As filed with the Securities and Exchange Commission on July 8, 2005
No. 333 - 122687
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NATURAL GAS SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
Colorado 75-2811855
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Stephen C. Taylor
2911 South County Road 1260 2911 South County Road 1260
Midland, Texas 79706 Midland, Texas 79706
(432) 563-3974 (432) 563-3974
(Address, including zip code, (Name, address, including zip code,
and telephone number, including, code and telephone number,
area code of registrant's principal including, area code of agent
executive offices) for service)
Copies to:
David A. Thayer
Jackson Kelly PLLC
1099 18th Street, Suite 2150
Denver, CO 80202
Telephone: (303) 390-0003
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
============================== ================== ================== ===================== ====================
Proposed Proposed
Amount Maximum Maximum
Title of Each Class of to be Offering Price Aggregate Amount of
Securities to be Registered Registered (1) Per Share (2) Offering Price (2) Registration Fee
------------------------------ ------------------ ------------------ --------------------- --------------------
Common Stock, $.01 par value
per share 701,171 $10.35 $7,257,120 $855 (3)
============================== ================== ================== ===================== ====================
(1) Pursuant to Rule 416 of the Securities Act of 1933, this registration
statement shall cover such indeterminate number of additional shares of the
Registrant's Common Stock as may be issued as a result of stock dividends,
stock splits, recapitalizations, or similar transactions prior to the
termination of this registration statement.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based
upon the closing price of the Registrant's Common Stock on May 18, 2005, as
quoted on the American Stock Exchange.
(3) Previously paid.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed.
The selling shareholders may not sell these securities in reliance on this
prospectus until the registration statement filed with the Securities and
Exchange Commission, of which this prospectus is a part, is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS SUBJECT TO COMPLETION, DATED
July 8, 2005
701,171 SHARES
NATURAL GAS SERVICES GROUP, INC.
Common Stock
This prospectus relates to 701,171 shares of our common stock that may
be offered for sale or otherwise transferred from time to time by certain of our
shareholders. See "Selling Shareholders" on page 16. Of these shares, 118,968
shares are outstanding as of the date of this prospectus, while the remaining
582,203 shares will be issuable upon the exercise of warrants. Warrants for
616,175 of the shares were issued by us in early 2001 when we completed a
private placement of units consisting of the warrants and 10% subordinated
notes. The remaining warrants for 84,996 were issued in March 2001 and April
2002 to several of our affiliates in consideration for their personal guarantees
of our corporate debt. See "SELLING SHAREHOLDERS" on page 16 for more
information concerning the issuance of the warrants.
Our common stock is quoted on the American Stock Exchange under the
symbol "NGS". On July 5, 2005, the closing sale price of our common stock was
$11.75 per share.
Our principal executive office is located at 2911 S. County Road 1260,
Midland, Texas 79706 and the telephone number is (432) 563-3974.
The selling shareholders may offer these shares from time to time
through public or private transactions at market prices prevailing at the time
of sale, at prices related to prevailing market prices or at other negotiated
prices. The selling shareholders may sell none, some or all of the shares
offered by this prospectus. We cannot predict when or in what amounts the
selling shareholders may sell any of the shares offered by this prospectus. The
selling shareholders will generally be responsible for their legal fees and for
any commissions or discounts due to brokers or dealers. We will pay the other
offering expenses. We will not receive any of the proceeds from the sale of
shares by selling shareholders under this prospectus. See "Plan of Distribution"
on page 16.
PROSPECTIVE PURCHASERS OF THE COMMON STOCK SHOULD CONSIDER CAREFULLY
THE MATTERS SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these shares, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is July __, 2005.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (or SEC). You may
read and copy materials that we have filed with the Securities and Exchange
Commission at the following Securities and Exchange Commission public reference
room:
450 Fifth Street, N.W.
Washington, D.C. 20549
Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the public reference room.
The shares of common stock of Natural Gas Services Group are traded on
the American Stock Exchange under the symbol "NGS".
Our Securities and Exchange Commission filings are also available to
the public on the Securities and Exchange Commission's internet website at
http://www.sec.gov. In addition, the filings Natural Gas Services Group makes
with the Securities and Exchange Commission are also available to the public on
Natural Gas Services Group's website, www.ngsgi.com. Information on our website
is not incorporated into this prospectus and is not part of this prospectus.
We have filed with the Securities and Exchange Commission a
registration statement on Form S-3 covering the shares offered by this
prospectus. The registration statement, including the attached exhibits and
schedules, contains additional relevant information about us and our common
stock, and you should refer to the applicable exhibit or schedule for a complete
description of any statement referring to any contract or other document. The
rules and regulations of the Securities and Exchange Commission allow us to omit
certain information included in the registration statement from this prospectus.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" some of the documents
we file with it. This means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. The
documents we incorporate by reference are:
o Our Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2005, and amended on July 8, 2005;
o Our Annual Report on Form 10-KSB for the year ended December
31, 2004, and amended on May 4, 2005 and July 8, 2005;
o Our Current Reports on Form 8-K filed with the Securities and
Exchange Commission on January 7, 2005, January 13, 2005,
January 26, 2005, February 24, 2005, March 18, 2005, and May
13, 2005;
2
o The description of our common stock contained in Items 1 and 2
of our Registration Statement on Form 8-A filed under Section
12 of the Securities Exchange Act of 1934 (or Exchange Act) on
July 17, 2002; and
o All documents we file pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus
and prior to the termination of the offering of the shares
offered hereby.
We will provide at no cost to each person, including any beneficial
owner, to whom this prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents we incorporate by reference,
other than exhibits to such documents (unless those exhibits are specifically
incorporated by reference into the documents that this prospectus incorporates).
Requests should be directed to Natural Gas Services Group, Inc., 2911 South
County Road 1260, Midland, Texas 79706, (432) 563-3974, Attention: Investor
Relations.
We have not authorized anyone to give any information or make any
representation about us that is different from, or in addition to, that
contained in this prospectus or in any of the materials that we have
incorporated by reference into this document. Therefore, if anyone does give you
information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to sell, or solicitations of offers to purchase, the
shares of common stock offered by this document is unlawful, or if you are a
person to whom it is unlawful to direct these types of activities, then the
offer presented in this document does not extend to you. You should assume that
the information appearing in this prospectus, as well as the information we
previously filed with the SEC and incorporated by reference, is accurate only as
of the date of the documents containing the information.
ABOUT NATURAL GAS SERVICES GROUP, INC.
We provide equipment and services to the natural gas and oil industry.
We manufacture, fabricate, sell and lease natural gas compressors that enhance
the production of oil and gas wells and we provide maintenance services for
those compressors. We define a natural gas compressor as a mechanical device
with one basic goal - to deliver gas at a pressure higher than that originally
existing. It may be powered by a natural gas burning engine or an electric motor
to accommodate different applications. Gas compression is undertaken to
transport and distribute natural gas to pipelines. Pipeline pressures vary and
with the addition of new wells to the pipeline, the need for compression
increases. We also manufacture and sell flare tips and ignition systems for oil
and gas plant and production facilities. We define a flare tip as a burner on
the upper end of a flare stack that is designed to combust waste gases to assure
a clean environment. An ignition system is a pilot light or a spark generator
that assures continuous ignition of the waste gases going through the burner in
the flare tip.
We primarily lease and sell natural gas compressors. As of March 31,
2005, we had 661 natural gas compressors under lease to third parties.
We also fabricate natural gas compressors for our customers, designing
compressors to meet unique specifications dictated by well pressures, production
characteristics and particular applications for which compression is sought.
We have established an exchange and rebuild program to attempt to help
minimize costs and maximize revenue for our customers. Under the program, we
work with maintenance and operating personnel of a customer to identify
equipment for exchange. When we receive a compressor for exchange because of a
maintenance problem, we deliver to our customer a replacement compressor at full
price. We then rebuild the exchange compressor and credit our customer an amount
based on the value of the rebuilt compressor. We also offer a retrofitting
service by repackaging a customer's compressor with a compressor that meets our
customer's changed conditions.
3
We design, manufacture, install and service flare stacks and related
ignition and control devices for onshore and offshore burning of gas compounds
such as hydrogen sulfide, carbon dioxide, natural gas and liquefied petroleum
gases.
We have manufacturing and fabrication facilities located in Lewiston,
Michigan, Tulsa, Oklahoma, and Midland, Texas, where we manufacture and
fabricate natural gas compressors. We design and manufacture natural gas flare
systems, components and ignition systems in our facility in Midland, Texas, for
use in oilfield, refinery and petrochemical plant applications. On January 3,
2005, we acquired Screw Compression Systems, Inc., a Tulsa, Oklahoma based
manufacturer of natural gas compressors.
We currently provide our products and services to a customer base of
oil and gas exploration and production companies operating primarily in
Colorado, Kansas, Louisiana, Michigan, New Mexico, Oklahoma, Texas and Wyoming.
We maintain our principal office at 2911 South County Road 1260,
Midland, Texas 79706 and our telephone number is (432) 563-3974.
RISK FACTORS
To inform investors of our future plans and objectives, this prospectus
(and other reports and statements issued by us and our officers from time to
time) contain certain statements concerning our future performance, intentions,
objectives, plans and expectations that are or may be deemed to be
"forward-looking statements." See "Forward Looking Statements" on page 13. Our
ability to do this has been fostered by the Private Securities Litigation Reform
Act of 1995, which provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information so long as those
statements are accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those discussed in the statement.
You should carefully consider the following risks. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties that are not presently known to us or that we currently deem
immaterial may also impair our business.
If any of the events described in the following risks actually occur,
our business, financial condition and results of operations could be materially
adversely affected. In such case, the trading prices of our common stock could
decline and you could lose all or part of your investment.
Our current debt is large and may negatively impact our current and future
financial stability.
As of March 31, 2005, we had an aggregate of approximately $24,400,000
of outstanding indebtedness, not including accounts payable, and accrued
expenses of approximately $5,429,000. As a result of our significant
indebtedness, we might not have the ability to incur any substantial additional
indebtedness. The level of our indebtedness could have several important effects
on our future operations, including:
o our ability to obtain additional financing for working
capital, acquisitions, capital expenditures and other purposes
may be limited;
4
o a significant portion of our cash flow from operations may be
dedicated to the payment of principal and interest on our
debt, thereby reducing funds available for other purposes; and
o our significant leverage could make us more vulnerable to
economic downturns.
If we are unable to service our debt, we will likely be forced to take
remedial steps that are contrary to our business plan.
As of March 31, 2005, principal payments for our debt service
requirements on a monthly, quarterly and annual basis were $449,000, $1,350,000
and $5,399,000, respectively. It is possible that our business will not generate
sufficient cash flow from operations to meet our debt service requirements and
the payment of principal when due. If this were to occur, we may be forced to:
o sell assets at disadvantageous prices;
o obtain additional financing; or
o refinance all or a portion of our indebtedness on terms that
may be very unfavorable to us.
Our current bank loan contains covenants that limit our operating and financial
flexibility and, if breached, could expose us to severe remedial provisions.
Under the terms of our bank loan, we must:
o at the end of each month, have a current ratio of at least 1.4
to 1.0;
o at the end of each month, have a consolidated tangible net
worth of at least $14,500,000;
o at the end of each quarter, have a ratio of (a) consolidated
cash flow, to (b) consolidated fixed charges of at least 1.25
to 1.0; and
o at the end of each month, not permit our ratio of (a)
consolidated debt, to (b) consolidated tangible net worth to
exceed 2.7 to 1.0.
In addition to customary affirmative covenants, the loan agreement
contains various restrictive covenants and compliance requirements. Among these
restrictions are limitations on our ability to:
o dispose of assets;
o incur additional indebtedness;
o create liens on our assets;
o repurchase, redeem or retire our capital stock or other
securities;
5
o merge or consolidate, or transfer all or substantially all of
our assets and the assets of our subsidiaries;
o engage in specified transactions with subsidiaries and
affiliates;
o materially amend or modify our existing compressor leases;
o declare or pay dividends on our capital stock; and
o make any significant or substantial change in the nature of
our business as being conducted as of the date of the loan
agreement.
Our ability to meet the financial ratios and tests under our bank loan
can be affected by events beyond our control, and we may not be able to satisfy
those ratios and tests. A breach under either could permit the bank to
accelerate the debt so that it is immediately due and payable. No further
borrowings would be available under the credit facility. If we were unable to
repay the debt, the bank could proceed against our assets.
Approximately 69% of our compressor leases are leased for terms of six months or
less and, if terminated, would adversely impact our revenue and our ability to
recover our initial equipment costs.
Approximately 69% of our compressor leases are for terms of up to six
months. There is a possibility that these leases could be terminated by lessees
within short periods of time and that we may not be able to recover the cost of
a compressor for which a lease is terminated.
We must integrate the operations of acquired businesses.
On January 3, 2005, we completed our acquisition of Screw Compression
Systems, Inc. ("SCS"). In connection with the acquisition, we nearly doubled our
long term debt and issued 609,576 of our shares of common stock. Our success
will depend, in part, on our ability to integrate the operations of SCS and
other businesses we acquire in the future, including centralizing certain
functions to achieve cost savings, pursuing programs and processes that promote
cooperation and the sharing of opportunities and resources, developing sales and
marketing programs, and retaining acquired customers. We may not be able to
oversee the combined entity efficiently or to implement effectively our growth
and operating strategies. To the extent that we successfully implement our
acquisition strategy, our resulting growth will place significant additional
demands on our management and infrastructure. Our failure to implement
successfully our strategies or operate effectively the combined entity could
have a material adverse effect on our business, financial condition, and results
of operations. These effects could include lower revenue; higher cost of sales;
increased selling, general, and administrative expenses; and reduced margins.
The anticipated revenue from the affiliate of Dominion Michigan cannot be
guaranteed.
In connection with our acquisition of the compression-related assets of
Dominion Michigan, an affiliate of Dominion Michigan committed until March 2006
to purchase compressors from us or enter into five year leases of compressors
6
with us totaling five-thousand horsepower. If, for any reason, the affiliate
does not fulfill this obligation to any material extent, our cash flow will be
significantly reduced and we may not be able to pay the principal or interest on
our debt as it becomes due.
We rely on two customers for a significant amount of our business and the loss
of these customers could adversely affect our operating results and lower the
price of our common stock.
Our business is dependent not only on securing new customers but also
on maintaining current customers. During the years ended December 2004 and 2003,
Dominion Exploration accounted for approximately 21% and 28% of our consolidated
revenue, respectively. For the three months ended March 31,2005 our customer
XTO, obtained from the acquisition of SCS, represented 39% of total consolidated
revenue. The loss of these two customers could cause our operating results to
fall below market analysts' expectations and lower the price of our common
stock.
We are dependent on a few suppliers for some of our compressor components and
the loss of one of these suppliers could cause a delay in the manufacturing of
our compressors and reduce our revenue.
We currently obtain approximately 20% of our compressor components from
three suppliers. We order from these suppliers as needed and we have no
long-term contracts with either supplier. If either of these suppliers should
curtail its operations or be unable to meet our needs, we would encounter delays
in supplying our customers with compressors until an alternative supplier, if
any, could be found. Such delays in our manufacturing process could reduce our
revenue and negatively impact our relationships with customers.
Decreased oil and gas industry expenditure levels would adversely affect our
revenue.
Our revenue is derived from expenditures in the oil and gas industry,
which in turn, are based on budgets to explore for, develop and produce oil and
natural gas. If these expenditures decline, our revenue will suffer. The
industry's willingness to explore, develop and produce depends largely upon the
prevailing view of future oil and gas prices. Many factors affect the supply and
demand for oil and gas and, therefore, influence product prices including:
o the level of oil and gas production;
o the levels of oil and gas inventories;
o the expected cost of developing new reserves;
o the cost of producing oil and gas;
o the level of drilling activity;
o inclement weather;
o worldwide economic activity;
o regulatory and other federal and state requirements in the
United States;
7
o the ability of the Organization of Petroleum Exporting
Countries to set and maintain production levels and prices for
oil;
o terrorist activities in the United States and elsewhere;
o the cost of developing alternate energy sources;
o environmental regulation; and
o tax policies.
If the demand for oil and gas decreases, then demand for our
compressors likely will decrease.
The intense competition in our industry could result in reduced profitability
and loss of market share for us.
We sell or lease our products and sell our services in competitive
markets. In most of our business segments, we compete with the oil and gas
industry's largest equipment and service providers who have greater name
recognition than we do. These companies also have substantially greater
financial resources, larger operations and greater budgets for marketing,
research and development than we do. They may be better able to compete in
making equipment available quickly and more efficiently, meeting delivery
schedules or reducing prices. As a result, we could lose customers and market
share to those competitors. These companies may also be better positioned than
us successfully to endure downturns in the oil and gas industry.
Our operations may be adversely affected if our current competitors or
new market entrants introduce new products or services with better prices,
features, performance or other competitive characteristics than our products and
services. Competitive pressures or other factors also may result in significant
price competition that could harm our revenue and our business.
We might be unable to employ adequate technical personnel, which could hamper
our plans for expansion or increase our costs.
Many of the compressors that we sell or lease are technically complex
and often must perform in harsh conditions. We believe that our success depends
upon our ability to employ and retain a sufficient number of technical personnel
who have the ability to design, utilize, enhance and maintain these compressors.
Our ability to expand our operations depends in part on our ability to increase
our skilled labor force. The demand for skilled workers is high and supply is
limited. A significant increase in the wages paid by competing employers could
result in a reduction of our skilled labor force, or cause an increase in the
wage rates that we must pay, or both. If either of these events were to occur,
our cost structure could increase and our operations and growth potential could
be impaired.
If we do not develop, produce and commercialize new competitive technologies and
products, our revenue may decline.
The markets for natural gas compressor products and services and for
flare systems, ignition systems and components for plant and production
facilities are characterized by continual technological developments. As a
result, substantial improvements in the scope and quality of product function
and performance can occur over a short period of time. If we are not able to
develop commercially competitive products in a timely manner in response to
changes in technology, our business and revenue may be adversely affected.
8
We may encounter financial constraints or technical or other
difficulties that could delay introduction of new products and services in the
future. Our competitors may introduce new products before we do and achieve a
competitive advantage.
Additionally, the time and expense invested in product development may
not result in commercial applications that provide revenue. We could be required
to write off our entire investment in a new product that does not reach
commercial viability. Moreover, we may experience operating losses after new
products are introduced and commercialized because of high start-up costs,
unexpected manufacturing costs or problems, or lack of demand.
We are subject to extensive environmental laws and regulations that could
require us to take costly compliance actions that could harm our financial
condition.
Our manufacturing and maintenance operations are significantly affected
by stringent and complex federal, state and local laws and regulations governing
the discharge of substances into the environment or otherwise relating to
environmental protection. In these operations, we generate and manage hazardous
wastes such as solvents, thinner, waste paint, waste oil, washdown wastes, and
sandblast material. We attempt to use generally accepted operating and disposal
practices and, with respect to acquisitions, will attempt to identify and assess
whether there is any environmental risk before completing an acquisition. Based
on the nature of the industry, however, hydrocarbons or other wastes may have
been disposed of or released on or under properties owned, leased, or operated
by us or on or under other locations where such wastes have been taken for
disposal. The wastes on these properties may be subject to federal or state
environmental laws that could require us to remove the wastes or remediate sites
where they have been released. We could be exposed to liability for cleanup
costs, natural resource and other damages as a result of our conduct or the
conduct of, or conditions caused by, prior operators or other third parties.
Environmental laws and regulations have changed in the past, and they are likely
to change in the future. If existing regulatory requirements or enforcement
policies change, we may be required to make significant unanticipated capital
and operating expenditures.
Any failure by us to comply with applicable environmental laws and regulations
may result in governmental authorities taking actions against our business that
could harm our operations and financial condition, including the:
o issuance of administrative, civil and criminal penalties;
o denial or revocation of permits or other authorizations;
o reduction or cessation in operations; and
o performance of site investigatory, remedial or other
corrective actions.
We could be subject to substantial liability claims that could harm our
financial condition.
Our products are used in hazardous drilling and production applications
where an accident or a failure of a product can cause personal injury, loss of
life, damage to property, equipment or the environment, or suspension of
operations.
9
While we maintain insurance coverage, we face the following risks under
our insurance coverage:
o we may not be able to continue to obtain insurance on
commercially reasonable terms;
o we may be faced with types of liabilities that will not be
covered by our insurance, such as damages from significant
product liabilities and from environmental contamination;
o the dollar amount of any liabilities may exceed our policy
limits; and
o we do not maintain coverage against the risk of interruption
of our business.
Any claims made under our policy will likely cause our premiums to
increase. Any future damages caused by our products or services that are not
covered by insurance, are in excess of policy limits or are subject to
substantial deductibles, would reduce our earnings and our cash available for
operations.
Liability to customers under warranties may materially and adversely affect our
earnings.
We provide warranties as to the proper operation and conformance to
specifications of the equipment we manufacture. Our equipment is complex and
often deployed in harsh environments. Failure of this equipment to operate
properly or to meet specifications may increase our costs by requiring
additional engineering resources and services, replacement of parts and
equipment or monetary reimbursement to a customer. We have in the past received
warranty claims and we expect to continue to receive them in the future. To the
extent that we incur substantial warranty claims in any period, our reputation,
our ability to obtain future business and our earnings could be materially and
adversely affected.
Loss of key members of our management could adversely affect our business while
we attempt to find their replacements.
We depend on the continued employment and performance of Wallace C.
Sparkman, our Chairman, Stephen C. Taylor, our President, Earl R. Wait, our
Treasurer and Chief Financial Officer, and other key members of our management.
If any of our key managers resigns or becomes unable to continue in his present
role and is not adequately replaced, our business operations could be materially
adversely affected. We do not maintain any "key man" life insurance for any of
our officers.
We must evaluate our intangible assets annually for impairment.
Our intangible assets are recorded at cost less accumulated
amortization and consist of goodwill and patent costs. Through December 31,
2001, goodwill was amortized using the straight-line method over 15 years and
patent costs were amortized over 13 to 15 years.
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets." FAS 142 provides that: (1) goodwill and intangible assets with
indefinite lives will no longer be amortized; (2) goodwill and intangible assets
with indefinite lives must be tested for impairment at least annually; and (3)
the amortization period for intangible assets with finite lives will no longer
be limited to forty years. In the event that we determine our intangible assets
with indefinite lives have been impaired, we must record a write-down of those
assets on our statement of operations during the period of impairment. Our
determination of impairment will be based on various factors, including any of
the following factors, if they materialize:
10
o significant under performance relative to expected historical
or projected future operating results;
o significant changes in the manner of our use of the acquired
assets or the strategy for our overall business;
o significant negative industry or economic trends;
o significant decline in our stock price for a sustained period;
and
o our market capitalization relative to net book value.
We adopted FAS 142 as of January 1, 2002. Based on independent
valuations in June 2003 and 2002 of our reporting units with goodwill, adoption
of FAS 142 has not had a material adverse effect on us through at least 2003. In
the future it could result in impairments of our intangible assets or goodwill.
We expect to continue to amortize our intangible assets with finite lives over
the same time periods as previously used, and we will test our intangible assets
with indefinite lives for impairment at least once each year. In addition, we
are required to assess the consumptive life, or longevity, of our intangible
assets with finite lives and adjust their amortization periods accordingly. As
of March 31, 2005, we had an aggregate of approximately $4,220,000 of net
intangible assets. We expect the carrying value of net intangible assets could
increase significantly if we acquire additional businesses. Any impairment in
future periods of those assets, or a reduction in their consumptive lives, could
materially and adversely affect our statement of operations and financial
position.
Provisions contained in our governing documents could hinder a change in our
control.
Our articles of incorporation and bylaws contain provisions that may
discourage acquisition bids and may limit the price investors are willing to pay
for our common stock and warrants. Our articles of incorporation and bylaws
provide that:
o directors will be elected for three-year terms, with
approximately one-third of the board of directors standing for
election each year;
o cumulative voting is not allowed, which limits the ability of
minority shareholders to elect any directors;
o the unanimous vote of the board of directors or the
affirmative vote of the holders of not less than 80% of the
votes entitled to be cast by the holders of all shares
entitled to vote in the election of directors is required to
change the size of the board of directors; and
o directors may only be removed for cause by holders of not less
than 80% of the votes entitled to be cast on the matter.
Our board of directors has the authority to issue up to five million
shares of preferred stock. The board of directors can fix the terms of the
preferred stock without any action on the part of our shareholders. The issuance
of shares of preferred stock may delay or prevent a change in control
transaction. In addition, preferred stock could be used in connection with the
board of director's adoption of a shareholders' rights plan (also known as a
11
poison pill), which would make it much more difficult to effect a change in
control of us through acquiring or controlling blocks of our stock. Our
directors and officers as a group beneficially own stock. Although this is not a
majority of our stock, it confers substantial voting power in the election of
directors and management of us. This would make it difficult for other minority
shareholders to effect a change in control or otherwise extend any significant
control over our management. This may adversely affect the market price and
interfere with the voting and other rights of our common stock.
You may suffer substantial dilution upon the exercise of outstanding warrants
and options.
As of March 31, 2005, we had outstanding a significant number of
warrants and options to purchase shares of our common stock. If these warrants
or options are exercised, your percentage ownership in Natural Gas Services
Group will be diluted and the price per share of our common stock may decline.
We have
o issued warrants to purchase up to 2,347,660 shares of common
stock; and
o granted options to purchase up to 130,500 shares of common
stock.
Under our employee and director stock option plans, we may grant options to
purchase up to an additional 19,500 shares of common stock. All of our
outstanding warrants and options have exercise prices below $11.75, the closing
sale price of our common stock on July 5, 2005. Sales of substantial amounts of
common stock, or a perception that such sales could occur, could adversely
affect the market price of the common stock and could impair our ability to
raise capital through the sale of our equity securities.
If we issue debt or equity securities, you may lose certain rights and be
diluted.
If we raise funds in the future through the issuance of debt or equity
securities, the securities issued may have rights and preferences and privileges
senior to those of holders of our common stock, and the terms of the securities
may impose restrictions on our operations or dilute your ownership in Natural
Gas Services Group.
We do not intend to pay, and have restrictions upon our ability to pay,
dividends on our common stock.
We have not paid cash dividends in the past and do not intend to pay
dividends on our common stock in the foreseeable future. Net income from our
operations, if any, will be used for the development of our business, including
capital expenditures, and to retire debt. In addition, our bank loan facility
contains restrictions on our ability to pay cash dividends on our common stock.
We have a comparatively low number of shares of common stock outstanding and,
therefore, our common stock may suffer from limited liquidity and its prices
will likely be volatile and its value may be adversely affected.
Because of our relatively low number of outstanding shares of common
stock, the trading price of our common stock will likely be subject to
significant price fluctuations and limited liquidity. This may adversely affect
the value of your investment. In addition, our common stock price could be
subject to fluctuations in response to variations in quarterly operating
results, changes in management, future announcements concerning us, general
trends in the industry and other events or factors as well as those described
above.
12
The sale of stock by the selling shareholders may depress our stock price.
Under this prospectus, the selling shareholders may sell up to 701,171
of their shares of our common stock, representing approximately 10.2% of our
outstanding common stock at the date of this prospectus. The sale of substantial
amounts of our stock owned by the selling shareholders in the public market, or
the belief that these sales may occur, could reduce the market price of our
stock, making it more difficult for us to raise funds through future offerings
of our common stock and to acquire businesses using our stock as consideration.
FORWARD LOOKING STATEMENTS
Some statements contained in this prospectus, any accompanying
prospectus supplement, and the documents incorporated by reference are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 (or Securities Act) and Section 21E of the Exchange Act. These
statements include, without limitation, statements relating to oil and gas
prices, demand for oil and gas, budgets, business strategies and other plans,
intentions and objectives of our management for future operations and activities
and other such matters. The words "believe", "budget", "plan", "estimate",
"expect", "intend", "strategy", "project", "will", "could", "may", "anticipate",
"continue" and similar expressions identify forward-looking statements. We
believe the assumptions and expectations reflected in these forward-looking
statements are reasonable. However, we cannot give any assurance that our
expectations will prove to be correct or that we will be able to take any
actions that are presently planned. Actual results could differ materially from
those expressed in the forward-looking statements. Factors that could cause such
a difference include:
o fluctuations in prices of oil and gas;
o future capital requirements and availability of financing;
o competition;
o general economic conditions;
o governmental regulations;
o receipt of amounts owed to us by our customers;
o events similar to 911; and
o fluctuations in interest rates and availability of capital.
You are cautioned not to place undue reliance on any of our
forward-looking statements, which speak only as of the date of the document or
in the case of documents incorporated by reference, the date of those documents.
13
USE OF PROCEEDS
We will not receive any proceeds from the sale of our common stock by
the selling shareholders. However, we will receive the proceeds, if exercised
(other than by cashless exercise), from warrants to purchase 582,203 shares of
common stock held by the selling shareholders.
ISSUANCE OF SECURITIES TO THE SELLING SHAREHOLDERS
The selling shareholders received the securities offered in this
prospectus pursuant to the following transactions.
In early 2001, in a private placement we issued units comprised of 10%
Subordinated Notes and Warrants to purchase up to 616,175 shares of our common
shock to the selling shareholders. The warrants issued in the private placement
have a term of five years and are exercisable at $3.25 per share. The warrants
can be exercised by paying cash, or by way of "cashless exercise" whereby a
portion of the shares underlying the warrant are used, at the fair market value
of our common stock on the date of exercise, to pay the exercise price for the
remaining shares underlying the warrant.
In March 2001, we issued warrants to purchase 68,524 shares of our
common stock at $2.50 per share in exchange for persons guaranteeing
approximately $1,749,000 of our debt. The warrants can be exercised by paying
cash, or by way of "cashless exercise" whereby a portion of the shares
underlying the warrant are used, at the fair market value of our common stock on
the date of exercise, to pay the exercise price for the remaining shares
underlying the warrant. The warrants expire on December 31, 2006, and they were
issued to the following persons for guaranteeing the amount of our debt
indicated:
Number of Shares Amount of
Name Underlying Warrants Debt Guaranteed
Wallace O. Sellers(1) 21,936 $548,399
Wallace C. Sparkman(2) 21,467 536,671
CAV-RDV, Ltd.(3) 15,756 393,902
Richard L. Yadon 9,365 234,121
---------------------------
(1) Mr. Sellers is a former Director of the company.
(2) Wallace C. Sparkman is our Chairman of the Board. Mr. Sparkman
subsequently transferred his warrants for 21,467 shares to Diamond S
DGT, a trust of which Scott W. Sparkman is the trustee and a
beneficiary. Wallace C. Sparkman has represented to us that he has no
beneficial interest in Diamond S DGT.
(3) CAV-RDV, Ltd., is a Texas limited partnership for the benefit of the
children of Wayne L. Vinson, our former Chief Executive Officer.
In April 2002, we issued warrants to purchase 16,472 shares of our
common stock at $3.25 per share in exchange for three persons guaranteeing
approximately $824,000 of our debt. The warrants can be exercised by paying
cash, or by way of "cashless exercise" whereby a portion of the shares
underlying the warrant are used, at the fair market value of our common stock on
the date of exercise, to pay the exercise price for the remaining shares
underlying the warrant. The warrants expire on December 31, 2007, and they were
issued to the following persons for guaranteeing the amount of our debt
indicated:
14
Number of Shares Amount of Additional
Name Underlying Warrants Debt Guaranteed
---- ------------------- ---------------
Wallace O. Sellers(1) 9,032 $ 451,601
CAV-RDV, Ltd.(2) 2,122 106,098
Richard L. Yadon(1) 5,318 265,879
---------------------------
(1) Mr. Yadon serves as a director on our Board of Directors. Mr. Sellers
is a former director of the company.
(2) CAV-RDV, Ltd., is a Texas limited partnership for the benefit of the
children of Wayne L. Vinson, our former Chief Executive Officer.
We will not receive any proceeds in connection with the sale of shares
by the selling shareholders listed below; however, we will receive proceeds from
any cash exercise of the warrants.
Although not required to do so, we have filed a registration statement,
to which this prospectus forms a part, in order to permit the selling
shareholders to resell to the public the shares of common stock they have or may
acquired pursuant to the exercise of the warrants.
We will pay all expenses of registering the shares under the Securities
Act, including all registration, listing and filing fees, printing expenses,
fees and disbursements of our counsel, expenses of any special audits incident
to or required by the registration, and expenses of complying with the
securities or blue sky laws of any jurisdictions. The selling shareholders will
pay all discounts, brokerage fees, commissions and expenses for any shares that
are registered and that they sell.
15
SELLING SHAREHOLDERS
The following table sets forth information provided by the selling
shareholders about the ownership of our common stock by the selling shareholders
before and after the offering covered by this prospectus.
Shares Shares Percentage of Shares
Beneficially Shares Being Beneficially Beneficially Owned
Owned Offered in Owned ---------------------
Before The After Before After
Name Offering(1) Offering(2) Offering(2) Offering Offering
---- ----------- ----------- ----------- -------- --------
Robert A. Street 10,000 10,000 -0- * *
William E. Beggs 10,000 10,000 -0- * *
Gary W. and Theresa L. Boening 24,400 20,000 4,400 * *
Alvin R. Bonnette Revocable Trust(3) 75,900 68,000 7,900 1.1 *
The Burns Partnership(4) 176,000 10,000 166,000 2.6 2.4
Butera Family Trust(5) 58,000 24,000 34,000 * *
Joseph E. Carothers 29,172 18,000 11,172 * *
CAV-RDV, Ltd.(6) 177,878 17,878 160,000 2.6 2.4
Charles Curtis 78,000 40,000 38,000 1.7 *
Leslie W. David Trust(7) 11,600 10,000 1,600 * *
Loretta J. David-Roth IRA 11,600 10,000 1,600 * *
Diamond S. DGT(8) 496,467 21,467 475,000 7.3 7.0
Robert C. Dixon/IRA 37,900 10,000 27,900 * *
Alvin J. Donius 10,000 10,000 -0- * *
Zenas N. Gurley 166,471 10,471 156,000 2.5 2.3
William F. Hughes(9) 247,000 60,000 187,000 3.6 2.7
Roy A. Johnson Revocable Trust(10) 12,000 10,000 2,000 * *
Albert W. Karnath 26,800 10,000 16,800 * *
John Karnath 10,000 10,000 -0- * *
Lorie Karnath 10,000 10,000 -0- * *
Paul M.Karnath 10,000 10,000 -0- * *
Alan Kurus 33,704 31,704 2,000 * *
Elise L. Lyon Revocable Living Trust 10,000 10,000 -0- * *
Utd. 9/23/96(11)
Sally Jo Maisano 36,000 26,000 10,000 * *
Darell&Thordis Norris Trust(12) 16,000 10,000 6,000 * *
Mary Jane Peck 26,800 20,000 6,800 * *
B. Kay Phillips 10,000 10,000 -0- * *
Sharon L. Pitken-IRA 112,000 36,000 76,000 1.6 1.1
G Five Development LLC(13) 82,000 32,000 50,000 1.2 *
Earl W. Sauder Trust(14) 32,408 20,000 12,408 * *
David C. Shatzer 55,200 20,000 35,200 * *
Gary E. Schenkel 11,000 10,000 1,000 * *
Wallace O. Sellers(15) 693,159 30,968 662,191 10.2 9.8
Donald L. Smallwood 10,000 10,000 -0- * *
Kipp/Glenda Jo Smallwood 10,000 10,000 -0- * *
Lazaros/Patricia Voreadis 30,000 10,000 20,000 * *
Richard L. Yadon(16) 299,183 14,683 284,500 4.4 4.2
------- ------ -------
TOTALS 3,156,642 701,171 2,455,471
* Less than 1%
16
-----------------
(1) Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the SEC under the Exchange Act, which includes shares underlying
the warrants and any other securities which are convertible into our common
stock within 60 days of the date of this prospectus. The calculations of the
percentages of shares beneficially owned are based upon 6,782,764 shares of our
common stock outstanding at March 31, 2005 and assume the exercise of the
warrants (which are exercisable for shares of our common stock) held by that
selling shareholder.
(2) The selling shareholders may offer shares under this prospectus from time to
time and may elect to sell none, some or all of the shares set forth above. As a
result, we cannot estimate the number of shares of our common stock that the
selling shareholders will beneficially own after termination of sales under this
prospectus. For purposes of this table, however, we have assumed that the
selling shareholders sell all of their shares issued or issuable pursuant to the
warrants. In addition, the selling shareholders may have sold, transferred or
otherwise disposed of all or a portion of their shares of our common stock since
the date on which they provided information for this table.
(3) Alvin R. Bonnette is the Trustee of the Alvin R. Bonnette Revocable Trust
and consequently has voting and investment control over the shares. Each of Mr.
Bonnette's six children are beneficiaries under the trust.
(4) William Burns, David Burns, Michael Burns, Barbara Burns, and Jeffrey Burns
are the members and beneficial owners of The Burns Partnership, a general
partnership, and each such person consequently has voting and investment control
over the shares.
(5) Roy T. Butera is trustee of the Butera Family Trust and consequently has
voting and investment control over the shares. Each of Mr. Butera's three
children are beneficiaries under the trust.
(6) The children of Wayne L. Vinson, our former Chief Executive Officer, are the
beneficial owners of CAV-RDV, Ltd., at Texas Limited Partnership.
(7) Leslie W. David is trustee of the Leslie W. David Trust and consequently has
voting and investment control over the shares. Mr. David's wife, Loretta David,
is the beneficiary under the trust.
(8) The warrant for 21,467 shares of our common stock at $6.25 per share was
initially issued to Wallace C. Sparkman, our Chairman of the Board. Mr. Sparkman
subsequently transferred his warrants for 21,467 shares to Diamond S. DGT, a
trust of which Scott W. Sparkman is the trustee and a beneficiary. Wallace C.
Sparkman has represented to us that he has no beneficial interest in Diamond S.
DGT.
(9) The 247,000 beneficially owned shares include (i) 1,500 shares owned
directly by William F. Hughes, Jr., (ii) 180,500 shares held by the William F.
and Cheryl C. Hughes Family Trust in which William and Cheryl Hughes are
co-trustees and consequently share voting and investment over the shares;
William and Cheryl Hughes are also beneficiaries under the trust along with
their two children, and (iii) 5,000 shares issuable upon exercise of stock
options ranging from $5.55 to $9.34 per share, held by William F. Hughes, Jr.,
and (iv) the 60,000 shares registered herein which are issuable upon exercise of
a stock warrant at $3.25 per share, held by William F. Hughes, Jr.
(10) Roy A. Johnson is trustee of the Roy A. Johnson Revocable Trust and
consequently has voting and investment control over the shares. Each of Mr.
Johnson's two children are beneficiaries under the trust.
(11) Elise S. Lyon is trustee of the Elise S. Lyon Revocable Living Trust Utd
9/23/96 and consequently has voting and investment control over the shares. Each
of Ms. Lyon's three children are beneficiaries under the trust.
(12) Darell Norris and Thordis Norris are co-trustees and beneficiaries of the
Darell & Thordis Norris Trust and consequently share voting and investment
control over the shares.
(13) Roland W. Gentner, a resident of Rapid City, South Dakota, is the
beneficial owner of G Five Development LLC, a South Dakota limited liability
company. Mr. Gentner beneficially owns 369,000 shares of our common stock.
(14) Earl W. Sauder is trustee of the Earl W. Sauder Trust and consequently has
voting and investment control over the shares. Mr. Sauder's wife, children and
grandchildren are beneficiaries.
(15) Wallace O. Sellers is a former Director of our Company. The 693,159
beneficially owned shares include (i) 134,877 shares owned directly by Wallace
O. Sellers, (ii) 158,600 shares owned through Mr. Sellers' wife, (iii) 7,500
shares issuable upon exercise of stock options ranging from $3.88 to $9.34 per
share, (iv) 196,091 shares held in a trust in which Mr. Sellers' wife is a
lifetime beneficiary and an unrelated third party acts as trustee, (v) 196,091
shares held in a trust in which Mr. Sellers' wife is a contingent beneficiary,
and an unrelated third party acts as trustee. Mr. Sellers disclaims ownership of
all shares held in the two trusts.
(16) Richard L. Yadon is a Director of our Company. The 299,193 beneficially
owned shares include (i) 279,500 shares owned directly by Richard L. Yadon, (ii)
5,000 shares issuable upon exercise of stock options ranging from $5.55 to $9.34
per share, and (iii) 14,683 shares issuable upon exercise of stock warrants at
$2.50 and $3.25 per share.
--------------------------------
17
PLAN OF DISTRIBUTION
The shares of common stock covered by this prospectus may be offered
and sold from time to time by the selling shareholders. The term "selling
shareholders" includes donees, pledgees, transferees or other
successors-in-interest selling shares received after the date of this prospectus
from a selling shareholder as a gift, pledge, shareholder distribution or other
non-sale related transfer. The selling shareholders will act independently of us
in making decisions with respect to the timing, manner and size of each sale.
Sales of shares by the selling shareholders referred to in this
prospectus may be made from time to time in one or more transactions on the
American Stock Exchange, in the over-the-counter market or any other exchange or
quotation system on which shares of our common stock may be listed or quoted, in
negotiated transactions or in a combination of any such methods of sale. Sales
may be at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The shares may be offered directly to purchasers or to or
through underwriters or agents designated from time to time or to or through
brokers or dealers, or through any combination of these methods of sale.
The methods by which the shares may be sold include:
o block trades (which may involve crosses) in which the broker
or dealer will attempt to sell the securities as agent but may
position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker or dealer as principal and resale by the
broker or dealer for its own account under this prospectus;
o exchange distributions or secondary distributions in
accordance with the rules of the American Stock Exchange or
other relevant markets;
o short sales, ordinary brokerage transactions and transactions
in which the broker solicits purchasers;
o transactions in options, swaps or other derivatives, whether
exchange-listed or otherwise;
o firm commitment or best efforts underwritings; and
o privately negotiated transactions.
In addition, sales not covered by this prospectus may also be made by
the selling shareholders under Rule 144 or another applicable exemption under
the Securities Act.
From time to time the selling shareholders may distribute a portion or
all of their shares to their owners. In the event of such a distribution, and to
the extent these owners intend to use this prospectus to sell any of such
shares, if required these owners will be identified in a supplement to this
prospectus filed with the SEC. Furthermore, to the extent required, this
prospectus also may be amended or supplemented from time to time to describe a
specific plan of distribution or any material arrangement that a selling
shareholder has entered into for the sale of shares, including the details of
any underwritten distribution.
In connection with distributions of shares or otherwise, the selling
shareholders may enter into hedging transactions with broker-dealers or other
agents. In connection with these transactions, broker-dealers or other agents
may engage in short sales of shares in the course of hedging the positions they
assume with the selling shareholders. The selling shareholders may also sell
shares short and redeliver the shares to close out their short positions. The
18
selling shareholders may also enter into option or other transactions with
broker-dealers or other financial institutions that require the delivery to that
broker-dealer or other financial institution of shares offered by this
prospectus, which shares that broker-dealer or other financial institution may
resell under this prospectus (as supplemented or amended to reflect the
transaction). The selling shareholders may also pledge or grant a security
interest in shares and, upon a default in the performance of the secured
obligation, the pledgee or secured party may affect sales of the pledged shares
under this prospectus (as supplemented or amended to reflect the transaction).
In effecting sales, broker-dealers or agents engaged by the selling
shareholders may arrange for other broker-dealers to participate.
Broker-dealers, underwriters or agents may receive commissions, discounts or
concessions from the selling shareholders and/or purchasers of the shares for
whom they may act as agents.
In offering the shares covered by this prospectus, the selling
shareholders and any broker-dealers, underwriters or agents who execute sales
for the selling shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with these sales. Any profits
realized by the selling shareholders and the compensation of any broker-dealer,
underwriter or agent may be deemed to be underwriting discounts and commissions.
No underwriter, broker-dealer or agent has been engaged by us in connection with
the distribution of the shares.
To comply with the securities laws of certain states, if applicable,
the shares must be sold in those jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the shares may not
be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
The selling shareholders and any other person participating in a
distribution of the shares covered by this prospectus will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder. Regulation M of the Exchange Act may limit the timing of purchases
and sales of shares by the selling shareholders and any other person. In
addition, Regulation M may restrict the ability of any person engaged in the
distribution of the shares to engage in market-making activities with respect to
our common stock for a period of up to five business days before the
distribution.
LEGAL MATTERS
The validity under Colorado law of the shares will be passed upon for
us by Jackson Kelly PLLC, Denver, Colorado.
EXPERTS
HEIN & ASSOCIATES LLP, independent registered public accounting firm,
have audited our consolidated balance sheet at December 31, 2004, and the
consolidated statements of income, shareholders' equity and cash flows for each
of the two years ended December 31, 2004 and 2003, as set forth in their report,
which is incorporated in this prospectus by reference. Our consolidated
financial statements are incorporated by reference in reliance on their report,
given on their authority as experts in accounting and auditing.
19
================================================
We have not authorized any
dealer, salesperson or other person to
give any information or to make any
representation not contained in this
prospectus. This prospectus does not
constitute an offer to sell, or a
solicitation of an offer to buy, any
offer or solicitation by anyone in any
jurisdiction not authorized, or in which
the person making such an offer or
solicitation is not qualified to do so
or to any person to whom it is unlawful
to make such an offer or solicitation.
By delivery of this prospectus we do not
imply that there has been no change in
our affairs or that the information in
this prospectus is correct as of any
time subsequent to its date.
================================================
NATURAL GAS SERVICES
TABLE OF CONTENTS GROUP, INC.
Page
Where You Can Find Additional Information 2
Incorporation of Documents by Reference 2
About Natural Gas Services Group, Inc. 3
--------------
Risk Factors 4
Forward Looking Statements 13 PROSPECTUS
Use of Proceeds 14
--------------
Issuance of Securities to the Selling Shareholders 14
Selling Shareholders 16
Plan of Distribution 17
Legal Matters 19
Experts 19
July ___, 2005
20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses payable by us in connection with the issuance and distribution
of the securities being registered hereby are as follows:
Securities and Exchange Commission registration fee $ 855
Accounting fees and expenses $ 2,000
Legal fees and expenses $ 7,500
Printing expenses $ 1,000
Transfer agent fees $ 500
Miscellaneous $ 145
----------
Total $ 12,000
==========
All of the above expenses except for the Securities and Exchange
Commission registration fee are estimated. All such items will be borne by
Natural Gas Services Group, Inc.
Item 15. Indemnification of Directors and Officers.
Section 7-109-102 of the Colorado Business Corporation Act permits a
Colorado corporation to indemnify any director against liability if such person
acted in good faith and, in the case of conduct in an official capacity with the
corporation, that the director's conduct was in the corporation's best interests
and, in all other cases, that the director's conduct was at least not opposed to
the best interests of the corporation or, with regard to criminal proceedings,
the director had no reasonable cause to believe the director's conduct was
unlawful.
Section 7-109-103 of the Colorado Business Corporation Act provides
that, unless limited by its articles of incorporation, a Colorado corporation
shall indemnify a person who was wholly successful, on the merits or otherwise,
in the defense of any proceeding to which the person was a party because the
person is or was a director, against reasonable expenses incurred by him or her
in connection with the proceeding.
Section 3 of Article IX of our articles of incorporation provides that
we shall indemnify, to the maximum extent permitted by law in effect from time
to time, any person who is or was a director, officer, agent, fiduciary or
employee of ours against any claim, liability or expense arising against or
incurred by such person made party to a proceeding because such person is or was
a director, officer, agent, fiduciary or employee of ours or because such person
is or was serving another entity as a director, officer, partner, trustee,
employee, fiduciary or agent at our request. We further have the authority to
the maximum extent permitted by law to purchase and maintain insurance providing
such indemnification.
Article VI of our bylaws provides for the indemnification of certain
persons.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
II-1
Item 16. Exhibits.
The following is a list of all exhibits filed as part of this
Registration Statement:
Exhibit
No. Description
------- -----------
5 Legal Opinion of Jackson Kelly PLLC (2)
10.5 Form of Five-Year Warrants to Purchase Common Stock (1)
23.1 Consent of Jackson Kelly PLLC (Included in Exhibit 5)
23.2 Consent of HEIN & ASSOCIATES LLP*
24 Power of Attorney (see the signature page) (2)
---------------------------
*Filed herewith
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (No. 333-88314)
(2) Previously filed
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement.
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
this Registration Statement or any material change to
such information in this Registration Statement.
II-2
Provided, however, that paragraphs (1)(i) and (1)(ii)
do not apply if the information required to be
included in a post-effective amendment by those
paragraphs is contained in periodic reports filed
with or furnished to the Securities and Exchange
Commission by the Registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of
1934, as amended, that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and has duly caused this Amendment No.
1 to this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Midland, State of Texas on July 8,
2005.
NATURAL GAS SERVICES GROUP, INC.
/s/ Stephen C. Taylor
------------------------------------------
Stephen C. Taylor, President and Principal
Executive Officer
/s/ Earl R. Wait
------------------------------------------
Earl R. Wait, Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ EARL R. WAIT Director (Chairman) July 8, 2005
-----------------------
Attorney-in-fact for
Wallace C. Sparkman
/s/ STEPHEN C. TAYLOR Director July 8, 2005
-----------------------
Stephen C. Taylor
/s/EARL R. WAIT Director July 8, 2005
-----------------------
Attorney-in-fact for
Charles G. Curtis
/s/ EARL R. WAIT Director July 8, 2005
-----------------------
Attorney-in-fact for
William F. Hughes
/s/ EARL R. WAIT Director July 8, 2005
-----------------------
Attorney-in-fact for
Gene A. Strasheim
II-4
/s/ EARL R. WAIT Director July 8, 2005
-----------------------
Attorney-in-fact for
Richard L. Yadon
/s/ EARL R. WAIT Director July 8, 2005
-----------------------
Attorney-in-fact for
Paul Hensley
II-5
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
5 Legal Opinion of Jackson Kelly PLLC (2)
10.5 Form of Five-Year Warrants to Purchase Common Stock (1)
23.1 Consent of Jackson Kelly PLLC (Included in Exhibit 5)
23.2 Consent of HEIN & ASSOCIATES LLP*
24 Power of Attorney (see the signature page) (2)
---------------------
*Filed herewith
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (No. 333-88314)
(2) Previously filed