Stockholders’ Agreement
Exhibit 10.4
Natural Gas Services Group, Inc.
0000 Xxxxx Xxxxxx Xxxx 0000
Xxxxxxx, Xxxxx 00000
0000 Xxxxx Xxxxxx Xxxx 0000
Xxxxxxx, Xxxxx 00000
Gentlemen:
Natural Gas Services Group, Inc. (“NGSG “), a Colorado corporation, is issuing an
aggregate of 609,756 shares of its common stock, par value $.01 per share (the “Restricted
Securities”), to Xxxx Xxxxxxx, Xxx Xxxxxxx and Xxxx Xxxxxxxx (collectively, the
“Sellers” and each individually, a “Seller”) as partial consideration for NGSG’s purchase
(the “Purchase”) of all of the issued and outstanding shares of capital stock of Screw
Compression Systems, Inc., a Texas corporation, from Sellers pursuant to the Stock Purchase
Agreement, dated as of October 18, 2004, 2004, as amended by Amendment No. 1 to Stock Purchase
Agreement, dated as of December 6, 2004 (the “Purchase Agreement”). The undersigned
understands that the issuance is being made pursuant to exemptions from the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”), and pursuant
to exemptions from the registration and other requirements of applicable state securities laws. In
order to induce NGSG to consummate the Purchase, Sellers have executed and delivered this
Stockholders’ Agreement (this “Agreement”) to NGSG.
1. Representations, Warranties and Covenants of Each Seller. Each Seller, severally and not
jointly, hereby represents, warrants and covenants to NGSG as follows:
a. Such Seller is acquiring the Restricted Securities for his own account for investment
purposes only, and not with a view to, or for resale in connection with, any distribution other
than in compliance with the registration requirements under the Securities Act or the securities
laws of any state or pursuant to an exemption therefrom.
b. Such Seller understands that (A) the Restricted Securities (1) have not been registered
under the Securities Act or any state securities laws, (2) will be issued in reliance upon an
exemption from the registration and prospectus delivery requirements of the Securities Act and
state securities laws for an offer and sale of securities not involving a public offering which
relate to private purchases and (3) may not be sold, transferred or otherwise disposed of without
satisfaction of certain conditions, including registration under, or the availability of an
exemption from registration under, the Securities Act and applicable state securities laws, and (B)
such Seller must therefore bear the economic risk of such investment indefinitely unless a
subsequent disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt therefrom. Such Seller further understands that such exemptions depend
upon, among other things, the nature of the investment intent of the undersigned expressed herein.
c. Such Seller has been furnished by NGSG all information (or provided access to all
information) regarding the business and financial condition of NGSG, the attributes of the
Restricted Securities and the merits and risks of an investment in the Restricted Securities which
such Seller has requested to evaluate an investment in the Restricted Securities. Specifically, the
undersigned acknowledges that such Seller has had an opportunity to review NGSG ‘s Annual Report on
Form 10-KSB for the year ended December 31, 2003 and Quarterly Reports on Form 10-QSB for the
fiscal quarters ended March 31, 2004, June 30, 2004 and September 30, 2004 and the other SEC
Documents (as defined in the Purchase Agreement).
d. Such Seller is an “accredited investor” as defined in Rule 501 of Regulation D promulgated
under the Securities Act, and he, or those persons retained by him, has knowledge, skill and
experience in financial, business and investment matters relating to an investment of the same
nature as the Restricted Securities and is capable of evaluating the merits and risks of such
investment and protecting himself in connection with the Purchase and an investment in the
Restricted Securities. Such Seller has, to the extent deemed necessary by him retained, at his own
expense, and relied upon, appropriate professional advice regarding the investment, tax and legal
merits and consequences of an investment in the Restricted Securities. Such Seller has examined the
SEC Documents, or caused the same to be examined, by his representatives to the extent he deems
necessary or appropriate. Such Seller has not received any legal, business, tax or other advice
from NGSG, its counsel or other representatives.
e. Such Seller acknowledges that (i) it has been called to his attention that his investment
in the Restricted Securities involves risk and (ii) he understands that the Restricted Securities
to be issued in the Purchase will be an illiquid investment, subject to any future registration
pursuant to this Agreement.
f. No person or entity, other than NGSG, has been authorized to give any information or to
make any representations on behalf of NGSG in connection with the Purchase, and, if given or made,
such information or representations have not been relied upon by such Seller as having been made or
authorized by NGSG. The only representations, warranties and information made by NGSG in connection
with the Purchase are those contained in the Purchase Agreement and the SEC Documents.
g. NGSG has provided such Seller the opportunity to ask questions of, and receive answers
from, NGSG concerning the Purchase and the Restricted Securities and to obtain any appropriate
additional information necessary to the investment decision being made by him in connection with
the Purchase and the Restricted Securities.
h. Such Seller acknowledges that he has been advised that:
IN MAKING AN INVESTMENT DECISION REGARDING THE RESTRICTED SECURITIES, HE MUST RELY ON HIS OWN
EXAMINATION OF NGSG AND THE TERMS OF THE PURCHASE, INCLUDING THE MERITS AND RISKS INVOLVED.
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THE RESTRICTED SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION
OR REGULATORY AUTHORITY.
THE RESTRICTED SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE SECURITIES
ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFERABILITY SET FORTH IN THIS AGREEMENT.
The foregoing representations and warranties and undertakings are made by and on behalf of
each Seller with the intent that they be relied upon by NGSG in determining each Seller’s
suitability as an investor. Each Seller hereby agrees that such representations and warranties
shall survive his purchase of the Restricted Securities.
2. Standstill. Unless waived in writing by NGSG from time to time, during the period
commencing on the Closing Date and ending on the third anniversary thereof, neither Sellers nor any
of their respective affiliates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended) will:
(a) acquire or agree, offer, seek or propose to acquire (or request permission to do so),
ownership (including, but not limited to, beneficial ownership as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of any assets or businesses or any additional
securities issued by NGSG, or any rights or options to acquire such ownership (including from a
third party), or
(b) contest any election of directors by the stockholders of NGSG, or
(c) otherwise act, alone or in concert with others, to induce or attempt to induce any other
person to initiate any stockholder proposal or a tender offer for any voting secutrites of NGSG, or
(d) enter into any discussions, negotiations, arrangements or understandings with any third
party with respect to any of the foregoing.
3. Restrictions on Transferability; Registration Rights.
The Restricted Securities shall not be transferable except upon the conditions specified in
this Section 3; provided that, notwithstanding any other provision of this Section 3, each Seller
shall have the right to transfer any Restricted Securities upon the prior written consent of NGSG.
Each transferee shall be subject to the same transfer restrictions imposed on Sellers by this
Agreement. All rights and obligations of Sellers set forth in this Section 3 will inure to the
benefit of and be binding upon any transferee of the Restricted Securities.
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3.1 Restrictive Legend. Unless and until otherwise permitted by this Section 3, each
certificate for Restricted Securities issued under the Purchase Agreement, and each certificate for
any Restricted Securities issued to any subsequent permitted transferee of any such certificate,
shall be stamped or otherwise imprinted with a legend in substantially the following form:
| “The shares evidenced by this certificate have not been registered under the Securities Act of 1933, as amended, and may be reoffered and sold only if registered pursuant to the provisions of said Securities Act or if an exemption from registration is available.” |
3.2 Notice of Proposed Transfers. Prior to any transfer or attempted transfer of any
Restricted Securities (other than pursuant to Rule 144 under the Securities Act or registration of
the Restricted Securities under the Securities Act), the Seller of such Restricted Securities shall
give written notice to NGSG of such Seller’s intention to effect such transfer. Each such notice
(i) shall describe the manner and circumstances of the proposed transfer in sufficient detail, and
shall contain an undertaking by the Seller giving such notice to furnish such other information as
may be required, to enable counsel to render the opinions referred to below, and (ii) shall
designate the counsel for the Seller giving such notice. Such Seller shall obtain the services of
counsel described below at his own expense. The Seller giving such notice shall submit a copy
thereof to the counsel designated in such notice. If in the opinion of such counsel, which is
reasonably satisfactory to NGSG, the proposed transfer of such Restricted Securities may be
effected without registration of such Restricted Securities under the Securities Act, NGSG shall,
within ten business days after delivery of such opinion to NGSG, so notify the Seller of such
Restricted Securities and such Seller shall thereupon be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by such Seller to NGSG. Each
certificate evidencing the Restricted Securities thus to be transferred (and each certificate
evidencing any untransferred balance of the Restricted Securities) shall bear the restrictive
legend set forth in Section 3.1.
3.3 Piggy-Back Registration Rights.
(a) Registration Initiated by NGSG. If NGSG shall determine to register any shares of
common stock of NGSG (other than a registration relating to stock options or employee benefit
plans, any dividend reinvestment plan, or the acquisition or purchase by or combination by merger
or otherwise of NGSG of or with another company or business entity or partnership), whether or not
for sale for its own account, NGSG will:
(i) promptly give to Sellers written notice thereof (which shall include (to the extent
known) a list of the jurisdictions in which NGSG intends to attempt to qualify such
securities under the applicable blue sky or other state securities laws); and
(ii) include in such registration (and any related qualification under blue sky laws or
other compliance), and in any underwriting involved therein, all the Restricted Securities
specified in a written request or requests, made within 20 days after receipt of such
written notice from NGSG, by Sellers, except as set forth in Section 3.3(b) below.
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(b) Underwriting. If the registration of which NGSG gives notice to Sellers is for a
registered public offering involving an underwriting, NGSG shall so advise Sellers as a part of the
written notice given pursuant to Section 3.3(a)(i). In such event, the right of each Seller to
registration pursuant to this Section 3.3 shall be conditioned upon each such Seller’s
participation in such underwriting and the inclusion of each such Seller’s Restricted Securities in
the underwriting to the extent provided herein. A Seller proposing to distribute shares of his
Restricted Securities through such underwriting (together with NGSG and the other holders (if any)
distributing their securities through such underwriting) shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such underwriting by NGSG.
Notwithstanding any other provision of this Section 3.3, if the lead managing underwriter
determines, in good faith, that marketing factors require a limitation of the number of shares to
be underwritten, the underwriter may limit the number of shares of Restricted Securities to be
included in the registration and underwriting to the extent such underwriter deems necessary. NGSG
shall so advise Sellers, and the number of shares of Restricted Securities that may be included in
the registration and underwriting shall be reduced to the number which the underwriter is willing
to include in the registration. If a Seller disapproves of the terms of any such underwriting, such
Seller may elect to withdraw therefrom by written notice to NGSG and the underwriter.
(c) Expenses of Registration by the Company. NGSG shall bear all expenses incurred in
connection with each registration, qualification or compliance pursuant to this Section 3.3,
including, without limitation, all registration, filing and qualification fees, printing expenses,
audit fees, fees and disbursements of counsel for NGSG and counsel for the underwriters, if any
(unless any such underwriter pays such counsel fees) and reasonable fees and disbursements of one
special counsel for Sellers (but excluding underwriter’s commissions, fees and expenses allocable
to the Restricted Securities of Sellers and fees of independent accountants, if any, for Sellers,
which commissions, fees and expenses and fees of accountants shall be borne pro rata (by share) by
Sellers and any other offeror employing such accountants in such requested registration).
(d) Limitations on Registration. NGSG’s obligation to effect a registration under
Section 3.3(a) shall expire two years from the date of consummation of the Purchase.
Notwithstanding any provision to the contrary in this Section 3.3, NGSG shall not be obligated to
take any action to effect any such registration, qualification or compliance pursuant to Section
3.3 on more than two occasions; provided, however, only registrations which actually include all of
the Restricted Securities of Sellers requested to be included shall be counted for this purpose.
(e) Assignability and Assumption. The registration rights granted to Sellers in this
Section 3.3 may be assigned in whole or in part by the holder thereof in connection with any
transfer of Restricted Securities provided that (i) the assignor provides NGSG with written notice
of such assignment, and (ii) the assignee of such rights agrees in writing to be bound by the terms
and conditions of this Section 3. In the event of a partial assignment, the holders of Restricted
Securities shall possess the rights granted in this Section 3.3 pro rata in accordance with the
number of shares of Restricted Securities beneficially owned by each of them and each such holder
shall be entitled to receive a copy of all notices provided for in this Agreement and to exercise
such part of the rights so granted.
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3.4 Registration Procedures. In the case of each registration, qualification or
compliance effected by NGSG pursuant to this Agreement pursuant to which Restricted Securities of
Sellers are included therein, NGSG will keep Sellers advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion thereof. At its expense,
NGSG will:
(a) keep such registration, qualification or compliance effective for a period of at least 120
days or until Sellers have completed the distribution described in the registration statement
relating thereto, whichever first occurs;
(b) furnish such number of prospectuses and other documents incident thereto as Sellers from
time to time may reasonably request;
(c) list such Restricted Securities on each securities exchange (if any) on which the common
stock of NGSG is listed; and
(d) provide to Sellers and their special counsel a reasonable opportunity to review in advance
the registration statement and all amendments thereto.
3.5 Indemnification.
(a) NGSG shall, if Restricted Securities held by Sellers or any other holder of Restricted
Securities are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify Sellers and each other holder of Restricted Securities,
each of their officers and directors, and each person controlling any of Sellers or other holder of
Restricted Securities, with respect to each registration, qualification or compliance which has
been effected pursuant to Section 3.3, and each underwriter, if any, and each person who controls
any underwriter, against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements not misleading, and
will reimburse Sellers and each other holder of Restricted Securities, each of their officers and
directors, and each person controlling any of Sellers or other holder of Restricted Securities,
each such underwriter and each person who controls any such underwriter, for any legal and any
other expenses reasonably incurred in connection with investigating or defending any such claim,
loss, damage, liability or action; provided that NGSG will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission based upon written information furnished to NGSG by Sellers or other
holder of Restricted Securities or underwriter specifically for use therein. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on behalf of such party
and shall survive the subsequent transfer of shares of common stock of NGSG by the seller thereof
and the transfer of any shares of common stock of NGSG which were the subject of such registration,
qualification or listing.
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(b) Each of the Sellers and each other holder of Restricted Securities, severally and not
jointly, will, if Restricted Securities held by such Seller or other holder of Restricted
Securities are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify NGSG, each of its directors and officers, each legal
counsel and independent accountants of NGSG, each underwriter, if any, of NGSG’s securities covered
by such registration statement, each person who controls NGSG or such underwriter within the
meaning of the Securities Act, and each other holder of common stock of NGSG registering securities
of NGSG in such registration, each of its officers and directors and each person controlling such
holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse NGSG, such holders,
such directors, officers, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to NGSG by such Seller or other holder of Restricted
Securities specifically for use therein; provided; however, that (i) the obligations of each Seller
and each other holder of Restricted Securities hereunder shall be limited to an amount equal to the
proceeds to such Seller or each other holder of Restricted Securities sold as contemplated herein
and (ii) the indemnity for untrue statements or omissions described above shall not apply if
Sellers or other holder of Restricted Securities providing such written information provide NGSG
with such additional written information prior to the effectiveness of the registration as is
required to make the previously supplied written information true and complete, together with a
description in reasonable detail of the information previously supplied which was untrue or
incomplete.
(c) Each person entitled to indemnification under this Section 3.5 (the “Indemnified
Person”) shall give notice to the party required to provide indemnification (the
“Indemnifying Party”) promptly after such Indemnified Person has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by
the Indemnified Person (whose approval shall not unreasonably be withheld), and the Indemnified
Person may participate in such defense at such person’s expense, and provided further that the
failure of any Indemnified Person to give notice as provided herein shall not relieve the
Indemnifying Party of any obligations it may have otherwise than on account of this Section 3.5.
After notice from the Indemnifying Party to the Indemnified Person of its election to assume the
defense of such claim or litigation, the Indemnifying Party will not be liable to such Indemnified
Person for any legal or other expenses subsequently incurred by such Indemnified Person in
connection with the defense thereof other than reasonable costs of investigation, unless the
Indemnifying Party abandons the defense of such claim or litigation. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each Indemnified Person,
consent to entry of any judgment or enter into any settlement which does not include as
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an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Person of
a release from all liability in respect to such claim or litigation.
(d) The indemnification required by this Section 3.5 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
3.6 Information by Sellers and Other Holders. Sellers or other holders of Restricted
Securities included in any registration shall furnish to NGSG such information regarding Sellers or
other holders and the distribution proposed by Sellers or other holders as NGSG may reasonably
request in writing, and as shall be required in connection with any registration, qualification or
compliance referred to in this Agreement.
4. Appointment and Nomination for Director. Xxxx X. Xxxxxxx shall be appointed to fill the
vacancy existing on the Board of Directors at the date hereof, to hold office until the next annual
stockholders’ meeting at which directors are elected, and in connection with the next annual
meeting of stockholders, NGSG will nominate Xxxx X. Xxxxxxx for election as a director to serve for
a term the same as the class of directors then standing for election.
5. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with the laws of the State
of Texas, notwithstanding principles of conflicts of laws.
(b) This Agreement constitutes the entire agreement among the parties hereto with respect to
the subject matter hereof, and may be amended only by a writing executed by all parties hereto.
(c) This Agreement and the representations and warranties contained herein shall be binding
upon the heirs, executors, legal representatives, administrators, successors and permitted assigns
of the undersigned.
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IN WITNESS WHEREOF, Sellers have executed this Stockholders’ Agreement this
3rd day of January, 2005.
| /s/ Xxxx X. Xxxxxxx
|
| Xxxx X. Xxxxxxx
|
| Address of Seller: | ||||||
| Xxxx X. Xxxxxxx | ||||||
| 0000 X. 00xx Xxxxxx | ||||||
| Xxxxxx Xxxxx, Xxxxxxxx 00000 | ||||||
| /s/ Xxxx Xxxxxxxx
|
| Xxxx Xxxxxxxx
|
| Address of Seller: | ||||||
| Xxxx Xxxxxxxx | ||||||
| 0000 X. Xxxxxx Xxxx | ||||||
| Xxxxxxxxx, Xxxxxxxx 00000 | ||||||
| /s/ Xxx Xxxxxxx
|
| Xxx Xxxxxxx | ||||
| Printed Name of Seller |
| Address of Seller: | ||||||
| Xxx Xxxxxxx | ||||||
| 10601 ECR 104 | ||||||
| Xxxxxxx, Xxxxx 00000 | ||||||
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Accepted and Agreed to this 3rd day of January, 2005:
| NATURAL GAS SERVICES GROUP, INC. | ||||||
| By: | /s/ Xxxxxxx X. Xxxxxxxx
|
|||||
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