UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 24, 2005
NATURAL GAS SERVICES GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Colorado 1-31398 75-2811855
(State or other jurisdiction (Commission File (IRS Employer
of Incorporation or organization) Number) Identification No.)
2911 South County Road 1260 Midland, Texas 79706
(Address of Principal Executive Offices) (Zip Code)
432-563-3974
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry Into a Material Definitive Agreement
On January 20, 2005, as previously reported in a Current Report on Form
8-K dated January 26, 2005, the Board of Directors of Natural Gas Services
Group, Inc., or Natural Gas, appointed Stephen C. Taylor as President and Chief
Executive Officer of Natural Gas. Since the date of his appointment, Mr.
Taylor's employment has been governed by a verbal arrangement with Natural Gas.
On August 24, 2005, Natural Gas and Mr. Taylor reduced their verbal arrangement
to a written Employment Agreement (the "Employment Agreement"), containing the
following terms:
o an annual base salary of $155,000.00;
o an annual bonus of up to 45% of Mr. Taylor's annual base
salary, the amount of which will be based on parameters to be
established by our compensation committee and approved by the
Board of Directors and the compensation committee;
o four weeks of vacation each year;
o $32,500.00 allowance to purchase a company vehicle;
o moving expense reimbursement of up to $20,000.00 to cover the
cost and expenses of packaging and moving Mr. Taylor's
household goods from Houston to Midland, Texas;
o reimbursement for the regularly scheduled mortgage payments,
including taxes and insurance, made by Mr. Taylor with respect
to his residence in Houston, Texas, during the months of May,
June and July 2005;
o standard medical and other benefits provided to all of our
employees.
o the Employment Agreement is for an initial term of three years
commencing August 24, 2005, subject to earlier termination
upon the occurrence of: (a) a "fundamental change," as defined
in Section 2 of the Employment Agreement; (b) the mental or
physical incapacity or inability of Mr. Taylor to perform his
duties for a consecutive period of one hundred twenty days or
a non-consecutive period of one hundred eighty days during any
twelve month period; (c) the death of Mr. Taylor; (d) the
voluntary resignation or retirement of Mr. Taylor; or (e) the
termination of Mr. Taylor's employment for "cause" as set
forth in Section 5(a)(ii) of the Employment Agreement;
o if Mr. Taylor's employment is terminated as the result of a
fundamental change or for any reason other than as described
in (b), (c), (d) or (e) preceding, Mr. Taylor is entitled to
receive a severance benefit from Natural Gas, which benefit
includes, among other things, a single lump sum cash payment
equal to 200% of Mr. Taylor's base salary as in effect at the
date of Mr. Taylor's termination of employment; and
2
o the Employment Agreement imposes various restrictive covenants
on Mr. Taylor throughout the term of his employment, as well
as post-employment non-competition and non-solicitation
covenants.
The foregoing summary is qualified in its entirety by reference to the
Employment Agreement, a copy of which is included with this Current Report on
Form 8-K as Exhibit 10.1
In connection with the Employment Agreement, Natural Gas entered into a
Nonstatutory Stock Option Agreement (the "Stock Option Agreement") with Mr.
Taylor. The Stock Option Agreement grants to Mr. Taylor a ten-year option to
purchase 45,000 shares of our common stock at an exercise price equal to $9.22
(the fair market value of our common stock on January 13, 2005, the date we
initially hired Mr. Taylor), subject to the following vesting schedule:
o 15,000 shares vest on January 13, 2006;
o 15,000 shares vest on January 13, 2007; and
o 15,000 shares vest on January 13, 2008.
The option fully vests upon the occurrence of any of the following:
o termination of Mr. Taylor's employment for any of the
following reasons: (a) incapacitation of Mr. Taylor; (b)
retirement of Mr. Taylor; (c) death of Mr. Taylor; or (d) for
any other reason, unless Mr. Taylor is terminated for "cause,"
as defined in Section 7 of the Stock Option Agreement; or
o upon the occurrence of a "fundamental change," as defined in
Section 8 of the Stock Option Agreement.
The option expires ten years from the date of grant. The option is a
nonstatutory stock option issued by Natural Gas pursuant to its general
corporate powers. Because the option is not being issued pursuant to an existing
plan, the income recognized by Mr. Taylor upon exercise of the option will be
taxed at a rate equal to Mr. Taylor's then applicable federal ordinary income
tax rate. Under the Stock Option Agreement, however, Mr. Taylor is entitled to
receive a gross-up payment from Natural Gas in an amount sufficient to place Mr.
Taylor in the same after-tax position Mr. Taylor would have been in had such
income been taxed at the then applicable federal capital gains tax rate. Mr.
Taylor is responsible for all additional tax due with respect to such gross-up
payment.
The foregoing summary regarding the Stock Option Agreement is qualified
in its entirety by reference to the Stock Option Agreement, a copy of which is
included with this Current Report on Form 8-K as Exhibit 10.2.
On August 26, 2005, Natural Gas issued a press release regarding the
Employment Agreement and the Stock Option Agreement. A copy of the press release
is filed herewith as Exhibit 99.1.
3
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description
----------- -----------
10.1 Employment Agreement, dated as of August 24, 2005,
between Natural Gas Services Group, Inc. and Stephen
C. Taylor
10.2 Nonstatutory Stock Option Agreement, effective as of
August 24, 2005, between Natural Gas Services Group,
Inc., and Stephen C. Taylor
99.1 Press Release dated August 26, 2005, regarding the
Employment Agreement and the Stock Option Agreement
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATURAL GAS SERVICES GROUP, INC.
By: /s/ Wallace C. Sparkman
----------------------------------
Wallace C. Sparkman
Chairman of the Board of Directors
Dated: August 26, 2005
5
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Employment Agreement, dated as of August 24, 2005, between
Natural Gas Services Group, Inc. and Stephen C. Taylor
10.2 Nonstatutory Stock Option Agreement, effective as of August
24, 2005, between Natural Gas Services Group, Inc., and
Stephen C. Taylor
99.1 Press Release dated August 26, 2005, regarding the Employment
Agreement and the Stock Option Agreement
6
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of August 24,
2005, is between Natural Gas Services Group, Inc., a Colorado corporation (the
"Company"), and Stephen C. Taylor, an individual residing in Midland, Texas (the
"Employee").
WHEREAS, the Employee was employed by the Company on January 13, 2005, and was
appointed by the Board of Directors of the Company to serve as President and
Chief Executive Officer on January 20, 2005; and
WHEREAS, the Company and the Employee desire for the Company's
employment of the Employee be subject to the terms and conditions set forth
below;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and the Employee hereby agree as follows:
1. Employment. The Company agrees to employ the Employee, and the
Employee agrees to enter the employ of the Company, upon the terms and subject
to conditions herein provided.
2. Term. The employment of the Employee shall be for a period (referred
to herein as the "Employment Term") commencing on the date of this Agreement and
ending on the earlier of: (i) the effective date of any "Fundamental Change"
with respect to the Company or with respect to the Employee; (ii) the date of
termination of Employee's employment pursuant to Section 5 hereof; or (iii) the
third anniversary of the Employee's date of employment.
For purposes hereof, a "Fundamental Change" shall occur with respect
to: (i) the Company on the effective date of any dissolution, merger,
consolidation, sale of all or substantially all of the Company's assets,
recapitalization or any other type of transaction which results in 51% or more
of the Company's common stock being changed into, or exchanged for, different
securities of the Company, as applicable, or other securities or interests in
other persons or entities, and (ii) the Employee on the effective date of any
change in the duties, functions, responsibilities or authority of the Employee
or any decrease in the base salary of the Employee in effect at that time.
3. Position and Duties.
(a) Position. During the Employment Term, the Employee shall serve as
President and Chief Executive Officer of the Company. In such capacity, the
Employee shall have such duties, functions, responsibilities, and authority
customarily appertaining to the position of president and chief executive
officer of a corporation; subject, however, to applicable restrictions imposed
by the bylaws of the Company and to the directives of the Board of Directors of
the Company or its Compensation Committee.
(b) Duties. During the Employment Term, the Employee shall devote his
full time, skill and attention, and his best efforts during normal business
hours to, and in furtherance of, the business and affairs of the Company and its
subsidiaries and affiliates (collectively, the "Related Parties"); except for
usual, ordinary and customary periods of vacation and absence due to illness or
other disability; provided, however, that Employee may, subject to the Company's
code of ethics and conflict of interest policies as in effect from time to time,
devote reasonable periods of time in connection with the following activities,
if such activities do not materially interfere with the performance of
Employee's duties and services hereunder and do not consume more than 10% of
Employee's working hours:
(i) fulfilling speaking engagements; and
(ii) engaging in charitable and community activities.
4. Compensation and Related Matters.
(a) Base Salary. The Company shall pay to the Employee a base salary at
the rate of not less than $155,000.00 per annum. This base salary shall be
reviewed at least annually within 15 days of the anniversary date of the
Employee's date of employment and increases in such base salary may be granted
at the sole discretion of the Board of Directors of the Company or its
Compensation Committee. If from time to time the Board of Directors of the
Company or its Compensation Committee increases the Employee's base salary, the
increased base salary amount shall become the minimum base salary under this
Agreement.
(b) Stock Option. Upon the Company's execution of this Agreement, the
Company shall grant to the Employee a ten-year nonstatutory stock option (the
"Stock Option") to purchase 45,000 shares of the Company's common stock at an
exercise price equal to $9.22, the fair market value of the Company's common
stock on January 13, 2005, the date the Company employed the Employee. The terms
and conditions of the Stock Option shall be as set forth in that certain
Nonstatutory Stock Option Agreement, dated of even date herewith, between the
Company and the Employee.
(c) Bonuses. In addition to base salary, the Employee shall be entitled
to receive on an annual basis during the Employment Term a cash bonus of up to
45% of the Employee's base salary, the amount of which will be based upon and
subject to parameters established by the Board of Directors of the Company or
its Compensation Committee. Any such bonuses shall be payable to the Employee in
the manner specified by the Board of Directors of the Company or its
Compensation Committee at the time any such bonus is awarded.
(d) Benefits. The Employee shall, during the Employment Term, be
eligible to participate in such insurance, medical and other employee benefit
plans, whether now in place or that may be implemented from time to time in the
future, including, but not limited to, retirement (401k) plans, of the Company
which may be in effect, from time to time, to the extent such plans are then
generally available to all employees or to senior management employees of the
Company.
2
(e) Professional Organization Dues. During the Employment Term, the
Company shall pay the initiation fees and periodic dues for membership in any
professional organizations in which the Employee is as of the date of this
Agreement a member, or which are otherwise approved by the Board of Directors of
the Company or its Compensation Committee, and the Company shall pay all charges
and expenses, including reasonable travel expenses, incurred by the Employee in
connection with membership in such organizations.
(f) Moving Expense Reimbursement. The Company shall reimburse the
Employee for costs and expenses incurred by the Employee in having his furniture
and other household goods packaged and moved from Houston, Texas to Midland,
Texas; provided, however, the amount the Company will reimburse to the Employee
for such costs and expenses shall not exceed $20,000.00 and must be supported by
appropriate receipts or other supporting documentation satisfactory to the
Company.
(g) Company Vehicle. The Company shall purchase a vehicle of the
Employee's choice for the Employee to use in connection with his employment with
the Company. The purchase price of this vehicle, excluding all tax, title and
license fees, shall not exceed $32,500.00.
(h) Mortgage Payment Reimbursement. The Company will reimburse the
Employee for the regularly scheduled monthly mortgage payment, including the
monthly taxes and insurance portion of such payment, made by the Employee with
respect to his personal residence in Houston, Texas during the months of May,
June and July 2005. The Company shall not be required to reimburse the Employee
for any of the following:
(i) regularly scheduled monthly mortgage payments made by the
Employee on or after August 1, 2005; or
(ii) prepayments of principal, interest, taxes or insurance
made by the Employee.
(i) Vacations. The Employee shall be entitled to four (4) weeks of
vacation each calendar year, with pay, beginning with calendar year 2005.
(j) Expenses. The Employee will be reimbursed for reasonable expenses
incurred in the performance of his duties and services hereunder and in
furtherance of the business of the Company and the Related Parties upon
presentation by the Employee of an itemized account, accompanied by appropriate
receipts satisfactory to the Company.
5. Termination of Employment.
(a) The Employee's employment hereunder:
(i) shall automatically terminate upon the occurrence of any
of the following: (A) the mental or physical incapacity or inability of
the Employee to perform his duties for a consecutive period of one
3
hundred twenty (120) days or a non-consecutive period of one hundred
eighty (180) days during any twelve month period; (B) the death of the
Employee; or (C) the voluntary resignation or retirement of the
Employee; and
(ii) may be terminated by the Company, at any time, for
"cause", which shall mean by reason of any of the following: (A) the
Employee's conviction of, or plea of nolo contendere to, any felony or
to any crime or offense causing substantial harm to the Company or any
of the Related Parties (whether or not for personal gain) or involving
acts of theft, fraud, embezzlement, moral turpitude or similar conduct;
(B) malfeasance in the conduct of the Employee's duties, including, but
not limited to, (1) willful and intentional misuse or diversion of any
of the Company's or Related Parties' funds, (2) embezzlement, or (3)
fraudulent or willful and material misrepresentations or concealments
on any written reports submitted to the Company or any of the Related
Parties, (C) material failure to perform the duties of the Employee's
employment or material failure to follow or comply with the reasonable
and lawful written directives of the Board of Directors of the Company,
provided, however, that the Employee shall have been informed, in
writing, of such material failure and given a period of not more than
60 days to remedy same; or (D) a material breach by the Employee of the
provisions of this Agreement (including, without limitation, any breach
of Section 3(b) of this Agreement).
(b) If the Employee's employment is terminated by reason of any of the
circumstances set forth in Sections 5(a)(i) or 5(a)(ii), the Employee shall not
be entitled to receive any of the benefits set forth in Section 5(c) and all
obligations of the Company and the Employee (except for restrictions pertaining
to confidential or proprietary information) under this Agreement shall
automatically terminate.
(c) If the Employee's employment is terminated as the result of a
Fundamental Change with respect to the Company or with respect to the Employee
or for any reason other than as set forth in Sections 5(a)(i) or 5(a)(ii), the
Employee shall, subject to the provisions of Section 5(d), be entitled to
receive from the Company a severance benefit consisting of the following: (i) a
single lump sum cash payment equal to 200% of the Employee's base salary as in
effect at the date of the Employee's termination of employment, which severance
benefit shall be paid no later than thirty (30) days following the Employee's
termination of employment; (ii) all stock options, whether for common stock,
preferred stock, warrants or any other securities of the Company, owned or due
and owing to Employee, shall immediately vest 100% to Employee on the date of
the Employee's termination of employment; (iii) subject to the terms and
conditions of the plans and policies governing the benefits provided to the
Employee, the health care and insurance benefits (e.g., health, dental, life,
disability, etc.) being provided by the Company to the Employee at the date of
the Employee's termination of employment shall continue in place at no cost to
the Employee for a period of (18) months after such termination date; (iv) the
Employee shall be entitled to receive any individual bonuses or individual
incentive compensation not yet paid but due and owing to the Employee under the
Company's compensation plan or plans for the years prior to the year of the
Employee's termination of employment, which amounts shall be paid to the
Employee in a single lump sum cash payment no later than thirty (30) days
following the date of the Employee's termination of employment; (v) the Employee
shall be entitled to receive any bonuses or individual incentive compensation
4
not yet paid but due and owing to the Employee under the Company's compensation
plan or plans for the year of the Employee's termination of employment, which
bonuses or individual incentive compensation shall be calculated as if the
Employee had remained employed by the Company for the entire year but shall be
prorated through the date of the Employee's termination of Employment, and shall
be paid in a single lump sum cash payment to the Employee at the time such
bonuses or individual incentive compensation are paid to similarly situated
employees; and (vi) subject to the terms and conditions of the plans and other
documents governing the Employee's compensation and benefits, the Employee shall
be entitled to or shall immediately vest 100% in any and all other compensation
plans, bonus plans or incentive plans, including any owned or due and owing,
that Employee participated in or contributed to at the date of the Employee's
termination of Employment but that is not covered by (ii) through (v) preceding.
(d) The severance benefit paid to the Employee pursuant to Section 5(c)
shall be in consideration of the Employee's continuing obligations hereunder
after such termination, including, without limitation, the Employee's
obligations under Section 6. Further, as a condition to the receipt of such
severance benefit, the Company, in its sole discretion, may require the Employee
to first execute a release, in the form established by the Company, releasing
the Company and all Related Parties, and their officers, directors, employees,
and agents, from any and all claims and from any and all causes of action of any
kind or character, including, but not limited to, all claims and causes of
action arising out of the Employee's employment with the Company or any of the
Related Parties or the termination of the Employee's employment. The performance
of the Company's obligations under Section 5(c), including the Company's payment
of the severance benefit, shall constitute full settlement of all such claims
and causes of action. The Employee's rights under Section 5(c) are the
Employee's sole and exclusive rights against the Company and the Related Parties
and the Company's sole and exclusive liability to the Employee under this
Agreement, in contract, tort, or otherwise, for the termination of the
Employee's employment with the Company. The decision as to whether "cause"
exists for termination of the employment relationship of the Employee with the
Company and whether and as of what date the Employee has become incapacitated in
the manner described in Section 5(a)(i) are delegated to the Board of Directors
of the Company for determination. If the Employee or the Employee's legal
representative, as the case may be, desire to dispute any determination made by
the Board of Directors of the Company under this Section 5(d), the Employee or
his legal representative, as the case may be, must notify (a "Dispute
Notification") the Company of such desire within fifteen (15) days of the
Employee's receipt of notification of such a determination by the Board. Within
sixty (60) days of the Company's receipt of a Dispute Notification, the parties
shall mediate the dispute in front of an independent mediator acceptable to both
the Employee and the Company and shall work in good faith to resolve the dispute
at such mediation.
6. Business Opportunities and Intellectual Property; Personal
Investments; Covenant not to Compete; Confidentiality. The Employee acknowledges
that in the course of his employment by the Company and performance of services
on behalf of the Company he will become privy to various business opportunities,
economic and trade secrets and relationships of the Company and the Related
Parties. Therefore, in consideration of this Agreement and the consummation of
the Transaction, the Employee hereby agrees as provided below in this Section 6.
5
(a) Business Opportunities and Intellectual Property. The Employee:
(i) shall promptly disclose to the Company all business
opportunities (including, without limitation, those relating to the
business of manufacturing, fabricating, selling, leasing and
maintaining of natural gas compressors or the design and manufacture of
natural gas flare systems, components and ignition systems) developed
by the Employee during the Employment Term, or originated by any third
party and brought to the attention of the Employee during the
Employment Term, together with information relating thereto (herein
collectively called "Business Opportunities");
(ii) shall promptly disclose to the Company any ideas,
inventions, discoveries, processes, designs, methods, substances,
articles, computer programs and improvements, whether or not patentable
or copyrightable (all of the foregoing being hereinafter collectively
called "Intellectual Property"), which the Employee discovers,
conceives, invents, creates or develops, alone or with others, during
the Employment Term, if such discovery, conception, invention, creation
or development (A) occurs in the course of the Employee's employment
with the Company, or (B) occurs with the use of any of the Company's or
the Related Parties' time, materials or facilities, or (C) in the
opinion of the Board of Directors of the Company, relates or pertains
in any way to the Company's or the Related Parties' purposes,
activities or affairs;
(iii) hereby assigns and agrees to assign to the Company and
its successors, assigns or designees, all of the Employee's right,
title and interest in and to all Business Opportunities and
Intellectual Property that the Employee is obligated to disclose to the
Company pursuant hereto; and
(iv) acknowledges and agrees that all Business Opportunities
and Intellectual Property constitute the exclusive property of the
Company and accordingly agrees that Employee will not (directly or
indirectly through any family members), and will not permit any of his
controlled affiliates to, (A) invest or otherwise participate alongside
the Company or the Related Parties in any Business Opportunities, (B)
invest or otherwise participate in any business or activity relating to
a Business Opportunity, regardless of whether the Company or any of the
Related Parties ultimately participates in such business or activity,
or (C) use for any purpose other than on behalf of the Company or the
Related Parties, any information pertaining to Business Opportunities.
(b) Personal Investments. Employee agrees that during the Employment
Term and the Noncompetition Period, Employee (whether in his own name or in the
name of any family members or made by Employee's controlled affiliates) will not
make any investments with or in any person or entity (other than the Company)
which relates to the business of manufacturing, fabricating, selling, leasing
and maintaining of natural gas compressors or the design and manufacture of
natural gas flare systems, components and ignition systems.
(c) Confidentiality Obligations. Employee agrees that during the
Employment Term and the Noncompetition Period, Employee will not knowingly use,
publish, disseminate or otherwise disclose, directly or indirectly, to any
person other than the Company or the Related Parties and their respective
6
officers, directors and employees, any Business Opportunities, Intellectual
Property and any other information heretofore or hereafter acquired, developed
or used by the Company or any of the Related Parties relating to their business
or their operations, properties, prospects, employees, customers, consultants,
vendors, joint venture partners or co-investors which constitutes proprietary or
confidential information of the Company or any of the Related Parties
("Confidential Information"), including, without limitation, any Confidential
Information contained in any customer files, contract files, production records,
maintenance records, reports and related data, memoranda, notes, records,
drawings, manuals, correspondence, financial and accounting information,
customer lists, statistical data and compilations, patents, copyrights,
trademarks, trade names, inventions, formulae, methods, processes, agreements,
contracts, manuals or any other documents relating to the business of the
Company or any of the Related Parties (collectively, the "Company's Business
Records"), but excluding any Confidential Information which has become part of
common knowledge or understanding in the natural gas compressor industry or
otherwise in the public domain (other than from disclosure by Employee in
violation of this Agreement), provided, however, this paragraph (c) shall not be
applicable to the extent Employee is required to testify in a judicial or
regulatory proceeding pursuant to the order of a judge or administrative law
judge after Employee requests that such Confidential Information be preserved.
(d) Non-Compete Covenant. Employee agrees that during the Employment
Term and the Noncompetition Period, Employee will not knowingly:
(i) engage or participate in any manner, whether directly or
indirectly through any family member or as an employee, employer,
consultant, agent, principal, partner, more than one percent
shareholder, officer, director, licensor, lendor, lessor or in any
other individual or representative capacity, in any business activity
that relates to (A) the business of manufacturing, fabricating,
selling, leasing and maintaining of natural gas compressors, (B) the
design and manufacture of natural gas flare systems, components and
ignition systems, (C) installing and servicing flare stacks and related
ignition and control devices or (D) in any other business or activity
related to the natural gas compressor industry that is in competition
in any manner whatsoever with the business of any of the Company or the
Related Parties. The covenant and restrictions in this Section 6(d)
pertain to the geographic areas comprised of (x) Midland and Ector
Counties, Texas, and all counties adjacent to Midland and Ector
Counties, Texas, and (y) Tulsa County, Oklahoma, and all counties
adjacent to Tulsa County, Oklahoma (all of such counties being
collectively referred to herein as, the "Noncompete Area"); provided,
however, such covenant and restrictions shall not preclude the Employee
from engaging or participating in the above referenced business
activities on behalf of any company that conducts a majority of its
business operations outside of the Noncompete Area and whose principal
offices are situated outside of the Noncompete Area, or from:
(A) making investments in securities of oil and gas
companies, oil and gas service companies, and natural gas
compressor companies which are registered on a national stock
7
exchange, if the aggregate amount owned by Employee and all
family members and affiliates does not exceed one percent of
such company's outstanding securities; or
(B) maintaining his personal investments (whether in
his own name or in the name of any family members), if such
personal investments and controlled affiliates do not engage
in any business activity that relates to the business of
manufacturing, fabricating, selling, leasing and maintaining
of natural gas compressors, or the design and manufacture of
natural gas flare systems, components and ignition systems, or
the installation and servicing of flare stacks and related
ignition and control devices; or
(ii) actively solicit, directly or indirectly, any employee
(or person who within the preceding ninety (90) days was an employee)
of the Company or any of the Related Parties or any other person who is
under contract with or employed by the Company or any of the Related
Parties, to terminate his or her employment by, or contractual
relationship with, such person or to refrain from extending or renewing
the same (upon the same or new terms) or to become employed by or to
enter into contractual relations with any Persons other than such
person or to enter into a relationship with a competitor of the Company
or any of the Related Parties.
(e) For purposes of this Agreement, the term "Noncompetition Period"
means the period commencing on the date Employee ceases to be employed hereunder
and ending on the second anniversary of such date.
(f) The invalidity or non-enforceability of this Section 6 in any
respect shall not affect the validity or enforceability of this Section 6 in any
other respect or of any other provision of this Agreement. If any provision of
this Section 6 shall be held invalid or unenforceable by a court of competent
jurisdiction by reason of the geographic or business scope or the duration
thereof, such invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the fullest extent
permitted by law, this Agreement shall be construed as if the geographic or
business scope or the duration of such provision had been more narrowly drafted
so as not to be invalid or unenforceable.
(g) Employee acknowledges that the Company's remedy at law for any
breach of the provisions of this Section 6 is and will be insufficient and
inadequate and that the Company shall be entitled to equitable relief, including
by way of temporary and permanent injunction, in addition to any remedies the
Company may have at law.
(h) The provisions of this Section 6 shall survive termination of this
Agreement.
(i) The representations and covenants contained in this Section 6 on
the part of the Employee will be construed as ancillary to and independent of
any other provision of this Agreement. The provisions of this Section 6 shall
continue to be binding upon the Employee in accordance with their terms,
8
notwithstanding the termination of the Employee's employment hereunder for any
reason or the Company's breach of any of its obligations under this Agreement.
(j) The parties to this Agreement agree that the limitations contained
in this Section 6 with respect to time, geographical area and scope of activity
are reasonable. However, if any court shall determine that the time,
geographical area or scope of activity of any restriction contained in this
Section 6 is unenforceable, it is the intention of the parties that such
restrictive covenant set forth herein shall not thereby be terminated but shall
be deemed amended to the extent required to render it valid and enforceable.
7. Business Records. The Employee agrees to promptly deliver to the
Company, upon termination of his employment hereunder, or at any other time when
the Company so requests, all of the Company's Business Records (and all copies
thereof and therefrom). The Employee confirms that all of the Company's Business
Records (and all copies thereof and therefrom) constitute the exclusive property
of the Company and the Related Parties. The obligation of confidentiality set
forth in Section 6 shall continue notwithstanding the Employee's delivery of any
such documents to the Company. The provisions of this Section 7 shall continue
in effect notwithstanding termination of the Employee's employment hereunder for
any reason.
8. Divisibility of Agreement. If any term, condition or provision of
this Agreement is for any reason rendered void, all remaining terms, conditions
and provisions shall remain and continue as valid and enforceable obligations of
the parties hereto.
9. Notices. Any notices or other communications required or permitted
to be sent hereunder shall be in writing and shall be duly given if personally
delivered or sent postage pre-paid by certified or registered mail, return
receipt requested, as follows:
(a) If to Employee:
Stephen C. Taylor
1200 Shirley Lane
Midland, Texas 79705
(b) If to the Company:
Natural Gas Services Group, Inc.
2911 S. County Road 1260
Midland, Texas 79706
Attn: Wallace C. Sparkman
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
10. Complete Agreement. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto and all
9
oral or written employment agreements or arrangements between the Company (and
any of its subsidiaries) and Employee. This Agreement may not be altered or
amended except by a writing, duly executed by the party against whom such
alteration or amendment is sought to be enforced.
11. Assignment. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall lease
or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
12. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original and all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
COMPANY:
NATURAL GAS SERVICES GROUP, INC.
By: /s/ Wallace C. Sparkman
----------------------------------
Wallace C. Sparkman
Chairman of the Board of Directors
EMPLOYEE:
/s/ Stephen C. Taylor
-------------------------------------
Stephen C. Taylor
ACCEPTED AND APPROVED THIS
24TH DAY OF AUGUST, 2005.
By: /s/ William F. Hughes, Jr.
----------------------------------------
William F. Hughes, Jr.
Chairman of Compensation Committee
10
Exhibit 10.2
THIS OPTION GRANTED HEREBY IS NONTRANSFERABLE OTHER THAN BY WILL OR THE LAWS OF
DESCENT AND DISTRIBUTION AND THE SHARES UNDERLYING SUCH OPTION MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF NATURAL GAS SERVICES GROUP, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (this "Agreement"), made
effective as of the 24th day of August, 2005, is between Natural Gas Services
Group, Inc., a Colorado corporation (the "Company"), and Stephen C. Taylor, an
employee of the Company ("Employee").
As an inducement material to entering into employment with the Company
and in consideration of the mutual agreements and other matters set forth
herein, the Company and Employee hereby agree as follows:
1. Grant of Option. The Company hereby irrevocably grants to Employee a
nonstatutory stock option (this "Option") to purchase all or any part of an
aggregate of 45,000 shares of the common stock of the Company (the "Stock"), on
the terms and conditions set forth herein. This Option is a nonstatutory stock
option and not an incentive stock option within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
2. Purchase Price. The purchase price of Stock purchased pursuant to
the exercise of this Option shall be $9.22 per share, which has been determined
to be the Fair Market Value of the Stock at January 13, 2005, the date the
Company employed the Employee. "Fair Market Value" of the Stock for purposes of
this Agreement shall mean the closing price of the Stock as reported by the
American Stock Exchange on the date the Fair MarketValue is to be determined.
3. Exercise of Option. Subject to the earlier expiration of this Option
as herein provided, this Option may be exercised by written notice to the
Company at its principal executive office addressed to the attention of the
Chairman of the Board of Directors of the Company at any time and from time to
time after the expiration of six months and one day from the date of grant
hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than the percentage of the aggregate number of shares
offered by this Option determined by the number of partial or full years from
January 13, 2005, the date the Company employed the Employee, to the date of
such exercise during which the Employee is employed by the Company, in
accordance with the following schedule:
-1-
- ----------------------------------------- --------------------------------------
Date of Exercise Percentage of Shares That May
be Purchased
- ----------------------------------------- --------------------------------------
Less than 1 year 0%
- ----------------------------------------- --------------------------------------
1 year 33.333%
- ----------------------------------------- --------------------------------------
2 years 33.333%
- ----------------------------------------- --------------------------------------
3 years 33.334%
- ----------------------------------------- --------------------------------------
This Option shall not be exercisable in any event after the date (the
"Expiration Date") that is ten years from the date of grant hereof. The purchase
price of shares as to which this Option is exercised shall be paid in full at
the time of exercise (a) in cash (including check, bank draft or money order
payable to the order of the Company), or (b) by delivering to the Company shares
of Stock having a fair market value equal to the purchase price, or (c) a
combination of (a) and (b). No fraction of a share of Stock shall be issued by
the Company upon exercise of this Option or accepted by the Company in payment
of the exercise price thereof; rather, Employee shall provide a cash payment for
such amount as is necessary to effect the issuance and acceptance of only whole
shares of Stock. This Option shall be exercised only for 100 shares of Stock or
a multiple thereof or for the full number of shares of Stock for which the
Option is then exercisable. Unless and until a certificate or certificates
representing such shares shall have been issued by the Company to Employee,
Employee (or the person permitted to exercise this Option in the event of
Employee's death) shall not be or have any of the rights or privileges of a
shareholder of the Company with respect to shares acquirable upon an exercise of
this Option.
4. Incapacitation of the Employee. If the Employee's employment with
the Company is terminated as a result of the mental or physical incapacity or
inability of the employee to perform his duties, this Option shall automatically
fully vest on the date of such termination and shall, Subject to Section 3
hereof, be exercisable by the Employee, or personal representative of the
Employee until the earlier of the date that is three months after the date of
such termination or the Expiration Date. If the Employee, or the personal
representative of the Employee, fails to exercise this Option within the time
period specified in the preceding sentence, the Option shall automatically
terminate.
5. Retirement of Employee. If the Employee's employment with the
Company terminates by reason of retirement of the Employee, this Option shall
automatically fully vest on the date of such termination and shall, subject to
Section 3 hereof, be exercisable by the Employee until the earlier of the date
that is three months after the date of such termination or the Expiration Date.
If the Employee fails to exercise this Option within the time period specified
in the preceding sentence, the Option shall automatically terminate.
6. Death of the Employee. If the Employee dies during the Employee's
employment by the Company or within three months after the Employee's
termination of employment as a result of incapacitation (as described in Section
4 above) or retirement (as described in Section 5 above), this Option shall
-2-
fully vest on the date of the Employee's death, unless already fully vested, and
shall, Subject to Section 3 hereof, be exercisable in full by the personal
representative or administrator of the Employee's estate or by any person who
acquired the right to exercise this Option by bequest or inheritance, but only
within the period beginning on the date of his death and ending on the earlier
of the one year anniversary of such date or the Expiration Date.
7. Termination of Employment.If Employee's employment with the Company
terminates for any reason other than those described in Sections 4, 5 or 6
above, unless Employee is terminated for "cause," this Option shall
automatically fully vest on the date of such termination and shall be
exercisable in full by the Employee until the earlier of the date that is three
months after the date of such termination or the Expiration Date. For purposes
of this Agreement, for "cause" shall mean by reason of any of the following: (a)
the Employee's conviction of, or plea of nolo contendere to, any felony or to
any crime or offense causing substantial harm to the Company or any of its
subsidiaries or affiliates (whether or not for personal gain) or involving acts
of theft, fraud, embezzlement, moral turpitude or similar conduct; (b)
malfeasance in the conduct of the Employee's duties, including, but not limited
to, (i) willful and intentional misuse or diversion of any of the Company's or
it subsidiaries' or affiliates' funds, (ii) embezzlement, or (iii) fraudulent or
willful and material misrepresentations or concealments on any written reports
submitted to the Company or any of its subsidiaries or affiliates, (c) material
failure to perform the duties of the Employee's employment or material failure
to follow or comply with the reasonable and lawful written directives of the
Board of Directors of the Company, provided, however, that the Employee shall
have been informed, in writing, of such material failure and given a period of
not more than 60 days to remedy same; or (d) a material breach by the Employee
of the provisions of the written employment agreement then governing the
Employee's employment. If the Employee's employment with the Company is
terminated for cause, this Option shall be exercisable by Employee until the
earlier of the date that is three months after the date of such termination or
the Expiration Date, and then only as to the number of shares of Stock that
Employee was entitled to purchase hereunder at the time of such termination.
8. Fundamental Change. Upon the occurrence of a Fundamental Change,
this Option shall automatically fully vest on the date that is immediately prior
to the effective date of such change. For purposes hereof, a "Fundamental
Change" shall occur: (a) with respect to the Company on the effective date of
any dissolution, merger, consolidation, sale of all or substantially all of the
Company's assets, recapitalization or any other type of transaction which
results in 51% or more of the Company's common stock being changed into, or
exchanged for, different securities of the Company, as applicable, or other
securities or interests in other persons or entities, and (b) with respect to
the Employee on the effective date of any material change in rank, position or
responsibilities of the Employee or decrease in the base compensation of the
Employee.
9. Withholding of Tax. To the extent that the exercise of this Option
or the disposition of shares of Stock acquired by exercise of this Option
results in compensation income to Employee for federal or state income tax
purposes, Employee shall deliver to the Company at the time of such exercise or
disposition such amount of money or shares of Stock as the Company may require
-3-
to meet its obligations under applicable tax laws or regulations, and, if
Employee fails to do so, the Company is authorized to withhold from any cash or
Stock remuneration then or thereafter payable to Employee any tax required to be
withheld by reason of such resulting compensation income. Upon an exercise of
this Option, the Company is further authorized in its discretion to satisfy any
such withholding requirement out of any cash or shares of Stock distributable to
Employee upon such exercise.
10. Tax Gross-Up Payment. If the exercise of this Option results in
compensation to Employee taxed at the federal ordinary income tax rate
(including any applicable FICA or other income-based taxes) then applicable to
Employee, the Company shall pay a tax gross-up payment to Employee in an amount
sufficient to place the Employee in the same after-tax position Employee would
have been in had such compensation been taxed at the federal capital gains tax
rate then applicable to Employee. All determinations required to be made in
connection with the calculation and payment of the tax gross-up payment to
Employee shall be made by the accounting firm that prepared the Company's
corporate tax return for the year preceding the year in which the Employee
exercises this Option. Any determinations made by such accounting firm shall be
binding on the Employee and the Company; provided, however, if the Employee
disagrees with the determinations made by the accounting firm, the Employee
shall have the right to verify and appeal such determinations by delivering
written notice thereof to the Board of Directors of the Company. Upon the Board
of Director's receipt of such notice, the Board shall make the final decision as
to the calculation and payment of the gross-up payment, which decision shall be
binding on the Employee and the Company. If the Board of Directors does not
receive the Employee's written notice of appeal on or before the date that is
ten (10) days after the Company's delivery to the Employee of the determinations
made by the accounting firm, the Employee shall be deemed to have accepted and
agreed to the determinations made by the accounting firm.
11. Status of Stock. Employee understands that at the time of the
execution of this Agreement the shares of Stock to be issued upon exercise of
this Option have not been registered under the Securities Act of 1933, as
amended (the "Act"), or any state securities laws. The Company may, but is not
obligated to, effect such a registration in the future. Until the shares of
Stock acquirable upon the exercise of this Option have been registered for sale
under the Act, the Company will not issue such shares unless the holder of the
Option provides the Company with a written opinion of legal counsel, who shall
be satisfactory to the Company, addressed to the Company and satisfactory in
form and substance to the Company's counsel, to the effect that the proposed
issuance of such shares to such Option holder may be made without registration
under the Act. If an exemption from registration under the Act is available upon
an exercise of this Option, Employee (or the person permitted to exercise this
Option in the event of Employee's death), if requested by the Company to do so,
will execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
-4-
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option shall not be sold, transferred, assigned, pledged or
hypothecated in the absence of an effective registration statement for the
shares under the Act and applicable state securities laws or an applicable
exemption from the registration requirements of the Act and any applicable state
securities laws. Employee also agrees that the shares of Stock which Employee
may acquire by exercising this Option will not be sold or otherwise disposed of
in any manner which would constitute a violation of any applicable securities
laws, whether federal or state. In addition, Employee agrees (i) that the
certificates representing the shares of Stock purchased under this Option may
bear such legend or legends as the Board of Directors of the Company or its
Compensation Committee deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel satisfactory to the Company constitute a violation of any applicable
securities law and (iii) that the Company may give related instructions to its
transfer agent, if any, to stop registration of the transfer of the shares of
Stock purchased under this Option.
12. Nontransferability of Option. This Option may not be transferred by
Employee otherwise than by will or the laws of descent and distribution. During
Employee's lifetime, this Option will be exercisable only by Employee.
13. Authority. This Option is granted by the Company pursuant to the
Company's general corporate powers under Sections 7-103-102 and 7-106-205 of the
Colorado Revised Statutes.
14. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Employee.
15. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
Dated: August 24, 2005.
NATURAL GAS SERVICES GROUP, INC.
By: /s/ Wallace C. Sparkman
------------------------------------------
Wallace C. Sparkman, Chairman of the Board
-5-
AGREED TO:
THIS 24TH DAY OF AUGUST, 2005.
/s/ Stephen C. Taylor
- --------------------------------------------
Stephen C. Taylor
Address:
1200 Shirley Lane
Midland, Texas 79705
ACCEPTED AND APPROVED THIS
24TH DAY OF AUGUST, 2005.
By: /s/ William F. Hughes, Jr.
-----------------------------------------
William F. Hughes, Jr.
Chairman of Compensation Committee
-6-
Exhibit 99.1
FOR IMMEDIATE RELEASE For More Information, Contact:
August 26, 2005 Wallace Sparkman, Chairman
800-580-1828
Jim Drewitz, Investor Relations
972-355-6070
NATURAL GAS SERVICES GROUP, INC. ANNOUNCES
EMPLOYMENT AND STOCK OPTION AGREEMENTS FOR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MIDLAND, TEXAS, August 26, 2005 - Natural Gas Services Group, Inc. (AMEX:NGS), a
leading equipment and services provider to the oil and natural gas industry,
announces Natural Gas Services Group and Stephen C. Taylor, President and Chief
Executive Officer of NGS, entered into an Employment Agreement and a
Nonstatutory Stock Option Agreement.
Mr. Taylor's employment agreement is for an initial term of three years, subject
to earlier termination, and provides for an annual base salary of $155,000, plus
an annual cash bonus of up to 45% of Taylor's base salary that is dependent upon
attainment of certain performance thresholds as established from time to time by
the Board of Directors of NGS. The employment agreement allows Mr. Taylor to
participate in certain insurance, health and other employee benefit plans
offered by NGS. The agreement with Taylor provides for a vehicle and moving
allowance; severance benefits related to `fundamental change' circumstances,
e.g., upon the occurrence of a change of control; and accelerated vesting of
options under certain circumstances. The agreement imposes various restrictive
covenants on Mr. Taylor throughout the term of his employment, as well as
post-employment non-competition and non-solicitation covenants.
The option granted to Mr. Taylor under the Nonstatutory Stock Option Agreement
is a ten-year option to purchase 45,000 shares of common stock of NGS at an
exercise price of $9.22 per share, the fair market value of NGS' common stock on
January 13, 2005, the date Mr. Taylor was initially hired. The option vests in
three equal annual installments commencing on January 13, 2006 and expire on
August 24, 2015.
The option agreement and the option granted there under were approved by the
Compensation Committee of the Board of Directors of NGS, and are intended to
meet the employment inducement grant exception to shareholder approval provided
under Section 711(a) of the American Stock Exchange Company Guide.
About Natural Gas Services Group, Inc.
- --------------------------------------
NGS is a Midland, Texas based company that manufactures, fabricates, sells,
leases and services natural gas compression equipment used in the production of
natural gas wells. The Company also manufactures and sells flare and flare
ignition systems for gas processing and production facilities. NGS has extensive
operations in the major gas-producing basins of Texas, New Mexico, Michigan and
Oklahoma.
For more information visit the Company's website at www.ngsgi.com.
-------------
Forward-Looking Statements
- --------------------------
The foregoing statements regarding the intentions of Natural Gas Services Group,
Inc. with respect to the contemplated redemption and other transactions
described above are forward-looking statements under the Private Securities
Litigation Reform Act of 1995, and actual results could vary materially from the
statements made. Natural Gas Services Group, Inc.'s ability to complete the
redemption and other transactions described above successfully is subject to
various risks, many of which are outside of its control, including prevailing
conditions in the capital markets and other risks and uncertainties as detailed
from time to time in the reports filed by Natural Gas Services Group, Inc. with
the Securities and Exchange Commission.
-END-