As filed with the Securities and Exchange Commission on May 23, 2005
No. 333 - 122687
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NATURAL GAS SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
Colorado 75-2811855
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Stephen C. Taylor
2911 South County Road 1260 2911 South County Road 1260
Midland, Texas 79706 Midland, Texas 79706
(432) 563-3974 (432) 563-3974
(Address, including zip code, and (Name, address, including zip code,
telephone number, including area code, code and telephone number, including,
of registrant's principal area code of agent for service)
executive offices)
Copies to:
David A. Thayer
Jackson Kelly PLLC
1099 18th Street, Suite 2150
Denver, CO 80202
Telephone: (303) 390-0003
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
==================================== ====================== ===================== ====================== ========================
Proposed Proposed
Amount Maximum Maximum
Title of Each Class of Securities to be Offering Price Aggregate Amount of
to be Registered Registered (1) Per Share (2) Offering Price (2) Registration Fee
- ------------------------------------ ---------------------- --------------------- ---------------------- ------------------------
Common Stock, $.01 par value per
share 701,171 $10.35 $7,257,120 $855 (3)
==================================== ====================== ===================== ====================== ========================
(1) Pursuant to Rule 416 of the Securities Act of 1933, this registration
statement shall cover such indeterminate number of additional shares of the
Registrant's Common Stock as may be issued as a result of stock dividends,
stock splits, recapitalizations, or similar transactions prior to the
termination of this registration statement.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based
upon the closing price of the Registrant's Common Stock on May 18, 2005, as
quoted on the American Stock Exchange.
(3) $746 was previously paid. $109 is being paid with this Amendment No. 1.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
The information in this prospectus is not complete and may be changed. The
selling shareholders may not sell these securities in reliance on this
prospectus until the registration statement filed with the Securities and
Exchange Commission, of which this prospectus is a part, is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS SUBJECT TO COMPLETION, DATED
May 23, 2005
701,171 SHARES
NATURAL GAS SERVICES GROUP, INC.
Common Stock
This prospectus relates to 701,171 shares of our common stock that may be
offered for sale or otherwise transferred from time to time by certain of our
shareholders. See "Selling Shareholders" on page 16. Of these shares, 118,968
shares are outstanding as of the date of this prospectus, while the remaining
582,203 shares will be issuable upon the exercise of warrants. Warrants for
616,175 of the shares were issued by us in early 2001 when we completed a
private placement of units consisting of the warrants and 10% subordinated
notes. The remaining warrants for 84,996 were issued in March 2001 and April
2002 to several of our affiliates in consideration for their personal guarantees
of our corporate debt. See "SELLING SHAREHOLDERS" on page 16 for more
information concerning the issuance of the warrants.
Our common stock is quoted on the American Stock Exchange under the symbol
"NGS". On May 18, 2005, the closing sale price of our common stock was $10.35
per share.
Our principal executive office is located at 2911 S. County Road 1260,
Midland, Texas 79706 and the telephone number is (432) 563-3974.
The selling shareholders may offer these shares from time to time through
public or private transactions at market prices prevailing at the time of sale,
at prices related to prevailing market prices or at other negotiated prices. The
selling shareholders may sell none, some or all of the shares offered by this
prospectus. We cannot predict when or in what amounts the selling shareholders
may sell any of the shares offered by this prospectus. The selling shareholders
will generally be responsible for their legal fees and for any commissions or
discounts due to brokers or dealers. We will pay the other offering expenses. We
will not receive any of the proceeds from the sale of shares by selling
shareholders under this prospectus. See "Plan of Distribution" on page 16.
PROSPECTIVE PURCHASERS OF THE COMMON STOCK SHOULD CONSIDER CAREFULLY THE
MATTERS SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these shares, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is May __, 2005.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (or SEC). You may read
and copy materials that we have filed with the Securities and Exchange
Commission at the following Securities and Exchange Commission public reference
room:
450 Fifth Street, N.W.
Washington, D.C. 20549
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference room.
The shares of common stock of Natural Gas Services Group are traded on the
American Stock Exchange under the symbol "NGS".
Our Securities and Exchange Commission filings are also available to the
public on the Securities and Exchange Commission's internet website at
http://www.sec.gov. In addition, the filings Natural Gas Services Group makes
with the Securities and Exchange Commission are also available to the public on
Natural Gas Services Group's website, www.ngsgi.com. Information on our website
is not incorporated into this prospectus and is not part of this prospectus.
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 covering the shares offered by this prospectus. The
registration statement, including the attached exhibits and schedules, contains
additional relevant information about us and our common stock, and you should
refer to the applicable exhibit or schedule for a complete description of any
statement referring to any contract or other document. The rules and regulations
of the Securities and Exchange Commission allow us to omit certain information
included in the registration statement from this prospectus.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" some of the documents we
file with it. This means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. The
documents we incorporate by reference are:
o Our Quarterly Report on Form 10-QSB for the quarter ended March 31,
2005;
o Our Annual Report on Form 10-KSB for the year ended December 31, 2004;
o Our Current Reports on Form 8-K filed with the Securities and Exchange
Commission on January 7, 2005, January 13, 2005, January 26, 2005,
February 24, 2005, March 18, 2005, and May 13, 2005;
o The description of our common stock contained in Items 1 and 2 of our
Registration Statement on Form 8-A filed under Section 12 of the
Securities Exchange Act of 1934 (or Exchange Act) on July 17, 2002;
and
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o All documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this prospectus and prior to the
termination of the offering of the shares offered hereby.
We will provide at no cost to each person, including any beneficial owner,
to whom this prospectus is delivered, on the written or oral request of such
person, a copy of any or all of the documents we incorporate by reference, other
than exhibits to such documents (unless those exhibits are specifically
incorporated by reference into the documents that this prospectus incorporates).
Requests should be directed to Natural Gas Services Group, Inc., 2911 South
County Road 1260, Midland, Texas 79706, (432) 563-3974, Attention: Investor
Relations.
We have not authorized anyone to give any information or make any
representation about us that is different from, or in addition to, that
contained in this prospectus or in any of the materials that we have
incorporated by reference into this document. Therefore, if anyone does give you
information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to sell, or solicitations of offers to purchase, the
shares of common stock offered by this document is unlawful, or if you are a
person to whom it is unlawful to direct these types of activities, then the
offer presented in this document does not extend to you. You should assume that
the information appearing in this prospectus, as well as the information we
previously filed with the SEC and incorporated by reference, is accurate only as
of the date of the documents containing the information.
ABOUT NATURAL GAS SERVICES GROUP, INC.
We provide equipment and services to the natural gas and oil industry. We
manufacture, fabricate, sell and lease natural gas compressors that enhance the
production of oil and gas wells and we provide maintenance services for those
compressors. We define a natural gas compressor as a mechanical device with one
basic goal - to deliver gas at a pressure higher than that originally existing.
It may be powered by a natural gas burning engine or an electric motor to
accommodate different applications. Gas compression is undertaken to transport
and distribute natural gas to pipelines. Pipeline pressures vary and with the
addition of new wells to the pipeline, the need for compression increases. We
also manufacture and sell flare tips and ignition systems for oil and gas plant
and production facilities. We define a flare tip as a burner on the upper end of
a flare stack that is designed to combust waste gases to assure a clean
environment. An ignition system is a pilot light or a spark generator that
assures continuous ignition of the waste gases going through the burner in the
flare tip.
We primarily lease and sell natural gas compressors. As of March 31, 2005,
we had 661 natural gas compressors under lease to third parties.
We also fabricate natural gas compressors for our customers, designing
compressors to meet unique specifications dictated by well pressures, production
characteristics and particular applications for which compression is sought.
We have established an exchange and rebuild program to attempt to help
minimize costs and maximize revenue for our customers. Under the program, we
work with maintenance and operating personnel of a customer to identify
equipment for exchange. When we receive a compressor for exchange because of a
maintenance problem, we deliver to our customer a replacement compressor at full
price. We then rebuild the exchange compressor and credit our customer an amount
based on the value of the rebuilt compressor. We also offer a retrofitting
service by repackaging a customer's compressor with a compressor that meets our
customer's changed conditions.
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We design, manufacture, install and service flare stacks and related
ignition and control devices for onshore and offshore burning of gas compounds
such as hydrogen sulfide, carbon dioxide, natural gas and liquefied petroleum
gases.
We have manufacturing and fabrication facilities located in Lewiston,
Michigan, Tulsa, Oklahoma, and Midland, Texas, where we manufacture and
fabricate natural gas compressors. We design and manufacture natural gas flare
systems, components and ignition systems in our facility in Midland, Texas, for
use in oilfield, refinery and petrochemical plant applications. On January 3,
2005, we acquired Screw Compression Systems, Inc., a Tulsa, Oklahoma based
manufacturer of natural gas compressors.
We currently provide our products and services to a customer base of oil
and gas exploration and production companies operating primarily in Colorado,
Kansas, Louisiana, Michigan, New Mexico, Oklahoma, Texas and Wyoming.
We maintain our principal office at 2911 South County Road 1260, Midland,
Texas 79706 and our telephone number is (432) 563-3974.
RISK FACTORS
To inform investors of our future plans and objectives, this prospectus
(and other reports and statements issued by us and our officers from time to
time) contain certain statements concerning our future performance, intentions,
objectives, plans and expectations that are or may be deemed to be
"forward-looking statements." See "Forward Looking Statements" on page 13. Our
ability to do this has been fostered by the Private Securities Litigation Reform
Act of 1995, which provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information so long as those
statements are accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those discussed in the statement.
You should carefully consider the following risks. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties that are not presently known to us or that we currently deem
immaterial may also impair our business.
If any of the events described in the following risks actually occur, our
business, financial condition and results of operations could be materially
adversely affected. In such case, the trading prices of our common stock could
decline and you could lose all or part of your investment.
Our current debt is large and may negatively impact our current and future
financial stability.
As of March 31, 2005, we had an aggregate of approximately $24,400,000 of
outstanding indebtedness, not including accounts payable, and accrued expenses
of approximately $5,429,000. As a result of our significant indebtedness, we
might not have the ability to incur any substantial additional indebtedness. The
level of our indebtedness could have several important effects on our future
operations, including:
o our ability to obtain additional financing for working capital,
acquisitions, capital expenditures and other purposes may be limited;
o a significant portion of our cash flow from operations may be
dedicated to the payment of principal and interest on our debt,
thereby reducing funds available for other purposes; and
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o our significant leverage could make us more vulnerable to economic
downturns.
If we are unable to service our debt, we will likely be forced to take
remedial steps that are contrary to our business plan.
As of March 31, 2005, principal payments for our debt service requirements
on a monthly, quarterly and annual basis were $449,000, $1,350,000 and
$5,399,000, respectively. It is possible that our business will not generate
sufficient cash flow from operations to meet our debt service requirements and
the payment of principal when due. If this were to occur, we may be forced to:
o sell assets at disadvantageous prices;
o obtain additional financing; or
o refinance all or a portion of our indebtedness on terms that may be
very unfavorable to us.
Our current bank loan contains covenants that limit our operating and financial
flexibility and, if breached, could expose us to severe remedial provisions.
Under the terms of our bank loan, we must:
o at the end of each month, have a current ratio of at least 1.4 to 1.0;
o at the end of each month, have a consolidated tangible net worth of at
least $14,500,000;
o at the end of each quarter, have a ratio of (a) consolidated cash
flow, to (b) consolidated fixed charges of at least 1.25 to 1.0; and
o at the end of each month, not permit our ratio of (a) consolidated
debt, to (b) consolidated tangible net worth to exceed 2.7 to 1.0.
In addition to customary affirmative covenants, the loan agreement contains
various restrictive covenants and compliance requirements. Among these
restrictions are limitations on our ability to:
o dispose of assets;
o incur additional indebtedness;
o create liens on our assets;
o repurchase, redeem or retire our capital stock or other securities;
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o merge or consolidate, or transfer all or substantially all of our
assets and the assets of our subsidiaries;
o engage in specified transactions with subsidiaries and affiliates;
o materially amend or modify our existing compressor leases;
o declare or pay dividends on our capital stock; and
o make any significant or substantial change in the nature of our
business as being conducted as of the date of the loan agreement.
Our ability to meet the financial ratios and tests under our bank loan can
be affected by events beyond our control, and we may not be able to satisfy
those ratios and tests. A breach under either could permit the bank to
accelerate the debt so that it is immediately due and payable. No further
borrowings would be available under the credit facility. If we were unable to
repay the debt, the bank could proceed against our assets.
Approximately 69% of our compressor leases are leased for terms of six months or
less and, if terminated, would adversely impact our revenue and our ability to
recover our initial equipment costs.
Approximately 69% of our compressor leases are for terms of up to six
months. There is a possibility that these leases could be terminated by lessees
within short periods of time and that we may not be able to recover the cost of
a compressor for which a lease is terminated.
We must integrate the operations of acquired businesses.
On January 3, 2005, we completed our acquisition of Screw Compression
Systems, Inc. ("SCS"). In connection with the acquisition, we nearly doubled our
long term debt and issued 609,576 of our shares of common stock. Our success
will depend, in part, on our ability to integrate the operations of SCS and
other businesses we acquire in the future, including centralizing certain
functions to achieve cost savings, pursuing programs and processes that promote
cooperation and the sharing of opportunities and resources, developing sales and
marketing programs, and retaining acquired customers. We may not be able to
oversee the combined entity efficiently or to implement effectively our growth
and operating strategies. To the extent that we successfully implement our
acquisition strategy, our resulting growth will place significant additional
demands on our management and infrastructure. Our failure to implement
successfully our strategies or operate effectively the combined entity could
have a material adverse effect on our business, financial condition, and results
of operations. These effects could include lower revenue; higher cost of sales;
increased selling, general, and administrative expenses; and reduced margins.
The anticipated revenue from the affiliate of Dominion Michigan cannot be
guaranteed.
In connection with our acquisition of the compression-related assets of
Dominion Michigan, an affiliate of Dominion Michigan committed until March 2006
to purchase compressors from us or enter into five year leases of compressors
with us totaling five-thousand horsepower. If, for any reason, the affiliate
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does not fulfill this obligation to any material extent, our cash flow will be
significantly reduced and we may not be able to pay the principal or interest on
our debt as it becomes due.
We rely on two customers for a significant amount of our business and the loss
of these customers could adversely affect our operating results and lower the
price of our common stock.
Our business is dependent not only on securing new customers but also on
maintaining current customers. During the years ended December 2004 and 2003,
Dominion Exploration accounted for approximately 21% and 28% of our consolidated
revenue, respectively. For the three months ended March 31,2005 our customer
XTO, obtained from the acquisition of SCS, represented 39% of total consolidated
revenue. The loss of these two customers could cause our operating results to
fall below market analysts' expectations and lower the price of our common
stock.
We are dependent on a few suppliers for some of our compressor components and
the loss of one of these suppliers could cause a delay in the manufacturing of
our compressors and reduce our revenue.
We currently obtain approximately 20% of our compressor components from
three suppliers. We order from these suppliers as needed and we have no
long-term contracts with either supplier. If either of these suppliers should
curtail its operations or be unable to meet our needs, we would encounter delays
in supplying our customers with compressors until an alternative supplier, if
any, could be found. Such delays in our manufacturing process could reduce our
revenue and negatively impact our relationships with customers.
Decreased oil and gas industry expenditure levels would adversely affect our
revenue.
Our revenue is derived from expenditures in the oil and gas industry, which
in turn, are based on budgets to explore for, develop and produce oil and
natural gas. If these expenditures decline, our revenue will suffer. The
industry's willingness to explore, develop and produce depends largely upon the
prevailing view of future oil and gas prices. Many factors affect the supply and
demand for oil and gas and, therefore, influence product prices including:
o the level of oil and gas production;
o the levels of oil and gas inventories;
o the expected cost of developing new reserves;
o the cost of producing oil and gas;
o the level of drilling activity;
o inclement weather;
o worldwide economic activity;
o regulatory and other federal and state requirements in the United
States;
o the ability of the Organization of Petroleum Exporting Countries to
set and maintain production levels and prices for oil;
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o terrorist activities in the United States and elsewhere;
o the cost of developing alternate energy sources;
o environmental regulation; and
o tax policies.
If the demand for oil and gas decreases, then demand for our compressors
likely will decrease.
The intense competition in our industry could result in reduced profitability
and loss of market share for us.
We sell or lease our products and sell our services in competitive markets.
In most of our business segments, we compete with the oil and gas industry's
largest equipment and service providers who have greater name recognition than
we do. These companies also have substantially greater financial resources,
larger operations and greater budgets for marketing, research and development
than we do. They may be better able to compete in making equipment available
quickly and more efficiently, meeting delivery schedules or reducing prices. As
a result, we could lose customers and market share to those competitors. These
companies may also be better positioned than us successfully to endure downturns
in the oil and gas industry.
Our operations may be adversely affected if our current competitors or new
market entrants introduce new products or services with better prices, features,
performance or other competitive characteristics than our products and services.
Competitive pressures or other factors also may result in significant price
competition that could harm our revenue and our business.
We might be unable to employ adequate technical personnel, which could hamper
our plans for expansion or increase our costs.
Many of the compressors that we sell or lease are technically complex and
often must perform in harsh conditions. We believe that our success depends upon
our ability to employ and retain a sufficient number of technical personnel who
have the ability to design, utilize, enhance and maintain these compressors. Our
ability to expand our operations depends in part on our ability to increase our
skilled labor force. The demand for skilled workers is high and supply is
limited. A significant increase in the wages paid by competing employers could
result in a reduction of our skilled labor force, or cause an increase in the
wage rates that we must pay, or both. If either of these events were to occur,
our cost structure could increase and our operations and growth potential could
be impaired.
If we do not develop, produce and commercialize new competitive technologies and
products, our revenue may decline.
The markets for natural gas compressor products and services and for flare
systems, ignition systems and components for plant and production facilities are
characterized by continual technological developments. As a result, substantial
improvements in the scope and quality of product function and performance can
occur over a short period of time. If we are not able to develop commercially
competitive products in a timely manner in response to changes in technology,
our business and revenue may be adversely affected.
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We may encounter financial constraints or technical or other difficulties
that could delay introduction of new products and services in the future. Our
competitors may introduce new products before we do and achieve a competitive
advantage.
Additionally, the time and expense invested in product development may not
result in commercial applications that provide revenue. We could be required to
write off our entire investment in a new product that does not reach commercial
viability. Moreover, we may experience operating losses after new products are
introduced and commercialized because of high start-up costs, unexpected
manufacturing costs or problems, or lack of demand.
We are subject to extensive environmental laws and regulations that could
require us to take costly compliance actions that could harm our financial
condition.
Our manufacturing and maintenance operations are significantly affected by
stringent and complex federal, state and local laws and regulations governing
the discharge of substances into the environment or otherwise relating to
environmental protection. In these operations, we generate and manage hazardous
wastes such as solvents, thinner, waste paint, waste oil, washdown wastes, and
sandblast material. We attempt to use generally accepted operating and disposal
practices and, with respect to acquisitions, will attempt to identify and assess
whether there is any environmental risk before completing an acquisition. Based
on the nature of the industry, however, hydrocarbons or other wastes may have
been disposed of or released on or under properties owned, leased, or operated
by us or on or under other locations where such wastes have been taken for
disposal. The wastes on these properties may be subject to federal or state
environmental laws that could require us to remove the wastes or remediate sites
where they have been released. We could be exposed to liability for cleanup
costs, natural resource and other damages as a result of our conduct or the
conduct of, or conditions caused by, prior operators or other third parties.
Environmental laws and regulations have changed in the past, and they are likely
to change in the future. If existing regulatory requirements or enforcement
policies change, we may be required to make significant unanticipated capital
and operating expenditures.
Any failure by us to comply with applicable environmental laws and regulations
may result in governmental authorities taking actions against our business that
could harm our operations and financial condition, including the:
o issuance of administrative, civil and criminal penalties;
o denial or revocation of permits or other authorizations;
o reduction or cessation in operations; and
o performance of site investigatory, remedial or other corrective
actions.
We could be subject to substantial liability claims that could harm our
financial condition.
Our products are used in hazardous drilling and production applications
where an accident or a failure of a product can cause personal injury, loss of
life, damage to property, equipment or the environment, or suspension of
operations.
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While we maintain insurance coverage, we face the following risks under our
insurance coverage:
o we may not be able to continue to obtain insurance on commercially
reasonable terms;
o we may be faced with types of liabilities that will not be covered by
our insurance, such as damages from significant product liabilities
and from environmental contamination;
o the dollar amount of any liabilities may exceed our policy limits; and
o we do not maintain coverage against the risk of interruption of our
business.
Any claims made under our policy will likely cause our premiums to
increase. Any future damages caused by our products or services that are not
covered by insurance, are in excess of policy limits or are subject to
substantial deductibles, would reduce our earnings and our cash available for
operations.
Liability to customers under warranties may materially and adversely affect our
earnings.
We provide warranties as to the proper operation and conformance to
specifications of the equipment we manufacture. Our equipment is complex and
often deployed in harsh environments. Failure of this equipment to operate
properly or to meet specifications may increase our costs by requiring
additional engineering resources and services, replacement of parts and
equipment or monetary reimbursement to a customer. We have in the past received
warranty claims and we expect to continue to receive them in the future. To the
extent that we incur substantial warranty claims in any period, our reputation,
our ability to obtain future business and our earnings could be materially and
adversely affected.
Loss of key members of our management could adversely affect our business while
we attempt to find their replacements.
We depend on the continued employment and performance of Wallace C.
Sparkman, our Chairman, Stephen C. Taylor, our President, Earl R. Wait, our
Treasurer and Chief Financial Officer, and other key members of our management.
If any of our key managers resigns or becomes unable to continue in his present
role and is not adequately replaced, our business operations could be materially
adversely affected. We do not maintain any "key man" life insurance for any of
our officers.
We must evaluate our intangible assets annually for impairment.
Our intangible assets are recorded at cost less accumulated amortization
and consist of goodwill and patent costs. Through December 31, 2001, goodwill
was amortized using the straight-line method over 15 years and patent costs were
amortized over 13 to 15 years.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
FAS 142 provides that: (1) goodwill and intangible assets with indefinite lives
will no longer be amortized; (2) goodwill and intangible assets with indefinite
lives must be tested for impairment at least annually; and (3) the amortization
period for intangible assets with finite lives will no longer be limited to
forty years. In the event that we determine our intangible assets with
indefinite lives have been impaired, we must record a write-down of those assets
on our statement of operations during the period of impairment. Our
determination of impairment will be based on various factors, including any of
the following factors, if they materialize:
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o significant under performance relative to expected historical or
projected future operating results;
o significant changes in the manner of our use of the acquired assets or
the strategy for our overall business;
o significant negative industry or economic trends;
o significant decline in our stock price for a sustained period; and
o our market capitalization relative to net book value.
We adopted FAS 142 as of January 1, 2002. Based on independent valuations
in June 2003 and 2002 of our reporting units with goodwill, adoption of FAS 142
has not had a material adverse effect on us through at least 2003. In the future
it could result in impairments of our intangible assets or goodwill. We expect
to continue to amortize our intangible assets with finite lives over the same
time periods as previously used, and we will test our intangible assets with
indefinite lives for impairment at least once each year. In addition, we are
required to assess the consumptive life, or longevity, of our intangible assets
with finite lives and adjust their amortization periods accordingly. As of March
31, 2005, we had an aggregate of approximately $4,220,000 of net intangible
assets. We expect the carrying value of net intangible assets could increase
significantly if we acquire additional businesses. Any impairment in future
periods of those assets, or a reduction in their consumptive lives, could
materially and adversely affect our statement of operations and financial
position.
Provisions contained in our governing documents could hinder a change in our
control.
Our articles of incorporation and bylaws contain provisions that may
discourage acquisition bids and may limit the price investors are willing to pay
for our common stock and warrants. Our articles of incorporation and bylaws
provide that:
o directors will be elected for three-year terms, with approximately
one-third of the board of directors standing for election each year;
o cumulative voting is not allowed, which limits the ability of minority
shareholders to elect any directors;
o the unanimous vote of the board of directors or the affirmative vote
of the holders of not less than 80% of the votes entitled to be cast
by the holders of all shares entitled to vote in the election of
directors is required to change the size of the board of directors;
and
o directors may only be removed for cause by holders of not less than
80% of the votes entitled to be cast on the matter.
Our board of directors has the authority to issue up to five million shares
of preferred stock. The board of directors can fix the terms of the preferred
stock without any action on the part of our shareholders. The issuance of shares
of preferred stock may delay or prevent a change in control transaction. In
addition, preferred stock could be used in connection with the board of
director's adoption of a shareholders' rights plan (also known as a poison
pill), which would make it much more difficult to effect a change in control of
us through acquiring or controlling blocks of our stock. Our directors and
11
officers as a group beneficially own stock. Although this is not a majority of
our stock, it confers substantial voting power in the election of directors and
management of us. This would make it difficult for other minority shareholders
to effect a change in control or otherwise extend any significant control over
our management. This may adversely affect the market price and interfere with
the voting and other rights of our common stock.
You may suffer substantial dilution upon the exercise of outstanding warrants
and options.
As of March 31, 2005, we had outstanding a significant number of warrants
and options to purchase shares of our common stock. If these warrants or options
are exercised, your percentage ownership in Natural Gas Services Group will be
diluted and the price per share of our common stock may decline. We have
o issued warrants to purchase up to 2,347,660 shares of common stock;
and
o granted options to purchase up to 130,500 shares of common stock.
Under our employee and director stock option plans, we may grant options to
purchase up to an additional 19,500 shares of common stock. All of our
outstanding warrants and options have exercise prices below $10.35, the closing
sale price of our common stock on May 18, 2005. Sales of substantial amounts of
common stock, or a perception that such sales could occur, could adversely
affect the market price of the common stock and could impair our ability to
raise capital through the sale of our equity securities.
If we issue debt or equity securities, you may lose certain rights and be
diluted.
If we raise funds in the future through the issuance of debt or equity
securities, the securities issued may have rights and preferences and privileges
senior to those of holders of our common stock, and the terms of the securities
may impose restrictions on our operations or dilute your ownership in Natural
Gas Services Group.
We do not intend to pay, and have restrictions upon our ability to pay,
dividends on our common stock.
We have not paid cash dividends in the past and do not intend to pay
dividends on our common stock in the foreseeable future. Net income from our
operations, if any, will be used for the development of our business, including
capital expenditures, and to retire debt. In addition, our bank loan facility
contains restrictions on our ability to pay cash dividends on our common stock.
We have a comparatively low number of shares of common stock outstanding and,
therefore, our common stock may suffer from limited liquidity and its prices
will likely be volatile and its value may be adversely affected.
Because of our relatively low number of outstanding shares of common stock,
the trading price of our common stock will likely be subject to significant
price fluctuations and limited liquidity. This may adversely affect the value of
your investment. In addition, our common stock price could be subject to
fluctuations in response to variations in quarterly operating results, changes
in management, future announcements concerning us, general trends in the
industry and other events or factors as well as those described above.
The sale of stock by the selling shareholders may depress our stock price.
12
Under this prospectus, the selling shareholders may sell up to 701,171 of
their shares of our common stock, representing approximately 10.2% of our
outstanding common stock at the date of this prospectus. The sale of substantial
amounts of our stock owned by the selling shareholders in the public market, or
the belief that these sales may occur, could reduce the market price of our
stock, making it more difficult for us to raise funds through future offerings
of our common stock and to acquire businesses using our stock as consideration.
FORWARD LOOKING STATEMENTS
Some statements contained in this prospectus, any accompanying prospectus
supplement, and the documents incorporated by reference are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 (or
Securities Act) and Section 21E of the Exchange Act. These statements include,
without limitation, statements relating to oil and gas prices, demand for oil
and gas, budgets, business strategies and other plans, intentions and objectives
of our management for future operations and activities and other such matters.
The words "believe", "budget", "plan", "estimate", "expect", "intend",
"strategy", "project", "will", "could", "may", "anticipate", "continue" and
similar expressions identify forward-looking statements. We believe the
assumptions and expectations reflected in these forward-looking statements are
reasonable. However, we cannot give any assurance that our expectations will
prove to be correct or that we will be able to take any actions that are
presently planned. Actual results could differ materially from those expressed
in the forward-looking statements. Factors that could cause such a difference
include:
o fluctuations in prices of oil and gas;
o future capital requirements and availability of financing;
o competition;
o general economic conditions;
o governmental regulations;
o receipt of amounts owed to us by our customers;
o events similar to 911; and
o fluctuations in interest rates and availability of capital.
You are cautioned not to place undue reliance on any of our forward-looking
statements, which speak only as of the date of the document or in the case of
documents incorporated by reference, the date of those documents.
13
USE OF PROCEEDS
We will not receive any proceeds from the sale of our common stock by the
selling shareholders. However, we will receive the proceeds, if exercised (other
than by cashless exercise), from warrants to purchase 582,203 shares of common
stock held by the selling shareholders.
ISSUANCE OF SECURITIES TO THE SELLING SHAREHOLDERS
The selling shareholders received the securities offered in this prospectus
pursuant to the following transactions.
In early 2001, in a private placement we issued units comprised of 10%
Subordinated Notes and Warrants to purchase up to 616,175 shares of our common
shock to the selling shareholders. The warrants issued in the private placement
have a term of five years and are exercisable at $3.25 per share. The warrants
can be exercised by paying cash, or by way of "cashless exercise" whereby a
portion of the shares underlying the warrant are used, at the fair market value
of our common stock on the date of exercise, to pay the exercise price for the
remaining shares underlying the warrant.
In March 2001, we issued warrants to purchase 68,524 shares of our common
stock at $2.50 per share in exchange for persons guaranteeing approximately
$1,749,000 of our debt. The warrants can be exercised by paying cash, or by way
of "cashless exercise" whereby a portion of the shares underlying the warrant
are used, at the fair market value of our common stock on the date of exercise,
to pay the exercise price for the remaining shares underlying the warrant. The
warrants expire on December 31, 2006, and they were issued to the following
persons for guaranteeing the amount of our debt indicated:
Number of Shares Amount of
Name Underlying Warrants Debt Guaranteed
---- ------------------- ---------------
Wallace O. Sellers 21,936 $548,399
Wallace C. Sparkman(1) 21,467 536,671
CAV-RDV, Ltd.(2) 15,756 393,902
Richard L. Yadon 9,365 234,121
- ---------------------------
(1) Wallace C. Sparkman is our Chairman of the Board. Mr. Sparkman subsequently
transferred his warrants for 21,467 shares to Diamond S DGT, a trust of
which Scott W. Sparkman is the trustee and a beneficiary. Wallace C.
Sparkman has represented to us that he has no beneficial interest in
Diamond S DGT.
(2) CAV-RDV, Ltd., is a Texas limited partnership for the benefit of the
children of Wayne L. Vinson, our former Chief Executive Officer.
In April 2002, we issued warrants to purchase 16,472 shares of our common
stock at $3.25 per share in exchange for three persons guaranteeing
approximately $824,000 of our debt. The warrants can be exercised by paying
cash, or by way of "cashless exercise" whereby a portion of the shares
underlying the warrant are used, at the fair market value of our common stock on
the date of exercise, to pay the exercise price for the remaining shares
underlying the warrant. The warrants expire on December 31, 2007, and they were
issued to the following persons for guaranteeing the amount of our debt
indicated:
14
Number of Shares Amount of Additional
Name Underlying Warrants Debt Guaranteed
---- ------------------- --------------------
Wallace O. Sellers(1) 9,032 $ 451,601
CAV-RDV, Ltd.(2) 2,122 106,098
Richard L. Yadon(1) 5,318 265,879
- ---------------------------
(1) Messrs. Sellers and Yadon serve as directors on our Board of Directors.
(2) CAV-RDV, Ltd., is a Texas limited partnership for the benefit of the
children of Wayne L. Vinson, our former Chief Executive Officer.
We will not receive any proceeds in connection with the sale of shares by
the selling shareholders listed below; however, we will receive proceeds from
any cash exercise of the warrants.
Although not required to do so, we have filed a registration statement, to
which this prospectus forms a part, in order to permit the selling shareholders
to resell to the public the shares of common stock they have or may acquired
pursuant to the exercise of the warrants.
We will pay all expenses of registering the shares under the Securities
Act, including all registration, listing and filing fees, printing expenses,
fees and disbursements of our counsel, expenses of any special audits incident
to or required by the registration, and expenses of complying with the
securities or blue sky laws of any jurisdictions. The selling shareholders will
pay all discounts, brokerage fees, commissions and expenses for any shares that
are registered and that they sell.
15
SELLING SHAREHOLDERS
The following table sets forth information provided by the selling
shareholders about the ownership of our common stock by the selling shareholders
before and after the offering covered by this prospectus.
Shares Shares Percentage of Shares
Beneficially Shares Being Beneficially Beneficially Owned
Owned Offered in Owned
Before The After Before After
Name Offering(1) Offering(2) Offering(2) Offering Offering
- ---- ------------ ------------ ------------ -------- --------
Robert A. Street 10,000 10,000 -0- * *
William E. Beggs 10,000 10,000 -0- * *
Gary W. and Theresa L. Boening 24,400 20,000 4,400 * *
Alvin R. Bonnette Revocable Trust(3) 75,900 68,000 7,900 1.1 *
The Burns Partnership(4) 176,000 10,000 166,000 2.6 2.4
Butera Family Trust(5) 58,000 24,000 34,000 * *
Joseph E. Carothers 29,172 18,000 11,172 * *
CAV-RDV, Ltd.(6) 177,878 17,878 160,000 2.6 2.4
Charles Curtis 78,000 40,000 38,000 1.7 *
Leslie W. David Trust(7) 11,600 10,000 1,600 * *
Loretta J. David-Roth IRA 11,600 10,000 1,600 * *
Diamond S. DGT(8) 496,467 21,467 475,000 7.3 7.0
Robert C. Dixon/IRA 37,900 10,000 27,900 * *
Alvin J. Donius 10,000 10,000 -0- * *
Zenas N. Gurley 166,471 10,471 156,000 2.5 2.3
William F. Hughes(9) 247,000 60,000 187,000 3.6 2.7
Roy A. Johnson Revocable Trust(10) 12,000 10,000 2,000 * *
Albert W. Karnath 26,800 10,000 16,800 * *
John Karnath 10,000 10,000 -0- * *
Lorie Karnath 10,000 10,000 -0- * *
Paul M.Karnath 10,000 10,000 -0- * *
Alan Kurus 33,704 31,704 2,000 * *
Elise L. Lyon Revocable Living Trust 10,000 10,000 -0- * *
Utd. 9/23/96(11)
Sally Jo Maisano 36,000 26,000 10,000 * *
Darell&Thordis Norris Trust(12) 16,000 10,000 6,000 * *
Mary Jane Peck 26,800 20,000 6,800 * *
B. Kay Phillips 10,000 10,000 -0- * *
Sharon L. Pitken-IRA 112,000 36,000 76,000 1.6 1.1
G Five Development LLC(13) 82,000 32,000 50,000 1.2 *
Earl W. Sauder Trust(14) 32,408 20,000 12,408 * *
David C. Shatzer 55,200 20,000 35,200 * *
Gary E. Schenkel 11,000 10,000 1,000 * *
Wallace O. Sellers(15) 693,159 30,968 662,191 10.2 9.8
Donald L. Smallwood 10,000 10,000 -0- * *
Kipp/Glenda Jo Smallwood 10,000 10,000 -0- * *
Lazaros/Patricia Voreadis 30,000 10,000 20,000 * *
Richard L. Yadon(16) 299,183 14,683 284,500 4.4 4.2
------------ ------------ ------------
TOTALS 3,156,642 701,171 2,455,471
* Less than 1%
- -----------------
16
(1) Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the SEC under the Exchange Act, which includes shares underlying
the warrants and any other securities which are convertible into our common
stock within 60 days of the date of this prospectus. The calculations of the
percentages of shares beneficially owned are based upon 6,782,764 shares of our
common stock outstanding at March 31, 2005 and assume the exercise of the
warrants (which are exercisable for shares of our common stock) held by that
selling shareholder.
(2) The selling shareholders may offer shares under this prospectus from time
to time and may elect to sell none, some or all of the shares set forth above.
As a result, we cannot estimate the number of shares of our common stock that
the selling shareholders will beneficially own after termination of sales under
this prospectus. For purposes of this table, however, we have assumed that the
selling shareholders sell all of their shares issued or issuable pursuant to the
warrants. In addition, the selling shareholders may have sold, transferred or
otherwise disposed of all or a portion of their shares of our common stock since
the date on which they provided information for this table.
(3) Alvin R. Bonnette is the Trustee of the Alvin R. Bonnette Revocable Trust
and consequently has voting and investment control over the shares. Each of Mr.
Bonnette's six children are beneficiaries under the trust.
(4) William Burns, David Burns, Michael Burns, Barbara Burns, and Jeffrey Burns
are the members and beneficial owners of The Burns Partnership, a general
partnership, and each such person consequently has voting and investment control
over the shares.
(5) Roy T. Butera is trustee of the Butera Family Trust and consequently has
voting and investment control over the shares. Each of Mr. Butera's three
children are beneficiaries under the trust.
(6) The children of Wayne L. Vinson, our former Chief Executive Officer, are
the beneficial owners of CAV-RDV, Ltd., at Texas Limited Partnership.
(7) Leslie W. David is trustee of the Leslie W. David Trust and consequently
has voting and investment control over the shares. Mr. David's wife, Loretta
David, is the beneficiary under the trust.
(8) The warrant for 21,467 shares of our common stock at $6.25 per share was
initially issued to Wallace C. Sparkman, our Chairman of the Board. Mr. Sparkman
subsequently transferred his warrants for 21,467 shares to Diamond S. DGT, a
trust of which Scott W. Sparkman is the trustee and a beneficiary. Wallace C.
Sparkman has represented to us that he has no beneficial interest in Diamond S.
DGT.
(9) The 247,000 beneficially owned shares include (i) 1,500 shares owned
directly by William F. Hughes, Jr., (ii) 180,500 shares held by the William F.
and Cheryl C. Hughes Family Trust in which William and Cheryl Hughes are
co-trustees and consequently share voting and investment over the shares;
William and Cheryl Hughes are also beneficiaries under the trust along with
their two children, and (iii) 5,000 shares issuable upon exercise of stock
options ranging from $5.55 to $9.34 per share, held by William F. Hughes, Jr.,
and (iv) the 60,000 shares registered herein which are issuable upon exercise of
a stock warrant at $3.25 per share, held by William F. Hughes, Jr.
(10) Roy A. Johnson is trustee of the Roy A. Johnson Revocable Trust and
consequently has voting and investment control over the shares. Each of Mr.
Johnson's two children are beneficiaries under the trust.
(11) Elise S. Lyon is trustee of the Elise S. Lyon Revocable Living Trust Utd
9/23/96 and consequently has voting and investment control over the shares. Each
of Ms. Lyon's three children are beneficiaries under the trust.
(12) Darell Norris and Thordis Norris are co-trustees and beneficiaries of the
Darell & Thordis Norris Trust and consequently share voting and investment
control over the shares.
(13) Roland W. Gentner, a resident of Rapid City, South Dakota, is the
beneficial owner of G Five Development LLC, a South Dakota limited liability
company. Mr. Gentner beneficially owns 369,000 shares of our common stock.
(14) Earl W. Sauder is trustee of the Earl W. Sauder Trust and consequently has
voting and investment control over the shares. Mr. Sauder's wife, children and
grandchildren are beneficiaries.
(15) Wallace O. Sellers is a Director of our Company. The 693,159 beneficially
owned shares include (i) 134,877 shares owned directly by Wallace O. Sellers,
(ii) 158,600 shares owned through Mr. Sellers' wife, (iii) 7,500 shares issuable
upon exercise of stock options ranging from $3.88 to $9.34 per share, (iv)
196,091 shares held in a trust in which Mr. Sellers' wife is a lifetime
beneficiary and an unrelated third party acts as trustee, (v) 196,091 shares
held in a trust in which Mr. Sellers' wife is a contingent beneficiary, and an
unrelated third party acts as trustee. Mr. Sellers disclaims ownership of all
shares held in the two trusts.
(16) Richard L. Yadon is a Director of our Company. The 299,193 beneficially
owned shares include (i) 279,500 shares owned directly by Richard L. Yadon, (ii)
5,000 shares issuable upon exercise of stock options ranging from $5.55 to $9.34
per share, and (iii) 14,683 shares issuable upon exercise of stock warrants at
$2.50 and $3.25 per share.
- --------------------------------
PLAN OF DISTRIBUTION
The shares of common stock covered by this prospectus may be offered and
sold from time to time by the selling shareholders. The term "selling
shareholders" includes donees, pledgees, transferees or other
successors-in-interest selling shares received after the date of this prospectus
from a selling shareholder as a gift, pledge, shareholder distribution or other
non-sale related transfer. The selling shareholders will act independently of us
in making decisions with respect to the timing, manner and size of each sale.
17
Sales of shares by the selling shareholders referred to in this prospectus
may be made from time to time in one or more transactions on the American Stock
Exchange, in the over-the-counter market or any other exchange or quotation
system on which shares of our common stock may be listed or quoted, in
negotiated transactions or in a combination of any such methods of sale. Sales
may be at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The shares may be offered directly to purchasers or to or
through underwriters or agents designated from time to time or to or through
brokers or dealers, or through any combination of these methods of sale.
The methods by which the shares may be sold include:
o block trades (which may involve crosses) in which the broker or dealer
will attempt to sell the securities as agent but may position and
resell a portion of the block as principal to facilitate the
transaction;
o purchases by a broker or dealer as principal and resale by the broker
or dealer for its own account under this prospectus;
o exchange distributions or secondary distributions in accordance with
the rules of the American Stock Exchange or other relevant markets;
o short sales, ordinary brokerage transactions and transactions in which
the broker solicits purchasers;
o transactions in options, swaps or other derivatives, whether
exchange-listed or otherwise;
o firm commitment or best efforts underwritings; and
o privately negotiated transactions.
In addition, sales not covered by this prospectus may also be made by the
selling shareholders under Rule 144 or another applicable exemption under the
Securities Act.
From time to time the selling shareholders may distribute a portion or all
of their shares to their owners. In the event of such a distribution, and to the
extent these owners intend to use this prospectus to sell any of such shares, if
required these owners will be identified in a supplement to this prospectus
filed with the SEC. Furthermore, to the extent required, this prospectus also
may be amended or supplemented from time to time to describe a specific plan of
distribution or any material arrangement that a selling shareholder has entered
into for the sale of shares, including the details of any underwritten
distribution.
In connection with distributions of shares or otherwise, the selling
shareholders may enter into hedging transactions with broker-dealers or other
agents. In connection with these transactions, broker-dealers or other agents
may engage in short sales of shares in the course of hedging the positions they
assume with the selling shareholders. The selling shareholders may also sell
shares short and redeliver the shares to close out their short positions. The
selling shareholders may also enter into option or other transactions with
broker-dealers or other financial institutions that require the delivery to that
broker-dealer or other financial institution of shares offered by this
prospectus, which shares that broker-dealer or other financial institution may
18
resell under this prospectus (as supplemented or amended to reflect the
transaction). The selling shareholders may also pledge or grant a security
interest in shares and, upon a default in the performance of the secured
obligation, the pledgee or secured party may affect sales of the pledged shares
under this prospectus (as supplemented or amended to reflect the transaction).
In effecting sales, broker-dealers or agents engaged by the selling
shareholders may arrange for other broker-dealers to participate.
Broker-dealers, underwriters or agents may receive commissions, discounts or
concessions from the selling shareholders and/or purchasers of the shares for
whom they may act as agents.
In offering the shares covered by this prospectus, the selling shareholders
and any broker-dealers, underwriters or agents who execute sales for the selling
shareholders may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with these sales. Any profits realized by the
selling shareholders and the compensation of any broker-dealer, underwriter or
agent may be deemed to be underwriting discounts and commissions. No
underwriter, broker-dealer or agent has been engaged by us in connection with
the distribution of the shares.
To comply with the securities laws of certain states, if applicable, the
shares must be sold in those jurisdictions only through registered or licensed
brokers or dealers. In addition, in certain states the shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available
and is complied with.
The selling shareholders and any other person participating in a
distribution of the shares covered by this prospectus will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder. Regulation M of the Exchange Act may limit the timing of purchases
and sales of shares by the selling shareholders and any other person. In
addition, Regulation M may restrict the ability of any person engaged in the
distribution of the shares to engage in market-making activities with respect to
our common stock for a period of up to five business days before the
distribution.
LEGAL MATTERS
The validity under Colorado law of the shares will be passed upon for us by
Jackson Kelly PLLC, Denver, Colorado.
EXPERTS
HEIN & ASSOCIATES LLP, independent registered public accounting firm, have
audited our consolidated balance sheet at December 31, 2004, and the
consolidated statements of income, shareholders' equity and cash flows for each
of the two years ended December 31, 2004 and 2003, as set forth in their report,
which is incorporated in this prospectus by reference. Our consolidated
financial statements are incorporated by reference in reliance on their report,
given on their authority as experts in accounting and auditing.
19
We have not authorized any
dealer, salesperson or other person to
give any information or to make any
representation not contained in this
prospectus. This prospectus does not
constitute an offer to sell, or a
solicitation of an offer to buy, any
offer or solicitation by anyone in any
jurisdiction not authorized, or in which
the person making such an offer or
solicitation is not qualified to do so
or to any person to whom it is unlawful
to make such an offer or solicitation.
By delivery of this prospectus we do not
imply that there has been no change in
our affairs or that the information in
this prospectus is correct as of any
time subsequent to its date.
NATURAL GAS SERVICES
TABLE OF CONTENTS GROUP, INC.
Page
Where You Can Find Additional Information 2
Incorporation of Documents by Reference 2
About Natural Gas Services Group, Inc. 3
----------
Risk Factors 4
Forward Looking Statements 13 PROSPECTUS
Use of Proceeds 14
----------
Issuance of Securities to the Selling Shareholders 14
Selling Shareholders 16
Plan of Distribution 17
Legal Matters 19
Experts 19
May __, 2005
20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses payable by us in connection with the issuance and distribution of
the securities being registered hereby are as follows:
Securities and Exchange Commission registration fee $ 855
Accounting fees and expenses $ 2,000
Legal fees and expenses $ 7,500
Printing expenses $ 1,000
Transfer agent fees $ 500
Miscellaneous $ 145
-------------
Total $ 12,000
=============
All of the above expenses except for the Securities and Exchange Commission
registration fee are estimated. All such items will be borne by Natural Gas
Services Group, Inc.
Item 15. Indemnification of Directors and Officers.
Section 7-109-102 of the Colorado Business Corporation Act permits a
Colorado corporation to indemnify any director against liability if such person
acted in good faith and, in the case of conduct in an official capacity with the
corporation, that the director's conduct was in the corporation's best interests
and, in all other cases, that the director's conduct was at least not opposed to
the best interests of the corporation or, with regard to criminal proceedings,
the director had no reasonable cause to believe the director's conduct was
unlawful.
Section 7-109-103 of the Colorado Business Corporation Act provides that,
unless limited by its articles of incorporation, a Colorado corporation shall
indemnify a person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the person is
or was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
Section 3 of Article IX of our articles of incorporation provides that we
shall indemnify, to the maximum extent permitted by law in effect from time to
time, any person who is or was a director, officer, agent, fiduciary or employee
of ours against any claim, liability or expense arising against or incurred by
such person made party to a proceeding because such person is or was a director,
officer, agent, fiduciary or employee of ours or because such person is or was
serving another entity as a director, officer, partner, trustee, employee,
fiduciary or agent at our request. We further have the authority to the maximum
extent permitted by law to purchase and maintain insurance providing such
indemnification.
Article VI of our bylaws provides for the indemnification of certain
persons.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
II-1
Item 16. Exhibits.
The following is a list of all exhibits filed as part of this Registration
Statement:
Exhibit
No. Description
- ------- -----------
5 Legal Opinion of Jackson Kelly PLLC*
10.5 Form of Five-Year Warrants to Purchase Common Stock (1)
23.1 Consent of Jackson Kelly PLLC (Included in Exhibit 5)
23.2 Consent of HEIN & ASSOCIATES LLP*
24 Power of Attorney (see the signature page)(2)
*Filed herewith
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (No. 333-88314)
(2) Previously filed
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement.
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement. Provided, however, that paragraphs (1)(i)
II-2
and (1)(ii) do not apply if the information required to be
included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended, that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and has duly caused this Amendment No.
1 to this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Midland, State of Texas on May 23,
2005.
NATURAL GAS SERVICES GROUP, INC.
/s/ Stephen C. Taylor
------------------------------------------
Stephen C. Taylor, President and Principal
Executive Officer
/s/ Earl R. Wait
------------------------------------------
Earl R. Wait, Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ EARL R. WAIT Director (Chairman) May 23, 2005
- ---------------------------
Attorney-in-fact for
Wallace C. Sparkman
/s/ EARL R. WAIT Director May 23, 2005
- ---------------------------
Attorney-in-fact for
Wallace O. Sellers
/s/EARL R. WAIT Director May 23, 2005
- ---------------------------
Attorney-in-fact for
Charles G. Curtis
/s/ EARL R. WAIT Director May 23, 2005
- ---------------------------
Attorney-in-fact for
William F. Hughes
/s/ EARL R. WAIT Director May 23, 2005
- ---------------------------
Attorney-in-fact for
Gene A. Strasheim
/s/ EARL R. WAIT Director May 23, 2005
- ---------------------------
Attorney-in-fact for
Richard L. Yadon
/s/ EARL R. WAIT Director May 23, 2005
- ---------------------------
Attorney-in-fact for
Paul Hensley
II-4
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
5 Legal Opinion of Jackson Kelly PLLC*
10.5 Form of Five-Year Warrants to Purchase Common Stock (1)
23.1 Consent of Jackson Kelly PLLC (Included in Exhibit 5)
23.2 Consent of HEIN & ASSOCIATES LLP*
24 Power of Attorney (see the signature page) (2)
*Filed herewith
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (No. 333-88314)
(2) Previously filed
Exhibit 5
JACKSON KELLY PLLC
1099 18th Street, Suite 2150
Denver, Colorado 80202
Telephone (303) 390-0003
Telecopier (303) 390-0177
May 19, 2005
Natural Gas Services Group, Inc.
2911 South County Road 1260
Midland, Texas 79706
Re: Registration Statement on Form S-3, as amended
Gentlemen:
We have been requested to provide Natural Gas Services Group, Inc., a
Colorado corporation (the "Company"), with a legal opinion in connection with
the filing with the Securities and Exchange Commission (the "Commission"), of a
Registration Statement on Form S-3 (the "Registration Statement") covering
701,171 shares of common stock of the Company (the "Shares") to be offered by
certain selling shareholders identified in the Registration Statement. Such
Shares have been issued pursuant to the exercise, or will be issued upon the
exercise, of various warrants (collectively, the "Warrants".)
In rendering our Opinion, we have examined such agreements, documents,
instruments and records as we deemed necessary or appropriate under the
circumstances for us to express our Opinion, including, without limitation, the
Articles of Incorporation and Bylaws, as restated or amended, of the Company;
resolutions adopted by the Board of Directors of the Company authorizing and
approving the issuance of the Shares and the preparation and filing of the
Registration Statement; and certificates of officers of the Company. In making
all of our examinations, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
the original documents of all documents submitted to us as copies, and the due
execution and the delivery of all documents by any persons entitled other than
the Company where due execution and delivery by such persons or entities is a
prerequisite to the effectiveness of such documents. We have not independently
verified or investigated, nor do we assume any responsibility for, the factual
accuracy or completeness of any such documents.
Based upon the foregoing, and having regard for such legal considerations
as we deemed relevant, we are of the opinion that the Shares issued in
accordance with the terms of the Warrants, have been or will be legally issued,
fully paid and non-assessable.
We hereby consent to the filing of the Opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
Our Opinion is furnished for the benefit of the Company solely with regard
to the Registration Statement, may be relied upon by the Company only in
connection with the
Registration Statement and may not otherwise be relied upon, used, quoted or
referenced to by or filed with any other person or entity without our prior
written permission.
Very truly yours,
/s/ Jackson Kelly PLLC
JACKSON KELLY, PLLC
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in this Registration Statement of
Natural Gas Services Group, Inc. on Form S-3 of our report, dated February 11,
2005, appearing in the Annual Report on Form 10-KSB of Natural Gas Services
Group, Inc. for the year ended December 31, 2004. We also consent to the
reference to our firm under the caption "Experts" in the Prospectus, which is
part of this Registration Statement.
HEIN & ASSOCIATES LLP
Dallas, Texas
May 18, 2005
JACKSON KELLY PLLC
1099 18th Street, Suite 2150
Denver, Colorado 80202
Telephone (303) 390-0003
Telecopier (303) 390-0177
May 23, 2005
VIA EDGAR
- ---------
AND ORIGINAL FEDERAL EXPRESS
- ----------------------------
United States Securities and Exchange Commission
Mail Stop 4-5
450 5th Street N. W.
Washington, D.C. 20549
Attn: Mellissa Campbell Duru
Division of Corporation Finance
Re: Natural Gas Services Group, Inc.
Registration Statement on Form S-3
File No. 333-122687
Dear Ms. Duru:
This letter is being provided on behalf of Natural Gas Services Group,
Inc. (the "Company") in connection with the Staff's comment letter dated March
9, 2005, regarding the above-referenced Registration Statement. We have been
authorized to provide the responses below to the Staff's comment letter.
Comment
- -------
1. We direct your attention to Rule 3-12 of Regulation S-X regarding the
age of financial statements at the effective date of a registration
statement and Rule 3-01 of Regulation S-X. While in registration,
please monitor your need to update the audited financial statements
incorporated by reference to your registration statement. In this
regard, please confirm whether or not you meet the requirements set
forth in Rule 3-01(c) or Regulation S-X pertaining to your ability to
include the financial statements specified in Rule 3-01(b) of
Regulation S-X.
United States Securities and Exchange Commission
Mellissa Campbell Duru
May 23, 2005
Page 2
RESPONSE
- --------
Acknowledged. The Form S-3 has been revised to incorporate by reference the
Company's filing of its Report on Form 10-KSB for the year ended December 31,
2004, and its Report on Form 10-QSB for the period ended March 31, 2005. In
addition, financial information presented in the amended registration statement
has been updated through March 31, 2005. As the Form 10-KSB contains audited
financial statements for the years ended December 31, 2004 and 2003, and the
recently filed Form 10-QSB contains unaudited financial statements for the
period ended March 31, 2005, the Company believes it meets the requirements of
Rule 3-01.
Comment
- -------
2. Please identify in the Selling Shareholder table the natural persons
who exercise voting and/or investment power of each listed entity.
Refer to Interpretation 4S of the Regulation S-K portion of the March
1999 supplement to the 1997 CF Manual of Publicly Available Telephone
Interpretations.
RESPONSE
- --------
Complied with. The Company has added disclosure to the Selling Shareholder table
in compliance with Interpretation 4S of the Regulation S-K portion of the March
1999 supplement to the Publicly Available Telephone Interpretations.
Comment
- -------
3. Please identify any selling shareholders who are registered
broker-dealers or affiliates of registered broker-dealers. If you
determine that any selling shareholder is a registered broker-dealer,
please revise your disclosure to indicate that such selling
shareholder is an underwriter, unless such selling shareholder
received its notes or shares as compensation for investment banking
services. With respect to any affiliate of a registered broker-dealer,
please disclose, if true, that such selling shareholder acquired its
shares in the ordinary course of business and at the time of the
acquisition did not have any arrangements or understandings with any
person to distribute the securities. If not, you must indicate that
such selling shareholder is an underwriter.
RESPONSE
- --------
The Company is aware of only one selling shareholder, Zenas N. Gurley, who is an
affiliate of a registered broker-dealer. In early 2001, the Company completed a
private placement of units comprised of 10% subordinated notes and warrants to
purchase common stock. Berry-Shino Securities, Inc. acted as the placement agent
on the transaction, and received warrants to purchase 61,570 shares of Company
United States Securities and Exchange Commission
Mellissa Campbell Duru
May 23, 2005
Page 3
common stock as part of the compensation it received for its investment banking
services. As is customary with investment banking firms, Berry-Shino Securities,
Inc. transferred the warrants to certain of it employees, including Mr. Gurley.
Mr. Gurley is no longer employed with Berry-Shino Securities. As indicated in
your comment, disclosure that a selling shareholder is an underwriter is not
necessary if the shares were received as compensation for investment banking
services. Thus, since the warrants were issued in connection with the investment
banking services of Berry-Shino Securities, Inc., the Company does not believe
any disclosure is necessary pursuant to your comment.
Comment
- -------
4. Delete the second paragraph. It does not appear appropriate to the
Staff to reference qualifications, exceptions, etc. which are not
specifically identified in the opinion.
RESPONSE
- --------
Complied with. The legal opinion has been re-filed with the deletion you
requested.
Feel free to contact the undersigned with any questions you may have
regarding this letter.
Very truly yours,
/S/ David A. Thayer
David A. Thayer
JACKSON KELLY PLLC
c: Earl R. Wait, CFO, Natural Gas Services Group, Inc.
