SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-12
NATURAL GAS SERVICES GROUP, INC.
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(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which the transaction
applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
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|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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NATURAL GAS SERVICES GROUP, INC.
2911 South County Road 1260
Midland, Texas 79706
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on June 15, 2004
NOTICE IS HEREBY GIVEN that an annual meeting of shareholders of
Natural Gas Services Group, Inc., a Colorado corporation, will be held at the
Hilton Hotel, 117 West Wall Avenue, Midland, Texas 79701 on Tuesday, June 15,
2004 at 9:00 a.m., Central Time, for the purpose of considering and voting upon
proposals to:
1. elect two directors to serve until the annual meeting of
shareholders to be held in 2006 and elect one director to
serve until the annual meeting of shareholders to be held in
2007, or until their successors are elected and qualify; and
2. transact such other business as may lawfully come before the
meeting or at any adjournment(s) of the meeting.
Only shareholders of record at the close of business on May 12, 2004,
are entitled to notice of and to vote at the meeting and at any adjournment(s)
of the meeting.
The enclosed proxy is solicited by and on behalf of the Board of
Directors of Natural Gas Services Group, Inc. All shareholders are cordially
invited to attend the meeting in person. Whether you plan to attend or not,
please date, sign and return the accompanying proxy card in the enclosed return
envelope, to which no postage need be affixed if mailed in the United States.
The giving of a proxy will not affect your right to vote in person if you attend
the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
SCOTT W. SPARKMAN, SECRETARY
Midland, Texas
May 21, 2004
NATURAL GAS SERVICES GROUP, INC.
2911 South County Road 1260
Midland, Texas 79706
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 15, 2004
This proxy statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Natural Gas Services Group,
Inc., a Colorado corporation, to be used at an annual meeting of shareholders to
be held at the Hilton Hotel, 117 West Wall Avenue, Midland, Texas 79701 on
Wednesday, June 15, 2004 at 9:00 a.m., Central Time, and at any adjournment(s)
of the meeting.
This proxy statement and the accompanying proxy will be mailed to
Natural Gas' shareholders on or about May 21, 2004.
Any person signing and mailing the enclosed proxy may revoke it at any
time before it is voted by:
o giving written notice of the revocation to Natural Gas'
corporate secretary;
o voting in person at the meeting; or
o voting again by submitting a new proxy card.
Only the latest dated proxy card, including one which a person may vote
in person at the meeting, will count. If not revoked, the proxy will be voted at
the meeting in accordance with the instructions indicated on the proxy by the
shareholder, or, if no instructions are indicated, will be voted FOR the slate
of directors described in the proxy and such other matters as may properly come
before the meeting.
VOTING SECURITIES
Voting rights are vested in the holders of Natural Gas' $0.01 par value
common stock with each share entitled to one vote. Cumulative voting in the
election of directors is not permitted. Only shareholders of record at the close
of business on May 12, 2004, are entitled to notice of and to vote at the
meeting or any adjournments of the meeting. On May 12, 2004, Natural Gas had
5,368,135 shares of common stock outstanding.
ACTIONS TO BE TAKEN AT MEETING
The meeting has been called by the Board of Directors of Natural Gas to
consider and act upon the following matters:
1
1. the election of two directors to serve until the annual
meeting of shareholders to be held in 2006 and the election of
one director to serve until the annual meeting of shareholders
to be held in 2007, or until their successors are elected and
qualify; and
2. the transaction of such other business as may lawfully come
before the meeting or at any adjournment(s) of the meeting.
The holders of a majority of the outstanding shares of common stock
present at the meeting in person or represented by proxy shall constitute a
quorum. If a quorum is present, directors are elected by a plurality of the
vote, i.e., the candidates receiving the highest number of votes cast in favor
of their election will be elected to the Board of Directors. As to all other
actions voted on at the meeting, if a quorum is present, the affirmative vote of
a majority of the shares represented in person or by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders.
Where brokers have not received any instruction from their clients on how to
vote on a particular proposal, brokers are permitted to vote on routine
proposals but not on nonroutine matters. The absence of votes on nonroutine
matters are "broker nonvotes." Abstentions and broker nonvotes will be counted
as present for purposes of establishing a quorum, but will have no effect on the
election of directors. Abstentions and broker nonvotes on proposals other than
the election of directors, if any, will be counted as present for purposes of
the other proposals and will count as votes against all other proposals.
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
The number of directors on Natural Gas' Board of Directors has been
established by the shareholders as seven directors. During 2003 and early 2004,
the Board of Directors had several changes. In 2003, Scott W. Sparkman and James
T. Grigsby resigned from the Board. As allowed by Colorado law and Natural Gas'
Bylaws, the remaining directors filled the two vacancies with Wallace C.
Sparkman and William F. Hughes, Jr. In March 2004, Wayne L. Vinson, our Chief
Executive Officer and Director, passed away. Mr. Vinson's vacant position on the
Board of Directors has not yet been filled.
The Board of Directors is divided into three classes with directors
serving staggered terms. The following sets forth our current directors listed
by class and year in which their terms expire:
-------------------------- -------------------------- --------------------------
2004 2005 2006
---- ---- ----
-------------------------- -------------------------- --------------------------
Richard L. Yadon Charles G. Curtis William F. Hughes, Jr. (1)
Wallace O. Sellers Wallace C. Sparkman (1)
Gene A. Strasheim
-------------------------- -------------------------- --------------------------
(1) Assumes re-election to the Board of Directors at the Annual Meeting of
Shareholders in 2004.
2
Shareholders will be electing three Directors at the meeting. As noted
above, Mr. Yadon's term expires at the meeting. The Board has recommended Mr.
Yadon for re-election to the Board of Directors to serve for a three year term
expiring at the Annual Meeting of Shareholders in 2007. Messrs. Hughes and
Sparkman replaced Directors whose terms did not expire until 2006. Colorado law
provides that the term of a director, who is elected by the remaining directors
to fill a vacancy, expires at the next annual meeting of shareholders.
Consequently, Messrs. Hughes' and Sparkman's terms expire at the Annual Meeting
of Shareholders in 2004. The Board has recommended Messrs. Hughes and Sparkman
for re-election to the Board of Directors to serve for a two year term expiring
at the Annual Meeting of Shareholders in 2006.
The persons named in the enclosed form of Proxy will vote the shares
represented by such Proxy for the election of the three nominees for director
named above. If, at the time of the meeting, any of these nominees shall become
unavailable for any reason, which event is not expected to occur, the persons
entitled to vote the Proxy will vote for such substitute nominee or nominees, if
any, as they determine in their sole discretion. If elected, Richard L. Yadon
will hold office until the annual meeting of shareholders to be held in 2007, or
until his successor has been duly elected or appointed or until his earlier
death, resignation or removal. If elected, William F. Hughes and Wallace C.
Sparkman will hold office until the annual meeting of shareholders to be held in
2006, or until their successors are duly elected or appointed or until their
earlier death, resignation or removal. Biographical information regarding the
nominees for director, each of whom has consented to serve if elected, are as
follows:
Director Principal Occupation for At Least
Name of Nominee Since Age the Last Five Years
--------------- ----- --- -------------------
Richard L. Yadon 2003 46 Mr. Yadon is one of the original
founders of Rotary Gas Systems Inc.
and has served as advisor to Natural
Gas' Board of Directors since June
2002. Since 1981, Mr. Yadon has
owned and operated Yadeco Pipe &
Equipment and since December 1994,
has co-owned and presided as
President of Midland Pipe &
Equipment, Inc. Both companies are
directly related to drilling and
completion of oil and gas wells in
Texas, New Mexico, Louisiana and
Oklahoma. Since 1981, he has owned
Yadon Properties, which owns and
operates real estate in Midland,
Texas. Mr. Yadon has 22 years of
experience in the energy service
industry.
3
William F. Hughes, Jr. 2003 51 Mr. Hughes has been one of our
directors since December 2003. Since
1983, Mr. Hughes has been co-owner
of The Whole Wheatery, LLC, a
natural foods store located in
Lancaster, California. Mr. Hughes
holds a Bachelor of Science degree
in Civil Engineering from the U.S.
Air Force Academy and a Masters of
Science in Engineering from UCLA.
Wallace C. Sparkman 2003 74 Mr. Sparkman is one of our founders
and has served as a director since
2003. He was appointed Interim
President and Chief Executive
Officer following the death of Wayne
Vinson in March 2004 until our Board
of Directors appoints a new
President and Chief Executive
Officer. Mr. Sparkman was the
President of NGE from July 2001 to
December 31, 2003, a director of NGE
from February 1996 to December 31,
2003, and the President of Rotary
(and its predecessor, Flare King)
from April 1993 to April 1997. Mr.
Sparkman served as our President
from May 2000 to July 2001 and as
the President of Great Lakes
Compression from February 2001 to
July 2001. Mr. Sparkman was Vice
President of NGE from February 1996
to November 1999. From December 1998
to 2003, Mr. Sparkman was a
consultant to our Board of
Directors. From 1985 to 1998, Mr.
Sparkman acted as a management
consultant to various entities and
acted as a principal in forming
several privately-owned companies.
Mr. Sparkman was a co-founder of
Sparkman Energy Corporation, a
natural gas gathering and
transmission company, in 1979 and
served as its Chairman of the Board,
President and Chief Executive
Officer until 1985 when ownership
control changed. From 1968 to 1979,
Mr. Sparkman held various executive
positions and served as a director
of Tejas Gas Corporation, a natural
gas gathering and transmission
company. At the time of his
resignation from Tejas Gas
Corporation in 1979, Mr. Sparkman
was President and Chief Executive
Officer. Mr. Sparkman has more than
34 years of experience in the energy
service industry.
4
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE
ELECTION OF THE NOMINEES LISTED ABOVE.
Continuing Directors
--------------------
Biographical information regarding Natural Gas' other directors who are
not up for election at this year's annual meeting is set forth below.
Director Principal Occupation for at Least
Name of Director Since Age the Last Five Years
---------------- ----- --- -------------------
Charles G. Curtis 2001 71 Mr. Curtis has been one of Natural
Gas' directors since April 2001.
Since 1992, Mr. Curtis has been the
President and Chief Executive
Officer of Curtis One, Inc. d/b/a/
Roll Stair, a manufacturer of
aluminum and steel mobile stools and
mobile ladders. From 1988 to 1992,
Mr. Curtis was the President and
Chief Executive Officer of Cramer,
Inc. a manufacturer of office
furniture. Mr. Curtis has a B.S.
degree from the United States Naval
Academy and a MSAE degree from the
University of Southern California
Wallace O. Sellers 1998 74 Mr. Sellers is one of Natural Gas'
founders and has served as a
director and the Chairman of Natural
Gas' Board of Directors since
December 17, 1998. Although Mr.
Sellers retired in December 1994, he
served as Vice-Chairman of the Board
and Chairman of the Executive
Committee of Enhance Financial
Services, Inc., a financial guaranty
reinsurer, from January 1995 to
2001. From November 1986 to December
1991 he was President and Chief
Executive Officer of Enhance. From
1951 to 1986 Mr. Sellers was
employed by Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an
investment banker, in various
capacities, including Director of
the Municipal and Corporate Bond
Division and Director of the
Securities Research Division.
Immediately prior to his retirement
from Merrill Lynch, he served as
Senior Vice President and director
of Strategic Development. Mr.
Sellers received a BA degree from
the University of New Mexico, an MA
degree from New York University and
attended the Advanced Management
Program at Harvard University. Mr.
Sellers is a Chartered Financial
Analyst.
5
Gene A. Strasheim 2003 63 Since 2001, Mr. Strasheim has been a
financial consultant to Skyline
Electronics/Products, a manufacturer
of circuit boards and large remotely
controlled digital interstate
highway signs. From 1992 to 2001,
Mr. Strasheim was the Chief
Financial Officer of Skyline
Electronics/Products. From 1985 to
1992, Mr. Strasheim was the Vice
President-Finance and Treasurer of
CF&I Steel Corporation. Prior to
that, Mr. Strasheim was the Vice
President-Finance for two companies
and was a partner with Deloitte
Haskins & Sells, a large accounting
firm. Mr. Strasheim practiced as a
Certified Public Accountant in three
states and has a BS degree from the
University of Wyoming.
Natural Gas' Board of Directors held five meetings during the fiscal
year ending December 31, 2003. Each director attended at least 75% of the total
number of Board meetings held while such person was a director. Each director
attended all of the meetings held by all committees of the Board of Directors
for which he served (during the periods that he served). The Board of Directors
acts from time to time by unanimous written consent in lieu of holding a
meeting. During the fiscal year ending December 31, 2003, the Board of Directors
took action by unanimous written consent five times.
Directors who are not employees are paid $1,000 per quarter and at
December 31 of each year are issued a five year option to purchase 2,500 shares
of Natural Gas' common stock at the then market value. Natural Gas also
reimburses its directors for accountable expenses incurred on Natural Gas'
behalf.
We typically schedule a Board meeting in conjunction with our annual
meeting of shareholders. Although we do not have a formal policy on the matter,
we expect our directors to attend each annual meeting, absent a valid reason,
such as illness or a schedule conflict. Last year, all seven of the individuals
then serving as director attended our annual meeting of shareholders.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires Natural Gas' officers and directors and persons who own more than 10%
of the outstanding common stock of Natural Gas to file reports of ownership with
the Securities and Exchange Commission. Directors, officers and greater than 10%
shareholders are required by SEC regulations to furnish Natural Gas with copies
of all Section 16(a) forms they file.
Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to Natural Gas during and for its fiscal year ended December 31, 2003,
there were no directors, officers or more than 10% shareholders of Natural Gas
who failed to timely file a report required by Section 16(a) of the Securities
Exchange Act of 1934 except that:
6
o Messrs. Curtis, Hughes, Strasheim and Yadon, each filed one
late Form 4 reporting the grant to them on December 31, 2003
of stock options under our 1998 Stock Option Plan.
o Craig S. Rogers, a Vice President, failed to timely file his
initial statement of beneficial ownership on Form 3.
o Charles G. Curtis, a director, failed to timely file one Form
4 reporting his disposition of Warrants to purchase 15,600
shares of our common stock at $6.25 per share.
o Wallace O. Sellers, a director, failed to timely report the
exercise of a warrant for 5,000 shares of our common stock at
$6.25 per share.
COMMITTEES OF THE BOARD OF DIRECTORS
To assist it in carrying out its duties, the Board has delegated
certain authority to three committees whose functions are described below:
Audit Committee
Members at December 31, 2003: Directors Strasheim (Chair), Curtis, Hughes
,Sellers and Yadon.
Number of Meetings in 2003: 4
Functions:
o Assists the Board in fulfilling its oversight responsibilities as they
relate to our accounting policies, internal controls, financial
reporting practices and legal and regulatory compliance;
o Hires the independent auditors;
o Monitors the independence and performance of our independent auditors
and internal auditors;
o Maintains, through regularly scheduled meetings, a line of
communication between the Board and our financial management, internal
auditors and independent auditors; and
o Oversees compliance with our policies for conducting business,
including ethical business standards.
The Board of Directors adopted an Audit Committee Charter on April 16,
2003 and subsequently amended and restated the Charter on March 2, 2004. The
amended and restated Audit Committee Charter is attached hereto as Exhibit A.
Our Board of Directors has determined that Gene A. Strasheim is
qualified as an "audit committee financial expert" as that term is defined in
the rules of the Securities and Exchange Commission. Mr. Strasheim has worked as
a financial consultant since 2001. From 1992 to 2001, he worked as a Chief
Financial Officer for a company in the electronics industry. Prior to that, Mr.
Strasheim was a partner and certified public accountant with Deloitte Haskins &
Sells.
7
Our common stock is listed for trading on the American Stock Exchange
("AMEX"). Pursuant to AMEX rules, the Audit Committee is to be comprised of
three or more directors as determined by the Board of Directors, each of whom
shall be "independent". Our Board has determined that all of the members of the
Audit Committee are independent, as defined in the listing standards of the AMEX
and the rules of the Securities and Exchange Commission ("SEC").
Compensation Committee
Members at December 31, 2003: Directors Curtis, Sellers, Strasheim and Yadon
Number of Meetings in 2003: 4
Functions:
o Assisting the Board in overseeing the management of our human resources
including:
>> compensation and benefits programs;
>> CEO performance and compensation;
o Oversees the evaluation of management; and
o Prepares the report of the Committee on executive compensation.
The Compensation Committee's policy is to offer the executive officers
competitive compensation packages that will permit us to attract and retain
individuals with superior abilities and to motivate and reward such individuals
in an appropriate fashion in the long-term interests of Natural Gas and its
shareholders. Currently, executive compensation is comprised of salary and cash
bonuses and other compensation that may be awarded from time to time such as
long-term incentive opportunities in the form of stock options under Natural
Gas' 1998 Stock Option Plan.
Our Board has determined that all of the members of the Compensation
Committee are independent, as defined in the listing standards of the AMEX and
the rules of the SEC.
Governance, Personnel Development, and Nominating Committee
Members at December 31, 2003: Directors Curtis (Chair), Sellers, Strasheim
and Yadon
Number of Meetings in 2003: 4
Functions:
o Identifies individuals qualified to become board members, consistent
with the criteria approved by the Board;
o Recommends director nominees and individuals to fill vacant
positions;
o Assists the Board in interpreting the Board Governance Guidelines,
the Board's Principles of Conduct and any other similar governance
documents adopted by the Board;
o Oversees the evaluation of the Board and its committees;
o Generally oversees the governance of the Board; and
o Oversees executive development and succession and diversity efforts.
In connection with recent corporate governance rules and regulations
adopted by the SEC and the AMEX, we formed a Governance, Personnel Development,
and Nominating Committee in June 2003. The Board of Directors adopted a
Corporate Governance Charter on September 10, 2003. The Corporate Governance
Charter is attached hereto as Exhibit B. Our Board of Directors has determined
that each of the Committee members is "independent", as defined under the
applicable rules and listing standards of the American Stock Exchange.
8
This Committee will consider a candidate for director proposed by a
stockholder. A candidate must be highly qualified in terms of business
experience and be both willing and expressly interested in serving on the Board.
A stockholder wishing to propose a candidate for the Committee's consideration
should forward the candidate's name and information about the candidate's
qualifications to Natural Gas Services Group, Inc., Nominating Committee, 2911
South County Road 1260, Midland, Texas 79706, Attn.: Charles G. Curtis,
Chairman. Submissions must include sufficient biographical information
concerning the recommended individual, including age, employment history for at
least the past five years indicating employer's names and description of the
employer's business, educational background and any other biographical
information that would assist the Committee in determining the qualifications of
the individual. The Committee will consider recommendations received by a date
not later than 120 calendar days before the date our proxy statement was
released to shareholders in connection with the prior year's annual meeting for
nomination at that annual meeting. The Committee will consider nominations
received after that date at the annual meeting subsequent to the next annual
meeting.
The Committee evaluates nominees for directors recommended by
shareholders in the same manner in which it evaluates other nominees for
directors. Minimum qualifications include the factors discussed above.
Code of Ethics
Our Board of Directors has adopted a Code of Business Conduct and
Ethics ("Code"), which we intend to post on our web site (www.ngsgi.com). You
may also obtain a copy of our Code by requesting a copy in writing at 2911 SCR
1260, Midland, TX 79706 or by calling us at (432) 563-3974.
Our Code provides general statements of our expectations regarding
ethical standards that we expect our directors, officers and employees to adhere
to while acting on our behalf. Among other things, the Code provides that:
o We will comply with all laws, rules and regulations;
o Our directors, officers and employees are to avoid conflicts of
interest and are prohibited from competing with us or personally
exploiting our corporate opportunities;
o Our directors, officers and employees are to protect our assets and
maintain our confidentiality;
o We are committed to promoting values of integrity and fair dealing; and
o We are committed to accurately maintaining our accounting records under
generally accepted accounting principles and timely filing our periodic
reports.
9
Our Code also contains procedures for our employees to report,
anonymously or otherwise, violations of the Code.
EXECUTIVE OFFICERS
Certain information concerning the directors and executive officers of
Natural Gas as of May 12, 2004 is set forth below.
Name Age Position
Wallace O. Sellers (1)(2)(3) 74 Director, Chairman
Wallace C. Sparkman (5) 74 Director, Interim President
and Chief Executive Officer
Charles G. Curtis (1)(2)(3) 71 Director
William F. Hughes, Jr. (1)(2)(3) 51 Director
Gene A. Strasheim (1)(2)(3)(4) 62 Director
Richard L. Yadon (1)(2)(3) 45 Director
Earl R. Wait 60 Chief Financial Officer and
Treasurer
Ronald D. Bingham 59 Vice President
S. Craig Rogers 42 Vice President
Scott W. Sparkman (5) 42 Secretary
------------------------------
(1) Member of our audit committee
(2) Member of our compensation committee
(3) Member of our nominating committee
(4) Gene A. Strasheim has been determined by our Board of Directors to
be the financial expert on our audit committee. Mr. Strasheim is
independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A
under the Securities Exchange Act of 1934, as amended.
(5) Wallace C. Sparkman is the father of Scott W. Sparkman.
Our executive officers are elected annually at the first meeting of the
Board of Directors held after each annual meeting of shareholders. Each
executive officer holds office until his or her successor duly is elected and
qualified, until his or her death or resignation or until removed in the manner
provided by Natural Gas' bylaws.
In March 2004, our Chief Executive Officer, Wayne L. Vinson, passed
away. Our Board appointed Wallace C. Sparkman, one of our founders and a
director, to serve as interim President and Chief Executive Officer. Our Board
is actively searching for candidates to permanently fill the position.
Biographical information for our executive officers who are also
directors is disclosed above under "Election of Directors". Biographical
information regarding our other executive officers follows:
10
Earl R. Wait has served as our Chief Financial Officer since May 2000
and our Treasurer since 1998. Mr. Wait was our Chief Accounting Officer from
1998 to May 2000. Mr. Wait was the Chief Financial Officer and
Secretary/Treasurer of Flare King and then Rotary from April 1993 to December
31, 2003, the Controller and Assistant Secretary/Treasurer for Hi-Tech from 1994
to 1999, a director of NGE and Rotary from July 1999 to April 2001 and the Chief
Accounting Officer and Treasurer of Great Lakes Compression from February 2001
to December 31, 2003. Mr. Wait is a certified public accountant with an MBA in
management and has more than 25 years of experience in the energy industry.
Ronald D. Bingham has served as one of our Vice Presidents since
December 2003 and was the President of Great Lakes Compression from 2001 to
December 31, 2003. From March 2001 to July 2001, Mr. Bingham was the General
Manager of Great Lakes Compression. From January 1989 to March 2001, Mr. Bingham
was the District Manager for Waukesha Pearce Industries, Inc., a distributor of
Waukesha natural gas engines. Mr. Bingham is a member of the Michigan Oil and
Gas Association and received a bachelors degree in Graphic Arts from Sam Houston
State University.
S. Craig Rogers has served as one of our Vice Presidents since June
2003. He served as Operations Manager for Rotary from 1995 to December 31, 2003,
and Vice President of Rotary from April 2002 to December 31, 2003. From March
1987 to January 1995, Mr. Rogers was the Shop Manager for CSI, a major
manufacturer of natural gas compressors.
Scott W. Sparkman has served as our Secretary since December 1998. Mr.
Sparkman was Executive Vice-President of NGE from July 2001 to December 31,
2003, was a director of NGE from December 1998 to December 31, 2003, was
Secretary and Treasurer of NGE from March 1999 to December 31, 2003 and was the
Secretary of Great Lakes Compression from February 2001 to December 31, 2003.
Mr. Sparkman was one of our directors from 1998 to 2003. Mr. Sparkman served as
the President of NGE from December 1998 to July 2001. From May 1997 to July
1998, Mr. Sparkman served as Project Manager and Comptroller for Business
Development Strategies, Inc., a designer of internet websites. Mr. Sparkman
pursued personal business interests from May 1996 to May 1997. From February
1991 to May 1996, Mr. Sparkman served as Vice President and Director, later as
President and Director, of Diamond S Safety Services, Inc., a seller and
servicer of hydrogen sulfide monitoring equipment. Mr. Sparkman received a BBA
degree from Texas A&M University.
All of the officers devote substantially all of their working time to
our business.
11
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation
paid during the years ended December 31, 2003, 2002 and 2001 by us to Wayne L.
Vinson, Earl R. Wait and Craig Rogers, our only officers whose combined salary
and bonuses exceeded $100,000 during the year ended December 31, 2003.
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Name
Securities Underlying
Principal Position Year Salary Bonus Options
------------------ ---- ------ ----- -------
Wayne L. Vinson 2003 $120,000(1) $48,000 -0-
Executive Vice President 2002 $120,000(1) $39,452 -0-(2)
Until 7/25/01 2001 $102,692(1) $25,583 -0-
President from 7/25/01
Until 3/15/04
Earl R. Wait 2003 $ 90,000 $41,256 -0-
Chief Financial Officer 2002 $ 90,000 $29,589 15,000
2001 $ 85,385 $23,164 -0-
S. Craig Rogers 2003 $ 88,500 $37,669 -0-
Vice President 2002 $ 80,000 $26,301 12,000
Since June 2003 2001 $ 64,615 $20,957 -0-
--------------------------
(1) Does not include any compensation paid to the wife of Wayne L. Vinson
for her services as our accounts payable and payroll clerk for 2003,
2002 and 2001, respectively.
(2) CAV-RDV, Ltd., a Texas limited partnership for the benefit of the
children of Wayne L. Vinson, was issued a five year warrant to purchase
15,756 shares of our common stock at $2.50 per share in consideration
for CAV-RDV, Ltd. guaranteeing a portion of our debt. The children are
eighteen years old or older and Mr. Vinson was not a partner in
CAV-RDV, Ltd. and disclaimed beneficial ownership of the warrants.
We have established a bonus program for our officers. At the end of
each of our fiscal years, our Board of Directors reviews our operating history
and determines whether or not any bonuses should be paid to our officers. If so,
the Board of Directors determines what amount should be paid to our officers.
The Board of Directors may discontinue the bonus program at any time.
Option Grants in Last Fiscal Year
We did not grant any options to the named officers in the above
compensation table.
12
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
The following table sets forth information pertaining to option
exercises by, and fiscal year end option values of options held by, Wayne L.
Vinson, Earl R. Wait, and S. Craig Rogers, our only executive officers whose
combined salary and bonuses exceeded $100,000 during the year ended December 31,
2003:
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Value Options at Fiscal Year End at Fiscal Year End
Name On Exercise Received Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
Wayne L. Vinson 0 0 0/0 0/0
Earl R. Wait 0 0 10,000/15,000 $23,000/$34,500
S. Craig Rogers 0 0 8,000/12,000 $18,400/$27,600
Compensation of Directors
Our directors who are not employees are each paid a cash fee of $1,000
per quarter and at December 31 of each year are issued a five year option to
purchase 2,500 shares of our common stock at the then market value. On December
31, 2003, we granted an option to each of our five non-employee directors to
purchase 2,500 shares of our common stock at $5.55 per share. We also reimburse
our directors for accountable expenses incurred on our behalf.
1998 Stock Option Plan
We have adopted the 1998 Stock Option Plan, which provides for the
issuance of options to purchase up to 150,000 shares of our common stock. The
purpose of the plan is to attract and retain the best available personnel for
positions of substantial responsibility and to provide additional incentive to
employees and consultants and to promote the success of our business. The plan
is administered by the Board of Directors or a compensation committee consisting
of two or more non-employee directors, if appointed. At its discretion, the
administrator of the plan may determine the persons to whom options may be
granted and the terms upon which such options will be granted. All officers,
employees and directors are eligible to participate in the plan. In addition,
the administrator of the plan may interpret the plan and may adopt, amend and
rescind rules and regulations for its administration. The following options to
purchase our common stock have been granted under the plan and are outstanding:
o 6,000 shares at an exercise price of $2.00 per share,
o 33,000 shares at an exercise price of $3.25 per share,
o 5,500 shares at an exercise price of $3.88 per share, and
o 10,000 shares at an exercise price of $5.55 per share, and
o 15,000 shares at an exercise price of $5.58 per share.
13
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of May 12, 2004, the beneficial
ownership of our common stock (i) by each of our directors, nominees and
executive officers; (ii) by all of our executive officers and directors as a
group; and (iii) by all persons known by us to beneficially own more than five
percent of our common.
Name and Address Amount and Nature Percentage
of Beneficial Owner of Beneficial Ownership of Class
------------------- ----------------------- --------
Wallace O. and Naudain Sellers 700,659 (1) 13.0%
P.O. Box 106
6539 Upper York Road
Solebury, PA 18963-0106
Charles G. Curtis 78,000 (2) 1.4%
1 Penrose Lane
Colorado Springs, CO 80906
William F. Hughes 244,500 (3) 4.5%
42921 Normandy Lane
Lancaster, CA 93536
Wallace C. Sparkman 167,691 (4) 3.1%
4906 Oakwood Court
Midland, TX 79707
14
Gene A. Strasheim 3,500 *
165 Huntington Place
Colorado Springs, CO 80906
Richard L. Yadon 296,683 (5) 5.5%
P.O. Box 8715
Midland, TX 79708-8715
S. Craig Rogers 14,250 (6) *
14732 Bluestem Ave
Gardendale, TX 79758
Earl R. Wait 75,000 (7) 1.4%
109 Seco
Portland, TX 78374
Scott W. Sparkman 516,467 (8) 9.6%
1604 Ventura Avenue
Midland, TX 79705
All directors and executive 2,096,750 (9) 37.2%
officers as a group
(nine persons)
CAV-RDV, Ltd. 488,128 (10) 9.1%
1541 Shannon Drive
Lewisville, TX 75077
RWG Investments LLC 424,000 (11) 7.8%
5980 Wildwood Drive
Rapid City, SD 57902
Andrew Cohen 277,865 5.2%
2 Rector Street, 1st Floor
New York, New York 10006
-----------------------------
* indicates less than one percent.
(1) Includes 238,720 shares of common stock owned by the Wallace
Sellers, July 11, 2002 GRAT, warrants to purchase 21,936 shares of common stock,
9,032 shares of common stock and 5,000 shares of common stock at $ 2.50 per
share, at $3.25 per share and at $6.25 per share, respectively, owned by Wallace
Sellers, options to purchase 2,500 shares of common stock at $3.88 per share and
2,500 shares of common stock at $5.55 per share, respectively, owned by Wallace
Sellers, 95,971 shares of common stock owned by Naudain Sellers, and 238,720
shares of common stock owned by the Naudain Sellers, July 11, 2002 GRAT. Wallace
and Naudain Sellers are husband and wife. Wallace Sellers is the trustee of his
wife's trust and his wife is the trustee of his trust. The beneficiaries of the
trusts are two trusts. The beneficiaries of one trust are Naudain Sellers and
their three children and the beneficiaries of the other trust are their three
children.
(2) Includes warrants to purchase 40,000 shares of common stock at
$3.25 per share, options to purchase 2,500 shares of common stock at $3.88 per
share and 2,500 shares of common stock at $5.55 per share, respectively.
(3) Includes 180,500 shares of common stock owned by the William and
Cheryl Hughes Family Trust, a warrant to purchase 60,000 shares of common stock
at $3.25 per share, and an option to purchase 2,500 shares of common stock at
$5.55 per share.
(4) Includes 105,691 shares owned by Diamente Investments, LLP, a Texas
limited partnership of which Mr. Sparkman is a general and limited partner.
(5) Includes warrants to purchase 14,683 shares of common stock at
$2.50 per share and an option to purchase 2,500 shares of common stock at $5.55
per share.
15
(6) Includes warrants to purchase 1,125 shares of common stock at $6.25
per share and an option to purchase 12,000 shares of common stock at $3.25 per
share that began to vest in April 2003.
(7) Includes an option to purchase 15,000 shares of common stock at
$3.25 per share that began to vest in April 2003.
(8) Includes 20,000 shares of common stock owned by Scott W. Sparkman
and 475,000 shares of common stock and warrants to purchase 21,467 shares of
common stock at $2.50 per share owned by Diamond S DGT, a trust for which Mr.
Sparkman is a co-trustee and co-beneficiary with his sister.
(9) Includes 274,743 shares of common stock that may be acquired upon
exercise of presently exercisable stock options and warrants to purchase common
stock.
(10) Includes warrants to purchase 15,756 shares of common stock at
$2.50 per share, and 2,122 shares of common stock at $3.25 per share,
respectively. CAV-RDV is a Texas Limited Partnership for the benefit of Ryan and
Candice Vinson.
(11) Includes warrants to purchase 32,000 shares of common stock at
$3.25 per share, and warrants to purchase 15,000 shares of common stock at $6.25
per share. RWG Investments LLC is a limited liability company the beneficial
owner of which is Roland W. Gentner, 5980 Wildwood Drive, Rapid City, South
Dakota 57902.
TRANSACTIONS WITH MANAGEMENT AND OTHERS AND CERTAIN BUSINESS RELATIONSHIPS
In April 2002, we issued five year warrants to purchase shares of our
common stock at $3.25 per share to the following persons for guaranteeing
additional portion of the bank debt we incurred under our restructured loan
facility:
Number of Shares Amount of Additional
Name Underlying Warrants Debt Guaranteed
---- ------------------- ---------------
Wallace O. Sellers 9,032 $ 451,601
CAV-RDV, Ltd. (1) 2,122 106,098
Richard L. Yadon 5,318 265,879
(1) CAV-RDV, Ltd., is a Texas limited partnership for the benefit of the
children of Wayne L. Vinson. Both children are eighteen years old or
older and Mr. Vinson is not a partner in CAV-RDV, Ltd. Mr. Vinson
disclaims beneficial ownership of the warrants.
None of the guaranties is still in effect.
Wayne L. Vinson, Earl R. Wait and Wallace C. Sparkman have also
guaranteed payment of approximately $197,000, $84,000 and $92,000, respectively,
of additional debt for us without consideration. This debt was incurred when we
acquired vehicles, equipment and software. The following schedule provides
information as to the remaining debt balances as of March 31, 2004:
16
Balance at Interest Maturity
Guarantor March 31, 2004 Rate Date
--------- -------------- ---- ----
Earl R. Wait 25,291 10.50% 10/10/2005
Wallace C. Sparkman 69,063 7% 10/15/2010
Wayne L. Vinson 2,175 7.50% 6/21/2004
None of the guaranties is still in effect.
In October, 1999, RWG Investments, LLC was granted a five year option
to purchase 100,000 shares of our common stock at $2.00 per share in
consideration of one of its members serving as an advisor to us. In June 2003,
RWG Investments LLC exercised the option.
Hunter Wise Financial Group LLC served as our investment banker and
advisor in connection with our March 2001 acquisition of the compression related
assets of Dominion Michigan for which we paid Hunter Wise a total fee of
$440,000. James T. Grigsby, one of our former directors, has a 1% interest in
Hunter Wise.
17
REPORT OF THE AUDIT COMMITTEE
The Audit Committee met four times in 2003 and is responsible for
overseeing the integrity of the Company's financial statements; the Company's
financial reporting process; the Company's compliance with legal and regulatory
requirements; and the independent auditor's qualifications and independence; and
the performance of the Company's internal audit function and independent
auditors. Messrs. Curtis, Hughes, Sellers, Strasheim and Yadon are members of
our Audit Committee.
Our independent accountants are responsible for performing an
independent audit of our consolidated financial statements in accordance with
auditing standards generally accepted in the United States of America and
issuing an independent accountants' report on such financial statements. The
Audit Committee reviews with management our consolidated financial statements;
reviews with the independent accountants their independent accountants' report;
and reviews the activities of the independent accountants. The Audit Committee
selects our independent accountants each year. The Audit Committee also
considers the adequacy of our internal controls and accounting policies. The
chairman and members of the Audit Committee are all independent directors of our
Board of Directors within the meaning of Section 121(A) of the listing standards
of the American Stock Exchange.
The Audit Committee has reviewed and discussed the audited financial
statements with management of Natural Gas. The Audit Committee has discussed
with our independent auditors the matters required to be discussed by SAS 61. In
addition, the Audit Committee has received the written disclosures and letter
from our independent accountants required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), as may be
modified or supplemented, and has discussed with the independent accountants
matters pertaining to their independence. The Audit Committee also considered
whether the additional services unrelated to audit services performed by HEIN +
ASSOCIATES LLP were compatible with maintaining their independence in performing
their audit services. Based upon the reviews and discussions referred to above,
the Audit Committee recommended to the Board of Directors that the audited
financial statements be included in our Annual Report on Form 10-KSB for 2003
for filing with the Securities and Exchange Commission. The Audit Committee and
Board of Directors has also selected HEIN + ASSOCIATES LLP as our independent
accountants for the fiscal year ending December 31, 2004. The Audit Committee
has adopted an amended written Audit Committee Charter that has been adopted by
our Board of Directors and is attached hereto as Exhibit A.
Respectfully submitted by the Audit Committee,
Gene A. Strasheim, Chairman William F. Hughes Richard L. Yadon
Charles G. Curtis Wallace O. Sellers
18
PRINCIPAL ACCOUNTANT FEES AND SERVICES
During 2003 and 2002, we paid the following fees to our principal
accountants:
2003 2002
-------- --------
Audit Fees $ 75,749 $ 43,691
Audit Related Fees 0 0
Tax Fees 18,391 15,468
All Other Fees 7,965 77,078
-------- --------
$102,105 $136,237
======== ========
To help assure independence of the independent auditors, the Audit
committee has established a policy whereby all audit, review, attest and
non-audit engagements of the principal auditor or other firms must be approved
in advance by the Audit Committee; provided, however, that de minimis non-audit
services may instead be approved in accordance with applicable Securities and
Exchange Commission rules. This policy is set forth in our Audit Committee
Charter, a copy of which is attached to this proxy statement. Of the fees shown
in the table which were paid to our principal accountants in 2003, 92% were
approved by the Audit Committee. SEC regulations and company policy did not
require pre-approval for non-audit services prior to 2003.
2003 ANNUAL REPORT TO SHAREHOLDERS
You may obtain our 2003 Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2003 upon written request to Scott W. Sparkman,
Secretary, at Natural Gas' principal offices, 2911 South County Road 1260,
Midland, Texas 79706. In addition, the exhibits to the Annual Report on Form
10-KSB, as amended, for the fiscal year ended December 31, 2003 may be obtained
by any stockholder upon written request to Mr. Sparkman.
SHAREHOLDER PROPOSALS
Under the rules of the SEC, if a shareholder wants us to include a
proposal in our Proxy Statement and form of proxy for presentation at our 2005
Annual Meeting of Shareholders, the proposal must be received by us at our
principal executive offices at 2911 South County Road 1260, Midland, Texas 79706
by January 24, 2005. The proposal should be sent to the attention of Secretary
of the Company.
The SEC also sets forth procedures under which shareholders may make
proposals outside of the process described above in order for a shareholder to
introduce an item of business at an Annual Meeting of Shareholders. These
procedures require that shareholders must submit items of business in writing to
19
the Secretary of the Company at our principal executive offices. We must receive
the notice of your intention to propose an item of business at our 2005 Annual
Meeting no later than 45 days in advance of the 2005 Annual Meeting if it is
being held within 30 days preceding the anniversary date (June 15, 2004) of this
year's meeting.
For any other meeting, the nomination or item of business must be
received by the tenth day following the date of public disclosure of the date of
the meeting. These requirements are separate from and in addition to the SEC's
requirements described in the first paragraph of this section relating to
including a proposal in our proxy statements.
In order to curtail controversy as to the date on which a proposal was
received by us, it is suggested that proponents submit their proposals by
certified mail-return receipt requested. Such proposals must also meet the other
requirements established by the Securities and Exchange Commission for
shareholder proposals.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Because of Natural Gas' small size, to date we have not developed
formal processes by which shareholders may communicate directly with directors.
Instead, we believe that our informal process permitting communications to be
sent to the board of directors either generally or in care of a corporate
officer, has served the shareholders' needs. In view of recently adopted SEC
disclosure requirements related to this issue, we expect to review in the coming
months whether more specific procedures are required. Until any other procedures
are developed and posted on our web site (www.ngsgi.com), any communication to
the Board of Directors may be mailed to the Board, in care of the Secretary of
the Company, at 2911 South County Road 1260, Midland, Texas 79706. Shareholder's
should clearly note on the mailing envelope that the letter is a
"Shareholder-Board Communication." All such communications should identify the
author as a shareholder and clearly state whether the intended recipients are
all members of the board of directors or just certain specified individual
directors. The Secretary of the Company will make copies of all such
communications and circulate them to the appropriate director or directors.
SOLICITATION OF PROXIES
The cost of soliciting proxies, including the cost of preparing,
assembling and mailing this proxy material to shareholders, will be borne by
Natural Gas. Solicitations will be made only by use of the mails, except that,
if necessary to obtain a quorum, officers and regular employees of Natural Gas
may make solicitations of proxies by telephone or electronic facsimile or by
personal calls. Brokerage houses, custodians, nominees and fiduciaries will be
requested to forward the proxy soliciting material to the beneficial owners of
Natural Gas' shares held of record by such persons and Natural Gas will
reimburse them for their charges and expenses in this connection.
20
OTHER BUSINESS
Our Board of Directors does not know of any matters to be presented at
the meeting other than the matters set forth herein. If any other business
should come before the meeting, the person's names in the enclosed proxy card
will vote such proxy according to their judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
SCOTT W. SPARKMAN, SECRETARY
Midland, Texas
May 21, 2004
21
EXHIBIT A
NATURAL GAS SERVICES GROUP, INC.
Audit Committee Charter
(Adopted March 2, 2004)
Purpose
The purpose of the Audit Committee is to assist the Board of Directors'
oversight of:
o the integrity of the Company's financial statements;
o the Company's financial reporting process;
o the Company's compliance with legal and regulatory
requirements;
o the independent auditor's qualifications and independence; and
o the performance of the Company's internal audit function and
independent auditors.
Structure and Membership
Number. The Audit Committee shall consist of at least three members of the
Board of Directors.
Independence. Except as otherwise permitted by the applicable rules of the
American Stock MarketExchange, each member of the Audit Committee shall
be independent as defined by such rules.
Financial Literacy. Each member of the Audit Committee must be able to read and
understand fundamental financial statements, including the Company's
balance sheet, income statement, and cash flow statement, at the time
of his or her appointment to the Audit Committee. In addition, at least
one member must have past employment experience in finance or
accounting, requisite professional certification in accounting, or any
other comparable experience or background which results in the
individual's financial sophistication, including being or having been a
chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities. Unless otherwise
determined by the Board of Directors (in which case disclosure of such
determination shall be made in the Company's annual report filed with
the SEC), at least one member of the Audit Committee shall be an "audit
committee financial expert" (as defined by applicable SEC rules).
Chair. Unless the Board of Directors elects a Chair of the Audit Committee,
the Audit Committee shall elect a Chair by majority vote.
Compensation. The compensation of Audit Committee members shall be as determined
by the Board of Directors. No member of the Audit Committee may
receive, directly or indirectly, any consulting, advisory or other
compensatory fee from the Company or any of its subsidiaries, other
than fees paid in his or her capacity as a member of the Board of
Directors or a committee of the Board.
Selectionand Removal. Members of the Audit Committee shall be appointed by the
Board of Directors. The Board of Directors may remove members of the
Audit Committee from such committee, with or without cause.
Authority and Responsibilities
General
The Audit Committee shall discharge its responsibilities, and shall
assess the information provided by the Company's management and the independent
auditor, in accordance with its business judgment. Management is responsible for
the preparation, presentation, and integrity of the Company's financial
statements and for the appropriateness of the accounting principles and
reporting policies that are used by the Company. The independent auditors are
responsible for auditing the Company's financial statements and for reviewing
the Company's unaudited interim financial statements. The authority and
responsibilities set forth in this Charter do not reflect or create any duty or
obligation of the Audit Committee to plan or conduct any audit, to determine or
certify that the Company's financial statements are complete, accurate, fairly
presented, or in accordance with generally accepted accounting principles or
applicable law, or to guarantee the independent auditor's report.
Oversight of Independent Auditors
Selection. The Audit Committee shall be solely and directly responsible for
appointing, evaluating, retaining and, when necessary, terminating the
engagement of the independent auditor. In its evaluation of the
independent auditor, the Audit Committee shall present its conclusions
with respect to the independent auditor to the full Board of Directors.
The Audit Committee shall also, with respect to its review of the
independent auditor, review and evaluate the lead partner and other
senior members of the independent auditor. The Audit Committee shall
take into account the opinions of management and the Company's internal
auditors. The Audit Committee may, in its discretion, seek stockholder
ratification of the independent auditor it appoints.
Independence. The Audit Committee shall take, or recommend that the full Board
of Directors take, appropriate action to oversee the independence of
the independent auditor. In connection with this responsibility, the
Audit Committee shall obtain and review a formal written statement from
the independent auditor describing all relationships between the
independent auditor and the Company, including the disclosures required
by Independence Standards Board Standard No. 1. The Audit Committee
shall actively engage in dialogue with the independent auditor
concerning any disclosed relationships or services that might impact
the objectivity and independence of the auditor.
Additional Independence Procedures. The Audit Committee shall:
----------------------------------
o confirm the regular rotation of the lead audit partner and
reviewing partner as required by Section 203 of the
Sarbanes-Oxley Act;
o confirm that the CEO, controller, CFO, and CAO (or other
persons serving in similar capacities) were not employed by
the independent auditor, or if employed, did not participate
in any capacity in the audit of the Company, in each case,
during the one-audit-year period preceding the date of
initiation of the audit, as required by Section 206 of the
Sarbanes-Oxley Act; and
o annually consider whether, in order to assure continuing
auditor independence, there should be regular rotation of the
independent audit firm.
Quality Control Review. Obtain and review a report from the independent auditor
at least annually regarding (a) the auditor's internal quality-control
procedures, (b) any material issues raised by the most recent
quality-control review, or peer review, of the firm, (c) any steps
taken to deal with any such issues, and (d) all relationships between
the independent auditor and the Company. Evaluate the qualifications,
performance and independence of the independent auditor, including
considering whether the auditor's quality controls are adequate and
whether the types of non-audit services provided are compatible with
maintaining the auditor's independence.
Compensation. The Audit Committee shall have sole and direct responsibility for
setting the compensation of the independent auditor. The Audit
Committee is empowered, without further action by the Board of
Directors, to cause the Company to pay the compensation of the
independent auditor established by the Audit Committee. As part of its
evaluation of compensation for the independent auditor, the Audit
Committee shall compare the fees paid for audit services to those paid
by peer companies as a means of assessing whether the scope of audit
work is sufficient.
Preapproval of Services. The Audit Committee shall preapprove all audit services
to be provided to the Company, whether provided by the principal
auditor or other firms, and all other services (review, attest and
non-audit) to be provided to the Company by the independent auditor;
provided, however, that de minimis non-audit services may instead be
approved in accordance with applicable SEC rules.
Oversight. The independent auditor shall report directly to the Audit Committee,
and the Audit Committee shall have sole and direct responsibility for
overseeing the work of the independent auditor, including resolution of
disagreements between Company management and the independent auditor
regarding financial reporting. In connection with its oversight role,
the Audit Committee shall, from time to time as appropriate, receive
and consider the reports required to be made by the independent auditor
regarding:
o critical accounting policies and practices;
o alternative treatments within generally accepted accounting
principles for policies and practices related to material
items that have been discussed with Company management,
including ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the
independent auditor; and
o other material written communications between the independent
auditor and Company management.
Audited Financial Statements
Review and Discussion. The Audit Committee shall review and discuss
with the Company's management and independent auditor the
Company's audited financial statements, including the matters
about which Statement on Auditing Standards No. 61
(Codification of Statements on Auditing Standards, AU ss.380)
requires discussion and the disclosure under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Recommendation to Board Regarding Financial Statements. The Audit
Committee shall consider whether it will recommend to the
Board of Directors that the Company's audited financial
statements be included in the Company's Annual Report on Form
10-KSB.
Audit Committee Report. The Audit Committee shall prepare an annual
committee report for inclusion where necessary in the proxy
statement of the Company relating to its annual meeting of
security holders.
Review of Other Financial Disclosures
Independent Auditor Review of Interim Financial Statements. The Audit
Committee shall direct the independent auditor to use its best
efforts to perform all reviews of interim financial
information prior to disclosure by the Company of such
information and to discuss promptly with the Audit Committee
and the Chief Financial Officer any matters identified in
connection with the auditor's review of interim financial
information which are required to be discussed by applicable
auditing standards. The Audit Committee shall direct
management to advise the Audit Committee in the event that the
Company proposes to disclose interim financial information
prior to completion of the independent auditor's review of
interim financial information.
Earnings Release and Other Financial Information. The Audit Committee
shall discuss generally the types of information to be
disclosed in the Company's earnings press releases, as well as
in financial information and earnings guidance provided to
analysts, rating agencies and others.
QuarterlyFinancial Statements. The Audit Committee shall discuss with
the Company's management and independent auditor the Company's
quarterly financial statements, including the Company's
disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Controls and Procedures
Oversight. The Audit Committee shall coordinate the Board of Directors'
oversight of the Company's internal controls over financial
reporting, the Company's disclosure controls and procedures
and the Company's code of conduct. The Audit Committee shall
receive and review the reports of the CEO and CFO required by
Section 302 of the Sarbanes-Oxley Act of 2002 (and the
applicable rules thereunder) and Rule 13a-14 of the Exchange
Act.
Procedures for Complaints. The Audit Committee shall establish
procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting,
internal accounting controls or auditing matters; and (ii) the
confidential, anonymous submission by employees of the Company
of concerns regarding questionable accounting or auditing
matters.
Related-Party Transactions. The Audit Committee shall review all
related party transactions on an ongoing basis, and all such
transactions must be approved by the Audit Committee.
Additional Powers. The Audit Committee shall have such other
duties as may be delegated from time to time by the Board of
Directors.
Procedures and Administration
Meetings.The Audit Committee shall meet as often as it deems necessary
in order to perform its responsibilities; provided, however,
that the Audit Committee shall meet at least quarterly. The
Audit Committee may also act by unanimous written consent in
lieu of a meeting (except for its required quarterly
meetings.) The Audit Committee shall keep such records of its
meetings as it shall deem appropriate.
Reports to Board. The Audit Committee shall report regularly to the
Board of Directors.
Charter. At least annually, the Audit Committee shall review and
reassess the adequacy of this Charter.
Independent Advisors. The Audit Committee is authorized, without
further action by the Board of Directors, to engage such
independent legal, accounting and other advisors as it deems
necessary or appropriate to carry out its responsibilities.
Such independent advisors may be the regular advisors to the
Company. The Audit Committee is empowered, without further
action by the Board of Directors, to cause the Company to pay
the compensation of such advisors as established by the Audit
Committee.
Investigations. The Audit Committee shall have the authority to conduct
or authorize investigations into any matters within the scope
of its responsibilities as it shall deem appropriate,
including the authority to request any officer, employee or
advisor of the Company to meet with the Audit Committee or any
advisors engaged by the Audit Committee.
Funding. The Audit Committee is empowered, without further action by
the Board of Directors, to cause the Company to pay the
ordinary administrative expenses of the Audit Committee that
are necessary or appropriate in carrying out its duties.
Annual Self-Evaluation. At least annually, the Audit Committee shall
evaluate its own performance and report its findings to the
Board of Directors.
EXHIBIT B
NATURAL GAS SERVICES GROUP, INC.
Corporate Governance and Duties of the Board of Directors
Principal Charge
----------------
Members of the Board of Directors (BOD) are stewards of the organization. The
BOD has the responsibility to oversee the conduct of the business in order to
maximize shareholder value. However, the BOD will not compromise this
responsibility at the expense of the employees' welfare, nor at the expense of
the environment.
Composition of the Board of Directors
-------------------------------------
The majority of the board members will be independent. (See American Stock
Exchance Corporate Governance proposals dated 5/20/03 for definition of
independence.)
Election
--------
At the meeting immediately following the annual shareholder meeting, the BOD
will elect the Chairman, whose term will be one year. The Chairman will preside
over all BOD meetings.
Frequency of Meetings
---------------------
The entire BOD will meet at least quarterly. The independent directors will meet
in "executive session" as often as necessary but at least once a year.
Committees
----------
At the meeting immediately following the annual shareholder meeting, the BOD
will elect members to the following committees:
Committee Selected from Number of Members
--------- ------------- -----------------
Audit All Outside Directors 5
Compensation All Outside Directors 5
Governance, Personnel Development, All Outside Directors 5
and Nominating
The committees will meet at least quarterly. At the first meeting after the
annual shareholder meeting, the respective committees will meet and elect a
chairman whose term will be one year.
In cases where the Sarbanes-Oxley Act dictates professionalism, the professional
member of the board will be the chairman.
Board Responsibilities
----------------------
The BOD will provide direction to management to ensure that all major issues
affecting the business are given due consideration.
The BOD takes responsibility to:
o Appoint the CEO.
o Approve the CEO's appointment of other senior officers and
managers.
o Approve the annual budget, which will be presented to the BOD on
or before December 15 each year.
o Ensure timely succession.
o Formally review the CEO's performance on a periodic basis. The
compensation committee conducts this activity.
o Set the CEO's compensation for the following year. The
compensation committee conducts this activity.
o Set BOD compensation.
o Oversee the professional and personal development of senior
managers. This activity is conducted by the HR manager if there
is one, or by the personnel development committee if there is no
HR manager.
o Support senior managers' commitment to training and developing
all employees. This activity is conducted by the CEO and is
overseen by the personnel development committee.
o Ensure accurate and timely communication with the Corporation's
shareholders.
o Oversee internal controls. The audit committee conducts this
activity.
o Engage the audit firm. This activity is conducted by the audit
committee.
o Oversee the release of corporate financial news on a quarterly
and annual basis.
o Oversee the release of corporate news regarding material facts
that may or will affect the Corporation's performance. The CEO is
responsible for this activity.
o Nominate Board members for each annual shareholder meeting. The
nominating committee conducts this activity.
o Oversee the development of a strategic plan. All directors and
all senior managers will participate in this activity.
o Orient new directors. The nominating committee conducts this
activity.
o Ensure compliance with environmental laws.
o Ensure compliance with employment laws.
o Oversee other areas as may be directed by the BOD.
o Respond to committee reports as necessary.
The CEO may not exceed $100,000 of unbudgeted capital expenditures during the
fiscal year without approval of the BOD.
The CEO may not terminate any corporate officer without BOD approval.
From time to time, senior management will assess the effectiveness of the BOD,
its committees, and individual directors, and the CEO will present those
findings to the BOD.
The BOD will periodically review committee charters.
Adopted this 10th day of September, 2003.
Board Members:
Charles Curtis James Grigsby Wallace Sellers
Wallace Sparkman Gene Strasheim Wayne Vinson
Richard Yadon
PROXY
NATURAL GAS SERVICES GROUP, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD June 15, 2004
The undersigned hereby constitutes and appoints Wallace O. Sellers and Scott W.
Sparkman, and each of them, the true and lawful attorneys and proxies of the
undersigned with full power of substitution and appointment, for and in the
name, place and stead of the undersigned, to act for and to vote all of the
undersigned's shares of $0.01 par value common stock of Natural Gas Services
Group, Inc., a Colorado corporation, to be used at an annual meeting of
shareholders to be held at the Hilton Hotel, 117 West Wall Avenue, Midland,
Texas 79701 on June 15, 2004 at 9:00 a.m. Central Time, and at any
adjournment(s) thereof for the following purposes:
1. Election of Directors:
[ ] FOR THE DIRECTOR [ ] WITHHOLD AUTHORITY TO VOTE
NOMINEES LISTED BELOW FOR ALL NOMINEES LISTED
BELOW
(EXCEPT AS MARKED TO THE CONTRARY BELOW)
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
William F. Hughes, Jr. Wallace C. Sparkman
Richard L. Yadon
The undersigned hereby revokes any proxies as to said shares heretofore
given by the undersigned and ratifies and confirms all that said attorneys and
proxies lawfully may do by virtue hereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THEN THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
AT THE MEETING FOR THE ELECTION OF THE DIRECTORS.
It is understood that this proxy confers discretionary authority with
respect to matters not known or determined at the time of the mailing of the
Notice of Annual Meeting of to the undersigned. The proxies and attorneys intend
to vote the shares represented by this proxy on such matters, if any, as
determined by the Board of Directors.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders, and the Proxy Statement and Annual Report furnished therewith.
Dated and Signed:
__________________________________________________, 2004
________________________________________________________
________________________________________________________
Signature(s) should agree with the name(s) stenciled
hereon. Executors, administrators, trustee, guardians
and attorneys should so indicate when signing. Attorneys
should submit powers of attorney.