written or oral, including but not

limited to the Executive's prior employment agreement with the Company and its

predecessor in interest, Natural Gas Systems, a Delaware corporation, other than

stock options granted under the Company's 2003 Stock Option Plan of Natural Gas

Systems, Delaware, which was assumed by the Company, as referenced herein.

 

                  1. DUTIES AND SCOPE OF EMPLOYMENT.

 

                           (a) POSITION. For the term of his employment under

         this Agreement (the "Employment"), the Company agrees to employ the

         Executive in the position of President and Chief Executive Officer. The

         Executive shall report to the Company's Board of Directors. Executive

         shall not be obligated to relocate away from Houston, Texas.

 

                           (b) OBLIGATIONS TO THE COMPANY. During the term of

         Employment under this Agreement, Executive shall devote his/her full

         business efforts and time to the Company. The foregoing shall not

         preclude the Executive from engaging in appropriate civic, charitable

         or religious activities or from devoting a reasonable amount of time to

         private investments or from serving on the boards of directors of other

         entities, as long as such activities and/or services do not interfere

         or conflict with his/her responsibilities to the Company. The Executive

         shall comply with the Company's policies and rules, as they may be in

         effect from time to time during his Employment.

 

                           For purposes of this paragraph 1(b), the Company

         hereby consents and approves of the activities described in EXHIBIT A

         hereto.

 

                           (c) NO CONFLICTING OBLIGATIONS. The Executive

         represents and warrants to the Company that he is under no obligations

         or commitments, whether contractual or otherwise, that are inconsistent

         with his obligations under this Agreement.

 

                           (d) COMMENCEMENT DATE. This Agreement shall take

         effect upon the Effective date.

 

                  2.       CASH AND INCENTIVE COMPENSATION.

 

                  For clarification, it is understood by all parties that other

than as specified herein, the Company is not obligated to award any future

grants of stock options or other form of equity compensation to Executive during

Executive's Employment with the Company.

 

 

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                           (a) SALARY. The Company shall pay the Executive as

         compensation for his services an initial base salary at a gross annual

         rate of $180,000.00, increasing to a $210,000.00 after one year from

         the Effective Date, with possible additional increases on an annual

         basis as determined by the Board of directors in their sole discretion.

         Such salary shall be payable in accordance with the Company's standard

         payroll procedures. The annual compensation specified in this

         Subsection (a), together with any increases in such compensation that

         the Company may grant from time to time, is referred to in this

         Agreement as "BASE SALARY."

 

                           (b) INCENTIVE BONUSES. The Executive shall be

         eligible to receive an annual incentive bonus of up to 100% of Base

         Salary based on reasonable criteria (with input from Executive)

         established by the Company's Board of Directors (the "BOARD") or the

         Compensation Committee of the Board, payable in cash or the fair value

         of securities equivalent to such cash amount. The determinations of the

         Board or its Compensation Committee with respect to the award of such

         bonus shall be final and binding. The Executive shall not be entitled

         to an incentive bonus if he has resigned or been terminated for Cause

         (as defined below) by the Company before the date when such bonus is

         payable.

 

                           (c) STOCK OPTIONS. Subject to the approval of the

         Board or the Compensation Committee of the Board, the Company shall

         grant the Executive stock options aggregating Five Hundred Thousand

         (500,000) shares of the Company's Common Stock. Such options shall be

         granted as soon as reasonably practicable after the date of this

         Agreement. The term of such option shall be 10 years, subject to

         earlier expiration in the event of the termination of the Executive's

         Employment. The Executive shall vest over a four year period, on an

         installment basis determined by the Board or the Compensation

         Committee. The grant(s) of such options shall be subject to the other

         terms and conditions set forth in the Company's 2004 Stock Plan and

         Stock Option Agreement, attached hereto as EXHIBITS B AND C,

         respectively.

 

                           (d) WARRANTS. Subject to the approval of the Board of

         the Compensation Committee of the Board, the Company shall grant the

         Executive warrants aggregating Two Hundred Eighty Seven Thousand Five

         Hundred (287,500) shares of the Company's Common Stock. The grant of

         such warrants shall be subject to the terms and conditions set forth in

         the Warrant Agreement, attached hereto as EXHIBIT D.

 

 

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                           (d) BONUS FOR PRIOR YEAR. In lieu of the cash bonus

         provided for in the prior employment contract between the Company and

         Executive, and subject to applicable security laws and approval of the

         Board or the Compensation Committee, the Company agrees to issue

         250,000 warrants to Tatum Partners to satisfy Executive's and Company's

         obligation to Tatum Partners under the Resource Agreement, dated on or

         about September 2003, without reducing any amount of the 250,000 stock

         options previously granted to Executive under the 2003 Stock Option

         Plan.

 

                  3.       VACATION AND EMPLOYEE BENEFITS.

 

                           Executive shall be entitled to fifteen (15) days of

         vacation and five (5) personal days per year, to be taken in such

         amounts and at such times as shall be mutually convenient for Executive

         and the Company. Any vacation days exceeding five (5) days not taken by

         Executive in one year shall be forfeited and not carried forward to

         subsequent years. During his Employment, the Executive shall be

         eligible to participate in the employee benefit plans maintained by the

         Company, subject in each case to the generally applicable terms and

         conditions of the plan in question and to the determinations of any

         person or committee administering such plan.

 

4.       BUSINESS EXPENSES.

 

                           During his Employment, the Executive shall be

         authorized to incur necessary and reasonable travel, entertainment and

         other business expenses in connection with his duties hereunder. The

         Company shall reimburse the Executive for such expenses upon

         presentation of an itemized account and appropriate supporting

         documentation, all in accordance with the Company's generally

         applicable policies.

 

                  5.       TERMINATION OF EMPLOYMENT.

 

                           (a) TERMINATION OF EMPLOYMENT. The Company may

         terminate the Executive's Employment at any time and for any reason (or

         no reason), and with or without Cause, by giving the Executive ten

         day's notice in writing. The Executive may terminate his Employment by

         giving the Company ten days' advance notice in writing. The Executive's

         Employment shall terminate automatically in the event of his death. The

         termination of the Executive's Employment shall not limit or otherwise

         affect his obligations under Section 7.

 

                           (b) EMPLOYMENT AT WILL. The Executive's Employment

         with the Company shall be "at will," meaning that either the Executive

         or the Company shall be entitled to terminate the Executive's

         Employment at any time and for any reason, with or without Cause. Any

         contrary representations that may have been made to the Executive shall

         be superseded by this Agreement. This Agreement shall constitute the

         full and complete agreement between the Executive and the Company on

         the "at will" nature of the Executive's Employment, which may only be

         changed in an express written agreement signed by the Executive and a

         duly authorized officer of the Company.

 

                           (c) RIGHTS UPON TERMINATION. Except as expressly

         provided in Section 6, upon the termination of the Executive's

         Employment, the Executive shall only be entitled to the compensation,

         benefits and expense reimbursements that the Executive has earned or

         accrued under this Agreement before the effective date of the

         termination. Termination payments pursuant to Section 6 shall fully

         discharge all responsibilities of Company to Executive except for the

         Company's responsibilities listed in Sections 2, 3, 4, 5, 8, 9, 10 and

         Exhibits B, C and D herein.

 

 

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                           (d) CONSTRUCTIVE TERMINATION. The term "CONSTRUCTIVE

         TERMINATION" shall mean any of the following: (i) any breach by the

         Company of any material provision of this Agreement, including, without

         limitation, the assignment to the Executive of duties inconsistent with

         his position specified in Section 1(a) hereof or any breach by the

         Company of such Section, which is not cured within 60 days after

         written notice of same by Executive (except that such cure period shall

         be fifteen days with respect to D&O Insurance described in Section

         10(h) hereof, unless such breach is due to the actions or inactions of

         the Executive), describing in detail the breach asserted and stating

         that it constitutes notice pursuant to this Section 5(d); or (ii)

         relocation of Executive's offices in excess of 20 miles from its

         current location; or (iii) a substantial reduction of the

         responsibilities, authority or scope of work of Executive.

 

                  6.       TERMINATION BENEFITS.

 

                           (a) GENERAL RELEASE. Any other provision of this

         Agreement notwithstanding, Subsection (b) below shall not apply unless

         the Executive: (i) has executed a general release fully discharging all

         responsibilities of the Company to the Executive for all claims except

         for those noted in 5 (c) above (in a form prescribed by the Company),

         and (ii) has returned all property of the Company in the Executive's

         possession, and (iii) is in material compliance with the restrictive

         covenants in Section 7 hereof .

 

                           (b) SEVERANCE PAY. If the Company terminates the

         Executive's Employment other than for Cause or Permanent Disability, or

         if the Executive is subject to a Constructive Termination, then the

         Company shall pay the Executive his Base Salary ("SEVERANCE PAY") for a

         period of one year following the termination of his Employment (the

         "CONTINUATION PERIOD"). Such Severance Pay shall be paid at the rate in

         effect at the time of the termination of Employment and in accordance

         with the Company's standard payroll procedures. In the event that (i)

         Executive is paid Severance Pay and Executive, AND (ii) Executive

         enters into similar employment prior to the end of the Continuation

         Period, then the Company may elect, at the Company's sole option and

         discretion, to terminate all Restrictive Covenant obligations of

         Executive under subsections 7(b) and 7(c) below in return for a

         reduction of fifty percent (50%) of the remaining Severance Pay

         obligations to Executive.

 

                           (c) DEFINITION  OF "CAUSE." For all purposes  under

         this Agreement, "CAUSE" shall mean:

 

                           (i) A material breach by the Executive of any written

         agreement between the Executive and the Company, provided that the

         Company has given written notice of such breach which notice describes

         in detail the breach asserted and stating that it constitutes notice

         pursuant to this Section 6(c) and which breach, if capable of being

         cured, has not been cured within thirty (30) days after such notice;

 

                            (ii) The Executive's conviction of, or plea of

         "guilty" or "no contest" to, a felony under the laws of the United

         States or any state thereof;

 

 

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                           (iii) A material failure by the Executive to comply

         with the Company's lawful written policies or rules which causes

         material harm to the Company, provided that the Company has given

         written notice of such breach which notice describes in detail the

         breach asserted and stating that it constitutes notice pursuant to this

         Section 6(c) and which breach, if capable of being cured, has not been

         cured within thirty (30) days after such notice;

 

                           (iii) The Executive's fraud, gross negligence or

         willful misconduct; or

 

                           (iv) A continued failure by the Executive to perform

         his lawful and reasonable assigned duties, provided that the Company

         has given written notice of such breach which notice describes in

         detail the breach asserted and stating that it constitutes notice

         pursuant to this Section 6(c) and which breach, if capable of being

         cured, has not been cured within thirty (30) days after such notice.

 

                           (d) DEFINITION OF "PERMANENT DISABILITY." For all

         purposes under this Agreement, "PERMANENT DISABILITY" shall mean the

         Executive's inability to perform the essential functions of the

         Executive's position, with or without reasonable accommodation, for a

         period of at least 90 consecutive days because of a physical or mental

         impairment.

 

7.       RESTRICTIVE COVENANTS.

 

                           (A) CONFIDENTIAL INFORMATION

 

                           (i) During Executive's Employment and at all times

         thereafter, Executive shall not, without the prior express written

         consent of the Board (except as may be required in connection with any

         judicial or administrative proceeding or inquiry or by law ) disclose

         to any person, other than an officer or director of the Company or a

         person to whom disclosure is reasonably necessary or appropriate in

         connection with the performance by Executive of his duties as CEO and

         President, any Confidential Information (defined below) with respect to

         the business and affairs of the Company or any of its subsidiaries,

         unless such disclosure is subject to a confidentiality agreement or the

         confidential information has been previously disclosed through no fault

         of Executive.

 

                           (ii) Executive acknowledges that he has and will have

         access to proprietary information, trade secrets, and confidential

         material (including lists of key personnel, customers, clients,

         vendors, suppliers, distributors or consultants) of the Company (the

         "CONFIDENTIAL Information"). Executive agrees, without limitation in

         time or until such information shall become public other than by the

         Executive's unauthorized disclosure, to maintain the confidentiality of

         the Confidential Information and refrain from divulging, disclosing, or

         otherwise using in any respect the Confidential Information to the

         detriment of the Company and any of its subsidiaries, affiliates,

         successors or assigns, or for any other purpose or no purpose, unless

         such disclosure is subject to a confidentiality agreement or such

         Confidential Information is previously disclosed through no fault of

         Executive.

 

                           (B) NO SOLICITATION. For a period of one (1) year

         after he ceases to be employed by the Company, Executive agrees that he

 

 

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         will not, directly or indirectly, for his benefit or for the benefit of

         any other person, firm or entity, do any of the following:

 

                           (i) solicit from any client doing business with the

         Company as of Executive's termination, business of the same or of a

         similar nature to the business of the Company with such client, if such

         business is expected to directly compete with the Company;

 

                           (ii) solicit from any known potential client of the

         Company business of the same or of a similar nature to that which has

         been the subject of a known written or oral bid, offer or proposal by

         the Company, or of substantial preparation with a view to making such a

         bid, proposal or offer, within six (6) months prior to Executive's

         termination, if such business is expected to directly compete with the

         Company;

 

                           (iii) solicit the employment or services of, or hire,

         any person who was known to be employed by the Company upon termination

         of Executive's Employment, or within six (6) months prior thereto,

         other than Executive's personal secretary; or

 

                           (iv) otherwise knowingly interfere with the business

         or accounts of the Company.

 

                           For the purposes of (b)(i) through (iv) above and (c)

         below, "compete" is defined to mean engagement in the same or

         essentially similar activities as the Company within the same field,

         parish or county as the Company.

 

                           (C) COVENANT NOT TO COMPETE. During the term hereof

         and for a period of one (1) year following the termination of this

         Agreement, Executive shall not directly or indirectly engage in, or own

         any interest in any business which engages in, (i) the business of the

         Company or any of its subsidiaries as of the date of this Agreement

         that is expected to directly compete with the Company or (ii) any other

         business which the Company or any of its subsidiaries shall have

         acquired by purchase, merger or otherwise prior to the date of

         termination in which the Company or any of its subsidiaries does

         business that is expected to compete to with the Company provided,

         however, that this sentence shall not prohibit Executive's ownership of

         not more than five (5) percent of the voting stock of any publicly held

         corporation. For clarification, Executive can work in the same line of

         business as the Company and its subsidiaries, including working in the

         same state, provided that Executive does not directly complete with the

         Company.

 

                           (D) SURVIVAL. The covenants contained in this Section

         7 shall survive any termination of Executive's Employment.

 

                  8.       SUCCESSORS.

 

                           (a) COMPANY'S SUCCESSORS. This Agreement shall be

         binding upon any successor (whether direct or indirect and whether by

         purchase, lease, merger, consolidation, liquidation or otherwise) to

         all or substantially all of the Company's business and/or assets. For

         all purposes under this Agreement, the term "Company" shall include any

         successor to the Company's business and/or assets that becomes bound by

         this Agreement.

 

 

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                           (e) EXECUTIVE'S SUCCESSORS. This Agreement and all

         rights of the Executive hereunder shall inure to the benefit of, and be

         enforceable by, the Executive's personal or legal representatives,

         executors, administrators, successors, heirs, distributees, devisees

         and legatees.

 

                  9. ARBITRATION.

 

                           (a) SCOPE OF ARBITRATION REQUIREMENT. The parties

         hereby waive their rights to a trial before a judge or jury and agree

         to arbitrate before a neutral arbitrator any and all claims or disputes

         arising out of this Agreement and any and all claims arising from or

         relating to the Executive's Employment, including (but not limited to)

         claims against any current or former employee, director or agent of the

         Company, claims of wrongful termination, retaliation, discrimination,

         harassment, breach of contract, breach of the covenant of good faith

         and fair dealing, defamation, invasion of privacy, fraud,

         misrepresentation, constructive discharge or failure to provide a leave

         of absence, or claims regarding commissions, stock options or bonuses,

         infliction of emotional distress or unfair business practices.

 

                           (b) PROCEDURE. The arbitrator's decision shall be

         written and shall include the findings of fact and law that support the

         decision. The arbitrator's decision shall be final and binding on both

         parties, except to the extent applicable law allows for judicial review

         of arbitration awards. The arbitrator may award any remedies that would

         otherwise be available to the parties if they were to bring the dispute

         in court. The arbitration shall be conducted in accordance with the

         National Rules for the Resolution of Employment Disputes of the

         American Arbitration Association. The arbitration shall take place in

         Houston, Texas.

 

                           (c) COSTS. The parties shall share the costs of

         arbitration equally. Both the Company and the Executive shall be

         responsible for their own attorneys' fees. Notwithstanding the

         forgoing, the non-prevailing party shall reimburse the prevailing party

         for arbitration costs and reasonable attorney's fees, to the extent

         allowable under applicable law.

 

                           (d) APPLICABILITY. This Section 9 shall not apply to

         (i) workers' compensation or unemployment insurance claims or (ii)

         claims concerning the validity, infringement or enforceability of any

         trade secret, patent right, copyright or any other trade secret or

         intellectual property held or sought by either the Executive or the

         Company (whether or not arising under the restrictive covenants of

         Section 7 hereof).

 

 

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                  10.      MISCELLANEOUS PROVISIONS

 

                            (a) NOTICE. Notices and all other communications

         contemplated by this Agreement shall be in writing and shall be deemed

         to have been duly given when personally delivered or when mailed by

         U.S. registered or certified mail, return receipt requested and postage

         prepaid. In the case of the Executive, mailed notices shall be

         addressed to him at the home address that he most recently communicated

         to the Company in writing. In the case of the Company, mailed notices

         shall be addressed to its corporate headquarters, and all notices shall

         be directed to the attention of its Secretary.

 

                           (b) MODIFICATIONS AND WAIVERS. No provision of this

         Agreement shall be modified, waived or discharged unless the

         modification, waiver or discharge is agreed to in writing and signed by

         the Executive and by an authorized officer of the Company (other than

         the Executive). No waiver by either party of any breach of, or of

         compliance with, any condition or provision of this Agreement by the

         other party shall be considered a waiver of any other condition or

         provision or of the same condition or provision at another time.

 

                           (c) WHOLE AGREEMENT. This Agreement supersedes any

         previous offer letter or employment agreement. No other agreements,

         representations or understandings (whether oral or written and whether

         express or implied) which are not expressly set forth in this Agreement

         have been made or entered into by either party with respect to the

         subject matter hereof. This Agreement and the Exhibits and agreements

         referenced herein contain the entire understanding of the parties with

         respect to the subject matter hereof.

 

                           (d) WITHHOLDING TAXES. All payments made under this

         Agreement shall be subject to reduction to reflect taxes or other

         charges required to be withheld by law.

 

                           (e) CHOICE OF LAW AND SEVERABILITY. This Agreement

         shall be interpreted in accordance with the laws of the State of Texas

         (except their provisions governing the choice of law). If any provision

         of this Agreement becomes or is deemed invalid, illegal or

         unenforceable in any applicable jurisdiction by reason of the scope,

         extent or duration of its coverage, then such provision shall be deemed

         amended to the minimum extent necessary to conform to applicable law so

         as to be valid and enforceable or, if such provision cannot be so

         amended without materially altering the intention of the parties, then

         such provision shall be stricken and the remainder of this Agreement

         shall continue in full force and effect. If any provision of this

         Agreement is rendered illegal by any present or future statute, law,

         ordinance or regulation (collectively the "LAW"), then such provision

         shall be curtailed or limited only to the minimum extent necessary to

         bring such provision into compliance with the Law. All the other terms

         and provisions of this Agreement shall continue in full force and

         effect without impairment or limitation.

 

                           (f) NO ASSIGNMENT. This Agreement and all rights and

         obligations of the Executive hereunder are personal to the Executive

         and may not be transferred or assigned by the Executive at any time.

         The Company may assign its rights under this Agreement to any entity

 

 

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         that assumes the Company's obligations hereunder in connection with any

         sale or transfer of all or a substantial portion of the Company's

         assets to such entity.

 

                           (g) COUNTERPARTS. This Agreement may be executed in

         two or more counterparts, each of which shall be deemed an original,

         but all of which together shall constitute one and the same instrument.

 

                           (h) INDEMNIFICATION. As an officer of the Company,

         Executive will be protected by the indemnification provisions of

         Article VIII of the Company's Certificate of Incorporation. In

         addition, the Company has purchased and currently maintains insurance

         protecting its officers and directors against certain losses arising

         out of actual or threatened actions, suits or proceedings to which such

         persons may be made or threatened or be made parties ("D&O INSURANCE").

         The Company covenants to continue D&O Insurance coverage at current

         levels for the duration of Executive's service and for two (2) years

         thereafter. .

 

         IN WITNESS WHEREOF, each of the parties has executed this employment

Agreement, in the case of the Company by its duly authorized officer, as of the

day and year first above written.

 

 

                                    ----------------------------

                                    Robert S. Herlin, Executive

 

 

                                    NATURAL GAS SYSTEMS, INC.

 

 

                                    ------------------------------

                                    By: Laird Cagan

                                    Title: Chairman

 

 

 

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                                    EXHIBIT A

                                 OTHER INTERESTS

 

         In accordance with Section 1 (b) of the Employment Agreement dated as

of March __, 2005, (the "Agreement"), the Company hereby consents and approves

of the following business interests conducted by Executive that are not directly

related to Company matters:

 

Executive serves the board of directors of Boots and Coots Group, Inc., a

publicly owned well service company that is not in direct or indirect

competition with the Company. The Company recognizes that it may benefit from

such activities, in that they broaden Executive's corporate governance

experience and extends Executive's exposure to industry. Executive currently

devotes a minimal amount of time per month on such activities and does not

believe that such service materially and adversely impacts his ability to

perform under the Agreement.

 

Executive is a partner with Tatum CFO Partners, a provider of contract CFO's and

other C level executives to industry and Tatum provides ongoing services to the

Company pursuant to a Services Agreement. Executive was introduced to the

Company through Tatum CFO Partners and intends to maintain that relationship,

however, Executive has not in the past, during his Employment with the Company,

and does not intend during the term of the Agreement to expend any material

business time or effort to such relationship, including the provision of

services to other companies. The Tatum CFO Partner services are valuable to the

Company by providing immediate resources in the areas of finance, accounting,

information services, management issues, human resources and other issues.

 

Executive currently owns direct minor oil and gas interests through a family

entity, none of which are directly or indirectly competitive with the Company's

interests. Executive agrees to advise the Company of any contemplated

investments that might be construed to be competitive with Company's interests,

prior to making such additional investments. Such ownership does not utilize a

material amount of Executive's time and none of Executive's business time or

efforts.

 

 

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                                    EXHIBIT B

                             2004 STOCK OPTION PLAN

 

                                    EXHIBIT C

                           2004 STOCK OPTION AGREEMENT

 

                                    EXHIBIT D

 

                             STOCK OPTION AGREEMENT

 

 

 

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