NATURAL GAS SERVICES GROUP, INC.
We cordially invite you to attend the meeting. To ensure your representation at the meeting, please vote promptly even if you plan to attend the meeting. Voting now will not prevent you from voting in person at the meeting if you are a shareholder of record and wish to do so.
NATURAL GAS SERVICES GROUP, INC.
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| TABLE OF CONTENTS | |
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| Questions and Answers About the Proxy Materials and the Meeting | |
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| Householding of Proxy Materials | |
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Proposal 1- Election of DirectorDirectors | |
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| The Board of Directors and its Committees | |
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Shareholder Engagement | 13 |
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| Code of Ethics | 14 |
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| Shareholder Engagement | |
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| Environmental, Social and Governance | |
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| Executive Officers | 15 |
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| Executive Compensation | 16 |
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| Principal Shareholders and Security Ownership of Management | 45 |
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| Proposal 2 - Consideration of an Advisory Vote on Executive Compensation of our Named Executive Officers | |
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| Report of the Audit Committee | 48 |
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Proposal 2- Consideration of an Advisory Vote on Compensation Programs for its Named Executive Officers | 49 |
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Proposal 3- Approval of the Amendment and Restatement of the 1998 Stock Option Plan | 50 |
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Proposal 4-3 - Ratification of Appointment of Independent Registered Public Accounting Firm | 55 |
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Proposal 5- Consideration of an Amendment to the Company’s Bylaws to Implement a Majority Voting Standard in Uncontested Elections of Directors | 56 |
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| Shareholder Proposals | 58 |
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| Communications with the Board of Directors | 59 |
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| Other Matters | |
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| 2021 Proxy Card | |
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QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS
AND THE MEETING
Q: Why am I receiving these materials?
A:Our Board is providing these proxy materials to you in connection with our 20162021 Annual Meeting of Shareholders, which will take place on Thursday, June 16, 2016.17, 2021. As a shareholder on the record dateRecord Date for the meeting, you are invited to attend the meeting. We also encourage you to vote on the matters described in this proxy statement.
Q: What information is contained in these materials?
A:This proxy statement includes information about the nomineenominees for directorDirectors and the other matters to be voted on at the meeting. The proxy statement also includes information about the voting process and requirements, the compensation of directorsour Directors and some of our executive officers, and certain other required information.
Q: What can I vote on at the meeting?
A:There are fivethree matters to be voted on at the meeting:
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1. 1 | To elect one Directortwo Directors to serve until the Annual Meeting of Shareholders to be held in 2019,2024, or until his successor istheir successors are elected and qualified; |
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2. 2 | To consider an advisory vote on the Company'sexecutive compensation programs for itsof our named executive officers; |
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3. | To approve the amendment and restatement of the Company's 1998 Stock Option Plan for another ten year term and increase the number of shares reserved for issuance under the plan by 250,000 shares of common stock; |
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4. 3 | To ratify the appointment of BDO USA,Moss Adams LLP as the Company’s independent registered public accounting firm for 2016;2021; and |
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5. | To consider an amendment to the Company’s Bylaws to implement a majority voting standard in uncontested election of Directors; and
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6.4 | To transact such other business as may properly be presented at the meeting, or at any adjournment(s) of the meeting. |
Q: How does the Board recommend that I vote on each of the matters?
A: Our Board recommends that you vote FOR the director nominee,Director nominees (Proposal #1) and FOR the amendment and restatement of the 1998 Stock Option Plan, FOR the ratification of the appointment of BDO USA,Moss Adams LLP as our independent registered public accounting firm for 2016, and FOR the amendment to our Bylaws to implement majority voting in the uncontested election of Directors.2021 (Proposal #3). With respect to Proposal 2,#2, the Board of Directors recommends that you vote FOR approval, on an advisory basis, of the compensation programs of our named executive officers as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the proxy statement set forth under the caption “Executive Compensation” of this proxy statement.
Q: Why did I receive a two-page notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?
A: We are taking advantage of SEC rules that allow us to deliver proxy materials to our shareholders on the Internet. Under these rules, we are sending most of our shareholders a two-page notice regarding the Internet availability of proxy materials instead of a full set of proxy materials. If you receive this two-page notice, you will not receive printed copies of the proxy materials unless you specifically request them. Instead, this notice tells you how to access and review on the Internet all of the important information contained in the proxy materials. This notice also tells you how to submit your proxy card on the Internet and how to request to receive a printed copy of our proxy materials. Shareholders may also request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.
Q: Can I receive next year’s proxy materials by email?
A:Yes. All shareholders who have active email accounts and Internet access may sign up for email delivery of shareholder materials. To sign up, go towww.proxyvote.com and click on “Electronic Enrollment.” If you have multiple registered or beneficial accounts, you need to enroll for each account. If you elect to receive proxy materials by email, we will not mail you any proxy-related materials next year. Your enrollment in the email program will remain in effect as long as your account remains active or until you cancel it.
Q: Who is entitled to vote at our annual meeting of shareholders?
A:Holders of our outstanding common stock on April 18, 2016,12, 2021, are entitled to one vote per share on each of the items being voted on at the meeting. We refer to this date as the Record Date. On the Record Date, we had 12,864,22613,619,788 shares of common stock outstanding. We have no other classes of stock outstanding.
Q: What shares can I vote?
A:You can vote all shares you owned on the Record Date. These shares include (1) shares held directly in your name as the shareholder of record and (2) shares held for you as the beneficial owner through a stockbroker, bank or other nominee.
Q: How do I vote my shares?
A: Shareholders of record may vote using one of the following four methods:
•over the Internet, which you are encouraged to do so if you have access to the Internet;
•by telephone;
•by completing, signing and returning the included proxy card, for those who requested to receive printed proxy materials in the mail; or
•by attending the Annual Meeting and voting in person.
The Notice provides instructions on how to access your proxy, which contains instructions on how to vote via the Internet or by telephone. For shareholders who request to receive a paper proxy card in the mail, instructions for voting via the Internet, by telephone or by mail are set forth on the proxy card.
If you hold shares in street name, the organization holding your account is considered the shareholder of record for purposes of voting at the Annual Meeting. The shareholder of record will provide you with instructions on how to vote your shares. Internet and telephone voting will be offered to shareholders owning shares through most brokerage firms and banks. Additionally, if you would like to vote in person at the Annual Meeting, contact the brokerage firm, bank or other nominee who holds your shares to obtain a proxy from them and bring it with you to the Annual Meeting. You will not be able to vote at the Annual Meeting unless you have a proxy from your brokerage firm, bank or other nominee.
Q: What is the difference between holding shares as a shareholder of record and as a beneficial owner?
A:Most of our shareholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. There are some important distinctions between shares held of record and those owned beneficially.
Shareholder of Record
If your shares are registered in your name with our transfer agent, Computershare, you are the shareholder of record for those shares and are receiving proxy-related materialsMeeting Materials directly from us. As the shareholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the meeting.
Beneficial Owner
If your shares are held in a stock brokerage account, by a bank or other nominee (commonly referred to as being held in “street name”), you are the beneficial owner of those shares. Your broker, bank or nominee is the shareholder of record and therefore has forwarded proxy-related materialsMeeting Materials to you as beneficial owner. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote your shares and are also invited to attend the meeting. However, since you are not the shareholder of record, you may not vote your shares in person at the meeting unless you obtain a signed proxy from your broker, bank or nominee giving you the right to vote the shares.
Q: How do I vote if I am a shareholder of record (as described in the question and answer above)?
A: You can vote on the Internet or by telephone by following the instructions you received in the mail or by email. If you received a full printed set of our proxy materials in the mail, you can also vote by mail by signing and returning the proxy card provided with those materials. Finally, you can vote in person at the meeting.
Q: How do I vote if I am a beneficial owner (as described in the question and answer above)?
A: You can vote on the Internet or by telephone by following the instructions you received in the mail or by email. If you received a full printed set of our proxy materials in the mail, you can also vote by mail. You can vote in person at the meeting only if you obtain a signed proxy from your broker, bank or nominee giving you this right.
Q: Can I change my vote or revoke my proxy?
A:Yes. You can change your vote or revoke your proxy at any time before the final vote at the meeting. You can do this by casting a later proxy through any of the available methods described in the questions and answers above. If you are a shareholder of record, you can also revoke your proxy by delivering a written notice of your revocation to our Corporate Secretary at our principal executive office at 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701.79705. If you are a beneficial owner, you can revoke your proxy by following the instructions sent to you by your broker, bank or other nominee.
Q: What does it mean if I get more than one set of proxy-related materials?Meeting Materials?
A:It means you hold shares registered in more than one account. Follow the instructions in each set of proxy-related materialsMeeting Materials to ensure that all of your shares are voted.
Q: What is the quorum requirement for the meeting?
A:For a “quorum” to exist at the meeting, shareholders holding a majority of the votes entitled to be cast by the shareholders entitled to vote must be present in person or represented by proxy at the meeting. There must be a quorum for any action to be taken at the meeting (other than adjournment or postponement of the meeting). If you submit a properly completed proxy, even if you abstain from voting, then your shares will be counted for purposes of determining the presence of a quorum.
If a broker indicates on a proxy that it lacks discretionary authority as to certain shares to vote on a particular matter, commonly referred to as “broker non-votes,” those shares will still be counted for purposes of determining the presence of a quorum at the meeting. Please see the next question and answer for further information about "broker non-votes."
Q: What are broker non-votes and how are broker non-votes and abstentions counted?
A: If you are a beneficial owner and hold your shares in street name and do not provide your broker or other nominee with voting instructions, the broker, bank, or other nominee will determine if it has the discretionary authority to vote on the particular matter. The New York Stock Exchange permits brokers to vote their customers' shares on routine matters when the brokers have not received voting instructions from the customers. The ratification of independent public accountants is an example of a routine matter on which brokers may vote. Brokers may not vote their customers' shares on non-routine matters unless they have received instructions from the customers. Non-voted shares on non-routine matters are referred to as broker non-votes. The ratification of the appointment of BDO USA,Moss Adams LLP as our independent public accountants for 20162021 (Proposal 4)3) is a matter considered "routine" under applicationapplicable rules. The election of one directortwo Directors (Proposal 1), and the advisory vote to approve the named executive officersofficers' compensation programs (Proposal 2), the approval of the amendment and restatement of the 1998 Stock Option Plan (Proposal 3) and the amendment to the Company’s Bylaws to implement a majority voting standard in uncontested election of Directors (Proposal 5)are matters considered "non-routine" under applicable rules. A broker or other nominee cannot vote without instructions on non-routine matters. AbstentionsFor purposes of the election of a Director and all of the proposals set forth in this proxy statement, abstentions and broker non-votes, if any, will not be counted as votes cast and will have no effect on Proposal 1, as the electionresult of the vote, although they will be considered present for the purpose of determining the presence of a Director is determined by counting the votes actually cast where abstentions and broker non-votes are not treated as votes cast. With respect to the advisory vote to approve the named executive officers compensation programs (Proposal 2), the approval of the 1998 Stock Option Plan amendment and restatement (Proposal 3) and the amendment to the Bylaws (Proposal 5) where the vote required is a majority of votes present and entitled to vote, abstentions will be equivalent to a vote cast against the proposals and broker non-votes will have no effect.quorum.
Q: What is the voting requirement to approve each of the matters?
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| Proposals | Board Recommendation | Votes Required | Effect of Abstentions | Effect of Broker Non-Votes |
| Election of Directors | FOR each nominee | Majority of votes cast | None | None |
| Advisory Vote to Approve Executive Compensation ("Say on Pay" Vote) | FOR | Majority of votes cast | None | None |
| Ratification of Independent Registered Public Accounting Firm | FOR | Majority of votes cast | None | No Broker Non-Votes (Routine Matter) |
A:
Directors are elected by a plurality of
We also will consider any other business that properly comes before the votes cast at the Annual Meeting. This means that the nominee for election as Director who receives the greatest number of votes cast in favor of his or her election will be elected to the Board of Directors. The advisory vote on the compensation programs of our named executive officers, the amendment and restatement of the 1998 Stock Option Plan, ratification of the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm, and the amendment to the Bylaws to implement a majority voting standard in the uncontested election of Directors are approved if the votes cast in favor of the matter exceed the votes cast against the matter. If you are a beneficial owner and do not provide the shareholder of record with voting instructions, your shares may constitute broker non-votes for certain matters (as described in the question and answer immediately above). In tabulating the voting result for a proposal, shares that constitute broker non-votes are not considered as being entitled to vote on that proposal.annual meeting.
Q: How can I vote on each of the matters and how will the votes be counted?
A: In the election of directors,Directors, you may vote “FOR,” “AGAINST,” or “ABSTAIN” with respect to theeach nominee. If you elect to abstain from the election of directors, the abstention will not have any effect on the election of directors. In tabulating the voting results for the election of directors, only “FOR” and “AGAINST” votes are counted.
For the (i) advisory vote on compensation of our named executive officers, (ii) approval ofand the amendment and restatement of the 1998 Stock Option Plan, (iii)(ii) ratification of the appointment of BDO USA,Moss Adams LLP as our independent auditors and (iv) the amendment to the Bylaws to implement a majority voting standard in the uncontested election of Directors, you may vote “FOR,” “AGAINST,”
or “ABSTAIN” with respect to these fourtwo proposals. If you electUnder Colorado law (under which the Company is incorporated), abstentions are counted as shares present and entitled to abstain from votingvote at the Annual Meeting, and therefore counted as present for the purpose of determining whether a quorum is present, but they are not counted as shares cast and will therefore have no effect on anythe outcome of these proposals, the abstention will have the same effect as an “AGAINST” vote with respect to such proposal.vote.
If you sign and return your proxy card or voting instruction form without giving specific voting instructions, your shares will be voted as recommended by our Board. If you are a beneficial holder and do not return a voting instruction form, your broker may only vote on the ratification of the appointment of BDO USA, LLPMoss Adams (Proposal 4)3).
Q: Who will count the votes?
A:Broadridge, an international investor relations company, is assisting us with the voting of proxies for our meeting. Prior to the meeting, Broadridge will provide us with a tabulation of the votes cast prior to the meeting. We believe that Broadridge will use procedures that are consistent with Colorado law concerning the voting of shares, the determination of the presence of a quorum and the determination of the outcome of each matter submitted for a vote. In addition, we will appoint a voting inspector at the meeting to count and tabulate any votes cast at the meeting.
Q: Who may attend the meeting?
A:All shareholders as of the Record Date may attend. Please bring to the meeting:
•proof of ownership such as: a copy of your proxy or voting instruction card; the two-page notice regarding the internet availability of proxy materials you received in the mail; or a copy of a brokerage or bank statement showing your share ownership as of the Record Date; and
•proofof identification such as a valid driver’s license or passport.
Q: How will voting on any other business be conducted?
A:We do not expect any matters to be presented for a vote at the meeting other than the fivefour matters described in this proxy statement. If you grant a proxy, either of the officers named as proxy holders, Stephen C. Taylor and G. Larry Lawrence,John W. Chisholm, or their nominees or substitutes, will have the discretion to vote your shares on any additional matters that are properly presented for a vote at the meeting and at any adjournment or postponement that may take place. If, for any unforeseen reason, our nominee is not available as a candidate for director,Director, the persons named as the proxy holder will vote your proxy for another candidate or other candidates nominated by our Board.
Q: May I propose actions for consideration at next year’s meeting of shareholders?
A:Yes. For your proposal to be considered for inclusionPlease see the section entitled "Shareholder Proposals" in ourthis proxy statement for next year’s meeting, we must receive your written proposal no later than December 19, 2016. If we change the date of next year’s meeting by more than 30 days from the date of this year’s meeting, then the deadline is a reasonable time before we begin to printinformation concerning making shareholder proposals and send our proxy materials. You should also be aware that your proposal must comply with SEC regulations regarding shareholder proposals.director nominations.
Similarly, for you to raise a proposal (including a director nomination) from the floor at next year’s meeting, we must receive a written notice of the proposal no later than March 9, 2017. If we change the date of next year’s meeting by more than 30 days from the date of this year’s meeting, then we must receive your written proposal at least 150 days before the date of next year’s meeting for the proposal to be timely.
Q: Who is paying for this proxy solicitation?
A:We will pay the cost of soliciting the proxies. In addition, our officers, directorsDirectors and employees may solicit proxies or votes in person, by telephone or by email. These people will not be paid any additional compensation for these activities. We will send copies of proxy-related materials or additional solicitation materials to brokers, fiduciaries and custodians who will forward these materials to the beneficial owners of our shares. On request, we will reimburse brokers and other persons representing beneficial owners of shares for their reasonable expenses in forwarding these materials to beneficial owners.
Q: How can I find out the results of the voting at the Annual Meeting?
A: Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in a current report on Form 8-K that we expect to file with the SEC no later than four business days after the conclusion of the Annual Meeting. If final voting results are not available to us in time to file a Form 8-K on or before the fourth business day after the Annual Meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.
HOUSEHOLDING OF PROXY MATERIALS
In an effort to reduce printing costs and postage fees, we have adopted a practice called “householding.” Under this practice, shareholders who have the same address and last name and do not participate in email delivery of proxy-related materials will receive only one set of our proxy statement, annual report or notice of internet availability of proxy-related materials unless one or more of these people notifies us that he or she wishes to continue to receive individual copies.
If you share an address with another shareholder and receive only one set of proxy-related materials and would like to request a separate copy for this year’s annual meeting or for any future meetings, please: (1) call our Investor Relations contact at (432) 262-2700; (2) send an email message to alicia.dada@ngsgi.com; or (3) mail your request to Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701,79705, Attn: Investor Relations. Similarly, you may also contact us through any of these methods if you receive multiple copies of the materials and would prefer to receive a single copy in the future.
PROPOSAL 1 - ELECTION OF DIRECTORS
Our Board of Directors is divided into three classes, (commonly known as a “staggered” Board), each class to be as nearly equal in number as possible. At each annual meeting of shareholders, members of one of the classes, on a rotating basis, are elected for a three-year term. The authorized number of Directors is currently set at nine. We currently have five directorsDirectors serving on our Board. Our Board of Directors may fill the vacancies if a qualified candidate is vetted. The following table sets forth, by class, the members of our Board of Directors as of the date of this proxy statement:
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TermsTerm Expiring at the 20162021 Annual Meeting | Terms Expiring at the
2017 Annual 2022Annual Meeting | Terms Expiring at the
20182023 Annual Meeting |
| David L. Bradshaw | John W. Chisholm | Charles G. Curtis | David L. BradshawLeslie A. Beyer |
Nigel J. Jenvey | | Stephen C. Taylor | William F. Hughes |
Shareholders will be electing one Directortwo Directors at the meeting. The Board is recommending Mr. John ChisholmBradshaw for re-election and Mr. Jenvey for election to the Board of Directors to serve a three year term expiring at the annual meeting of shareholders in 2019.2024.
The persons named in the enclosedour form of proxy will vote the shares represented by such proxy for the election of the nomineenominees for Director named above unless other instructions are shown on the proxy card. If, at the time of the meeting, thea nominee becomes unavailable for any reason, which is not expected, the persons entitled to vote the proxy will vote for such substitute nominee, if any, as they determine in their sole discretion, or we may reduce the size of the Board.
Biographical information and qualifications for the personpersons nominated as a Director, and for each person whose term of office as a Director will continue after the 20162021 Annual Meeting, is set forth below.
NomineeNominees for DirectorDirectors for Term to Expire in 20192021
David L. Bradshaw
David L. Bradshaw, 66, joined our board in December of 2011. Since 2005, Mr. Bradshaw has acted as a consultant in the oil and gas exploration and production sector and has overseen his investments in this area. From August 2007 through November 2009, Mr. Bradshaw served as a Director and Audit Committee Chairman for Triangle Petroleum, a publicly traded company listed on the American Stock Exchange. From November 2007 through November 2008, Mr. Bradshaw served as a Director for Comet Ridge Limited, an Australian company listed on the Australian Securities Exchange. From 1986 to 2005, Mr. Bradshaw worked for Tipperary Corporation, a U.S. public company listed on the American Stock Exchange. During his tenure at Tipperary, the company was involved in oil and gas exploration and production, and natural gas processing and transportation. He held the positions of Chief Executive Officer from 1996 to 2005, Chairman of the Board from 1997 to 2005, Chief Financial Officer from 1990 to 1996 and Chief Operating Officer from 1993 to 1996. From 1999 to 2005, Mr. Bradshaw also served as Chief Executive Officer and Chairman of Tipperary Oil & Gas (Australia) Pty Ltd, a subsidiary of Tipperary, which explored for and produced natural gas in Queensland, Australia. From 1983 to 1986, Mr. Bradshaw was an owner and officer of Bradcorp, Inc., a private exploration and production company. Prior to this, Mr. Bradshaw spent six years in public accounting serving predominantly oil and gas clients. Mr. Bradshaw graduated from Texas A&M University with a BBA in Accounting in 1976 and a MBA in 1977, and is also a Certified Public Accountant.
Mr. Bradshaw's educational and professional training and achievements as a Certified Public Accountant and MBA, along with his past experience as both a Chief Financial Officer and Chief Executive Officer of a public company involved in the natural resources industry, provides us with considerable accounting and corporate finance skills. In addition, Mr. Bradshaw's career has spanned over forty years in the oil and gas industry and as a public accountant. His executive management positions in both private and public companies bring us significant leadership, planning and management skills and background.
Nigel J. Jenvey
Nigel. J. Jenvey, 48, was appointed as a Director of Natural Gas Services Group in April 2021. Mr. Jenvey is currently the Global Head of Carbon Management at consultancy Gaffney, Cline & Associates. Prior to joining Gaffney Cline, Mr. Jenvey spent eight years at BP as the company’s head of Carbon, Capture, Use and Storage (CCUS) and carbon solutions manager. He also led similar efforts at Maersk Oil as Technical Director of carbon & climate, and served in various managerial
and project leadership roles at Royal Dutch Shell, including Shell’s global Enhanced Oil Recovery (EOR) Center of Expertise and European operating business. He began his career as a petroleum engineer at Texaco in 1995 supervising offshore oil and gas production operations in the North Sea. Mr. Jenvey is an industry leader in Carbon Management and expert in CCUS having been involved in leading projects across the world since 2004. These have included providing peer advice to the National Petroleum Council, the Society of Petroleum Engineers and various major energy companies in the US and Canada. Mr. Jenvey is the Editor of the annual Decarbonization feature in the SPE Journal of Petroleum Technology and a peer reviewer to the International Energy Agency. Mr. Jenvey has also provided testimony to Congress on CO2 Capture technologies. Mr. Jenvey holds a Bachelor degree (Hons.) in Mining Engineering from the University of Leeds and both a Diploma and a Master of Science degree in Petroleum Engineering from Imperial College in London.
Mr. Jenvey brings significant carbon management, sustainability and ESG experience to our Board. His experience of working with companies, investors, governments, academia, and non-governmental organizations provides us a wealth of knowledge and insight regarding the challenges and solutions that exist for the oil and gas industry, and adds to our Board’s capabilities to successfully guide the Company through these matters that are impacting our business and industry
Required Vote for This Proposal
The election of the Director nominees requires the affirmative vote of a majority of the votes cast at the Annual Meeting with respect to each nominee. The number of shares voted "for" the Director nominee must exceed the number of votes cast "against" that nominee for the nominee to be elected as a Director to serve until his or her term expires or until his or her successor has been duly elected and qualified.
Pursuant to the resignation policy adopted by our Board and further described in our Corporate Governance Guidelines, any nominee for Director who is not elected shall promptly tender his or her resignation to our Board following certification of the stockholder vote. The Environmental, Social and Governance and Personnel Development ("ESG") Committee will consider the resignation offer and recommend to our Board the action to be taken with respect to the offered resignation. In determining its recommendation, the ESG Committee shall consider all factors it deems relevant. Our Board will act on the ESG Committee's recommendation within 90 days following certification of the stockholder vote and will publicly disclose its decision with respect to the Director's resignation offer (and the reasons for rejecting the resignation offer if applicable).
Any Director who tenders his or her resignation pursuant to the resignation policy shall not participate in the ESG Committee's recommendation or Board action regarding whether to accept the resignation offer. If each member of the ESG Committee is required to tender his or her resignation pursuant to the resignation policy in the same election then the independent Directors of our Board of Directors who are not required to tender a resignation pursuant to the resignation policy shall consider the resignation offers and make a recommendation to our Board.
To the extent that one or more Directors' resignations are accepted, our Board, in its discretion, may determine either to fill such vacancy or vacancies or to reduce the size of the Board within the authorized range.
Continuing Director Whose Term Expires in 2022
John W. Chisholm
John W. Chisholm, 61,66, was appointed as a Director of Natural Gas Services Group in December 2006 to fill a vacancy created by expanding the size of the Board from seven to eight Directors and2006. Mr. Chisholm was first electedappointed as aLead Director of Natural Gas Services Group at the annual meeting of shareholders held in June 2007.2020. Mr. Chisholm is the founder of Wellogix, an oil and gas software company that develops software aimed at expediting the exchange of enterprise data and communication of complex engineered services. Prior to founding Wellogix, Mr. Chisholm co-founded and served as President of ProTechnics Company from 1985 until its sale to Core Laboratories in December of 1996. Mr. Chisholm served as Senior Vice President of Global Sales and Marketing of Core Laboratories until 1998, when he started Chisholm Energy Partners, an investment fund focused on mid-size energy service companies. From 2002 to 2009, Mr. Chisholm served on the Board of Directors of Flotek Industries, Inc. ("Flotek"), and became its interim President in August 2009. In August 2010 Mr. Chisholm became President of the company andFlotek in August 2010, was appointed as its Chief Executive Officer in March 2012.2012, and served in those roles until January 2020. Flotek Industries, Inc. is a public company which files reports under the Securities Exchange Act of 1934. Mr. Chisholm is presently CEO of The John Chisholm Group. Mr. Chisholm holds a Business Administration degree from Fort Lewis College in Colorado. He currently serves on the Editorial Advisory Board on Middle East Technology of the Oil & Gas Journal.
Mr. Chisholm brings significant natural resources experience to our Board, in connection with his background in supplying drilling and production related products and services to the oil, gas and mining industries, and his investment fund
experience with mid-size energy service companies is an invaluable resource as the Company assesses its capital and liquidity needs.
In addition Mr. Chisholm's experience as a board member and executive officer of a public company provides us with a wealth of leadership and management skills.
Continuing Directors Whose Terms ExpireTerm Expires in 20172023
Leslie A. Beyer
Charles G. Curtis
Charles G. Curtis, 83, has served as a Director of Natural Gas Services Group since April 2001. Since 2002, substantially all of Mr. Curtis’ business activities have been devoted to managing personal investments. From 1992 until 2002, Mr. Curtis wasLeslie Shockley Beyer, 45, joined our Board in June 2020. Ms. Beyer is the President and Chief Executive Officer of Curtis One, Inc.,the Energy Workforce and Technology Council (“EWTC”) formed through the merger of the Petroleum Equipment & Services Association (“PESA”) and the Association of Energy Service Companies, a manufacturer of aluminumposition she has held since the merger in February, 2021. EWTC represent more than 600 member companies in energy services, supply, manufacturing and steel mobile stoolsdrilling with a focus on enabling its members to safely, profitably and mobile ladders. From 1988sustainably produce the energy needed to 1992, Mr. Curtismeet rising demand around the world. Prior to leading EWTC, Ms. Beyer was the President and Chief Executive Officer of Cramer, Inc.,PESA. Prior to joining PESA, Ms. Beyer served as Director, Member and Board Relations for the National Association of Manufacturers from 2012 to 2014. Previously, Ms. Beyer served in leadership roles at Burson-Marsteller Public Affairs and at a manufacturerboutique public relations firm for more than six years. Prior to her time in public affairs, Ms. Beyer served in media relations capacities in The White House, Executive Office of office furniture. Mr. Curtis hasthe President and on the Bush 2000 Presidential Campaign. She began her career in legislative policy roles in the U.S. Senate, U.S. Department of State and U.S. Department of Housing. Ms. Beyer holds a Bachelor of Science degree from the United States Naval AcademyArts in Latin American Studies and a Master of Science degree in Aeronautical EngineeringSpanish from the University of Southern California.Texas at Austin.
Mr. Curtis has beenAs a long-standing member ofstrong advocate for the oilfield services and equipment sector, Ms. Beyer provides the Board since prior to the Company's initial public offering in 2002 and as such he bringswith a wealth of knowledge regardingand insight about the Company's history, growthstrategic and tactical matters impacting our business and industry. Through his manufacturing careerIn addition, Ms. Beyer's public affairs, policy and engineering educational background, Mr. Curtis assists the Board and the Company in connection with its compressor manufacturing business. As a past U.S. Naval Officer and U.S. Naval Academy graduate, Mr. Curtis also brings leadership skillsexperience significantly adds to the Board and Company.our Board's capabilities.
Stephen C. Taylor
Stephen C. Taylor, 62,67, has been President and Chief Executive Officer of Natural Gas Services Group since January 2005. He was elected as a Director of Natural Gas Services Group at the annual meeting of shareholders in June 2005. Effective January 1, 2006, Mr. Taylor was appointed Chairman of the Board of Directors. Immediately prior to joining Natural Gas Services Group, Mr. Taylor held the position of General Manager − US Operations for Trican Production Services, Inc. from 2002 through 2004. Mr. Taylor joined Halliburton Resource Management in 1976, becoming its Vice President − Operations in 1989. Beginning in 1993, he held multiple senior level management positions with Halliburton Energy Services until 2000 when he was elected Senior Vice President/Chief Operating Officer of Enventure Global Technology, LLC, a joint-venture deep water drilling technology company owned by Halliburton Company and Shell Oil Company. Mr. Taylor elected early retirement from Halliburton Company in 2002 to join Trican Production Services, Inc. Mr. Taylor holds a Bachelor of Science degree in Mechanical Engineering from Texas Tech University and a Master of Business Administration degree from the University of Texas at Austin.
Mr. Taylor’s senior management experience in the natural resources industry provides the Board and our company with significant insight into our business. Mr. Taylor’s engineering and advanced business training (MBA) uniquely suitsqualifies him to provide leadership, technical expertise and financial acumen to our Board and to the operations of our companyCompany in connection with his position as our chief executive officer.
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Continuing Directors Whose Terms Expire in 2018
David L. Bradshaw
David L. Bradshaw, 61, joined our board in December of 2011. Since 2005, Mr. Bradshaw has acted as a consultant in the oil and gas exploration and production sector and has overseen his investments in this area. From August 2007 through November 2009, Mr. Bradshaw served as a Director and Audit Committee Chairman for Triangle Petroleum, a publicly traded company listed on the American Stock Exchange. From November 2007 through November 2008, Mr. Bradshaw served as a Director for Comet Ridge Limited, an Australian company listed on the Australian Securities Exchange. From 1986 to 2005, Mr. Bradshaw worked for Tipperary Corporation, a U.S. public company listed on the American Stock Exchange. During his tenure at Tipperary, the company was involved in oil and gas exploration and production, and natural gas processing and transportation. He held the positions of Chief Executive Officer from 1996 to 2005, Chairman of the Board from 1997 to 2005, Chief Financial Officer from 1990 to 1996 and Chief Operating Officer from 1993 to 1996. Mr. Bradshaw also served as Chief Executive Officer and Chairman of Tipperary Oil & Gas (Australia) Pty Ltd from 1999 to 2005, a subsidiary of Tipperary, which explored for and produced natural gas in Queensland, Australia. From 1983 to 1986, Mr. Bradshaw was an owner and officer of Bradcorp, Inc. a private exploration and production company. Prior to this, Mr. Bradshaw spent six years in public accounting serving predominantly oil and gas clients. Mr. Bradshaw graduated from Texas A&M University with a BBA in Accounting in 1976 and a MBA in 1977, and is also a Certified Public Accountant.
Mr. Bradshaw's educational and professional training and achievements as a Certified Public Accountant and MBA, along with his past experience as both a Chief Financial Officer and Chief Executive Officer of a public company involved in the natural resources industry, provides us with considerable accounting and corporate finance skills. In addition, Mr. Bradshaw's career spanning over thirty years in the oil and gas industry and as a public accountant adds to his value in his position on our Audit Committee. His executive management positions in both private and public companies bring us significant leadership, planning and management skills and background.
William F. Hughes, Jr.
William F. Hughes Jr., 63, has served as a Director since December 2003. Mr. Hughes has over 30 years of experience in the engineering and construction industry as a Registered Civil Engineer and licensed building contractor. From 1974 to 1979, he served as an officer in the United States Air Force. From 1979 to 1986, he was a project design engineer for Cushman & Associates. From 1986 to 1996, he served as a Project Manager on a variety of public works and industrial construction projects. Since 1983, Mr. Hughes has been co-owner of The Whole Wheatery, LLC, a natural foods store located in Lancaster, California. Mr. Hughes holds a Bachelor of Science degree in Civil Engineering from the United States Air Force Academy and a Master of Science in Engineering from the University of California at Los Angeles.
Mr. Hughes’ career experience in the engineering and construction industry brings us invaluable skills which are applicable to our manufacturing processes. In addition, Mr. Hughes provides leadership skills arising from his service as an officer with the U.S. Air Force and U.S. Air Force Academy graduate.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Natural Gas Services Group’s Board of Directors held foursix meetings in 2015.2020. Each Director attended at least 75% of the total number of Board meetings held while such person was a Director. Each Director also attended at least 75% of all of the meetings held by all committees of the Board of Directors for which he served (during the periods that he served). The Board of Directors acts from time to time by unanimous written consent in lieu of holding a meeting.
Our non-management directorsDirectors hold regularly scheduled executive sessions in which those directorsDirectors meet without management participation. The Chairman of the Governance and Personnel Development Committee has presidedGenerally, our Lead Director, John W. Chisholm, presides over these sessions. In April 2016, the board established a Lead Director role, and assigned those duties to the Lead Director. Charles G. Curtis is currently the Lead Director.
We typically schedule a Board meeting in conjunction with our annual meeting of shareholders. Although we do not have a formal policy on the matter, weWe expect our Directors to attend each annual meeting, absent a valid reason, such as illness or an unavoidable schedule conflict. Last year, all of the individuals then serving as Directors attended our 20152020 Annual Meeting of Shareholders.
To assist it in carrying out its duties, the Board has delegated certain authority to four separately designated standing committees. These committees are described below.
Audit Committee
The primary functions of our Audit Committee include:
•assisting the Board in fulfilling its oversight responsibilities as they relate to our accounting policies, internal controls, financial reporting practices and legal and regulatory compliance;
•discussing with management policies with respect to risk assessment and risk management;
•hiring our independent registered public accounting firm;
•monitoring the independence and performance of our independent registered public accounting firm;
•maintaining, through regularly scheduled meetings, a line of communication between the Board, our financial management and independent registered public accounting firm; and
•overseeing compliance with our policies for conducting business, including ethical business standards.
The members of the Audit Committee are David L. Bradshaw (Chairman), Charles G. Curtis,Leslie A. Beyer, and Nigel J. Jenvey (since April 2021). William F. Hughes Jr.was a member of the Audit Committee during 2020 and until his retirement from the Board in April 2021. Our common stock is listed for trading on the New York Stock Exchange, or “NYSE”. Under rules of the NYSE, the Audit Committee is to be comprised of three or more Directors, each of whom must be independent. Our Board has determined that all of the members of the Audit Committee are independent, as defined under the applicable NYSE rules and listing standards. In addition, our Board of Directors has determined that David L. Bradshaw is qualified as an “audit committee financial expert” as that term is defined in the rules of the United States Securities and Exchange Commission. The Audit Committee met nine times during the last fiscal year. The audit committee has also received from, and discussed with, BDOMoss Adams the matters required to be discussed by Public Accounting Oversight Board Auditing Standard No. 16.1301 (AS 1301) (Communications with Audit Committees).
Any shareholder may obtain free of charge a printed copy of our Audit Committee Charter by sending a written request to Investor Relations, Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701. You can also view and print a copy of our Audit Committee Charter79705 or by clicking onvisiting the “Governance” tab aton the Investor Relationsinvestor relations page of our website atwww.ngsgi.com.
Compensation Committee
The primary functions of our Compensation Committee include:
•assisting the Board in overseeing the management of our human resources;
•evaluating our Chief Executive Officer’s performance and compensation;
•formulating and administering our overall compensation principles and plans; and
•evaluating management.
The Compensation Committee’s policy is to offer the executive officers competitive compensation packages that will permit us to attract and retain individuals with superior abilities and to motivate and reward such individuals in an appropriate fashion in the long-term interests of Natural Gas Services Group Inc., and its shareholders. Currently, executive compensation is comprised of salary and cash bonuses and awards of long-term incentive opportunities in the form of restricted stock or restricted stock unit awards under the 2009 Restricted Stock/Unit Plan.2019 Equity Incentive Plan, as well as other long-term incentives payable in cash.
The members of the Compensation Committee are William F. Hughes, Jr. (Chairman)Leslie A. Beyer. (Chairperson since April 2021), John W. Chisholm, and David L. Bradshaw.Bradshaw (since April 2021). William F. Hughes was the Chairman of the Compensation Committee until his retirement in April 2021. Our Board has determined that all of the members of the Compensation Committee are independent, as defined under the applicable NYSE rules and listing standards. During the last fiscal year there were six meetings of the Compensation Committee.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee members are not officers or employees of our company, and there is not, nor was there during fiscal 2015,2020, any compensation committee interlock (in other words, no executive of our company serves as a Director or on the compensation committee of a company that has one or more executives serving on our Board of Directors or our Compensation Committee).
Any shareholder may obtain free of charge a printed copy of our Compensation Committee Charter by sending a written request to Investor Relations, Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701. You can also view and print a copy of our Compensation Committee Charter79705 or by clicking onvisiting the “Governance” tab aton the Investor Relationsinvestor relations page of our website atwww.ngsgi.com.
Environmental, Social and Governance and Personnel Development Committee
OurThe primary functions of our Environmental, Social and Governance ("ESG") and Personnel Development Committee primarily focuses on:include:
generally •overseeing the governance of the Board and its committees;
•interpreting the Governance Guidelines, the Code of Business Conduct and Ethics and other similar governance documents adopted by the Board; and
•overseeing the evaluation of the Board and its committees.committees; and
•developing, with input from executive leadership, the principles guiding our Environmental, Social and Governance efforts and monitoring our progress in meeting such principles
The members of the ESG and Governance and Personnel Development Committee are Charles G. Curtis (Chairman)Nigel J. Jenvey (Chairman since April 2021), David L. Bradshaw, and John W. Chisholm and William F. Hughes, Jr.Chisholm. Our Board has determined that each of the GovernanceESG and Personnel Development Committee members is independent, as defined under the applicable NYSE rules and listing standards. During the last fiscal year there were four meetings of the GovernanceESG and Personnel Development Committee.
Any shareholder may obtain free of charge a printed copy of our Environmental, Social and Governance and Personnel Development Committee Charter by sending a written request to Investor Relations, Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701. You can also view and print a copy of our Governance Committee Charter79705 or by clicking onvisiting the “Governance” tab aton the Investor Relationsinvestor relations page of our website atwww.ngsgi.com.
Nominating Committee
The primary functions of our Nominating Committee include:
•identifying individuals qualified to become board members, consistent with the criteria approved by the Board;
•recommending Director nominees and individuals to fill vacant positions; and
•overseeing executive development and succession and diversity efforts.
The members of the Nominating Committee are John W.C. Chisholm (Chairman)(Chairman since April 2021), David L. Bradshaw,Leslie A. Beyer, and Charles G. Curtis.Nigel J. Jenvey (since April 2021). Our Board of Directors has determined that each of the Nominating Committee members is independent as defined under the applicable NYSE rules and listing standards. During the last fiscal year there were four
meetings of the Nominating Committee.
Any shareholder may obtain free of charge a printed copy of our Nominating Committee Charter by sending a written request to Investor Relations, Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701. You can also view and print a copy of our Nominating Committee Charter79705 or by clicking onvisiting the “Governance” tab aton the Investor Relationsinvestor relations page of our website atwww.ngsgi.com. Our Nominating Committee does not have a diversity policy; however, as discussed below, theThe Committee’s goal is to nominate candidates who possess a range of experiences and backgrounds which will contribute to the board’s overall effectiveness in meeting its duties and forwarding the goals of our company.
OurThe Board is responsible for identifying individuals qualified to become Directors, and nominees are selected by the Board. The Board takes into account many factors, including being highly qualified in terms of business experience, finance and other disciplines relevant to the success of a publicly traded company in today’s business environment; understanding of the Company’s business on a technical level and the industry in which it competes; and educational and professional background. The Board evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best support the success of the business and, based on its diversity of experience and backgrounds, represent stockholder interests through the exercise of sound judgment.
The Nominating Committee will consider a Director candidate recommended by a shareholder. A candidate must be highly qualified in terms of business experiencebased on the factors noted above and be both willing and expressly interested in serving on the Board. A shareholder wishing to recommend a candidate for the Committee’s consideration should forward the candidate’s namemust follow Securities and information about the candidate’s qualifications to Natural Gas Services Group, Inc., Nominating Committee, 508 West Wall Street, Suite 550, Midland, Texas 79701, Attn.: John W. Chisholm. Submissions must include sufficient biographical information concerning the recommended individual, including age, employment history for at least the past five years indicating employers' names and descriptionExchange Commission Rule 14a-8 or our advance notice provisions contained in our Bylaws. Please see "Shareholder Proposals" on page 57 of the employer’s business, educational background and any other biographical information that would assist the Committee in determining the qualifications of the individual. The Committee will consider recommendations received by a date not later than 120 calendar days before the date ourthis proxy statement was released to shareholders in connection with the prior year’s annual meeting for nomination at that annual meeting. The Committee will consider nominations received after that date at the annual meeting subsequent to the next annual meeting.further information.
The Committee evaluates nominees for Directors recommended by shareholders in the same manner in which it evaluates other nominees for Directors. Minimum qualifications include the factors discussed above.
Director Independence
The Board has determined that each of the following four members of the Board is “independent” within the meaning of applicable listing standards of the NYSE and under the standards, set forth in Exhibit A to our Environmental Social and Governance and Personnel Development Charter (“Governance Charter”) which are consistent with the NYSE listing standards: Leslie A. Beyer, Nigel J. Jenvey, David L. Bradshaw, and John W. Chisholm, Charles G. Curtis, andChisholm. William F. Hughes, Jr. A copy of Exhibit Awho retired from the Board in April 2021, was also determined to our Governance Charter is available at our website, www.ngsgi.com,be "independent" under the heading “Investor Relations—Governance.”these standards. The Board has made an affirmative determination that each of the four directorsDirectors named above satisfies these categorical standards. In making its determination, the Board examined relationships between directorsDirectors or their affiliates with us and our affiliates and determined that each such relationship, if any, did not impair the director’sDirector’s independence. A copy of Exhibit A to our Governance Charter is available at our website,www.ngsgi.com, under the heading “Investor Relations-Governance.”
Board of Directors Diversity
The Company values diversity and the benefits that a diverse workforce can bring to the Company and to the Board of Directors. Diversity can promote the inclusion of different perspectives and ideas which can lead to more robust discussion regarding strategic and governance policy alternatives and, ultimately, result in better corporate governance and decision making.
The Company seeks to maintain a Board comprised of talented and dedicated Directors with a diverse mix of expertise, experience, skills and backgrounds. The skills and backgrounds collectively represented on the Board should reflect the diverse nature of the business environment in which the Company operates. As new members of the Board are considered, diversity considerations should include - but not be limited to - business expertise, geography, age, gender and ethnicity.
The Company is committed to a merit-based system for Board composition within a diverse and inclusive culture which solicits multiple perspectives and views and is free of conscious or unconscious bias. When assessing Board composition or identifying suitable candidates for appointment to the Board, the Company will consider candidates on merit with due consideration to the benefits of diversity and the needs of the Board. The Board and its Nominating Committee are especially cognizant of the benefits of gender and ethnic diversity and will continue to focus on important diversity metrics in future searches.
The Board’s Leadership Structure
Under our Corporate Governance Guidelines, our Chief Executive Officer also serves as our Chairman of the Board, and that person is responsible to the Board for the overall management and functioning of the company. Stephen C. Taylor serves as both Chairman of the Board andas well as our President and Chief Executive Officer (“CEO”). The Board believes this is the most effective Board leadership structure at the present time and believes that Mr. Taylor, in his role as Chairman/CEO, has the
ability to execute on both our short-term and long-term strategies necessary for the challenging marketplace in which we compete. The independent directorsDirectors believe that Mr. Taylor's detailed and in-depth knowledge of the issues, opportunities and challenges facing us and our business make him the best qualified directorDirector to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters. Further, as the individual with primary responsibility for managing day-to-day operations, Mr. Taylor is best positioned to chair regular Board meetings and ensure that key business issues and risks are brought to the attention of our Board and/or Audit Committee.
Each of our directors,Directors, other than Mr. Taylor, is independent, and the Board believes that the independent directorsDirectors provide effective oversight of management. The Board may subsequently decide, however, to change that leadership structure which would require a revision to our Corporate Governance Guidelines. The Board believes that it has in place safeguards to ensure that we maintain the highest standards of corporate governance and continued accountability of the CEO to the Board. These safeguards include:
•All members of the Board are independent directorsDirectors except for Mr. Taylor.
•The establishment of the Lead Director position, described below, which assumes the role of ensuring fair, open and independent discussions and decisions amongst the Board. John W. Chisholm currently serves as Lead Director.
•Each of the Board’s standing committees, including the Audit, Compensation, GovernanceESG and Nominating Committees, are comprised of and chaired solely by non-employee directorsDirectors who meet the independence requirements under the NYSE listing standards and other governing laws and regulations. As noted above, these committees meet frequently.
•Review and determination of Mr. Taylor’s compensation and performance remains within the purview of the Compensation Committee.
•The independent directorsDirectors continue to meet in executive sessions without management present to discuss the effectiveness of the company’s management, the quality of the Board meetings and any other issues and concerns.
Lead Director
To promote the independence of the Board and appropriate oversight of management and to demonstrate our commitment to strong corporate governance, the independent directorsDirectors designate an independent, non-employee directorDirector to serve as our Lead Director. The Lead Director helps to facilitate free and open discussion and communication among the independent, nonemployee directors.non-employee Directors. The responsibilities of the Lead Director are set forth in our Corporate Governance Guidelines, which is available under “Investor Relations - Governance Documents” on our website at www.ngsgi.com. Charles G. Curtiswww.ngsgi.com. John W. Chisholm was appointed Lead Director in April 2016.June 2020.
Role in Risk Oversight
Our Board of Directors oversees the management of risks inherent in the operation of our business and the implementation of our strategic plan. Our executive management is responsible for the day-to-day management of risks we face. The Board is periodically advised by management on the status of various factors that could impact our business and operating results, including oil and gas industry issues, operational issues (such as compressor manufacturing issues, and backlog for compressor equipment)equipment etc.), legal and regulatory risks. The full Board is also responsible for reviewing our strategy, business plan, and capital expenditure budget.
Our Board committees assist the Board in fulfilling its oversight responsibilities in certain areas of risk. Our Audit Committee serves an important role in providing risk oversight, as further detailed in its charter. One of the Audit Committee’s primary duties and responsibilities is to monitor the integrity of our financial statements, financial reporting processes, systems of internal controls regarding finance,accounting, and disclosure controls and procedures. The Compensation Committee assists the Board with risk management relating to our compensation policies and programs, and the Governance and Nominating Committee assists with risk management relating to Board organization, membership and structure, succession planning for our directorsDirectors and executive officers, and corporate governance.
CODE OF ETHICS
Our Board of Directors has adopted a Code of Business Conduct and Ethics (“Code”), whichis posted on our website at www.ngsgi.com. You may also obtain a copy of our Code by requesting a copy in writing at 404 Veterans Airpark Lane, Suite 300, Midland, Texas 79705 or by calling us at (432) 262-2700.
Our Code provides general statements of our expectations regarding ethical standards that we expect our Directors, officers and employees, including our Chief Executive Officer and Chief Financial Officer, to adhere to while acting on our behalf. Among other things, the Code provides that:
•we will comply with all laws, rules and regulations;
•our Directors, officers and employees are to avoid conflicts of interest and are prohibited from competing with us or personally exploiting our corporate opportunities;
•our Directors, officers and employees are to protect our assets and maintain our confidentiality;
•we are committed to promoting values of integrity and fair dealing; and that
•we are committed to accurately maintaining our accounting records under generally accepted accounting principles and timely filing our periodic reports.
Our Code also contains procedures for our employees to report, anonymously or otherwise, violations of the Code.
SHAREHOLDER ENGAGEMENT
The Natural Gas Service'sCompany's Board of Directors and executive management believes that building long-term relationships with all Company stakeholders is vital to meeting our strategy for corporate governance.governance goals, and to stand in support of our commercial success. Our shareholders, who invest in our company and elect the board of directors,Board, are entitled to important information about the company's business, policies and practices so they can make informed decisions and knowledgeably participate in the governance process.
The Company’s executive management has directly engaged shareholders throughout the year in many diverse ways including quarterly conference calls, investor and industry conferences and individual meetings initiated by both the Company and shareholders. It is our policy to actively engage our shareholders in dialogue about our business condition,financial and operational trends, the structure of our business, and certain governance issues, including executive compensation. The Compensation Committee considers
During 2020, due to the annual stockholders advisory vote,COVID-19 pandemic, direct person-to-person meetings with shareholders were limited. However, through virtual road shows, conference calls, and video meetings, we were able to meet with nearly all of our largest institutional shareholders, including multiple touch points with many. In addition, we held virtual road shows, conference calls and video meetings with other current and prospective shareholders. These meetings not only allowed the Company to communicate about its current business operations with shareholders, the Company used these meetings to actively solicit shareholders’ views on key corporate governance issues including executive compensation as well as other stockholder input, when reviewingthe Company’s Environmental, Social and Governance (“ESG”) initiatives We have incorporated this feedback into both our compensation and ESG programs.
Overall, the Company engages our shareholders on a regular basis. In addition to periodic reports filed with the U.S. Securities and Exchange Commission, the Company holds quarterly conference calls to discuss interim financial and operational results with its stakeholders, participates in several industry conferences which are available to Company stakeholders in person (temporarily suspended due to the COVID-19 pandemic) or via various public online platforms and meets with shareholders in person throughout the year (also temporarily suspended due to the COVID-19 pandemic and public health considerations). The Company believes that its consistent and continuous shareholder engagement strategy has created an environment in which shareholders are comfortable in providing candid feedback and critique of the Company’s operations, governance and executive compensation programs, principlespolicies.
Additionally, independent Directors have taken a proactive approach in participating in shareholder engagement efforts resulting from feedback received from shareholders and policies.
As a result of critiques of our executive compensation plan and the resultingproxy advisory vote on our executive compensation structure, we directly engaged key institutional shareholders in a number of ways including supplemental proxy materials providing additional descriptive information on our overall executive compensation structure. In addition, since our last Annual Meeting,services. Independent Directors continue to regularly review the Company’s executive management has directly engaged manyshareholder outreach and communication programs and participate as appropriate. The Company anticipates continuing to increase the role of our institutional shareholdersindependent Directors in discussions about our executive compensation program. Specifically, we have discussed our executive compensation program with a number of our top twenty actively managed holders andappropriate stakeholder outreach programs.
During 2020, the Company estimates it met with approximately 75 institutional60 unique shareholders sinceand prospective shareholders in various meetings across North America. These engagements provided detailed information about the Company’s financial and operational performance as well as key information of certain corporate governance matters, including executive compensation. Such information is publicly disseminated in the form of periodic filings with the U.S. Securities and Exchange Commission, press releases and information on the Company’s website, including the investor relations section.
CORPORATE RESPONSIBILITY
Natural Gas Services Group believes that effective corporate governance is a combination of oversight, responsiveness and positioning of our last annual meeting. Asbusiness operations on a resultday-to-day basis with a focus on mitigation of those conversations, the Board has consideredour environmental impact, accountability in corporate governance and adopted certain adjustments toprogress in our executive compensation process andsocial policies. See "Executive Compensation" beginning on page 16.
CODE OF ETHICS
Our Board of Directors believes that integrating these values into our everyday business practices creates a holistic approach to good governance and best aligns the interests of our leadership team, our employees and the Company’s other stakeholders. Moreover, as a smaller company, our holistic approach and consistent focus on these important tenets allows us to focus on continuous improvement without an untenable financial impact, providing a mechanism to optimize the interests of all stakeholders.
Further demonstrating our commitment to ESG matters, the Board of Directors has adoptedchartered the Environmental, Social and Governance and Personnel Development Committee to proactively engage with management and other NGS stakeholders on key ESG issues. The Committee, to be chaired by recently appointed director Nigel J. Jenvey – a Codeleader in environmental issues in the energy industry – will focus on continuous improvement of Business Conductthe Company’s ESG programs and Ethics,policies.
Our Environmental Initiatives
Natural Gas Services Group continuously works to eliminate or “Code”, whichmitigate our impact on the environment through our innovative product designs, focus on reducing our environmental footprint across all operations, and remediation of our impact through control mechanisms and technologies in all aspects of our business. In addition, our innovation in product design and service delivery systems is postedintended to support the sustainability goals and initiatives of our customers.
The design and construction of our new corporate headquarters in Midland is an example of our commitment to environmental stewardship. Our state-of-the art headquarters include the use of “daylight harvesting” technologies; “smart lighting” that use artificial intelligence to determine office occupancy times and adjust light accordingly; and advanced mechanical systems including variable refrigerant flow systems and energy recovery systems; and high-performance glass and advanced solar shades that reduce glare and heat gain. These are significant capital investments for a company our size that will have a long-term impact on our website at environmental footprint.
www.ngsgi.com. You may also obtain a copy
In addition, we strive to continuously improve the environmental footprint of our Code by requestingcore compression equipment and services with new technology and innovations that focus on best-in-class emissions and impact on the environment. Recent innovations include:
• We have and continue to pursue the most energy efficient and emissions-controlled engine systems available for our compression equipment. All of our engines have the latest catalytic technology and air-fuel ratio (AFR) controllers to provide the cleanest fuel burn available, well exceeding EPA standards. These advanced systems continuously monitor multiple engine and compressor parameters to ensure optimum engine emissions efficiencies and adjust to varying fuel quality available from wellhead production.
• To ensure consistent efficient engine performance, we have invested in state-of-the-art emissions detection equipment to ensure our engines exceed all state and federal air emissions regulations. Additionally, we perform preventative maintenance on all engine systems twice per quarter and comprehensive emissions tests to ensure optimum performance. The company is acutely focused on reducing our environment impact on noise, emissions and carbon footprint.
•Our compressor units are equipped with advanced safety and containment features that provide for safe containment and disposal of used oils, antifreeze and other fluids. Skid containment rails and fluid dumps are manifolded together to mitigate the risk of fluid spills and environmental leaks as a copyresult of operating error or system failures. Active monitoring systems provide further assurance of safe and optimal operations.
•In our mechanical compression packages, we have meaningfully reduced our oil consumption and associated disposal issues with a unique engine and compressor lubricating system.
•In our flaring business, we have designed and exclusively sell “Quad O” flare systems which meet the most stringent federal standards, allowing our customers to exceed all emission standards when natural gas flaring is necessary.
•In our Michigan service location, we have installed two oil burner systems which allows us to efficiently recycle waste oil into energy and heat capacity for our service facility.
•We also work with our customers and suppliers toward policies and processes that reduce the environmental impact of our work. We continuously engage with our top customers to share best practices, new technologies and operating innovations that can be implemented to improve our collective environmental footprint.
•We completed construction of our new corporate headquarters in writing at 508 West Wall Street, Suite 550, Midland, Texas 79701 or by calling us at (432) 262-2700.where we incorporated the latest energy-efficient technologies designed for commercial buildings. Innovations include the use of “daylight harvesting” technologies; “smart lighting” that use artificial intelligence to determine office occupancy times and adjust light accordingly; and advanced mechanical systems including variable refrigerant flow systems and energy recovery systems; and high-performance glass and advanced solar shades that reduce glare and heat gain.
•The Board of Directors regularly considers new technologies to further reduce the Company’s environmental footprint and has directed Company leadership to evaluate further opportunities for reducing the impact on the environment.
Our Code provides general statementsSocial Initiatives
In response to the COVID-19 pandemic, Natural Gas Services Group implemented a sweeping work-from-home policy for the majority of our expectations regarding ethical standardsoffice employees and we committed to minimize employment disruption to the best of our ability. For our service employees who provide critical services on customer locations, we invested in important personal protective equipment and developed additional safety protocols to ensure appropriate distancing and other COVID-19 safety measures. In 2020, we also invested in significant employee training and development. While the COVID-19 pandemic created unique challenges related to employment and hiring, the Company remains committed to a diverse and inclusive workforce with both executive management and the Board of Directors focused on ensuring equality of opportunity in all our human resources practices.
The Company also believes that workplace and workforce safety is a hallmark of our social responsibility initiatives. As a result, we expectalso incorporate our Directors, officersHealth, Safety, Environment and employees, including our Chief Executive OfficerQuality (“HSEQ”) initiatives into these programs and principal financial officer,policies. In addition to adhere to while acting on our behalf. Among other things, the Code provides that:
we will comply with all laws, rules and regulations;
our Directors, officers and employees are to avoid conflictsprotection of interest and are prohibited from competing with us or personally exploiting our corporate opportunities;
our Directors, officers and employees are to protect our assets and maintain our confidentiality;
the environment, we are steadfastly committed to promoting valuesthe safety of integrityour employees and fair dealing;other stakeholders as well as the physical and thatmental well being of all members of the NGS family. Our commitment centers on mitigating risks to employees and those with whom they interact and maintaining safe work environments and procedures. Our focus on regular, required safety and procedure training helps ensure a consistent and safe work environment. Our strong safety program has allowed NGS to consistently post one of the lowest Total Recordable Incident Rates (“TRIR”) in the industry.
we are
Our Governance Initiatives
The recent creation of the Environmental, Social and Governance and Personnel Development Committee of the Board of Directors is an important step and indication of the Company’s commitment to continuous improvement in corporate governance and responsibility.
This committee was chartered to be proactive in assisting the Board and Company leadership in its oversight of ESG-related policies and issues affecting Natural Gas Services Group, its stockholders, employees, customers and the communities in which the Company operates. We believe that the integration of our environmental and social initiatives with our governance responsibilities is the best way to optimize our commitment to being an industry leader in corporate responsibility.
In addition to the Board ESG Committee, our audit committee is engaged in independently reviewing the Company’s financial governance practices for accuracy and transparency as well as ensuring they provide the Company stakeholders with a consistent method by which to evaluate performance. In connection with this responsibility, in 2020 the Audit Committee received proposals from independent accounting firms and engaged a new independent auditor to perform our annual audit and quarterly reviews. The committee is satisfied this change stands in support of best governance practices.
While qualifying as a smaller reporting company with fewer disclosure requirements, the Board of Directors and leadership of the Company nonetheless have continued to provide an array of disclosures and reports as it remains committed to accurately maintaining our accounting records under generally accepted accounting principles and timely filing our periodic reports.
Our Code also contains procedures for our employees to report, anonymously or otherwise, violationsa high level of transparency, a practice it believes is in the best interests of the Code.Company’s shareholders and other stakeholders.
EXECUTIVE OFFICERS
Biographical information for the executive officers of Natural Gas Services Group who are not Directors is set forth below. There are no family relationships between any Director or executive officer and any other Director or executive officer. Executive officers serve at the discretion of the Board of Directors and until their successors have been duly elected and qualified, unless sooner removed by the Board of Directors. Officers are elected by the Board of Directors annually at its first meeting following the annual meeting of shareholders.
G. Larry Lawrence, 65, became our Chief Financial Officer, Principal Accounting Officer and Corporate Secretary on July 1, 2011. Previously, Mr. Lawrence was our Controller since September 2010. From June 2006 to August 2010, Mr. Lawrence was self-employed as a management consultant doing business as Crescent Consulting. Overlapping this time, from September 2006 to August 2009, he also served as the CFO of Lynx Operating Company. Lynx is a private company engaged in oil and gas production and gas processing activities. From May 2004 through April 2006, Mr. Lawrence served as Controller of Pure Resources, an exploration and production company and wholly owned subsidiary of Unocal Corporation which was acquired by Chevron Corporation. From June 2000 through May 2004, Mr. Lawrence was a practice manager of the Parson Group, LLC, a financial management consulting firm whose services included Sarbanes Oxley engagements with oil and natural gas industry clients. From 1973 through May 2000, Mr. Lawrence was employed by Atlantic Richfield Company where he most recently (from 1993 through 2000) served as Controller of ARCO Permian. Since May 2006, Mr. Lawrence serves as a director of Legacy Reserves, LP. Mr. Lawrence has a Bachelor of Arts in Accounting, with honors, from Dillard University.
James R. Hazlett, 60,66, has served as Vice President-Technical Services since June 2005. He also served as Vice President of Sales of Screw Compression Systems, Inc. from 1997 until June 2007 when Screw Compression Systems, Inc. was merged into Natural Gas Services Group. After the merger in June 2007, Mr. Hazlett continues to remain employed by Natural Gas Services Group as Vice President-Technical Services. From 1982 to 1996, Mr. Hazlett served in management roles for Ingersoll Rand/Dresser Rand, working with compression of all types in several different departments from sales and service to engineering. From 1978 to 1982, Mr. Hazlett was employed by the down-hole tool division of Hughes Tool, designing and installing gas lift and plunger systems.Mr. Hazlett holds a Bachelor of Science degree from the College of Engineering at Texas A&M University and has over 3840 years of industry experience.
G. Larry Lawrence, 70, has served as our interim Vice President, Chief Financial Officer, and Corporate Secretary for 2021 and Mr. G.L. Lawrence also served as Vice President, Chief Financial Officer and Corporate Secretary prior to his retirement from the Company on November 15, 2019. Mr. G.L. Lawrence was originally appointed to those positions on July 1, 2011. Previously, Mr. G.L. Lawrence was our Controller since September 2010. From June 2006 to August 2010, Mr. G.L. Lawrence was self-employed as a management consultant doing business as Crescent Consulting. Overlapping this time, from September 2006 to August 2009, he also served as the CFO of Lynx Operating Company. Lynx is a private company engaged in oil and gas production and gas processing activities. From May 2004 through April 2006, Mr. G.L. Lawrence served as Controller of Pure Resources, an exploration and production company and wholly owned subsidiary of Unocal Corporation which was acquired by Chevron Corporation. From June 2000 through May 2004, Mr. G.L. Lawrence was a practice manager of the Parson Group, LLC, a financial management consulting firm whose services included Sarbanes Oxley engagements with oil and natural gas industry clients. From 1973 through May 2000, Mr. G.L. Lawrence was employed by Atlantic Richfield Company, where he most recently (from 1993 through 2000) served as Controller of ARCO Permian. From May 2006 to December 2019, Mr. G.L. Lawrence served as a director of Legacy Reserves Inc. and its predecessor, Legacy Reserves LP. Mr. G.L. Lawrence currently serves as a Director of ProPetro Holding Corporation. Mr. G.L. Lawrence has a Bachelor of Arts in Accounting, with honors, from Dillard University.
James R. Lawrence, 51, is our former Vice President, Chief Financial Officer, and Corporate Secretary after resigning from the Company in December 2020. Mr. J.R. Lawrence was appointed to those position on November 16, 2019. Mr. J.R. Lawrence also served as our Corporate Secretary. Mr. J.R. Lawrence, previously served as the Chief Financial Officer of Bold Energy III LLC, a privately held oil and natural gas company that was an affiliate of EnCap Investments. Prior to joining Bold, Mr. J.R. Lawrence served as Vice President-Finance and Treasurer for Legacy Reserves LP, a publicly traded oil and natural gas company, from 2010 to 2014. Prior to joining Legacy, Mr. J.R. Lawrence worked for nine years in investment banking, including the last six years in the Energy Investment Banking Group at Raymond James & Associates, where he served as a Vice President. Mr. J.R. Lawrence holds an MBA with distinction from the Stern School of Business at New York University and a BBA in Accounting and Finance from the University of Texas at Austin. Mr. J.R. Lawrence is also licensed as a Certified Public Accountant in the state of Texas.
Compensation DiscussionEXECUTIVE COMPENSATION
In June 2018, the Securities and Analysis
Compensation DiscussionExchange Commission (“SEC”) approved amendments to the definition of a “smaller reporting company” (SRC) which became effective in September 2018. These amendments greatly expanded the number of companies that qualify as SRCs and Analysis
Thisthereby are eligible to use scaled down disclosures in their SEC filings and reports. For 2020, Natural Gas Services Group, Inc. meets the definition of an SRC. One of the significant SRC benefits is a reduction in the amount of executive compensation disclosure, including deletion of the requirement to provide the compensation, discussion and analysis section our annual proxy statement. Nevertheless, we are cognizant that our compensation disclosure provides important information to our shareholders and have elected to continue with our customary executive compensation disclosures. We believe the following disclosure provides transparency regarding our compensation policies and practices so that our shareholders can make informed decisions and knowledgeably participate in the governance process. As in the past, we intend to continue to engage our shareholders regarding our compensation policies.
This section provides information regarding our executive compensation program in 20152020 for the following executive officers of the Company (collectively, the "named executive officers").:
Stephen C. Taylor, our Chairman, President, and Chief Executive Officer;
G. Larry
James R. Lawrence, our former Vice President and Chief Financial Officer; and
James R. Hazlett, our Vice President-Technical Services.Services; and
G. Larry Lawrence, our interim Chief Financial Officer (as well as our former Vice President and Chief Financial
Officer).
Introduction and Overview
The Compensation Committee or, the “Committee,” of the Board of Directors is responsible for determining the types and amounts of compensation we pay to our executives. The Compensation Committee operates under a written charter that you can view on our website at www.ngsgi.com.www.ngsgi.com. The Board of Directors has determined that each member of the Compensation Committee meets the independence and financial literacy requirements of the New York Stock Exchange NYSE. The Board determines, in its business judgment, whether a particular Director satisfies the requirements for membership on the Compensation Committee set forth in the Compensation Committee’s charter. None of the members of the Compensation Committee are current or former employees of Natural Gas Services Group.Group or any of its subsidiaries.
The Compensation Committee is responsible for formulating and administering our overall compensation principles and plans. This includes establishing the compensation paid to our CEO, meeting and consulting with our CEO to establish the compensation paid to our other executive officers, counseling our CEO as to different compensation approaches, administering our stock equity plans, monitoring adherence to our compensation philosophy and conducting an annual, and sometimes more frequent, reviewinterim, reviews of our compensation programs and philosophy regarding executive compensation.
The Compensation Committee periodically meets in executive session without members of management or management Directors present and reports to the Board of Directors on its actions and recommendations. The Compensation Committee, from time-to-time, also engages compensation consultants and other experts to provide data and guidance on appropriate compensation practices, industry standards, peer selection and other items relevant to the responsibilities and deliberations of the Compensation Committee.
Compensation Philosophy and Objectives
Our compensation philosophy is to provide an executive compensation program that:
•rewards performance and skills necessary to advance our objectives and further the interests of our shareholders;
•is fair and reasonable and appropriately applied to each executive officer;
•is competitive with compensation programs offered by our competitors;competitors and industry peers; and
•serves as an adequate retention tool in a competitive market.market with a finite number of experienced and qualified executives.
The overall objectives of our compensation philosophy are to:
•provide a competitive level of current annual income that attracts and retains qualified executives at a reasonable cost to us;
•retain and motivate executives to accomplish our company goals;goals and uphold and model our company ethics, values and other standards for the Natural Gas Services Group community, including those that stand in support of our ESG principles and initiatives;
•provide long-term incentive compensation opportunities at levels appropriate for the respective responsibilities and performance of each executive;
•align compensation and benefits with our business strategies, and goals;goals and other values and standards;
•encourage the application of a decision making process that takes into account both short-term and long-term risks and the sometimesoftentimes volatile nature of our industry; and
•align the financial interests of our executives with those of our shareholders through the potential grant of equity based rewards.equity-based awards and consider the impact of equity-based awards on shareholders and, where appropriate, consider alternatives to equity-based awards to avoid unnecessary shareholder dilution.
Our Compensation Committee supports these objectives by emphasizing compensation arrangements that we believe are reasonable, and will attract and retain qualified executives, and will reward them for their efforts to further our long-term growth and success. At the same time, we remain cognizant of and aim to balance our executive compensation arrangements with the interests and concerns of our shareholders.
Note Concerning Unique 2020 Considerations: The global COVID-19 pandemic had unexpected impacts on the economy, our industry and our business. While we were able to provide a full array of products and services to our customers, the impact of the pandemic significantly altered the way in which we conducted business and severely disrupted commercial relationships with both customers and vendors. The Compensation Committee recognized the fact such changes had a material impact on the workload on and effort required of our executive leadership team to manage our operations. As such, the Compensation Committee took these extraordinary circumstances, the impact of such on our business and financial performance and the adjustments required of our executives as a result into account when assessing performance and appropriate compensation for 2020.
The following summary highlights our commitment to executive compensation practices that align the interests of our executives and stockholders:shareholders:
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| WHAT WE DO | | WHAT WE DON’T DO |
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| ü | Fully independent compensation committee- permits the establishment of competitive compensation practices and the measurement of actual performance in a conflict-of-interest free environment | | û | No gross-ups - executive officers are not eligible to receive any tax reimbursement payments or “gross-ups” in connection with any severance or change-in-control payments or benefits |
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| ü | Broad-based retirement programs - all of our retirement plans are broad-based and are provided to all full-time employees in addition to our executive officers | | û | Limited perquisites - with the exception of a car allowance for our officers and certain nominal expense reimbursements as detailed in the Summary Compensation Table that follows this CD&A,compensation report, we do not provide any perquisites
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| ü | Independent compensation consultant - the Committee annually engages its ownan independent compensation consultant to assist with its compensation reviews
| | û | Prohibition of hedging and pledging sharesNo stock option exchanges or repricing - we do not permit hedgingallow for stock option exchanges or pledging as collateral for a loan nor do we permit our executives or non-employee directors to engage in any derivatives trading with respect to our commonthe repricing of outstanding stock options without shareholder approval
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| ü | Annual review- the Committee conducted itsconducts an annual review and approval of the Company’s compensation strategy, including a review of our compensation peer group used for comparative purposes and a review of our compensation related risk profile to ensure that such risks are not reasonably likely to have a material adverse effect on the Company | | û | No stock option exchanges or repricingPledging and hedging shares - we do not allowpermit pledging our shares as collateral for a loan; and we also strongly discourage our executives and non-employee Directors from entering into hedging or similar monetization transactions with respect to our common stock, option exchanges or the repricing of outstanding stock options without stockholder approvalas any deviation from our hedging policy must be approved in advance by our CEO and Board
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| ü | Risk mitigation - we have certain controls in place (signature authority, governance policies, SOX processes,compensation structure, etc.) and an analysis is conducted on a quarterly basis
| | û | No related party transactions - we do not have any related party transactions |
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| ü | Double-trigger employment- our change-in-control payments and benefits with our Chief Executive Officer are based on a “double-trigger” provision | | | |
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| ü | Stock ownership guidelines - stringent ownership policies for Directors, CEO and CEOother officers | | | |
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| ü | Clawback policy - applicable to our NEO's ("named executive officers") and other executive officers | | | |
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| ü | Three Year Vesting on Equity Awards - equity awards to our NEOs are subject to a three-year vesting requirement | | | |
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| ü | Performance Compensations - our cash bonuses are primarily tied to annual financial performance metrics and a portion of our CEO's long-term equity award is tied to our total shareholder return compared to our peer group | | | |
We have chosen to implement a relatively streamlined compensation framework for our executives. We feel that our compensation philosophies and practices are appropriate given our relatively small size asfor a public company. By continuingcompany of our size. This streamlined framework allows the Company and Compensation Committee to maintain a relatively streamlined compensation framework for our executives, we believe that we are able to establish a higherhigh degree of transparency, understanding andas well as relative certainty for our executives as well asand our shareholders and prospective investors, while minimizing the investing public, while at the same time avoidingimpact of complex benefit packagesprograms that are both costly and agreementspotential confusing. Our compensation programs are focused on a simple goal: a fair, reasonable and straightforward compensation program that can be, in some ways, difficult to understand and require significant time and cost to properly administer. In the end, we believerewards our compensation arrangements provide the desired results: fair and reasonable payleadership team for achievements beneficial to Natural Gas Services Group, Inc.the Company and its shareholders.
Advisory Vote on Compensation; Shareholder EngagementCompensation
At our 2015 Annual Meeting, less than 50%Although the Advisory Vote on Executive Compensation is not binding on the Company, the Board of Directors assigns significant weight to the outcome of the votes cast onvote and responds accordingly. In the annual advisory “Say-on-Pay” proposal were cast in supportpast five years, the Board and executive management considered the results of the compensation of our named executive officers. This was significantly lower than the support levels of previous years. The results were disappointing since we believe the vote was the result of the influence ofand recommendations of certain proxy advisory firms, both of which advise institutional investors on voting on annual proxy matters. We believe that their reports contained factual errors and assumptions that resulted in questionable conclusions and recommendations. Our specific objections to their reports were detailed in supplementary proxy materials that were distributed last year. It is important to note that while the proxy advisory firms felt that our general compensation structure was lacking in some areas there was no lack of alignment in their ‘pay for performance’ metric and, in fact, they complimented the compensation committee for their continued rigor in setting financial targets.
Although this was a non-binding advisory vote, the Company’s Board of Directors takes the results of this vote seriously, and during 2015 the Company’s Board of Directors and executive management deliberated extensively over the results of last year's "Say-on-Pay" vote andas it engaged in meaningful review of its corporate governance and executive compensation matters with advisors as well asand other stakeholders. The vast majority of input on our compensation programs and executive pay from these shareholders has been positive.
While the
The Compensation Committee and full Board believesof Directors believe that our executive compensation program and corporate governance policies are strongoptimal for the Company, continue to align company leadership with the best interests of shareholders, and have served us well, itfacilitated and supported executive compensation that has delivered industry-leading results. At the same time, the Compensation Committee also recognizes the changingever-evolving compensation and governance landscape.
Below is a summary of what we heard and the actions we took in response:response to many of these issues during the last five years:
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| Compensation and Governance Concerns | | Responses to the Concerns |
| Insufficient Risk Mitigators (i.e., lack of clawback policy and stock ownership guidelines) | | We have adopted both a Clawback Policy covering our executive officers and Stock Ownership Guidelines covering our executive officers and members of our Board of Directors. We do note that our company has never had a financial restatement and that each officer and director presently maintains their stock holdings in excess of the minimum guidelines.
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One Year VestingLong-term incentives for CEO not directly performance driven and one year vesting of Restricted Stock Grants to Executive Officers
| | The Compensation Committee approved a new frameworkA portion of the long-term incentives for our long-term equity compensation. With respectCEO is now objectively calculated based on total shareholder return compared to our recent restricted stockpeer group, and all long-term incentive awards to our executive officers for fiscal 2015 (granted in early 2016), such awards vest over two years and future awards will vest in one-third increments over three years. Our Compensation Committee continually reviews reports and data relating to the manner in which share awards are determined and vest in keeping with the evolving trends for this type of compensation.
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| Equity Award for CEO based on one-year TSR | | Starting in 2017, the TSR (total shareholder return) performance-driven portion of our CEO’s equity award was based on our three-year TSR results compared to the companies in our peer group.
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| Excessive Cash Severance | | We do not feel that the cash severance benefits for our Chief Executive Officer are excessive. Any change of control severance requires a ‘double-trigger’ to be payable and the triggers are limited to the standard "good reason" "Good Reason" events (see page 43)47). We believe the severance benefits are within the norms of companies in our industry that exhibit a similar performance profile that we do, i.e., industry leading total shareholder returns in each ofover the past one,last three and five year periods. Please see the chartstabular disclosure on page 2326 and the 20152020 performance achievements below. The cash severance due to our CEO in connection with "good reason" events (typically be an involuntary occurrence) equates to approximately three years of total compensation based upon a year of good performance, which the Company has consistently demonstrated.
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| Lack of Lead Independent Director | | We have had an appointed lead director for years, but have amended our Corporate Governance Guidelines to include the public identification and acknowledgment of a lead independent director. Charles G. Curtis, our longest tenured independent director, has been formallyDirector. John W. Chisholm was appointed as our lead director. |
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Targeting 75th percentile for CEO's total compensation | | Lead Director in June 2020. Our CEO's total compensation (base pay and short and long term incentives) has been between the 50th and 75th percentile when compared to peer group companies with the final approved compensation being a combination of the CEO's and the Company's performance. Typically, although it can vary, base salary of our CEO has been in the 50th percentile range while long term incentives are employed to increase the compensation package to competitive levels. This allows the Compensation Committee to annually adjust the CEO's long term incentives in keeping with shareholder returns and Company performance. We think this is an appropriate alignment of pay relative to performance of the company and the competitive market. Supporting this practice is the fact that the Company has performed in the top 15% to 25% of peer group companies for Total Shareholder Return in the last one, three and five year periods (please see pages 22 and 23 for relevant data). Our Compensation Committee believes this performance has justified total compensation being awarded in the 75th percentile range in recent years. However, in the future, if the relative performance of the Company lags our peer group of companies, then the CEO’s total compensation will be evaluated under those circumstances.
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Awarding long-term equity awards on a purely discretionary basis with minimum awards guaranteed | | In the future, long-term equity awards will be based on a combination of the relative TSR (Total Shareholder Return) of the Company when compared to our peer group of companies and a discretionary component that shall be evaluated by the Compensation Committee. |
Operational Highlights of 2020
•Through the COVID-19 pandemic, we implemented sweeping stay-at-home work policies for our office personnel and provided safe operating standards for our field personnel. We maintained high operational standards while preserving the health and welfare of our team.
•We continued our penetration into the high horsepower market through the addition of 42 new rental fleet units that totaled 23,000 HP with 89% of this being classified as larger horsepower.
•Increased our total rental fleet horsepower to 438,524 horsepower; the foregoing, other concerns made byfourth consecutive year of increases.
•Increased our average rental fleet horsepower to 197 horsepower per unit. This is an increase of 36% per unit since 2017.
•NGS recorded a TRIR (Total Recordable Incident Rate) of 0.0 in 2020. This is an OSHA approved calculation that conveys the proxy advisory firms are discussed elsewhere in this section.
Fiscal Year 2015 Performance
In 2015, our financial performance demonstrated extremely positive results and continued to demonstrate a financial condition that provided stability and excellent shareholder value in a very challenging timenumber of recordable injuries for a service companyevery 200,000 man-hours worked in the oil and gas industry. Some of our financial and operational highlights include:
Increasing cash and cash equivalents from $6.2 million to $35.5 million in 2015;
Maintained long-term debt at a continuing, very low level (less than $500,000);
Total revenue decreased only 1.1% in 2015 compared to 2014, a record revenue year. This made 2015is the second highest revenuethird consecutive year in the company’s history, a significant achievement considering the operating environment in 2015;
Decreasing capital expenditures from $53.3 million in 2014that NGS has had decreasing TRIR statistics which allowed us to $12.5 million in 2015 demonstrating a timely and quick response to the deteriorating oil and gas industry environment;
The Company has self-funded growth capital expenditures in excess of $185 million since 2010;
Operating cash flow as a percentage of revenue was 43% in 2015, increasing from 35.6% in 2014, making the Companyremain an industry leader in this category;overall safety.
FreeFinancial Highlights of 2020
•In one of the most challenging years for oilfield service operations in decades, we delivered 7% higher rental revenue than the prior year. This was in spite of the impact of COVID-19 and the precipitous decline in crude oil prices.
•Our cash flow (from operations increased from $29.4 million in 2019 to $32.7 million in 2020. This increase in cash was accomplished in the midst of the pandemic and an oil-price depression.
•We provided conversion of revenue to operating cash flow less capital expenditures) as a percentageof 48%; for every dollar of revenue collected, almost half was 30.3%available as cash to the Company.
•NGS ended 2020 with $28.9 million in 2015 compared to (19.4%)cash on the balance sheet and de minimis debt. This is an increase in 2014, andcash from $11.6 million compared to the S&P500 in reporting 9% in 2015 when compared to 2014;end of 2020.
Maintained adjusted EBITDA (as defined on page 24) at 44-45% of revenue in both years while limiting 2015 adjusted EBITDA deterioration to only 3% in 2015;
Increased average gross margins in our core rental business from 60% in 2014 to 62% in 2015, notwithstanding continuing pressures on revenue and pricing due to the significant fall-off in oil and gas industry;
Increased compressor sales revenues by 27% from 2014 to 2015;
Maintained SG&A expenses at 11% of total revenue in both 2014 and 2015 -- the lowest among our public peers;
Finalized development, and introduced two new gas compression products, a 500 horsepower CiP compressor frame/package and a 50HP-100Hp Vapor Recovery Unit (VRU) product line; and
For 2015, the Company's common stock price slipped only 3%, while identified public peers were down 43.5%, the OSX index (oil service sector) was off 25.2%, West Texas Intermediate (WTI) fell 30.5% and the U.S. land rig count decreased by 61.5%.
Elements of Our Compensation Program
In order to achieve the objectives set forth above in our compensation philosophy and objectives, we have structured an executive compensation program that provides our named executive officers with the following:
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| Element | | Characteristics | | Primary Objective |
| Base Salary | | Cash | | Attract and retain highly talented individuals |
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| Short-Term Incentives | | Cash-based performance awards | | Reward for corporate and individual performance |
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| Long-Term Incentives | | Restricted stock awards along with vesting periodother long-term incentives payable in either cash or stock, all of which potentially vest over three years | | Align the interests of our employees and shareholders by providing employees with incentive to perform technically and financially in a manner that promotes share price appreciation |
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| Other Benefits | | 401(k) matching plans and employee health benefit plans | | Provide benefits that promote employee health and support employees in attaining financial security |
We do not presently and have not in the past used any of the following types of executive compensation:
•defined benefit pension plans;
•employee stock purchase/ownership plans; or
•supplemental executive retirement plans/benefits.benefits (other than a Nonqualified Deferred Compensation Plan to which named executive officers and other eligible employees can contribute but to which the Company has not contributed).
Assistance Provided to the Committee
The Compensation Committee makes all compensation decisions regarding our executive officers. Stephen C. Taylor, our Chief Executive Officer, annually reviews the performance of each of our executive officers (other than the Chief Executive Officer whose performance is reviewed by the Compensation Committee) and presents recommendations to the Compensation Committee with respect to salary and cash bonus percentage adjustments and restricted stock grants for our executives (other than the Chief Executive Officer whose salary, cash bonus percentage adjustments and restricted stock grants and other long-term incentives are determined solely by the Compensation Committee). The Compensation Committee may exercise its discretion in modifying any recommendations made by our Chief Executive Officer.
The Compensation Committee also seeks the input and insight of Mr. Taylor concerning specific factors that Mr. Taylor believes to be appropriate for the Compensation Committee’s consideration and which the Compensation Committee may not be aware of, such as extraordinary efforts or accomplishments of our executive officers. Mr. Taylor, from time-to-time, also advises the Compensation Committee on generalother topics such as the moralerelated to compensation and retention of our executives.executives as requested.
Natural Gas Services Group’s accounting and human resources departments assistdepartment assists the Compensation Committee in the compensation process by gathering and organizing data, which is then presented to the Compensation Committee by Mr. Taylor for the Committee’sits review.
In lateSince 2012, our Compensation Committee hiredhas engaged an independent compensation consultant, Longnecker & Associates (“Longnecker”(the “Compensation Consultant”), to obtain objective, expert advice and assist with compensation matters concerning our Chief Executive Officer and Directors. LongneckerOur Compensation Consultant advised the Compensation Committee on a variety of compensation related issues in 20152020 with respect to our Chief Executive Officer, including:
•competitive pay analysis on executive compensation;
•pay levels of the Chief Executive Officers; andOfficer;
•our executive compensation program design, including short-term incentive plan design, long-term incentive plan design, and pay mix.mix; and
•analysis and recommendations concerning peer group companies.
In the course of conducting its activities, Longneckerour Compensation Consultant communicated with the Compensation Committee and presented its findings and recommendations for discussion. During 2015, Longnecker2020, our Compensation Consultants also met with our Chief Executive Officer to review its compensation report.
In 2014 and 2015, LongneckerSince its engagement, our Compensation Consultant did not provide any services to the Company, or receivereceived any payments from the Company, other than in its capacity as a consultant to the Compensation Committee. The Compensation Committee has assessed whether
the services provided by Longneckerour Compensation Consultant raised any conflicts of interest pursuant to the SEC rules, and has concluded that no such conflicts of interest existed during 2014 or 2015.since its engagement and through 2020.
Competitive Pay Analysis
To evaluate the competitiveness of our Chief Executive Officer's base salary, targetdetermine total cash compensation (i.e.(e.g., base salary plus target short-term cash incentive award), long-term incentive awards, and total direct compensation (i.e.(e.g. base salary, target short-term cash incentive award, and long-term incentive awards), Longnecker annually providesour Compensation Consultant provided the Compensation Committee with competitive pay information derived from a custom peer group that is reviewed each year (the “Custom Peer“Peer Group”) and referred to a variety of published compensation surveys. Thesurveys utilizing companies comprisingthat operate within the Customnatural gas compression and energy services industries. In connection with compiling the data, our Compensation Consultant reports blended data from the Peer Group and the industry-specific published compensation surveys in Longnecker’s compensation report used in connectionorder to provide the Compensation Committee with 2015 included:relevant comparable data.
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NGS Custom Peer Group | |
Company Name | Company Description |
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Gulfmark Offshore, Inc. | GulfMark Offshore, Inc. provides offshore marine support and transportation services primarily to companies involved in the offshore exploration and production of oil and natural gas. |
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Archrock Partners, LP | Archrock Partners, L.P. provides natural gas contract operations services to customers in the United States (In November 2015, Exterran Partners, L.P. spun off their US compression into a new entity named "Archrock Partners"). |
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Dawson Geophysical Co. | Dawson Geophysical Company provides onshore seismic data acquisition and processing services in the United States. |
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Callon Petroleum | Callon Petroleum is an independent energy company which is focused on growing production and reserves from its oil-weighted, multi-play, multi-pay assets in the Permian Basin.
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Vaalco Energy, Inc. | VAALCO Energy, Inc., an independent energy company, together with its subsidiaries, engages in the acquisition, exploration, development, and production of crude oil and natural gas. |
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Team, Inc. | Team Inc. provides specialty industrial services in the United States, Canada, Europe, and internationally related to the construction, maintenance and monitoring of pressurized piping and associated systems in the refining, petrochemical, power, pipeline and other heavy industrial industries. |
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Tesco Corp. | Tesco Corporation, together with its subsidiaries, is engaged in the design, manufacture and service delivery of technology-based solutions for the upstream energy industry worldwide. |
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RigNet, Inc. | RigNet, Inc. provides remote communications services for the oil and gas industry. |
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Mitcham Industries, Inc. | Mitcham Industries, Inc., through its subsidiaries, engages in the leasing, sale, and service of geophysical and other equipment to the seismic industry worldwide. |
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USA Compression Partners, LP | USA Compression Partners provides natural gas compression services under term contracts with customers in the oil and gas industry in the U.S. |
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Warren Resources, Inc. | Warren Resources, Inc., an independent energy company, engages in the exploration, development, and production of onshore oil and natural gas reserves in the United States. |
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Flotek Industries Inc. | Flotek Industries develops and supplies drilling, completion and production technologies and related services to the energy and mining industries in the U.S. and internationally. |
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The Compensation Committee, with the assistance of the compensation consultant,Compensation Consultant, reviewed the companies comprising the Custom Peer Group in order to maintain its appropriateness for the competitive pay analysis. These companies were generally selected since they are all companiesas peers in the energy and energyoilfield services industry of similar size based on market capitalization and have various rental, leasing or manufacturing components in their business with all having an acceptable range of relatively similar annual revenues and market capitalization.other competitive variables. The Compensation Committee believes market capitalization should be the Customprimary metric used when selecting industry peers for executive compensation purposes. The Compensation Committee believes the Peer Group reflects our current competitors for employee talent and that it provides an appropriate comparison of peer setcompanies for the purposes of evaluating our pay practices and the Chief Executive Officer’s pay levels.
The published compensation surveys consisted of the following:
Economic Research Institute --
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Executive Compensation Assessor
Tower Watson --
Top Management Compensation
Mercer, Inc. -- Executive General Benchmark Survey
Kenexa -- CompAnalyst Benchmark Survey
WorldatWork -- Total Salary Increase Budget Survey
The Compensation Committee used the competitive pay information and surveys as a “market check” to ensure, in its subjective judgment, that the Chief Executive Officer’s base salary, target total cash compensation, long-term incentive awards and total direct compensation remain competitive. The Compensation Committee does not target any individual pay component to fall within a specific range or percentile of the competitive pay information. While the competitive pay information is important to the Compensation Committee’s approval process, it is just one of several factors considered by the Compensation Committee in approving executive compensation and the Compensation Committee has discretion in determining the nature and extent of its use.
The companies comprising the Custom Peer Group in our Compensation Consultant's compensation report used in connection with 2020 included:
| | | | | |
| NGS Custom Peer Group | |
| Company Name | Company Description |
| |
| CSI Compressco, LP | CSI Compressco LP provides compression services and equipment for natural gas and oil production, gathering, transportation, processing, and storage. |
| |
| Dawson Geophysical Company | Dawson Geophysical Company provides onshore seismic data acquisition and processing services in the United States. |
| |
| Geospace Technologies Corporation | Geospace Technologies Corporation designs and manufactures instruments and equipment used in the acquisition and processing of seismic data and markets its seismic instruments primarily to the oil and gas industry worldwide. |
| |
| Independence Contract Drilling, Inc | Independence Contract Drilling, Inc. provides land-based contract drilling services for oil and natural gas producers in the United States.
|
| |
| ION Geophysical Company | ION Geophysical Corporation provides geophysical technology, services, and solutions for the global oil and gas industry. |
| |
| Key Energy Services, Inc. | Key Energy Services, Inc. operates as an onshore rig-based well servicing contractor in the United States and offers clients a comprehensive array of onshore energy production services and solutions. |
| |
| Mammoth Energy Services, Inc. | Mammoth Energy Services, Inc. offers natural sand proppant, contract land and directional drilling, pressure pumping, flowback, equipment rental, and remote accommodation services for the onshore exploration and production industry. |
| |
| NCS Multistage Holdings, Inc. | NCS Multistage Holdings, Inc. provides engineered products and support services that facilitate the optimization of oil and natural gas well completions and field development strategies for the onshore oil and gas exploration and production industry. |
| |
| Nuverra Environmental Solutions, Inc. | Nuverra Environmental Solutions, Inc. provides environmental solutions and oilfield support services including removal, treatment, recycling, transportation, and disposal of restricted solids, fluids, and hydrocarbons for exploration and production companies. |
| |
| Ranger Energy Services, Inc. | Ranger Energy Services, Inc. provides well site services and associated equipment, including well rigs, water transfer, plug and abandonment, wireline, fluid management and handling, snubbing, transportation, and equipment renting services. |
| |
| RigNet, Inc. | RigNet Inc. is a data network infrastructure provider serving the remote communications needs of the oil and gas industry through a controlled and managed Internet Protocol/Multiprotocol Label Switching global network, delivers voice, data, video, and other services. |
| |
| Smart Sand, Inc | Smart Sand, Inc. provides industrial sand. The Company offers proppants, sand products and renders logistics services to oil and gas companies in North America. |
| |
| Solaris Oilfield Infrastructure, Inc. | Solaris Oilfield Infrastructure, Inc. provides mobile sand silo and rail-to-truck transload systems to enhance drilling, completions, and safety in shale plays in the United States. |
Performance Comparison to Peer Group
The table below shows the aggregate one, three and five-year Total Shareholder Return (“TSR”) for the Company as well as the median TSR for the peer group utilized by the Company.
| | Aggregate Total Shareholder Return | | Company/Peer Group | 1-year TSR | 3-year TSR | 5-year TSR | Company/Peer Group | 1-year TSR | 3-year TSR | 5-year TSR |
| Natural Gas Services Group | (3.2)% | 35.8% | 17.9% | Natural Gas Services Group | (22.7)% | (63.8)% | (57.5)% |
| Median NGS Proxy Peer Group | (43.5)% | (37.9)% | (54.3)% | |
| Median NGS Proxy Custom Peer Group | | Median NGS Proxy Custom Peer Group | (34.9)% | (76.7)% | (67.8)% |
As the foregoing table indicates, the Company has significantly outperformed its peers in both 2015 and over the past five years. Moreover, as the table below indicates, on an annualized basis, the Company has also outpaced its peer group over the same time period.
|
| | | |
| Annualized Total Shareholder Return |
| Company/Peer Group | 1-year Ann. TSR | 3-year Ann. TSR | 5-year Ann. TSR |
| Natural Gas Services Group | (3.2)% | 10.7% | 3.4% |
| Median NGS Proxy Peer Group | (43.5)% | (14.7)% | (14.5)% |
Individual and Company Performance - Base Salary and Equity Awards
The Compensation Committee also evaluates compensation, particularly base salary levels and equity awards (restricted stock awards), through an analysis of each executive officer’s individual performance and the overall performance of Natural Gas Services Group,the Company, our goal being to strengthen the link between what we pay our executives and the performance of Natural Gas Services Group.the Company. Factors the Compensation Committee considers in our analysis include:
the•The individual performance, leadership, business knowledge and level of responsibility of our officers;
the•The particular skill-set and longevity of service of the officer;
the•The effectiveness of the officer in implementing our overall strategy; and
the•The general financial performance and health of the Company.
•The upholding and implementation of key Environmental, Social and Governance principles established by the Board of Directors and its committees.
Our CEO is additionally evaluated on his specific ability and effectiveness with respect to shareholder and customer engagement.
Specific Company Financial Metrics - Cash Bonuses
With respect to compensation we pay in the form of cash bonuses, the Committee sets performance levels for three specific companyCompany financial metrics. The Committee relies on whether these levels are achieved and the individual performance of our executive officers to determine whether cash bonuses are awarded and the amounts of such bonuses. The three financial metrics the Committee considers are:
total•Total revenues;
adjusted•Adjusted EBITDA; and
adjusted net•Net income before taxes.
Adjusted EBITDA is calculated from our audited financial statements by adding to net income or loss, (1) amortization and depreciation expense, (2) interest expense, (3) provision for (or benefit from) income tax expensetaxes, (4) impairment of goodwill, (5) an increase in inventory allowance, and (4)(6) loss on retirement of rental equipment.
We believe that our core executive compensation mix of base salary, cash bonuses, and equity awards while fairly limited,and other long-term incentives presently provides enough diversity for us to link executive compensation to our short-term and long-term objectives. For instance, base salary and cash bonuses generally relate to short-term achievements and objectives while equity awards are more closely linked to the long-term objectives of earnings per share and increased market value of our common stock or maintenance of market value in periods of depressed industry performance, such as during the past two years.
Base Salary
We provide our executive officers and other employees with base salary to compensate them for services rendered during the fiscal year. Each year the Compensation Committee receives base salary recommendations from our Chief Executive Officer for all of our executive officers (other than our Chief Executive Officer whose base salary is evaluated by the Compensation Committee on an annual basis).
In January 2015,April 2020, the Compensation Committee reviewed the 20142019 performance of our Chief Executive Officer, Stephen C. Taylor, along with the competitive pay information provided in Longnecker’sthe Compensation Consultant’s report, in setting Mr. Taylor's base salary for 2015. Before the increase in salary for 2014, Mr. Taylor’s base salary fell to slightly less than the 50th percentile bracket in the Company’s peer group. In connection with2020. Based on that review and considering economic, industry and public health challenges at that time, the Compensation Committee increasedmaintained the base salary of Mr. Taylor from $505,175 in 2014 to $543,063 in 2015, which moved Mr. Taylor’s base salary to approximately the 63rd percentile bracket. The increase was made in recognition of Mr. Taylor’s leadership and contributions to the Company's strong 2014 financial and operational results, which included: (i) increasing total gross margin, exclusive of depreciation and amortization, by 11.4% to $53.8 million for 2014 from $48.3 million for 2013; (ii) achieving in 2014 record high revenue of $97 million, a 9.0% increase in revenue from 2013; (iii) a 7% increase in EBITDA; generating $34.6 million from operations, while investing $53.1 million in capital for equipment; (iv) controlling SG&A expense to 10.6% of revenues; increasing rental revenue by 14.4%; internally funding over $175 million in growth capital since 2010 while maintaining a very low debt level when compared to competitors; (v) maintaining high margins and maintaining high ratios of operating income, net income and EBITDA when compared to gross revenues relative to competitors; (vi) aggressive expansion into new geographic areas; (vii) positioning our business to emphasize servicing oil and gas production
at $612,000.
rather than drilling projects in order to offset drilling slowdowns as witnessed in the latter half of 2014; and (viii) maintaining safety performance.
While the Compensation Committee reviewed the competitive pay information in connection with setting Mr. Taylor's base salary adjustments, together with his contributions toward our goals, the Compensation Committee did not target his base salary to fall within a specific range or percentile of the competitive pay information.26
With respect to our other two named executive officers other than our CEO, the base salary in 2020 of James Hazlett, our Vice President ofPresident- Technical Services, base salary for 2015 was $200,000 compared to $190,000 for 2014.remained unchanged from 2019 at $225,100. The base salary of G. LarryJames R. Lawrence, our Vice President and Chief Financial Officer at the time who joined the Company in October 2019, was increased from $200,000 to $210,000. Mr. Lawrence resigned in December 2020.
Annual salary reviews for 2015, was $187,000 compared to $170,000 for mostMr. Taylor and Mr. Hazlett were conducted in March 2021 and, in light of 2014. We continue, as we have in the past, to rely on the following factors in evaluating and determining the amount of compensation we pay these executives:
our general knowledge of executive compensation levels in the natural gas compressioncontinuing economic, industry and similarly sized energy service companies;
each executive’s individual performance andpublic health challenges, the overall performance of Natural Gas Services Group; and
specific company financial metrics andCompensation Committee elected again to not increase the application of specific weights to such metrics.
The applicabilitybase salaries of these factors varies depending on the type of compensation being evaluated and determined. For instance, we do not rely on weighted company financial metrics to evaluate and determine base salary levels (which are competitively set to the market), but the achievement of pre-set financial metrics are the primary means through which we evaluate and determine the amount of the cash bonuses we award to our executives. Below is a more detailed discussion of how these factors apply to the different types of compensation we utilize.officers for 2021.
Short-Term Incentives - Annual Incentive Bonus Plan
In 2006, the Committee adopted an Annual Incentive Bonus Plan or, the “IBP,” that provides guidelines for the calculation of annual non-equity incentive based compensation in the form of cash bonuses to our executives, subject to Committee oversight and modification. The bonuses awarded under the IBP are short-term awards in recognition of the overall performance and efforts made by certain of our executives during a particular year. Each year, the Committee approves the group of executives eligible to participate in the IBP and establishes target award opportunities for such executives. For 2015,2020, the Committee maintained Mr. Taylor’s target award opportunity to up toat 100% of his base salary. Target award opportunity was 50% of average base salary for Messrs. Lawrence andMr. Hazlett.
In 2015,For 2020, 90% of an executive officer’s IBP award was based on achievement of company financial objectives relating to:
total•Total revenues;
adjusted•Adjusted EBITDA; and
adjusted net•Net income before taxes.
Each of these three components accounts for 30% of the total company financial objective portion of the IBP. The remaining 10% of an executive officer’s IBP award is based upon individual performance as evaluated by our CEO (except with respect to our CEO whose individual performance is evaluated by the Committee).
Each year, the Committee sets athree performance levellevels for each component of the company financial objective portion of the IBP. The payment of awards under the IBP is based upon whether these performance levels are achieved for the year. Payout on each of the three financial objectives is as follows:
•75% of the bonus amount attributable to a financial component will be paid if we achieve at the "threshold" amount;
•100% of the bonus amount attributable to a financial component will be paid if we achieve the "target" amount; and
•125% of the bonus amount attributable to a financial component will be paid if we achieve the "stretch" amount.
2020 Annual Incentive Bonus Plan
For
| | | | | | | | | | | |
| 2020 Executive Bonus Criteria | Revenue | Net loss before taxes | Adjusted EBITDA(1) |
| Threshold achievement pays 75% of bonus | $ | 62,325,000 | | $ | (3,788,000) | | $ | 20,762,000 | |
| Target achievement pays 100% of bonus | 65,605,000 | | (2,148,000) | | 22,402,000 | |
| Stretch achievement pays 125% of bonus | 67,573,000 | | (1,163,000) | | 23,387,000 | |
(1) Adjusted EBITDA is an indicator of operating performance achievement betweenand is defined as the set financial objectives, the board has discretion to prorate the amountCompany's earnings or loss before interest expense, income taxes (benefit), depreciation and amortization expense, impairment of the award.goodwill, increase in inventory allowance, and loss on retirement of rental equipment.
The following table sets forth the bonus financial criteria and performance levels set by the Committee and compares such performance levels to actual performance achieved and the resulting bonus payout percentages earned in 2015:
2015 Annual Incentive Bonus Plan
|
| | | | |
Performance Level (1) | Payout % | Revenue | Adjusted Net Inc. before Taxes(1) | Adjusted EBITDA(1) |
| Threshold | 75% | $ 83,232,489 | $ 11,547,015 | $33,912,884 |
| Target | 100% | $ 88,073,937 | $ 15,876,422 | $38,242,292 |
| Stretch | 125% | $ 94,628,733 | $ 17,060,040 | $39,425,910 |
| |
(1) | The three financial performance levels were based on operating performance without giving effect to a loss on a non-recurring retirement of rental equipment and allowances taken in second quarter of 2015. |
The following table sets forth the actual results achieved and the resulting bonus payout percentages earned in 2015:
|
| | | | | | | | | | | | |
| Criteria | 2015 Performance | Stretch Metric(1) | Eligible Bonus Percentage | Bonus Component | Payable Bonus |
| Revenue | $ | 95,918,835 |
| $ | 94,628,733 |
| 125 | % | 30 | % | 37.5 | % |
Adjusted Net Income before Taxes* | $ | 19,789,785 |
| $ | 17,060,040 |
| 125 | % | 30 | % | 37.5 | % |
| Adjusted EBITDA** | $ | 42,406,476 |
| $ | 39,425,910 |
| 125 | % | 30 | % | 37.5 | % |
| Personal Performance | | | 100 | % | 10 | % | 10.0 | % |
| Total | | | | | 122.5 | % |
(1)The three financial levels and 2015 performance were based on operating performance without giving effect to a special loss on retirement of rental equipment write-down taken in 2015.
* Adjusted Net Income before Taxes is adjusted for loss on retirement of rental equipment and second quarter 2015 increase in allowances. See fourth quarter 2015 8-K.
** Adjusted EBITDA is defined as the Company's earnings before interest, income taxes, depreciation, amortization, and loss on a non-recurring retirement of rental equipment, and is an indicator of operating performance.
The following table sets forth themaximum bonus eligibility set by the Committee for 20152020 for each of our named executive officers, and based upon the payout percentages noted in the table above, the bonus payout amount earned by each named executive for 20152020 under our Annual Incentive Bonus Plan:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Criteria | | Actual 2020 Performance | | Target Metric | | Stretch Metric | Eligible Bonus Payment
Percentage | Bonus Component | | Payable Bonus |
| Revenue | | $ | 68,055,000 | | | $ | 65,605,000 | | | $ | 67,573,000 | | 125 | % | 30 | % | | 37.5 | % |
| Net loss before taxes | | (2,984,000) | | | (2,148,000) | | | (1,163,000) | | 75 | % | 30 | % | | 22.5 | % |
Adjusted EBITDA(1) | | 22,703,000 | | | 22,402,000 | | | 23,387,000 | | 100 | % | 30 | % | | 30.0 | % |
| Personal performance | | | | | | | 100 | % | 10 | % | | 10.0 | % |
| Total | | | | | | | | | | 100.0 | % |
|
| | | | | | | | | | | | | | |
| Name | Title | Base Salary | Max Bonus Eligibility | Bonus Base | Bonus Payout % | Bonus Payouts |
| Stephen C. Taylor | President & CEO | $ | 543,063 |
| 100 | % | $ | 543,063 |
| 122.5 | % | $ | 665,252 |
|
| G. Larry Lawrence | Chief Financial Officer | $ | 187,000 |
| 50 | % | $ | 93,500 |
| 122.5 | % | $ | 114,538 |
|
| James R. Hazlett | VP- Technical Services | $ | 200,000 |
| 50 | % | $ | 100,000 |
| 122.5 | % | $ | 122,500 |
|
As notedIn 2020, our executives received (i) a stretch financial metric payout on revenue, as the Company's $68.1 million in revenue exceeded its stretch achievement level of $67.6 million; (ii) a threshold financial metric payout on net loss, as the tables above, actualCompany's $3.0 million net loss before taxes met the threshold net loss of $3.8 million but was below the target net loss of $2.1 million; and (iii) a target threshold financial performance for 2015metric payout on Adjusted EBITDA, as the Company's $22.7 million of Adjusted EBITDA exceeded the "stretch" level intarget threshold requirement of $22.4 million but was below the stretch threshold of $23.4 million. The committee also awarded the full personal performance portion of the award to each of Messrs.Taylor and Hazlett considering the three financial metrics set for 2015, thereby entitling eachCompany's 2020 Financial and Operation Highlights on page 23 of this proxy statement as well as the extraordinary performance of both executives related to ensuring safe and continuous operations of the named executive officers to 125% ofCompany during the maximum bonus payout for each ofunprecedented economic, industry and public health challenges presented by the three financial metrics.COVID-19 pandemic.
With respect toThe following table summarizes the personal performance criteria, the Committeebonuses awarded Messrs. Taylor, Lawrence and Hazlett the maximum amount payable under this component, or 10% of the maximum bonus amount that could have been earned in 2015. In addition to the Committee's non-quantitative evaluation of each executive's performance, with respect to all of the named executives, the Committee made this award in recognition of the Company's 2015 financial and operational performance.
With respect to Mr. Taylor’s personal performance criteria, the Committee based its full award on (i) quickly reacting to the deteriorating market by cutting capital expenditures by 77% in 2015 versus 2014; (ii) utilizing a combination of aggressive (new product introductions and expanded sales coverage) and defensive (cost cutting and strategic pricing) measures to guide the Company through the worst downturn in decades; and (iii) his continued ability to maintain superior cost control, industry leading margins in operating income, adjusted EBITDA and cash flow.
With respect to Mr. Lawrence’s personal performance criteria, the Committee also based its full award on his success in (i) initiating and managing the R&D tax credit process that resulted in appreciable tax credits; (ii) leading implementation of our SEC-mandated conflict mineral reporting and tracking process; and (iii) initiating EDI with our major customers for more efficient and timely processing of invoices.
With respect to Mr. Hazlett’s personal performance criteria, the Committee also based its full award on his (i) efficiently managed the severe contraction in our compressor fabrication throughput; (ii) leading the final engineering design and development of our new 500 horsepower compressor frame and VRU (Vapor Recovery Unit) product offerings; and (iii) maintaining an efficient level of engineering staffing that enabled the Company to consistently respond to customer bid requests and ‘win’ the work.
With respect to the rigor if the IBP financial targets, in 2014 the company’s officers were awarded only 77.5% of their target bonus in spite of 2014 being a record year for the company.2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | Title | Base Salary | Max Bonus Eligibility | Bonus Base | Bonus Payout % | Bonus Payouts |
| Stephen C. Taylor | President & CEO | $ | 612,000 | | | 100 | % | | $ | 612,000 | | | 100 | % | | $ | 612,000 | | |
| James R. Hazlett | VP- Technical Services | | 225,100 | | | 50 | % | | | 225,100 | | | 100 | % | | | 112,550 | | |
Long-Term Incentives - Restricted StockStock/Unit and Other Awards
We considerThe Compensation Committee continually reviews equity compensation trends of public companies and solicits feedback from its stakeholders and proxy advisors to determine the most appropriate executive compensation program for the Company’s executives, as well as its stakeholders. When reviewing the Company’s long-term incentive plan, the Compensation Committee considered a variety of factors when determining the appropriateness of the plan, which include:
•Address proxy advisory firms’ concerns related to the performance measurement period;
•Address the proxy advisor firms’ criticism of a perceived lack of rigor related to the TSR target goal;
•Address the issue of balance between time-based and performance-based long-term compensation;
•Acknowledge the Company’s belief that balancing short-term performance - demonstrating the agility of the leadership team - with long-term performance - demonstrating the ability of the leadership team to create durable value - is important in compensation awards, especially in cyclical industries; and
•Acknowledge the importance of the Compensation Committee’s judgment and board discretion in designing compensation programs that retain and motivate critical leadership that have provided positive returns to shareholders across cycles.
Based upon this review, the Compensation Committee determined it was appropriate to adjust the long-term incentive award in 2018 to provide a balance between a quantitative, performance-based award and a qualitative, discretionary award based on performance measures evaluated annually by the Compensation Committee and Board of Directors, a practice consistent with the Company’s peers and, more generally, other oilfield services companies.
The performance-based award was based off the Company’s relative prior three-year total shareholder return (“TSR”) compared to the company-defined peer group. The Compensation Committee established the following award parameters based on the company’s relative TSR performance.
The award is determined by the Company’s ranking on the peer-based table below:
| | | | | | | | |
| Total Shareholder Return: Long-Term Incentive Award Table |
| Relative TSR Performance Rank | Payout vs. Target | Award Payout |
| 1 | 200% | Maximum |
| 2 | 190% | |
| 3 | 172% | |
| 4 | 154% | |
| 5 | 136% | |
| 6 | 118% | |
| 7 | 100% | Target |
| 8 | 75% | |
| 9 | 50% | |
| 10 | 25% | Threshold |
| 11 | -% | |
| 12 | -% | |
| 13 | -% | |
| 14 | -% | |
The qualitative, discretionary award was set to a maximum of 200% of the base pay of the named executive officer and will vest in equal parts over a three-year period. Performance measures taken into account include those provided in the 2020 Financial and Operational Highlights section of this Proxy as well as other personal achievements of the respective executive officers. Other factors considered include demonstrated company leadership, financial stewardship, market effectiveness, and strategic vision, insight and execution.
The Compensation Committee considers restricted stock and restricted stock units to be a type of long-term incentive compensation that motivates our executive officers to work toward our long-term growth and allows them to participate in the growth and profitability of Natural Gas Services Group.the Company. We believe that restricted stock aligns the interests of our executive officers with our shareholders in that our executive officers will benefit from the restricted stock only to the extent that the value of our common stock increases. With the exception of Mr. Taylor, our Chief Executive Officer, the number of shares of restricted stock granted to an executive officer is based on a subjectivediscretionary determination of an officer’s individual performance and his current contributions and potential for future contributions to the overall performance of the Company.
In early 2021, the Compensation Committee reviewed the Company’s 2020 TSR performance against its peers and determined that the Company’s prior three-year performance was sixth out of the Company identified 14-member peer group (including Natural Gas Services Group. InGroup). Such performance, as noted in the accompanying table, entitled Mr. Taylor to a TSR performance-based award of 118% of his current base salary of $612,000.
With respect to Mr. Taylor’s employment agreement we havepersonal performance, the Committee considered his continued leadership in guiding the Company through past and current market downturns related to collapses in oil and natural gas prices by maintaining a strong balance sheet through reductions in operating and capital expenses. Mr. Taylor’s leadership positioned the Company with a balance sheet that enabled it to significantly increase capital spending, without incremental debt, to meet the opportunity to establish a meaningful presence in the high horsepower compression market. Mr. Taylor developed significant contractual commitments from customers for the Company’s high horsepower equipment, allowing it to grow its market share in a key new market.
After a review of all relevant Company and personal performance factors, the Committee agreed to awardprovide Mr. Taylor a restricted stockan additional discretionary award or equivalent equity awards in January of each year with an aggregate minimum value equal to at least 175%200% (of a 200% maximum opportunity) of his Base Salary, subjectcurrent base salary of $612,000.
On a preliminary basis, Mr. Taylor's performance-based and discretionary long-term incentive awards totaled $1,946,160. Due to the current vesting termsdifficult economic and other standard terms which shall be established byindustry conditions and the resulting impact on the Company's share price, the Compensation Committee taking into account the performancestructured Mr. Taylor's long-term incentive award as follows:
•A long-term incentive award of $973,080 (50% of the Company, Mr. Taylortotal earned award) that vests in equal, annual tranches over three years, with the amounts being payable in cash or common stock at the time of vesting at the discretion of the Compensation Committee; and industry norms. Our compensation consultant concurred with our approach relating to
•A long-term incentives and recommended that we continueincentive award of 109,212 shares of restricted stock, which represents the practice.balance of the total earned award. This was calculated by dividing $973,080 by a deemed share price of $8.91, which was the market closing price on March 18, 2021.
In 2009,addition, upon Mr. Taylor's recommendation, the Committee approved a discretionary grant of 20,000 shares of restricted stock to Mr. Hazlett.
All restricted stock grants were awarded under the Company's 2019 Equity Incentive Plan using the closing price of $8.91 per share as of March 18, 2021, with the totals noted in the table below:
| | | | | | | | | | | | | | | | | |
| Name | Dollar Value of the Award | Number of Restricted Shares or RSUs |
| Stephen C. Taylor, CEO and President | $ | 973,079 | | | 109,212 | | |
| | | | | |
| James R. Hazlett, Vice President - Technical Services | $ | 178,200 | | | 20,000 | | |
All of the restricted stock awards reported above are subject to a three-year vesting period, although such vesting is subject to acceleration and will immediately vest upon certain events, such as (i) death or disability of the recipient employee or (ii) certain circumstances in connection with a change of control in the Company. Further information concerning these awards is set forth in column (e) of the "Summary Compensation Table" on page 34 and column (i) of the "Grants of Plan-Based Awards for 2020" on page 36.
The Compensation Committee continuously evaluates the Company’s executive compensation plan to ensure that the each of the components of that plan is designed, when considered both individually and holistically, with the goal of attracting and retaining executive leadership capable of delivering industry leading results for shareholders. This review, with the assistance of Board-retained executive compensation experts, includes reviewing peer-group compensation programs, broader industry compensation trends, innovations in executive compensation design as well as seeking input from our shareholders and other stakeholders.
The Compensation Committee notes that there has been significant evolution in executive compensation plan design in the past several years including changes in standard performance measures and measurement periods. The Compensation Committee will continue to consider changes to industry executive compensation practices as it contemplates future changes to the Company’s executive compensation program.
In addition, in 2019, we adopted the 2009 Restricted Stock/Unit2019 Equity Incentive Plan (the “Plan”("the Plan") and itwhich went into effect upon its approval by our shareholders at our 20092019 annual meeting. We typicallyThe Compensation Committee does not have any specific program or plan with regard to the timing or dating of restricted stock or units grants. However, the Committee's practice will likely be to grant awards underafter Natural Gas Services Group's annual earnings releases. We have not and do not plan to purposefully time the Plan to our executive officers and Directors duringrelease of material non-public information for the first quarterpurpose of each year after reviewing the Company's operational and financial results from the previous year.
During the first and second quarters of 2016, the Company granted the following restricted stock awards in connection with our 2015 financial and operational results and personal accomplishments of our named executive officers:
|
| | | | | |
| Name | Dollar Value of the Award | Number of Restricted Shares Awarded |
| Stephen C. Taylor, CEO and President | $ | 1,679,999 |
| 75,915 |
|
| James R. Hazlett, Vice President - Technical Services | $ | 407,800 |
| 20,000 |
|
| G. Larry Lawrence, Chief Financial Officer | $ | 407,800 |
| 20,000 |
|
Pursuant to Mr. Taylor's employment agreement, we are required to grant a restricted stock award or equivalent equity awards in January of each year with an aggregate minimum value equal to at least 175% of his Base Salary. See “Compensation Agreements with Management” beginning on page 41 of this Proxy Statement for information concerning Mr. Taylor’s employment agreement.
The Committee also reviewed Mr. Taylor's total compensation level along with Company's performance and Mr. Taylor's personal performance in connection with determiningaffecting the value of the 2015 restricted stock award. As a result of the Committee's review, the Committee awarded Mr. Taylor (i) 44,284 shares of restricted common stock pursuant to the terms of his employment agreement and (ii) an additional 31,631 shares of restricted common stock in recognition of our 2015 financial and operational results and performance, for a total award of 75,915 shares of restricted common stock. The restricted shares are subject to a two year vesting period (half of the shares vest on the first anniversary date and the remaining half on the second anniversary date), although such vesting is subject to acceleration and will immediately vest in the case of (i) death, disability or retirement of the recipient employee, or (ii) a change of control in the Company, as set forth in the Plan.executive compensation.
On April 6, 2016, the Compensation Committee awarded 20,000 shares of restricted common stock to each of G. Larry Lawrence, our Chief Financial Officer and James R. Hazlett, our Vice President-Technical Services. The restricted shares are subject to a two year vesting period (half of the shares vest on the first anniversary date and the remaining half on the second anniversary date). All of the restricted shares are subject to acceleration and will immediately vest in the case of (i) death, disability or retirement of the recipient employee, or (ii) a change of control in the Company, as set forth in the Plan.
The additional restricted shares which were issued to Mr. Taylor in excess of the 175% of his Base Salary obligation under the terms of his employment agreement, and the restricted stock awards to our other two named executive officers were made in recognition of their personal performance and of the Company's 2015 financial and operational performance as set forth under "Fiscal Year 2015 Performance" on page 20 of this Proxy Statement.
Further information concerning these awards is set forth in column (i) of the "Summary Compensation Table" on page 32 and column (i) of the "Grants of Plan-Based Awards for Fiscal 2015" on page 34.
Other Compensation
We maintain a 401(k) retirement plan in which all of our executives and employees are eligible to participate. We match executive and employee contributions to our 401(k) plan, on an equal percentage basis, with cash contributions. The Company matching portion is equal to one-half of the employee’s annual contribution up to a maximum of 3% of the employee’s salary. Our matching amounts for our executive officers are included in column (i) of the “Summary Compensation Table” on page 32.
Total Direct Compensation
In determiningAmong its peer group companies, the extent to which our chief executive officer compensation program meets the Committee’s compensation philosophy and objectives, the Committee considers the competitiveness of total compensation (the aggregate of base salary, annual cash bonus incentive payment, and the grant value of long-term incentive plan award). Using the Custom Peer Group data from Longnecker’s study and discussing with Longnecker the pay practices of our peers, the total compensation for Mr. Taylor, our Chief Executive Officer, was at approximately the 75th percentile bracket which the Committee believed to be warranted considering our relatively strong (i) 2015 financial and operational results during a difficult time for companies in the oil and gas industry and (ii) total shareholder return when comparedfrom NGS was in the 69th percentile in 2020, 62nd percentile over the past three years and the 67th percentile over the past five years.
Due to the significant economic and industry dislocations resulting primarily from the public health challenges presented by the COVID-19 pandemic and significantly lower energy commodity prices, a number of our former peer group
companies have either filed for bankruptcy protection or ceased operations, requiring changes to our peer group.group and related CEO compensation comparisons. Due to such changes data comparing the Company’s Chief Executive Officer’s pay to the peer group may be less reliable as a relative measure than in previous years.
Employment Agreements
We employed Stephen C. Taylor, our President and Chief Executive Officer, joined the Company in January 2005. On October 23, 2013, we entered into a new written employment agreement with Mr. Taylor. We do not have written employment agreements with any of our other executive officers. On April 24, 2015, we entered into an amendment with Mr. Taylor to his Employment Agreement pursuant to which the "modified single trigger" change of control provision was changed to a "double trigger" change of control. Under the "modified single trigger provision", Mr. Taylor could voluntarily terminate the Employment Agreement for any reason immediately upon a change in control and collect severance benefits. Under the new "double trigger" change of control provision, a change of control must occur followed by the Company or its successor terminating Mr. Taylor's employment other than for cause, death, or disability, or by Mr. Taylor terminating his employment for Good Reason. See “Compensation Agreements with
Management” beginning on page 4147 of this Proxy Statement for detailed information concerning Mr. Taylor’s employment agreement, as amended.
Allocation of Amounts and Types of Compensation
Other than the restricted stock awards we grant to our executives from time to time and the determinations made by the Committee as to specific target award opportunities under our IBP, the allocation of different amounts and types of compensation has not been a consideration for us, except with respect to our Chief Executive Officer whose employment agreement currently requires an annual restricted stock award or similar equity award with a value of at least 175% of his base salary. However, the Committee is in the process of revising its long-term equity compensation program to a hybrid performance and discretionary methodology. See "Chief Executive Officer Equity Compensation" on page 39. The Committee has not adopted a specific policy or target for the allocation between amounts or types of compensation. We believe thatThe Committee considers data from the use of stockpeer group companies in reviewing compensation allocations and practices and strives to create a balance between short- and long-term compensation through (i) reasonable base salary amounts, (ii) the IBP cash bonus program for achieving short-term financial and operational metrics, along with personal performance achievements and (iii) long-term incentive through equity awards in our compensation package will align the interests of our management and employees with our stockholders. Notwithstanding moderately increasing the use of stock-based compensation, we intend to maintain and continue our practice of having a simplified, but effective and competitive, compensation package.
Change of Control and Severance Arrangements
Our 1998 Stock Option Plan, as amended, and our 2009 Restricted Stock/Unit Plan contains change of control provisions. In addition, Mr. Taylor’s employment agreement contains change of control and severance provisions. Information regarding these provisions is provided under the caption “Potential Payments Upon Termination or ChangeCompany's equity incentive plan. The Committee believes its allocation methodology does not over-emphasize short-term performance at the expense of Control” on page 38.achieving long-term goals.
Perquisites
We provide limited perquisites to our executives. The primary perquisites include allowingallow our executives a choice of receiving an automobile allowance or personal use of a company-provided automobile and matching contributions made by Natural Gas Services Group under our 401(k) plan.automobile. Although we provide Mr. Taylor with one clubMidland Petroleum Club membership, since his use of the club is limited solely for business entertainment, we have not considered it to be a perquisite and have not valued it as such for inclusion in column (i) of the "Summary Compensation Table" on page 32.34.
Our executives also participate in the same medical, dental and life insurance plans as other employees. However, we pay a greater percentage of the premiums for health insurance for our executives than we do for our other employees.
Limit on Deductibility of Certain Compensation
Provisions of the Internal Revenue Code that restrict the deductibility of certain compensation over $1 million dollars per year have not been a factor in our considerations or recommendations. Section 162(m) of the Code currently imposes a $1 million limitation on the deductibility of certain compensation paid to specified executives. Excluded from the limitation is compensation that is “performance based.” For compensation to be performance based, it must meet certain criteria, including being based on predetermined objective standards approved by shareholders. The Committee has not taken the requirements of Section 162(m) into account in designing executive compensation.
Say-on-Pay
At our 20152020 Annual Meeting of shareholdersShareholders held in June 2015,August 2020, we submitted a proposal to our stockholdersshareholders regarding our executive compensation practices. The proposal was an advisory vote on the 20142019 compensation awarded to our named executive officers (commonly known as a “Say-on-Pay”“say-on-pay” vote). Excluding broker non-votes, ourOur shareholders disapproved our 20142019 compensation with less than half (48.6%)approximately 49.6% of the shares that votedvotes cast on the proposal voting in favor of our 20142019 executive compensation practices.
As noted at the beginning
Our management, Compensation Committee and Board of this section, the results were disappointing since we believe the vote was the result of the influence from recommendations fromDirectors (along with our Compensation Consultants) have carefully reviewed our executive compensation plan as well as input provided by stakeholders, including our shareholders and proxy advisory firms, of which advise institutional investors on voting on annual proxy matters. We believe that their reports contained factual errors and assumptions that resultedservices. While we have been limited in questionable conclusions and recommendations, and in June 2015 we sent a letterface-to-face dialogue with key stakeholders due to the proxy advisory firms which detailed our issuesCOVID-19 pandemic, we have had comprehensive dialogue with their reports. We
also sent our shareholders a copy of these letters and filedother stakeholders regarding our correspondence with the Securitiesexecutive compensation program. In recent years, we initiated several new compensation and Exchange Commission on June 15, 2015. You can access this filing free of charge on the Investor Relations section ofgovernance measures that address concerns raised by our website (stakeholders, including:
www.ngsgi.com). A paper copy is also available, without charge upon written request, at Natural Gas Services Group, Inc., 508 West Wall Street, Suite 550, Midland, Texas 79701.
Notwithstanding, we took numerous remedial measures, including:
•adopting a clawback policy thethat covers all executive officers;
•adopting executive and directorDirector stock ownership guidelines;
•extending the vesting terms on restricted stock awards made to our executive officers;officers to three years;
•calculating a portion of our CEO’s long-term equity award to meeting set objective total shareholder returns compared to our Custom Peer Group;
•adopting a majority votes cast requirement with respect to the election of Directors; and
•amending our Corporate Governance Guidelines to include a leadan independent director.Lead Director. Charles G. Curtis was appointed Lead Director in April 2016 and served in that capacity until his retirement from the Board in June 2020. John W. Chisholm was appointed Lead Director in June 2020.
NGS is committed to aligning our longest tenured independent director, has been appointed as our lead director; and
amending our Bylaws to require a majority vote standard in connectionexecutive compensation practices with the uncontested electionbest interests of our stakeholders. The Company, in previous years, has attempted to engage proxy advisory services in discussions to better understand and respond to their concerns and critiques of our compensation structure. While we have been confounded by the reticence of proxy advisory firms to engage in dialogue, we have worked diligently with our shareholders (please see "Shareholder Engagement" on page 15) to ensure our executive compensation structure meets our shareholders’ expectations and is designed to elicit optimal performance from our executives.
As a result of the COVID-19 pandemic and its impact on our business, the Board of Directors subjectand the Compensation Committee determined that the actions of our executive management team resulted in the Company protecting the health and safety of our employees while maintaining continuous commercial operations that resulted in improved cash balances, reduced but profitable field operations and flexible business model that provided for relative employee stability and safety without sacrificing the ability to shareholder approval.meet customer needs. While 2020 compensation may not directly reflect the performance of our equity, the preservation our enterprise without compromising employee safety or customer responsiveness are, in the Board’s opinion, attributes that deserve appropriate recognition and compensation.
Corporate Governance Policies
To ensure our compensation programs are aligned with the long-term interest of our shareholders, we have adopted several governance policies that we expect our executive officers to comply with, including meaningful stock ownership guidelines, a pledging and hedging policy and a recapture or “clawback” policy that provides for the recoupment of any performance-based payouts made based on financial results that are not in compliance with any financial reporting requirement that requires restatement of the Company’s financial statements. In addition, to provide our shareholders with a meaningful role in the election of Directors and to enhance our corporate governance standards, we have adopted a "majority vote" requirement in the election of Directors, subject to the approval of our Shareholders at the annual meeting (see Proposal 5). Below are summaries of these new policies.
Compensation Clawback Policy
The Company has adopted a compensation recoupment, or “clawback” policy intended to be consistent with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). This policy provides that, in the event we are required to restate our financial statements as a result of “material noncompliance” with financial reporting requirements under the securities laws, we will recover from our current and former executive officers any incentive-based compensation (including equity awards) that is (i) based on material erroneous data, (ii) received during the three-year period preceding the date on which the Company becomes required to prepare an accounting restatement, and (iii) in excess of what would have been paid if calculated under the restatement. In addition, the Dodd-Frank Act requires the SEC to issue regulations requiring issuers to seek recovery from executive officers in certain circumstances involving financial restatements. The SEC has issued proposed regulations implementing this portion of the Dodd-Frank Act. Once the SEC finalizes its regulations regarding the required form of a clawback policy under the Dodd-Frank Act, we expectintend to amend our clawback policy accordingly.if necessary to comply with the SEC rules and NYSE implementation of those rules.
Pledging and Hedging Policy
The Company considers it improper and inappropriate for any director,Director, executive officer or associate to engage in short-term or speculative transactions involving our Common Stock. We therefore prohibit directors,Directors, executive officers and other associates from engaging in pledging, short sales or other short position transactions in our Common Stock. We also strongly discourage directors,our independent Directors, executive officers and other associatesemployees from engaging in certain forms of hedging or similar monetization transactions. Any deviation from the policy must be approved in advance by our CEO and Board. To our knowledge, all such individuals are in compliance with this policy.
Director and Executive Officer Stock Ownership Guidelines
The Company has stock ownership requirements for its directorsDirectors and executive officers. The purpose of the ownership requirements is to further our goal of increasing shareholder value and to further alignaligning the interests of our directorsDirectors and key executives with the interests of our shareholders. Satisfaction of the policy requires that individuals attain and retain holdings of our common stock with a market value equal to the following multiple of the individual’s compensation, defined as either a director’sDirector’s cash retainer fee or an officer’s base salary. Shares included in the minimum share ownership calculation include: shares owned outright or beneficially owned; vested restricted stock; vested restricted stock units in our Deferred Compensation Plan; and shares issued from the exercise of vested options.
The table below indicates the stock ownership guidelines for our executive officers and Board members:
Stock Ownership Guidelines
|
| | | | |
| Executive Officer/Director | (as a multiple of base salary/annual cash retainer) |
| CEO | 3 times Base Salary |
| All other executive officers | 2 times Base Salary |
| Non-employee Directors | 1 times Base Annual Cash Retainer |
Each person’s stock ownership requirement will be adjusted annually each January 1 to reflect any changes in his or her retainer or base salary. Generally, individuals have a five-year period to attain their stock ownership requirements. At any time at which the individual’s stock ownership requirement has not been met, including during the initial five-year period to attain compliance, the individual will be required to retain at least 50% of “Net Shares” received upon vesting of restricted stock, restricted stock units and performance units. “Net Shares” are defined to include shares of common stock that are owned by the individual after shares are sold, swapped or traded to pay applicable withholding taxes. Subsequent to achieving the initial stock ownership requirement, all directorsDirectors and executives are required to continuously maintain stock ownership at their specified levels.
If an individual does not meet the applicable ownership requirements, then he or she is subject to certain restrictions upon the vesting of equity awards, and may only dispose of shares for particular reasons set forth in the policy. The policy provides a hardship exemption, for which an individual must submit a request to the corporate governance committee.Environmental, Social and Governance and Personnel Development Committee. Presently, all of our directorsDirectors and our executive officers have attained or exceeded their ownership requirements.
Majority Vote Standard in Uncontested Director Elections
In April 2016, the Board amended our Bylaws to implement a majority vote standard in uncontested elections of Directors. Prior to this amendment, Directors were elected by plurality vote, meaning that nominees for the election of Directors who received the greatest number of votes cast in favor of his or her election would be elected to the Board even if such number of favorable votes was less than a majority of votes cast in the election. Under our revised Bylaws, in uncontested elections each Director must be elected by an affirmative majority of the votes cast. Under our new Bylaw provisions in connection with uncontested elections, abstentions and broker non-votes will not be counted and will have no effect in determining whether the required majority vote has been obtained. With respect to contested elections (those where the number of nominees exceeds the number of directors to be elected), a plurality vote standard will continue to apply. This amendment to our Bylaws requires Shareholder approval at the annual meeting (see Proposal 5).
The Compensation Committee will continue to consider the outcome of Say-on-Pay votes when making future compensation decisions for our named executive officers.
Compensation Committee Report
The Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our proxy statement for the 2016 Annual Meeting of Shareholders.
|
| |
Members of the Compensation Committee |
| |
| William F. Hughes, Jr. (Chairman) |
| John W. Chisholm |
| David L. Bradshaw |
Executive Compensation
The table below sets forth the compensation earned by and paid to our CEO, Stephen C. Taylor, and our other named executive officers for services rendered to us for the fiscal years ended December 31, 2015, 20142020, 2019 and 2013.2018.
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name
and
Principal Position | Year | Salary(3) | Bonus (4) | Stock Awards(5) | Option Awards(6) | Non-Equity Incentive Plan Compensation(7) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(8) | All Other Compensation(9) | Total |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
| Stephen C. Taylor, Chairman, President & CEO | 2020 | $ | 612,000 | | $ | — | | $ | 973,079 | | $ | — | | $ | 1,585,080 | | $ | — | | $ | 18,790 | | $ | 3,188,949 | |
| 2019 | 607,181 | | — | | 530,910 | | — | | 1,289,513 | | — | | 15,733 | | 2,443,337 | |
| 2018 | 590,733 | | — | | 2,276,643 | | — | | 147,693 | | — | | 17,181 | | 3,032,250 | |
| James R. Hazlett, Vice President-Technical Services | 2020 | 225,100 | | — | | 178,200 | | — | | 112,550 | | — | | 23,619 | | 539,469 | |
| 2019 | 224,596 | | — | | 56,400 | | — | | 42,112 | | — | | 34,824 | | 357,932 | |
| 2018 | 218,300 | | — | | 345,800 | | — | | 54,575 | | — | | 31,542 | | 650,217 | |
James R. Lawrence, VP & Chief Financial Officer(1) | 2020 | 205,346 | | — | | — | | — | | — | | — | | 19,022 | | 224,368 | |
| 2019 | 45,385 | | — | | 61,300 | | — | | — | | — | | 4,381 | | 111,066 | |
| 2018 | — | | — | | — | | — | | — | | — | | — | | — | |
G. Larry Lawrence, Former VP & Chief Financial Officer(2) | 2020 | — | | — | | — | | — | | — | | — | | — | | — | |
| 2019 | 198,858 | | — | | — | | — | | 32,871 | | — | | 15,461 | | 247,190 | |
| 2018 | 204,101 | | — | | 345,800 | | — | | 51,205 | | — | | 16,629 | | 617,735 | |
(1) Mr. J.R. Lawrence joined the Company on October 1, 2019 and was appointed as our Vice President and Chief Financial Officer on November 16, 2019. Mr. J.R. Lawrence gave notice of his resignation in December 2020.
(2) Mr. G.L. Lawrence retired from the Company on November 15, 2019. Mr. G.L. Lawrence rejoined the Company in January 2021 and was appointed our interim Vice President and Chief Financial Officer.
(3) The amounts in column (c) includes amounts deferred under our Deferred Compensation Plan and 401(k) Plan. The Company has not made any contributions to the Deferred Compensation Plan.
(4) The amounts reflected in column (d) reflect payments under the Company's profit sharing program administered to all employees.
(5) The amounts in column (e) reflect the grant date fair value of restricted stock/unit awards in accordance with FASB ASC Topic 718. The awards earned in 2020 are discussed in further detail on page 28 under the caption "Long-Term Incentives - Restricted Stock/Unit and Other Awards."
(6) The amounts in column (f) reflect the dollar amounts recognized for financial statement reporting purposes for the fiscal years ended December 31, 2020, 2019 and 2018, in accordance with FASB ASC Topic 718, associated with stock option grants under our Stock Option Plan.
(7) The amounts in column (g) reflect the cash bonus awards to the named executive officers under our Annual Incentive Bonus Plan, including amounts deferred under our Deferred Compensation Plan. This is discussed in further detail on page 27 under the caption “Short-Term Incentives - Annual Incentive Bonus Plan.” For 2020 and 2019, the amount in column (g) for Mr. Taylor also includes a long-term incentive award of $973,080 and $1,061,820 (50% of his long-term
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | Year | Salary | Bonus (1) | Stock Awards(2) | Option Awards(3) | Non-Equity Incentive Plan Compensation(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation(5) | Total |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
| Stephen C. Taylor, Chairman, President & CEO | 2015 | $ | 561,036 |
| $ | 6,646 |
| 1,679,999 |
| $ | — |
| $ | 665,252 |
| $ | — |
| $ | 14,264 |
| $ | 2,927,197 |
|
| 2014 | 540,949 |
| 7,267 |
| 1,629,169 |
| $ | — |
| 391,511 |
| — |
| 14,444 |
| 2,583,340 |
|
| 2013 | 444,798 |
| 8,405 |
| 1,389,196 |
| 86,860(6) |
| 444,324 |
| — |
| 15,752 |
| 2,389,335 |
|
| G. Larry Lawrence, Chief Financial Officer | 2015 | 193,754 |
| 2,289 |
| 407,800 |
| — |
| 114,538 |
| — |
| 16,722 |
| 735,103 |
|
| 2014 | 180,708 |
| 2,445 |
| 375,000 |
| 16,910(7) |
| 59,288 |
| — |
| 12,645 |
| 646,996 |
|
| 2013 | 152,308 |
| 3,020 |
| 456,150 |
| 16,899(8) |
| 66,854 |
| — |
| 13,573 |
| 708,804 |
|
| James R. Hazlett, Vice President, Technical Services | 2015 | 207,539 |
| 2,448 |
| 407,800 |
| — |
| 122,500 |
| — |
| 31,619 |
| 771,906 |
|
| 2014 | 200,228 |
| 3,574 |
| 375,000 |
| 33,809(9) |
| 66,263 |
| — |
| 29,259 |
| 708,133 |
|
| 2013 | 180,989 |
| 3,574 |
| 456,150 |
| 33,819(10) |
| 76,325 |
| — |
| 30,119 |
| 780,976 |
|
(8) The Deferred Compensation Plan referred to column (h) does not pay above-market or preferential earnings.
(9) The amounts shown in column (i) include matching contributions made by Natural Gas Services Group to each named executive officer under our 401(k) plan and the aggregate incremental cost to Natural Gas Services Group of perquisites provided to our named executive officers as shown in the table below.
All Other Compensation Table
| | | | | | | | | | | | | | | | | | | | |
Name |
Year |
Automobile
Allowance | Personal Use of Company Provided Automobiles | Additional
Incremental Portion
of Health Insurance
Premiums Paid for Officers Only |
401(k)
Plan |
Total |
| Stephen C. Taylor | 2020 | $ | — | | $ | 1,800 | | $ | 8,440 | | $ | 8,550 | | $ | 18,790 | |
| 2019 | — | | 1,800 | | 8,103 | | 5,830 | | 15,733 | |
| 2018 | — | | 1,800 | | 9,720 | | 5,661 | | 17,181 | |
| James R. Hazlett | 2020 | 10,200 | | — | | 6,360 | | 7,059 | | 23,619 | |
| 2019 | 10,200 | | — | | 17,580 | | 7,044 | | 34,824 | |
| 2018 | 10,200 | | — | | 14,487 | | 6,855 | | 31,542 | |
| James R. Lawrence | 2020 | 9,000 | | — | | 3,567 | | 6,455 | | 19,022 | |
| 2019 | 2,008 | | — | | 1,650 | | 723 | | 4,381 | |
| 2018 | — | | — | | — | | — | | — | |
| G. Larry Lawrence | 2020 | — | | — | | — | | — | | — | |
| 2019 | 9,219 | | — | | — | | 6,242 | | 15,461 | |
| 2018 | 10,200 | | — | | — | | 6,429 | | 16,629 | |
| Total | 2020 | 19,200 | | 1,800 | | 18,367 | | 22,064 | | 61,431 | |
| 2019 | 21,427 | | 1,800 | | 27,333 | | 19,839 | | 70,399 | |
| 2018 | 20,400 | | 1,800 | | 24,207 | | 18,945 | | 65,352 | |
|
| |
(1) | The amounts reflected in column (d) reflect payments under the company's profit sharing program administered to all employees. |
|
| |
(2) | The amounts in column (e) reflect the grant date fair value of stock granted under our 2009 Restricted Stock/Unit Plan. |
|
| |
(3) | The amounts in column (f) reflect the dollar amounts recognized for financial statement reporting purposes for the fiscal years ended December 31, 2015, 2014 and 2013, in accordance with FASB ASC Topic 718, associated with stock option grants under our 1998 Stock Option Plan. Assumptions used to calculate these amounts are included in footnote 9 for our audited financial statements for the fiscal year ended December 31, 2015; footnote 8 for our audited financial statement for fiscal year ended December 31, 2014; and footnote 8 for our audited financial statement for fiscal year ended December 31, 2013. |
|
| |
(4) | The amounts in column (g) reflect the cash bonus awards to the named executive officers under our Annual Incentive Bonus Plan, which is discussed in further detail on page 25 under the caption “Short-Term Incentives - Annual Incentive Bonus Plan.” |
|
| |
(5) | The amounts shown in column (i) include matching contributions made by Natural Gas Services Group to each named executive officer under our 401(k) plan and the aggregate incremental cost to Natural Gas Services Group of perquisites provided to our named executive officers as follows: |
|
| | | | | | | | | | | | | | | | |
Name | Year | Automobile Allowance | Personal Use of Company Provided Automobiles | Additional Incremental Portion of Health Insurance Premiums Paid for Officers Only | 401(k) Plan | Total(a) |
| Stephen C. Taylor | 2015 | $ | — |
| $ | 1,800 |
| $ | 6,912 |
| $ | 5,552 |
| $ | 14,264 |
|
| | 2014 | — |
| 1,800 |
| 7,285 |
| 5,359 |
| 14,444 |
|
| | 2013 | — |
| 1,800 |
| 6,715 |
| 7,237 |
| 15,752 |
|
| G. Larry Lawrence | 2015 | 10,592 |
| — |
| — |
| 6,130 |
| 16,722 |
|
| | 2014 | 10,200 |
| — |
| — |
| 2,445 |
| 12,645 |
|
| | 2013 | 10,200 |
| — |
| — |
| 3,373 |
| 13,573 |
|
| James R. Hazlett | 2015 | 10,592 |
| — |
| 17,400 |
| 3,627 |
| 31,619 |
|
| | 2014 | 10,200 |
| — |
| 16,463 |
| 2,596 |
| 29,259 |
|
| | 2013 | 10,200 |
| — |
| 15,828 |
| 4,091 |
| 30,119 |
|
| Total | 2015 | 21,184 |
| 1,800 |
| 24,312 |
| 15,309 |
| 62,605 |
|
| | 2014 | 20,400 |
| 1,800 |
| 23,748 |
| 10,400 |
| 56,348 |
|
| | 2013 | 20,400 |
| 1,800 |
| 22,543 |
| 14,701 |
| 59,444 |
|
|
| |
(6) | This amount reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2013, in accordance with FASB ASC Topic 718, for 10,000 shares of common stock that vested on January 18, 2013 under the stock option granted to Mr. Taylor on January 18, 2010. |
|
| |
(7) | This amount reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2014, in accordance with FASB ASC Topic 718, for 1,667 shares of common stock that vested on January 24, 2014 under the stock option granted to Mr. Lawrence on January 24, 2011. |
|
| |
(8) | This amount reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2013, in accordance with FASB ASC Topic 718, for 1,666 shares of common stock that vested on January 24, 2013 under the stock option granted to Mr. Lawrence on January 24, 2011. |
|
| |
(9) | This amount reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2014, in accordance with FASB ASC Topic 718, for 3,333 shares of common stock that vested on January 24, 2014 under the stock option granted to Mr. Hazlett on January 24, 2011. |
|
| |
(10) | This amount reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2013, in accordance with FASB ASC Topic 718, for 3,334 shares of common stock that vested on January 24, 2013 under the stock option granted to Mr. Hazlett on January 24, 2011.
|
Grants of Plan BasedPlan-Based Awards
The table below sets forth the estimated future payouts under non-equity incentive plan awards and restricted stockstock/unit awards granted and the grant date fair value of such awards.
Grants of Plan-Based Awards for Fiscal 20152020 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards | | | | |
| Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target | Maxi-mum ($) | All Other Stock Awards: Number of Shares of Stock or Units (#)(2) | All Other Option Awards: Number of Securities Underlying Option (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($) |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) |
| Stephen C. Taylor | 1/6/2016 | — |
| — |
| — |
| — |
| — |
| — |
| 75,915 |
| — |
| $ | 22.13 |
| $ | 1,679,999 |
|
| G. Larry Lawrence | 4/6/2016 | — |
| — |
| — |
| — |
| — |
| — |
| 20,000 |
| — |
| 20.39 |
| 407,800 |
|
| James R. Hazlett | 4/6/2016 | — |
| — |
| — |
| — |
| — |
| — |
| 20,000 |
| — |
| 20.39 |
| 407,800 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Estimated Future
Payouts Under Non-Equity
Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive
Plan Awards | | | | |
| Name | Grant Date | Threshold ($) | Target ($) | Maxi-mum
($) | Threshold (#) | Target | Maxi-mum ($) | All Other Stock
Awards: Number of Shares of Stock or Units (#) | All Other Option
Awards: Number of Securities Underlying Option (#) | Exercise or Base
Price of Option Awards ($/Sh) | Grant Date Fair
Value of Stock and Option Awards ($) |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) |
| Stephen C. Taylor | 3/18/2021(1) | — | | — | | — | | — | | — | | — | | 109,212 | | — | | — | | $ | 973,079 | |
3/18/2021(2) | — | | $ | 973,080 | | — | | — | | — | | — | | — | | — | | — | | — | |
3/29/2020(3) | $ | 474,300 | | $ | 612,000 | | $ | 749,700 | | — | | — | | — | | — | | — | | — | | — | |
| James R. Hazlett | 3/18/2021(1) | — | | — | | — | | — | | — | | — | | 20,000 | | — | | — | | 178,200 | |
3/29/2020(3) | 87,188 | | 112,500 | | $ | 137,813 | | — | | — | | — | | — | | — | | — | | — | |
|
| |
(1) | No awards were made under the non-equity Incentive Plan for 2015 except as described
(1) The amounts shown on these rows reflects the awards of restricted stock or units earned in 2020 that were issued in March 2021 to Messrs. Taylor and Hazlett. (2) Reflects a long-term incentive award made to Mr. Taylor of $973,080 payable in either cash or a variable number of shares at the discretion of the Compensation Committee. This award was earned in 2020 and issued in March 2021. This fixed value award is subject to three-year vesting in equal, annual tranches. This award is discussed in further detail on page 28 under the caption "Long-Term Incentives - Restricted Stock/Unit and Other Awards." (3) The amounts on these rows assume, under the structure of the performance goals under our Annual Incentive Bonus Plan, or the "IBP." More information regarding the IBP and the calculation of awards is provided below and under the caption “Short-Term Incentives - Annual Incentive Bonus Plan” on page 25. |
|
| |
(2) | The information shown in this column reflects awards of restricted stock earned in 2015 (but issued in early 2016) our named executive officers pursuant to our 2009 Restricted Stock/Unit Plan. |
Annual Incentive Bonus Plan
Our Annual Incentive Bonus Plan, or,that each executive officer receives his full personal performance portion (10%) of the “IBP,” provides for annual non-equity incentive based compensation in the form of cash bonuses to our executive officers. Our Compensation Committee administersbonus and determines from year to year the executives that are eligible to participate in the IBP. The Committee establishes target award opportunities for the executives eligible to participate in the plan. These target award opportunities are expressed as a percentage of an executive’s base salary. An executive’s target award opportunity is the maximum cash bonus an executive is eligible to receive in any one year under the IBP.
The Committee establishes annual performance levels for Natural Gas Services Group’s total revenues, adjusted EBITDA and adjusted net income before taxes and assigns a weight of 30% to each of these components. The executive’s individual performance is assigned a weight of 10%. Detailed information regarding the IBP30% metrics are achieved under threshold (75% payout), target (100% payout), and the calculation of awards is providedmaximum / stretch (125% payout) levels. As discussed in further detail on page 27 under the caption “Short-Term Incentives –- Annual Incentive Bonus Plan” on page 25.Plan,” the actual payouts in April 2021 that were earned in 2020 were as follows: Mr. Taylor - $612,000 and Mr. Hazlett - $112,550.
1998 Stock Option Plan
Our 1998 Stock Option Plan, as amended and restated, provides for the issuance of stock options to purchase up to 750,0001,000,000 shares of our common stock. The purpose of this plan is to attract and retain the best available personnel for positions of substantial responsibility and to provide long-term incentives to employees and consultants and to promote the long-term growth and success of our business. The plan is administered by the Compensation Committee of the Board of Directors. At its discretion, the Compensation Committee determines the persons to whom stock options may be granted and the terms upon which options will be granted. In addition, the Compensation Committee may interpret the plan and may adopt, amend and rescind rules and regulations for its administration. Option awards are generally granted with an exercise price equal to the closing price of our common stock at the date of grant and generally vest based on three years of continuous service and have ten-year contractual terms. On April 5, 2016, subject to shareholder approval, the Board of Directors voted to amend and restate the 1998 Plan to extend the 1998 Plan until February 28, 2026 and increase the number of shares of common stock issuable under the Plan from 750,000 to 1,000,000. See "Proposal 3" on page 50.
As of December 31, 2015,2020, stock options to purchase a total of 414,769161,334 shares of our common stock were outstanding under the 1998 Stock Option Plan. There were no shares included that relate to our non-employee directors under the compensation arrangements described under the caption “Compensation of Directors” on page 40.
APlan, as amended and restated, and a total of 93,419384,503 shares of common stock were available at December 31, 20152020 for future grants of stock options under the plan. Since the beginning of 2021, we have issued no stock
options to purchase shares of our common stock, but had 16,000 shares returned to the pool due to forfeitures. This left 400,503 shares available under the 1998 Stock Option Plan.Plan as of April 25, 2021.
2009 Restricted Stock/Unit Plan
The purposeAs of our 2009 Restricted Stock/Unit Plan (the “2009 Plan”) is to retain our employees and directors having experience and ability, to attract new employees and directors whose services are considered valuable, to encourage the sense of proprietorship, and to stimulate the active interest of such persons in our development and financial success. We believe that grants of restricted stock and restricted stock units are an increasingly important means to retain and compensate employees and directors.
General Description
Shares Reserved for Issuance under the 2009 Plan. A total of 800,000April 25, 2021, no unvested shares of our common stock areremain reserved for potential issuance under the 2009 Plan. The number ofoutstanding awards. 33,693 shares of our common stock available underwere not issued, are not subject to any outstanding awards, and may no longer be issued in connection with the expiration of the 2009 Plan will be subjecton June 16, 2019.
2019 Equity Incentive Plan
On June 20, 2019, the Company's shareholders approved our 2019 Equity Incentive Plan ("2019 Plan"). Except with respect to adjustment in the event of a stock split, stock or other extraordinary dividend, or other similar change in our common stock or capital structure.
Administration. The Plan is administeredawards then outstanding, unless sooner terminated by the plan administrator, defined as one or more committeesBoard, the Company designates consisting of independent directors. The draftPlan will expire on the tenth anniversary of the Plan appoints our Compensation Committee as the administrator (the “Committee”).
Generally, the Committee has the authority, in its discretion, (a) to select officers, directorsdate it was approved by shareholders (June 20, 2029) and employees to whomno further awards may be granted from timeafter such date. The purposes of the 2019 Plan are to time, (b)enable the Company to determine whetherattract and to what extent, awards are granted, (c) to determineretain the numbertypes of shares of our common stock, or the amount of other consideration to be covered by each award, (d) to approve award agreements for use under the Plan, (e) to determine the termsemployees, consultants and conditions of any award (including the vesting schedule applicableDirectors who will contribute to the award), (f) to amendCompany’s long range success; provide incentives that align the termsinterests of any outstanding award granted underemployees, consultants and Directors with those of the Plan, (g) to construeshareholders of the Company; and interpretpromote the success of the Company’s business.
The following summary of the material terms of the 2019 Plan and awards granted, and (h) to take such other action not inconsistent withis qualified in its entirety by the termsfull text of the 2019 Plan, asa copy of which was filed with our proxy statement for 2019 and may be obtained, free of charge, by writing to the Committee deems appropriate.
Company, Attention: Alicia Dada, Investors Relations, 404 Veterans Airpark Lane, Suite 300, Midland, Texas 79705.
Types
Shares Available for Awards and Limits on Awards. The Company has reserved an aggregate of Awards; Eligibility. Awards500,000 shares of restrictedcommon stock and restrictedto be awarded under the 2019 Plan. Up to 250,000 of these shares may be issued under the 2019 Plan, in the aggregate, through the exercise of incentive stock units (RSUs)options. No non-employee Director may be granted under the Plan. Awards of restricted stock are shares of our common stock that are awarded subject to such restrictions on transfer as the Committee may establish. Awards of RSUs are units valued by referenceawards, during any fiscal year, with respect to shares of common stock that, entitletogether with any cash fees paid to the Director during the fiscal year, have a participanttotal value that exceeds $250,000 (calculating the value of any awards based on the grant date fair value for financial reporting purposes).
As of March 31, 2021, we have issued 445,907 shares under the 2019 Plan. Of these shares, 127,215 have vested and are no longer subject to receive,any restrictions or possible forfeiture and 3,333 shares were forfeited and returned to the pool. Vested shares include shares that were withheld for taxes and, under the terms of the 2019 Plan, cannot be re-issued. 315,359 unvested shares of common stock remain reserved for potential issuance under outstanding awards and may be issued if the vesting terms of such outstanding awards are met. Accordingly, 57,426 shares are available to be issued under the 2019 Plan as of March 31, 2021.
If any outstanding award expires or is canceled, forfeited, or terminated without issuance of the full number of shares of common stock to which the award related, then the number of shares available under the 2019 Plan will be increased by the portion of the award that expired, or was canceled, forfeited or terminated. Shares tendered in payment of the option exercise price, shares delivered or withheld by the Company to satisfy any tax withholding obligation, or shares covered by a stock-settled stock appreciation right or other awards that were not issued upon the settlement of the unit, one share of our common stockaward will not again become available for each unit. future grants under the 2019 Plan.
Awards may be granted to our officers, directors and employees and our related entities, if any. Each award granted under the 2019 Plan shall be designated in assumption of, or in substitution for, outstanding awards previously granted by an award agreement.entity acquired by the Company or with which the Company combines. The Committee (as defined below) will make appropriate adjustments to these limits to prevent dilution or enlargement of the rights of participants under the 2019 Plan.
TermsAdministration and Vesting of Awards.Amendment. As noted above,The 2019 Plan will be administered by the one or more Directors appointed by the Board (the "Committee"), or, in the Board’s discretion, by the Board. The Committee determineswill have the authority to, among other things, interpret the 2019 Plan; determine who will be granted awards under the 2019 Plan; prescribe the terms and conditions of each award; interpret, administer, reconcile any inconsistency in, correct any defect in, and supply any omission in the 2019 Plan; and exercise discretion to make any and all other determinations which it determines to be necessary or advisable for the administration of the 2019 Plan.
The Committee may also amend the terms of any one or more awards. However, the Committee may not affect any amendment which would otherwise constitute an impairment of the rights under any award unless the Company requests the consent of the participant and the participant consents in writing.
The Board may amend the 2019 Plan. However, except in the case of adjustments upon changes in common stock, no amendment will be effective unless approved by the shareholders of the Company to the extent shareholder approval is necessary to satisfy any applicable laws.
Eligibility. The Board selects participants from among the key employees, consultants and Directors of the Company and its affiliates. Only employees are eligible to receive incentive stock options.
Available Awards. Awards that may be granted under the 2019 Plan include restricted stock, restricted stock units (RSUs), performance awards, stock options (including both incentive stock options (ISOs) and nonqualified stock options), stock appreciation rights (SARs), and other stock-based awards. The terms of each award will be set forth in a written agreement.
Restricted Stock. A restricted stock award is an award of actual shares of common stock which are subject to certain restrictions for a period of time determined by the Committee. Restricted stock may be held by the Company in escrow or delivered to the participant pending the release of the restrictions. The participant generally has the rights and privileges of a shareholder as to such restricted stock during the restricted period, including the restrictions applicableright to shares underlying awards ofvote the restricted stock and the dates theseright to receive dividends
Restricted Stock Units. An RSU is an award of hypothetical common stock units having a value equal to the fair market value of an identical number of shares of common stock, which are subject to certain restrictions lapsefor a period of time determined by the Committee. No shares of common stock are issued at the time an RSU is granted, and the Company is not required to set aside any funds for the payment of any RSU award. Prior to settlement of an RSU award vests,and the receipt of shares, the participant does not have any rights as well asa shareholder with respect to such shares. The Committee may grant RSUs with a deferral feature (deferred stock units or DSUs), whereby settlement of the RSU is deferred beyond the vesting and settlement terms applicabledate until a future payment date or event set out in the participant’s award agreement. The Committee has the discretion to RSUs. Whencredit RSUs or DSUs with dividend equivalents.
Performance Share Awards. A performance share award is an award vests, we deliverof shares of common stock that are only earned if certain conditions are met. The Committee has the discretion to determine the participant a certificate forfollowing: the number of shares withoutof common stock or stock-denominated units subject to a performance share award; the applicable performance period; the conditions that must be satisfied for a participant to earn an award; and the other terms, conditions and restrictions of the award. The number of performance shares earned by a participant depends on the extent to which the performance goals established by the Committee are attained within the applicable performance period. No payout is made with respect to any legendperformance share award except upon written certification by the Committee that the minimum threshold performance goal(s) have been achieved.
Stock Options. A stock option is the right to purchase shares of common stock at a future date at a specified price per share called the exercise price. An option may be either an ISO or restrictions (except as necessarya nonqualified stock option. ISOs and nonqualified stock options are taxed differently. Except in the case of options granted pursuant to complyan assumption or substitution for another option, the exercise price of a stock option may not be less than the fair market value (or in the case of an ISO granted to a ten percent shareholder, 110% of the fair market value) of a share of common stock on the grant date. As of the record date, the closing price of our common stock was $9.05. Full payment of the exercise price must be made at the time of such exercise either in cash or bank check or in another manner approved by the Committee.
Stock Appreciation Rights. A SAR is the right to receive payment of an amount equal to the excess of the fair market value of a share of common stock on the date of exercise of the SAR over the exercise price. The exercise price of a SAR may not be less than the fair market value of a share of common stock on the grant date. SARs may be granted alone ("freestanding rights”) or in tandem with applicable state and federal securities laws)options ("related rights”).
In additionOther Equity-Based Awards. The Committee may grant other equity-based awards, either alone or in tandem with other awards, in amounts and subject to conditions as determined by the Committee as set out in an award agreement.
Vesting. The 2019 Plan allows for awards subject to either time-based vesting or performance-based vesting, or both. All awards granted under the 2019 Plan must have a minimum vesting period of at least one year. The Committee has the authority to determine the vesting schedule of each award (subject to the minimum one-year requirement), and to accelerate the vesting and ability to exercise any award. The Company’s practice over the last several years has been to grant restricted stock/unit awards to its executive officers and independent Directors, and stock options to selected non-executive employees. Restricted stock/unit awards to our (i) executive officers have been subject to time-based vesting requirements,in equal one-third installments over a three-year period from the Committee is also authorizedgrant date and (ii) independent Directors have been subject to establish quantitative and qualitative performance goalstime-based vesting in order forequal quarterly installments beginning in the year following the year in which they are granted. Starting in 2020, the awards to vest. For instance, quantitative performance standards, including, but not limited
independent Directors are subject to financial measurements such as (a) increaseone-year cliff vesting. Stock options granted to our non-executive employees typically vest in share price, (b) earnings per share, (c) total shareholder return, (d) operating margin, (e) gross margin, (f) return on equity, (g) return on assets, (h) net operating income, (i) pre-tax profit, (j) cash flow, (k) revenue, (l) expenses, and (m) EBITDA, or other performance goalequal, one-third tranches over a three-year period. Past vesting requirements may not be adoptedindicative of future vesting requirements set by the Committee, which may be less or more onerous than in prior years.
Clawback and set forthRecoupment. The Company may cancel any award or require the participant to reimburse any previously paid compensation provided under the 2019 Plan or an award agreement in accordance with the particular restricted stock or RSU agreement which must be met in order for shares to vest.Company’s clawback policy.
Termination of Service. Unless otherwise set forth in an individual award agreement or in an employment agreement approved by the PlanCommittee, any unvested restricted shares, performance shares, RSUs, PSUs and formsother equity-based awards will immediately be forfeited upon termination of continuous service under the 2019 Plan. Under the Company's restricted stock and RSU award agreements, provide that inif the event a participant’sgrantee's continuous service with us terminates as a result of the grantee's death, disabilityDisability (as defined in the 2019 Plan), termination without Cause (as defined in the 2019 Plan and below) or retirement (an “Acceleration Event”)termination for Good Reason (as defined), 100% of the grantee's unvested shares or RSUs at the time of termination due to an Acceleration Event will immediately become vested, but only to the extent that such unvested shares or RSUs would have vested within the 12 months following the Acceleration Event. However, the Committee may revise this default provision onvest.
Unless otherwise set forth in an individual basis, as it deems advisable. For example, the Committee could elect to accelerate vesting for all unvested shares and/award agreement or RSUs upon the occurrence ofin an Acceleration
Event, or conversely provide that all unvested shares and/or RSUs are forfeited upon the occurrence of an Acceleration Event. In the case of a termination of service other than by an Acceleration Event, any unvested shares of RSUs will immediately become null and void, except that with respect to Restricted Stock awards, the Board of Directors may vest any or all unvested shares in its discretion in the case of any termination of service.
In addition, subject to revision by the Committee, the default provisions of the Plan and form of award agreements provide that a Change of Control triggers accelerated vesting of all shares or units. Under the 2009 Plan, a Change in Control Event is generally defined as:
a complete liquidation or dissolution;
acquisition of 50% or more of our stock by any individual or entity including by tender offer or a reverse merger;
a merger or consolidation in which we are not the surviving entity; or
during any period not longer than 12 consecutive months, members of the Board who at the beginning of such period cease to constitute at least a majority of the Board, unless the election, or the nomination for election of each new Board member, wasemployment agreement approved by a vote of at least 3/4 of the Board members then still in office who were Board members at the beginning of such period.
Restricted Stock. Under an award of restricted stock, we issue shares of our common stock in the participant’s name; however, the participant’s rights in the stock are restricted until the shares vest. If the vesting requirements are not met prior to the end of the vesting period, the shares are forfeited. In connection with an award of restricted stock, since actual shares are issued and outstanding, the participant is legally entitled to vote the shares and receive any dividends declared and paid on our common stock prior to the satisfaction of the vesting requirements. However, as discussed above, participants who hold unvested restricted stock may not sell, assign or transfer such shares until they have vested.
Restricted Stock Units. Like a restricted stock award, a restricted stock unit is a grant valued in terms of our common stock. Unlike a restricted stock award, none of our common stock is issued at the time the RSU award is granted. Instead, the award is a mere promise to deliver shares of our common stock upon satisfaction of the vesting requirements. Upon satisfaction of the vesting requirements of the award, we then issue and deliver the number of shares subject to the award. If the vesting requirements are not satisfied prior to the end of the vesting period, the units expire and no shares are issued. Since shares of our common stock are not issued in connection with RSUs until such time as the vesting conditions have been satisfied, participants in the Plan who receive awards of RSUs will not have any voting rights and will not be entitled to dividends until such time as the units vest and shares of our common stock are issued.
Amendment, Suspension or Termination of the Plan. We may at any time amend, suspend or terminate the Plan. The Plan will be for a term of ten (10) years unless sooner terminated. Awards may be granted under the Plan upon it becoming effective, but awards granted prior to obtaining shareholder approval will be rescinded if the shareholders do not approve the Plan. We may amend the Plan subject to compliance with applicable provisions of federal securities laws, state corporate and securities laws, the Internal Revenue Code, and the rules of the NYSE (or such other stock exchange as our common stock may be traded upon at the time).
Change in Capitalization. Subject to any required action by our shareholders, the number of shares of common stock covered by outstanding awards, the number of shares of common stock that have been authorized for issuance under the 2009 Plan, the exercise or purchase price of each outstanding award, the maximum number of shares of common stock that may be granted subject to awards to any participant in a calendar year, and the like, shall be proportionally adjusted by the Committee, in the event of: (i) any increasean option holder's continuous service terminates, an option holder may exercise his or decreaseher option (to the extent the option holder was entitled to exercise such option at the date of termination) within the earlier of three months following the date of termination or the expiration of the option term. Unless otherwise set forth in an individual award agreement, in the numberevent an option holder's continuous service terminates upon his or her death or Disability (as defined), an option holder or his or her estate may exercise his or her option (to the extent the option holder was entitled to exercise such option at the date of issued sharestermination), within the earlier of common stock resulting from12 months following the date of termination or the expiration of the option term.
In regards to the definition of Cause under the 2019 Plan, if a stock split, stock dividend, combinationparticipant is under an employment or reclassificationservice agreement with the Company and such agreement provides for a definition of Cause, that definition should be used. If no such agreement exists, or similar event affecting our common stock; (ii)if such agreement does not define Cause, then Cause is defined as (i) the conviction of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other increaseact involving willful malfeasance or decrease in the number of issued shares of common stock effected without receipt of consideration by us; or (iii) any other transaction with respect to common stock including a corporate merger, consolidation, acquisition of property or stock, separation (including a spin-off or other distribution of stock or property), reorganization, liquidation (whether partial or complete), distribution of cash or other assets to shareholders other than a normal cash dividend, or any similar transaction; provided, however, that conversion of any of our convertible securities shall not be deemed to have been “effected without receipt of consideration.” Except as the Committee determines, no issuance by us of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason hereof shall be madematerial fiduciary breach with respect to the numberCompany or an Affiliate; (ii) conduct that results in or is reasonably likely to result in harm to the reputation or business of sharesthe Company or any of its Affiliates; (iii) gross negligence or willful misconduct with respect to the Company or an Affiliate; or (iv) material violation of state or federal securities laws.
In regards to the definition of Good Reason under the 2019 Plan, if a participant is under an employment or service agreement with the Company and such agreement provides for a definition of Good Reason, that definition should be used. If no such agreement exists, or if such agreement does not define Good Reason, Good Reason is defined as the occurrence of one or more of the following without the participant’s express written consent, which circumstances are not remedied by the Company within thirty (30) days of its receipt of a written notice from the participant describing the applicable circumstances (which notice must be provided by the participant within ninety (90) days of the participant's knowledge of the applicable circumstances): (i) any material, adverse change in the participant's duties, responsibilities, authority, title, status or reporting structure; (ii) a material reduction in the participant’s base salary or bonus opportunity; or (iii) a geographical relocation of the participant's principal office location by more than fifty (50) miles.
Change in Control. A Change in Control is defined as (a) the acquisition by one person or more than one person acting as a group, of Company stock representing more than 50% of the total fair market value or total voting power of the Company’s stock; (b) a merger, consolidation or other reorganization in which the Company is not the surviving entity unless the Company’s shareholders immediately prior to the merger, consolidation or other reorganization maintain at least 50% of the voting power; (c) a majority of the incumbent members of the Board are replaced by Directors whose appointment or election is not endorsed by at least two-thirds of the Board; or (d) the acquisition by one person or more than one person acting as a group, of all or substantially all of the Company’s assets.
Unless otherwise provided in an award agreement, in the event of a participant’s termination of service without Cause or for Good Reason during the 18-month period following a Change in Control, the vesting of all awards will fully accelerate and all outstanding options and SARs will become immediately exercisable as of the date of the participant’s termination of service.
In the case of performance awards, in the event of a participant’s termination of service without Cause or for Good Reason, in either case, within 18 months following a Change in Control, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions will be deemed met as of the date of the participant’s termination of service.
In the event of a Change in Control, the Committee may in its discretion and upon at least 10 days’ advance notice to the affected persons, cancel any outstanding awards and pay to the holders the value of the awards based upon the price per share of common stock subjectreceived or to be received by other shareholders of the Company in the event. In the case of any option or SAR with an award.exercise price that equals or exceeds the price paid for a share of common stock in connection with the change in control, the Committee may cancel the option or SAR without the payment of any consideration.
As of April 12, 2016, we had issued 611,292 shares of restricted stock under the 2009 Plan, of which 454,634 have vested and become unrestricted.
Outstanding Equity Awards at Fiscal Year-End
The following table shows certain information about unvested restricted stock/units and unexercised stock options outstanding as of December 31, 20152020 and held by our Chief Executive Officer, Stephen C. Taylor, and each other named executive officer.
Outstanding Equity Awards at 20152020 Fiscal Year-End
|
| | | | | | | | | | | | | | | | | | | | |
| | Option Awards | Stock Awards |
Name |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Options
(#) |
Option Exercise Price
($) |
Option Expiration Date |
Number of Shares of Stock That Have Not Vested
(#) |
Market Value of Shares of Stock that Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares or Other Rights that Have
Not Vested (#) | Equity
Incentive Plan Awards:
Market or Payout Value
of Unearned
Shares or
Other Rights
that Have
Not Vested ($) |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
| Stephen C. Taylor | 15,000 |
| — |
| — |
| $ | 14.22 |
| 11/21/2016 |
| — |
| — |
| — |
| — |
|
| 40,000 |
| — |
| — |
| $ | 20.06 |
| 1/15/2018 |
| — |
| — |
| — |
| — |
|
| 25,000 |
| — |
| — |
| $ | 17.51 |
| 9/10/2018 |
| — |
| — |
| — |
| — |
|
| 30,000 |
| — |
| — |
| $ | 9.95 |
| 1/28/2019 |
| — |
| — |
| — |
| — |
|
| 23,852 |
| — |
| — |
| $ | 7.84 |
| 3/17/2019 |
| — |
| — |
| — |
| — |
|
| 30,000 |
| — |
| — |
| $ | 19.90 |
| 1/18/2020 |
| — |
| — |
| — |
| — |
|
| | — |
| — |
| — |
| — |
| — |
| 83,590 |
| $ | 1,629,169 |
| — |
| — |
|
| G. Larry Lawrence | 5,000 |
| — |
| — |
| $ | 17.81 |
| 1/24/2021 |
| — |
| — |
| — |
| — |
|
| | — |
| — |
| — |
| — |
| — |
| 20,000 |
| $ | 375,000 |
| — |
| — |
|
| James R. Hazlett | 5,000 |
| — |
| | $ | 17.51 |
| 9/10/2018 |
| — |
| — |
| — |
| — |
|
| 10,000 |
| — |
| — |
| $ | 17.74 |
| 12/9/2019 |
| — |
| — |
| — |
| — |
|
| | 10,000 |
| — |
| — |
| $ | 17.81 |
| 1/24/2021 |
| — |
| — |
| — |
| — |
|
| | — |
| — |
| — |
| — |
| — |
| 20,000 |
| $ | 375,000 |
| — |
| — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | Stock Awards | |
Name |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Options
(#) |
Option Exercise Price
($) |
Option Expiration Date |
Number of Shares of Stock That Have Not Vested
(#) |
Market Value of Shares of Stock that Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares or Other Rights that Have
Not Vested (#) | Equity
Incentive Plan Awards:
Market or Payout Value
of Unearned
Shares or
Other Rights
that Have
Not Vested ($) | |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |
| Stephen C. Taylor | — | | — | | — | | — | | — | | 28,233 | | $ | 267,649 | | — | | — | | |
| — | | — | | — | | — | | — | | 87,783 | | 832,183 | | — | | — | | |
| — | | — | | — | | — | | — | | 94,133 | | 892,381 | | — | | — | | |
| | | | | | | | | | |
| James R. Hazlett | 10,000 | | — | | — | | $ | 17.81 | | 1/24/2021 | — | | — | | — | | — | | |
| — | | — | | — | | — | | — | | 6,666 | | 63,194 | | — | | — | | |
| | | | | | | | | |
| — | | — | | — | | — | | — | | 13,333 | | 126,397 | | — | | — | | |
| — | | — | | — | | — | | — | | 10,000 | | 94,800 | | — | | — | | |
| James R. Lawrence | — | | — | | — | | — | | — | | 3,333 | | 31,597 | | — | | — | | |
| | | | | | | | | | |
Option Exercises and Stock Vested in 20152020
In the table below, we show certain information about (i) the number of shares of common stock acquired upon exercise of stock options by each of the named executive officers in 20152020 and the value realized on exercise of the stock options and (ii) stock awards.
| | | | | | | | | | | | | | | | | | |
| | | Option Awards | | Stock Awards |
| Name | | Number of Shares Acquired
on Exercise (#) | | Value Realized on Exercise ($) | | Number of Shares Acquired on Vesting(1) | | Value Realized on Vesting(1) |
| (a) | | (b) | | (c) | | (d) | | (e) |
| Stephen C. Taylor | | — | | $— | | 54,184 | | | $ | 299,538 | |
| James R. Hazlett | | — | | — | | 13,668 | | | 73,391 | |
| James R. Lawrence | | — | | — | | 1,667 | | | 14,803 | |
| G. Larry Lawrence | | — | | — | | — | | | — | |
(1) Excludes the following shares that vested (with values upon vesting) and were contributed to the Company's nonqualified deferred compensation plan as follows: Mr. Taylor - 41,429 shares for $334,849; and Mr. Hazlett - 6,334 shares for $33,488.
|
| | | | | | | |
| | Option Awards | Stock Awards |
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting | Value Realized on Vesting |
| (a) | (b) | (c) | (d) | (e) |
| Stephen C. Taylor | 45,000 | $404,500 | 49,420 |
| $ | 1,087,240 |
|
| G. Larry Lawrence | — | — | 18,333 |
| 368,859 |
|
| James R. Hazlett | — | — | 18,333 |
| 368,859 |
|
Nonqualified Deferred Compensation
We adopted a Deferred Compensation Plan in December 2015, which permits eligible employees, including our NEOs, and our Directors to annually elect to defer a portion of their salary, commissions, cash bonus, Director fees and/or stock awards they would otherwise have received when earned. Under this plan, participants can defer up to 90% of their salary, commissions, cash bonus, Director fees and stock awards. Cash amounts deferred under the Deferred Compensation Plan are deemed invested in the investment funds selected by the participant with similar options as available under the Company’s 401(k) Plan. We have option to contribute but do not currently contribute to the Deferred Compensation Plan on behalf of its participants or match the deferrals made by participants.
At the time of deferral, a participant must indicate whether he or she wishes to receive the amount deferred while in-service or upon separation of service. In either case, the payment will be in either a lump sum or in substantially equal annual installments. In-service installments cannot exceed five years, while installments elected to start upon separation of service cannot exceed ten years. If separation is due to a disability or a change in control, deferrals will be paid similar to deferrals paid upon separation of service, while deferrals related to death will be paid in a lump sum to the participant’s beneficiary. If a participant experiences an unforeseeable emergency during the deferral period, the participant may petition to receive a partial or full payout from the Deferred Compensation Plan. All distributions are made in cash, except for deferred stock awards which are settled in Company stock.
Deferred Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | |
| Name | Beginning Aggregate Balance | Executive Contributions in Last FY ($) (1) | Registrant Contributions in Last FY ($) | | Aggregate Earnings in Last FY ($) | | Aggregate Withdrawals/Distributions ($) | | Aggregate Balance at Last Fiscal Year End ($) |
| Stephen C. Taylor | $ | 1,949,878 | | $ | 514,333 | | $ | — | | | $ | 108,843 | | | $ | — | | | $ | 2,573,054 | |
| G. Larry Lawrence | 385,979 | | 1,644 | | — | | | (230,073) | | | — | | | 157,550 | |
| James R. Hazlett | 267,342 | | 48,954 | | — | | | 22,708 | | | — | | | 339,004 | |
(1) All contributions were from salary, bonus and stock deferrals in 2020. The Company has made no contributions to the Deferred Compensation Plan.
Potential Payments Upon Termination or Change of Control
Our 1998 Stock Option Plan and 2009 Restricted Stock/Unit2019 Equity Incentive Plan contains “change of control” provisions. These provisions are designed to provide some assurance that we will be able to rely upon each executive’s services and advice as to the best interests of Natural Gas Services Group and our shareholders without concern that the executive might be distracted by the personal uncertainties and risks created by any proposed or threatened change of control and to promote continuity of our executive team.
Under our stock option plan, the Committee may adjust the stock options held by our executives upon the occurrence of a change of control. With this authority, the Committee may in its discretion elect to accelerate the vesting of any stock options that were not fully vested and allow for the exercise of such options as to all shares of stock subject thereto.
Likewise, under our 2009 Restricted Stock/Unit2019 Equity Incentive Plan, in the event of a participant's termination without Cause or for Good Reason during the 18-month period following a change of control (as defined in control will accelerate the vesting ofplan), all awards under the plan unless the Committee has provided otherwise in a particular award under the plan.will immediately vest. In addition, upon death disability or retirement,disability, any vesting or other restrictions on the restricted stock awards will accelerate or lapse such that all shares underlying a restricted stock award will become unencumbered.
As noted in the tables above and summarized below, our named executive officers have stock options and restricted stock awards which are subject to certain vesting requirements.
At December 31, 2015,2020, our named executive officers had the following number of unvested restricted stock awards which were subject to forfeiture as of that date:
•Stephen C. Taylor -- 83,590210,149 shares
G. Larry Lawrence -- 20,000 shares
•James R. Hazlett -- 20,00029,999 shares
•James R. Lawrence -- 3,333 shares
Each of these restricted stock awards could have become vested and issued without restrictions on18 months after December 31, 20152020, assuming a change of control were to have occurred on that date. In addition, the restricted stock awards would have been issued without restrictions on December 31, 2015,2020, assuming the named executive officer had died became disabled or retired.become disabled. The closing price of our common stock on December 31, 2015,2020, was $22.30$9.48 per share. Accordingly, on December 31, 2015, had there been a change in control event or had the named executive officer died, became disabled or retired, the vesting terms of the restricted stock awards would have lapsed and the shares would have become unrestricted. As a result, there was a potential for Messrs. Taylor, Hazlett and J. Lawrence to realize immediate value upon the lapse of restrictions on restricted stock awards on December 31, 2020 as follows: Mr. Taylor --$1,864,057;- $1,992,213; Mr. Lawrence --$446,000;Hazlett - $284,391; and Mr. Hazlett --$446,000.J. Lawrence - $31,597.
As described under “Compensation“Compensation Agreements with Management”Management” on page 41,47, we entered into a written employment agreement with Stephen C. Taylor, President, Chief Executive Officer and Chairman of the Board in October 2013. Under the employment agreement, Mr. Taylor is eligible for certain benefits in connection with a change in control. These provisions were included in Mr. Taylor’s initial employment agreement with us and were continued in his current agreement as part of our negotiations with Mr. Taylor as to the terms of his employment and as an inducement for him to continue his employ with our company. The change of control and severance provisions were designed to promote stability and continuity with respect to Mr. Taylor’s employment as our President and Chief Executive Officer and President.Officer.
The following table summarizes the benefits in effect as of December 31, 2015 that Mr. Taylor would receive assuming that a qualifying termination (i.e., a termination described in footnote 2 below) in connection with a change in control, death or disability or a termination by the Company without cause, or a voluntary termination by Mr. Taylor with and without good reason, occurred on December 31, 2015. Those payments that are available generally to salaried employees that do not discriminate in scope, terms or operation in favor of executive officers are also not included in this table.
Chief Executive Officer Potential Payments Table
|
| | | | | | | | | | | | |
| Named Executive Officer Stephen C. Taylor | Qualifying Termination in Connection with a change in Control, Voluntary Resignation with Good Reason, or Termination by Company without Cause (1) ($) | Death or Disability(2) ($) | Termination by Company with Cause, Voluntary Termination without Good Reason ($) | Retirement(2) ($) |
| Acceleration of Unvested Restricted Stock Units (3) | $ | 1,864,057 |
| $ | 1,864,057 |
| $ | — |
| $ | 1,864,057 |
|
| Severance | 3,665,675 |
| — |
| — |
| — |
|
| Medical, Dental, and Vision Benefits | 32,220 |
| — |
| — |
| — |
|
| Life Insurance Premiums | 756 |
| — |
| — |
| — |
|
| TOTAL | $ | 5,562,708 |
| $ | 1,864,057 |
| $ | — |
| $ | 1,864,057 |
|
| | | | | | | | | | | | | | |
| Named Executive Officer Stephen C. Taylor | Qualifying Termination in Connection with a Change in Control, Voluntary Resignation with Good Reason, or Termination by Company without Cause (1) ($) | Death or Disability (2) ($) | Termination by Company with Cause, Voluntary Termination without Good Reason ($) | Retirement ($) |
| Acceleration of Unvested Restricted Stock Units (3) | $ | 1,992,213 | | $ | 1,992,213 | | $ | — | | $ | — | |
| Acceleration of Unvested Cash Incentive Compensation (4) | 1,061,820 | | 1,061,820 | | | |
| Severance | 4,131,000 | | — | | — | | — | |
| Medical, Dental, and Vision Benefits | 26,710 | | — | | — | | — | |
| Life Insurance Premiums | — | | — | | — | | — | |
| TOTAL | $ | 7,211,743 | | $ | 3,054,033 | | $ | — | | $ | — | |
|
| |
(1) | See "Compensation Agreements with Management" beginning on page 41
(1) See "Compensation Agreements with Management" beginning on page 46 for definitions and discussion of Mr. Taylor's severance package in connection with termination due to change of control, voluntary resignation with good reason or termination by the Company without cause. (2) In the event of Mr. Taylor’s employment terminates on account of death or disability,100% of unvested Restricted Stock and long term cash incentive awards will immediately vest. (3) The value attributable to the acceleration of unvested Restricted Stock awards is based upon the number of awards multiplied by the closing price of our common stock ($9.48) on December 31, 2020. Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the ratio of the compensation of our Chairman and discussion of Mr. Taylor's severance package in connection with termination due to change of control, voluntary resignation with good reason or termination by the Company without cause.
|
|
| |
(2) | In the event of Mr. Taylor’s employment terminates on account of death, disability, or qualified retirement, 100% of unvested Restricted Stock awards will immediately vest.
|
|
| |
(3) | The value attributable to the acceleration of unvested Restricted Stock awards is based upon the number of awards multiplied by the closing price of our common stock ($22.30) on December 31, 2015.
|
Chief Executive Officer Equity Compensation
In an attemptcompared to attract and retain critical leadership talent, which the Boardmedian total annual employee compensation in 2020 is set forth below. SEC rules require the Company to disclose annually (i) the median of Directors believes is a central elementthe annual total compensation of creating durable shareholder value, the Compensation Committee is in the process of restructuring the equity incentive program for our Chief Executive Officer.
Compensation awarded under the new equity compensation program will be primarily based on the Total Shareholder Return (TSR)all employees of the Company relative(excluding the Company’s principal executive officer, Stephen C. Taylor); (ii) the annual total compensation of the Mr. Taylor; and (iii) the ratio of Mr. Taylor’s annual total compensation to the TSRmedian annual total compensation of each member of the Company’s peer group over a one-year period. In addition, the Compensation Committee will continue to exercise a degree of discretion in administering this equity compensation program given the inherent volatility in the oil and natural gas business environment as well as a number of other quantitative and qualitative factors.all employees (excluding Mr. Taylor).
As a result of discussions with our stakeholders and CEO, the Compensation Committee intends to target quantitative-based incentive equity compensation at 175% of the CEO’s base salary.
Based on the Company’s relative one-year TSR,methodology and material assumptions described below, the Company has estimated these amounts to be as follows:
| | | | | |
| Median annual total compensation of all employees (excluding Mr. Taylor) | $ | 70,002 | |
| Annual total compensation of Mr. Taylor | $ | 3,188,949 | |
| Ratio of Mr. Taylor’s annual total compensation to median annual total compensation of all other employees | 46:1 |
The annual total compensation of Mr. Taylor is the total amount of his compensation presented in the 'Summary Compensation Committee envisions target multiplesTable' on page 35. The Company determined the annual total compensation of the base 175% level as follows:
|
| | | | |
| TSR Performance Percentile | < 25th | 25th | 50th | 75th |
| Number of Peers Outperformed | 0-2 | 3 | 6 | 9 |
| Multiplier | 0 | .75 | 1.5 | 2.0 |
In addition, as notedmedian employee shown above using the same rules applicable to the completion of the Summary Compensation Committee retains discretion to adjustTable for Mr. Taylor and the awards based on other relevant quantitative and qualitative performance measures and for both absolute and relative extraordinary achievement in line with the objectivenamed executive officers. As of attracting and retaining best in class leadership.
The Compensation Committee intends to formalize this program with the Company's CEO within the next few months so that the annual equity award to be granted in 2017 will be made under the new program outlined above. In addition, as noted elsewhere in this Proxy Statement, future awards will be subject to vesting requirements under which share awards will vest in equal one-third tranches on December 31, of2020, the grant year and the subsequent two years.Company had 229 employees.
Compensation of Directors
We use a combination of cash and equity-based incentive compensation to attract and retain qualified candidates to serve on our Board of Directors. In setting compensation for our Directors, we consider the substantial amount of time that Directors expend in fulfilling their duties to us and our shareholders, as well as the skill-sets required to fulfill these duties.
The following table discloses the cash, equity awards and other compensation earned, paid or awarded, as the case may be, to each of our non-employee Directors during the fiscal years ended December 31, 2015, 20142020, 2019 and 2013.2018:
| | | Name | Year | Fees Earned Or Paid ($)(1) | Stock Awards ($)(2) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation ($) | Total ($) | Name | Year | Fees Earned Or Paid ($)(1) | Stock Awards ($)(2) | Option Awards ($) | Non-Equity Incentive
Plan Compensation
($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All
Other
Compensation
($) | Total
($) |
| (a) | | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (a) | | (b) | (c) | (d) | (e) | (f) | (g) | (h) |
| Charles G. Curtis | 2015 | $ | 50,000 |
| $ | 102,975 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 152,975 |
| Charles G. Curtis | 2020 | $ | 32,500 | | $ | 24,996 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 57,496 | |
| | 2014 | 50,000 |
| 99,988 |
| — |
| — |
| — |
| — |
| 149,988 |
| |
| | 2013 | 30,000 |
| 46,875 |
| — |
| — |
| — |
| — |
| 76,875 |
| |
| Charles G. Curtis | | Charles G. Curtis | 2019 | 60,000 | | 100,005 | | — | | — | | — | | — | | 160,005 | |
| 2018 | 55,000 | | 99,968 | | — | | — | | — | | — | | 154,968 | |
| 2015 | 60,000 |
| 102,975 |
| — |
| — |
| — |
| — |
| 162,975 |
| 2020 | 65,000 | | 24,996 | | — | | 50,000 | | — | | — | | 139,996 | |
| | 2014 | 60,000 |
| 99,988 |
| — |
| — |
| — |
| — |
| 159,988 |
| |
| | 2013 | 40,000 |
| 46,875 |
| — |
| — |
| — |
| — |
| 86,875 |
| |
| David L. Bradshaw | | David L. Bradshaw | 2019 | 65,000 | | 100,005 | | — | | — | | — | | — | | 165,005 | |
| 2018 | 65,000 | | 99,968 | | — | | — | | — | | — | | 164,968 | |
| 2015 | 50,000 |
| 102,975 |
| — |
| — |
| — |
| — |
| 152,975 |
| 2020 | 60,000 | | 24,996 | | — | | 50,000 | | — | | — | | 134,996 | |
| | 2014 | 50,000 |
| 99,988 |
| — |
| — |
| — |
| — |
| 149,988 |
| |
| | 2013 | 30,000 |
| 46,875 |
| — |
| — |
| — |
| — |
| 76,875 |
| |
| William F. Hughes | 2015 | 60,000 |
| 102,975 |
| — |
| — |
| — |
| — |
| 162,975 |
| |
| | 2014 | 60,000 |
| 99,988 |
| — |
| — |
| — |
| — |
| 159,988 |
| |
| | 2013 | 40,000 |
| 46,875 |
| — |
| — |
| — |
| — |
| 86,875 |
| |
| John Chisholm | | John Chisholm | 2019 | 55,000 | | 100,005 | | — | | — | | — | | — | | 155,005 | |
| 2018 | 55,000 | | 99,968 | | — | | — | | — | | — | | 154,968 | |
| 2020 | 65,000 | | 24,996 | | — | | 50,000 | | — | | — | | 139,996 | |
| William F. Hughes, Jr. | | William F. Hughes, Jr. | 2019 | 65,000 | | 100,005 | | — | | — | | — | | — | | 165,005 | |
| 2018 | 65,000 | | 99,968 | | — | | — | | — | | — | | 164,968 | |
| 2020 | 27,500 | | 12,499 | | — | | — | | — | | — | | 39,999 | |
| Leslie A. Beyer | | Leslie A. Beyer | 2019 | — | | — | | — | | — | | — | | — | | — | |
| 2018 | — | | — | | — | | — | | — | | — | | — | |
| |
(1) | Our non-employee Directors are paid a quarterly cash fee for their attendance at each meeting of our Board of Directors. The cash fee payable to our non-employee Directors for 2015 and 2014 was $11,250 per quarter. In addition, (i) the Chairman of the Audit Committee, David L. Bradshaw and the Chairman of the Compensation Committee, William F. Hughes Jr., were entitled to an additional quarterly cash fee in the amount of $3,750 and (ii) the Chairman of the Nominating Committee John W. Chisholm, and the Chairman of the Governance and Personnel Development Committee, Charles G. Curtis, were entitled to an additional quarterly cash fee in the amount of $1,250. In 2013, our non-employee Directors were paid a quarterly cash fee for their attendance at each meeting of our Board of Directors. The cash fee payable to our non-employee Directors was $7,500 per quarter. Each of our non-employee Directors received a cash fee payment of $7,500 for the four quarters in 2013, totaling $30,000. In addition, the Chairman of the Audit Committee, David L. Bradshaw was entitled to an additional quarterly cash fee in the amount of $2,500; and the Chairman of the Compensation Committee, William F. Hughes Jr., was entitled the same additional quarterly cash fee of $2,500. |
| |
(2) | On March 19, 2015, each of our non-employee Directors were granted 5,492 restricted shares of common stock at an issue price of $18.75 per share; and on March 20, 2014, each of our non-employee Directors were granted 3,288 restricted shares of common stock at an issue price of $30.41 per share; and on March 21, 2013, each of our non-employee Directors were granted 2,500 restricted shares of common stock at an issue price of $18.75 per share. |
(1) Our non-employee Directors are paid a quarterly cash fee. The cash fee payable to our non-employee Directors was $12,500 per quarter for 2020, 2019 and 2018. In addition, (i) the Chairman of the Audit Committee, David L. Bradshaw, and the Chairman of the Compensation Committee, William F. Hughes Jr., were entitled to an additional quarterly cash fee in the amount of $3,750; (ii) the Chairman of the Nominating Committee, John W. Chisholm, and the Chairman of the Governance and Personnel Development Committee, Charles G. Curtis, were entitled to an additional quarterly cash fee in the amount of $1,250; and (iii) Mr. Curtis was entitled to an additional $5,000 annually for his role as Lead Director.
(2) On April 28, 2020, each of our non-employee Directors were granted 4,432 restricted shares/units at an issue price of $5.64 per share; on October 15, 2020, Ms. Beyer was granted 1,324 restricted shares/units at an issue price of $9.44; on March 29, 2019, each of our non-employee Directors were granted 5,784 restricted shares/units at an issue price of
$17.29 per share; and on March 15, 2018, each of our non-employee Directors were granted 4,072 restricted shares/units at an issue price of $24.55 per share.
Cash Compensation Paid to Independent Directors
We pay our non-employee Directors a quarterly cash fee for their attendance at each meeting of our Board of Directors. The cash fee payable to our non-employee Directors for 20152020, 2019 and 2018 was $11,250$12,500 per quarter. In addition, the Chairmen of the Audit and Compensation Committees were entitled to an additional quarterly cash fee in the amount of $3,750;$3,750, while the Chairmen of the Nominating and Governance and Personnel Development committeesCommittees were entitled to an additional quarterly cash fee of $1,250. We paid $10,000 annually to Mr. Chisholm for his role as Lead Director.
For 2021, the Compensation recommended and the Board of Directors approved (i) an increase for the cash retainer of each independent director from $50,000 to $55,000; (ii) a $15,000 annual fee for the Chairman of the ESG Committee and; (iii) an increase to the annual fee paid to Mr. Chisholm to $15,000 for his role as Lead Director and Chairman of the Nominating Committee.
Equity Based Compensation Paid to Independent Directors
In 2013, each independent Director received a static grant of 2,500 shares of restricted shares of Company common stock for each year. Beginning in 2014, our Board of Directors revised the Company'sOur compensation policy for independent directors so that in lieu of issuing a static 2,500 restricted shares of Company common stock as in past years, the independent directors now receiveDirectors is to grant an annual award of restricted shares based upon a review of equity award values paid by other public companies in the Company's peer group and the Company's market and financial performance in comparison to such peer group companies. For 2015,2020, based upon the Company's performance compared to its peer group, the Compensation Committee recommended and the Board approved an equity award value of approximately $103,000$100,000 in restricted stock.stock/units. In connection therewith, each of our four independent directorsDirectors was granted for 20152020 the amount of 5,4924,432 restricted shares/units, pursuant to the 2019 Equity Incentive Plan, which was calculated by dividing $50,000 by a deemed share price of $11.28 (two times the market closing price of $5.64 on April 28, 2020) that effectively reduced each independent Director's restricted stock award by 50% and their total awards by 25%. The restricted shares/units vest one year from the date of grant.
On April 1, 2021, William F. Hughes retired and resigned from his position as a member of the Board of Directors of the Company. In recognition of Mr. Hughes’ longstanding service, the Compensation Committee voted to accelerate the vesting of the following unvested shares, free of any further restrictions:
•3,989 restricted stock units
•443 restricted stock awards
On March 18, 2021, the Compensation Committee recommended and the Board approved the continuation of its annual equity award policy of $100,000 in value of restricted stock, for 2020. However, because of the depressed nature of the energy industry and dilutive nature of the Company’s stock at current market prices, the Board determined to modify this year’s award into a 50/50 split of stock and cash. In connection therewith, three independent Directors were granted the following:
•An award of $50,000 in cash (50% of the total) that vests one year from the date of grant; and
•An award of 5,612 shares of restricted stock, pursuant to the Plan, based upon the closingwhich was calculated by dividing $50,000 by a deemed share price of $18.75 per share as$8.91. These awards of March 19, 2015,restricted stock vest one year from the date of the grant. The restricted shares are subject to vesting whereby no shares will vest during the first year,grant and then upon the first anniversary date of the award, one-fourth of the shares will vest every three months so that all restricted shares will have vested on the second anniversary date of the grant of the award. Notwithstanding the vesting schedule, all of the restricted shares are subject to acceleration and will immediately vest in certain events.
On April 1, 2021, the case of (i) death, disability, or retirementBoard appointed Nigel J. Jenvey as a Director of the recipient employee, or (ii)Company. Consistent with the compensation of the other non-employee Directors, the Compensation Committee awarded Mr. Jenvey the following:
•An award of $50,000 in cash (50% of the total) that vests one year from the date of grant; and
•An award of 5,291 shares of restricted stock, which was calculated by dividing $50,000 by a changedeemed share price of control$9.45. These awards of restricted stock vest one year from the date of grant and are subject to acceleration in the Company, as set forth in the Restricted Stock Plan.certain events.
Directors who are our employees do not receive any compensation for their services as Directors.
Other
All Directors are reimbursed for their expenses incurred in connection with attending meetings. We provide liability insurance for our Directors and officers. The cost of this coverage for 20152020 was $100,113.$167,755. We do not offer non-employee Directors travel accident insurance, life insurance, or a pension or retirement plan.
Compensation Agreements with Management
On October 23, 2013, we and Stephen C. Taylor entered into a new employment agreement with us (the “Employment Agreement”), pursuant to which Mr. Taylor continues his employment as our President and Chief Executive Officer. The new Employment Agreement became effective on the same date and Mr. Taylor’s previous employment agreement with us, which was set to expire on October 25, 2013, was terminated in connection therewith.
On April 24, 2015, we entered into an amendment with Mr. Taylor to his Employment Agreement pursuant to which the "modified single trigger" change of control provision was changed to a "double trigger" change of control. Under the "modified single trigger provision", Mr. Taylor could voluntarily terminate the Employment Agreement and for any reason and collect severance benefits. Under the new "double trigger" change of control provision, a change of control must occur followed by the Company or its successor terminating Mr. Taylor's employment other than for cause, death, or disability, or by Mr. Taylor terminating his employment for Good Reason. We discuss the definitions of "Change of Control" and "Good Reason" below, along with Mr. Taylor's severance benefits in connection with these events.
The term of the Employment Agreement is for three years but the agreement contains an “evergreen” feature whereby the agreement is automatically extended on a monthly basis on the last day of each month so that the term of the agreement will always be three years unless written notice of nonrenewal is given by the Company. If a notice of nonrenewal is given, the term of employment then ends three years from the date of that written notice of nonrenewal unless terminated earlier as described below. The Employment Agreement provides for Mr. Taylor to receive a base salary, potential cash bonus, equity compensation, and certain other benefits, which are summarized below.
Base Salary. Mr. Taylor’s annual 2015 base salary of $543,063 (“Base Salary”) remained the same for the remainder of 2015. However, theTaylor is entitled to Base Salary will bewhich is reviewed annually at the beginning of the year by, and may be increased at the discretion of, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”).
Bonus. Mr. Taylor will continue to be eligible for an annual cash bonus under the Company’s current Annual Incentive Bonus Plan. Mr. Taylor’s annual bonus opportunity payable upon achievement of “target” levels shall be at least a hundredninety percent (100%(90%) of Base Salary for 20152013 and at least one hundred percent (100%) thereafter. The performance metrics, weighting and thresholds for each annual bonus opportunity will be determined by the Company’s Board of Directors or Compensation Committee in good faith following consultation with Mr. Taylor.
Annual Equity Compensation. Mr. Taylor will beis eligible for annual grants of equity-based incentive awards under the Company’s equity compensation plans. The Company has agreedWhile the agreement provides an annual equity award grant to award Mr. Taylor a restricted stock award or equivalent equity awards in January of each year with an aggregate minimum value equal to at least 175% of the Executive'shis Base Salary, subject to one-year vesting terms, Mr. Taylor has waived the 175% and other standard terms which shall be established byone-year vesting requirement for the past four years in order to enable the Compensation Committee taking into account theto make discretionary and performance of the Company, Mr. Taylor and industry norms.based awards with a three-year vesting term (subject to customary acceleration) in keeping with current public company pay practices.
Benefits. The Company will provide Mr. Taylor such retirement, and other benefits as are customarily provided to similarly situated executives of the Company, including paid vacation, coverage under the Company’s medical, life, disability and other insurance plans, and reimbursement for all reasonable business expenses in accordance with the Company’s expense reimbursement policy.
Termination. The Company or Mr. Taylor may terminate the agreement prior to the expiration of its Term at any time upon written notice.
Severance upon Early Termination. Mr. Taylor will be entitled to the following severance benefits during the first ten years of his employment:
(A) If (i) the Company terminates Mr. Taylor's agreement without Cause (ii) Mr. Taylor terminates the agreement for Good Reason or due to a Change of Control event (as defined below) followed by the Company or its successor terminating Mr.
Taylor's agreement without cause or Mr. Taylor terminating the agreement for Good Reason or (iii) Mr. Taylor's employment is terminated due to death or disability, then he will receive (a) a lump sum payment equal to 300% of Base Salary and Annual Bonus; (b) vesting of all unvested equity awards or other long-term incentive compensation; (c) continuation of health insurance benefits and payment of any life insurance premiums for a period of 36 months after termination; and (d) receipt of any other vested benefits which had not yet been paid prior to the date of termination.
(B) If Mr. Taylor's employment is terminated for Cause or he voluntarily resigns, then he will be entitled to any unpaid compensation earned through the date of termination and receipt of any other vested benefits which had not yet been paid prior to the date of termination.
(C) If Mr. Taylor retires in compliance with the Company's retirement policy, then he will be entitled to (i) any unpaid compensation earned through the date of retirement; (ii) vesting of all unvested equity awards or other long-term incentive compensation; and (iii) receipt of any other vested benefits which had not yet been paid prior to the date of termination.
After the tenth anniversary date of Mr. Taylor's employment agreement, in the event the Company delivers to Mr. Taylor a Notice of Nonrenewal and:
(A) his employment is automatically terminated upon the expiration of the remaining three year term, Mr. Taylor shall be entitled to (i) any unpaid compensation earned through the date of retirement; (ii) vesting of all unvested equity awards or other long-term incentive compensation; and (iii) receipt of any other vested benefits which had not yet been paid prior to the date of; or
(B) his employment is terminated prior to the expiration of the remaining three year term, unless said termination is due to Cause, voluntary resignation or retirement, then Mr. Taylor shall be entitled to (i) lump sum payment of his Base Salary at the time of termination for the remainder of the three year term of the agreement; (ii) a lump sum cash payment equal to 100% of the Annual Bonus for each full year (if any) remaining in the three year term, plus a pro-ratapro rata portion of such AnnulAnnual Bonus for any partial remaining year in the three year term; (iii) vesting of all unvested equity awards or other long-term incentive compensation; (iv) continuation of health insurance benefits and payment of any life insurance premiums for the remainder of the three year term of the agreement; and (v) receipt of any other vested benefits which had not yet been paid prior to the date of termination.
Under the Employment Agreement, a "Change of Control" event includes (i) the acquisition by a person, entity or group of related persons or entities of more than 30% of the total voting power in the Company (excluding sales to underwriters in a public offering); (ii) consummation of the sale of 50% or more of the Company's assets; (iii) consummation of a merger or
consolidation of the Company with or into an entity unless the voting securities of the Company immediately prior to the merger or consolidation continue to represent more the 70% of the voting power of the surviving entity after the merger or consolidation; and (iv) replacement of at least a majority of the incumbent members of the Company's Board of Directors, excluding directorsDirectors whose election to the Board was approved by at least a majority of the then incumbent directors,Directors, subject to further limited exceptions as set forth in the "Change of Control" definition in Employment Agreement.
Under the Employment Agreement, a "Good Reason" event includes (i) a material diminution of Mr. Taylor's duties, control, authority or status or position or a requirement that the Executive report to a corporate officer or employee instead of reporting directly to the boardBoard of directors;Directors; (ii) a material reduction in Mr. Taylor's compensation; (iii) a material breach by the Company of the Employment Agreement; or (iv) a relocation of more than fifty50 miles of Mr. Taylor's principal office with the Company or its successor. And in connection with a termination due to Change of Control, the following provisions also constitute “Good Reason” events: (i) a material diminution of Mr. Taylor's duties, control, authority or status or position or a requirement that Mr. Taylor report to a corporate officer or employee instead of reporting directly to the Company's or successor’s boardBoard of directorsDirectors depending on its composition after the change in control; (ii) the failure of the Company or successor to continue in effect any plan in which Mr. Taylor participates immediately prior to the Change in Control which is material to the Executive’s total compensation, unless an equitable arrangement has been made with respect to any such plan on a basis not less favorable, both in terms of the amount or timing of payment of benefits provided; and (iii) a material breach by the Company or its successor of the Employment Agreement or any other material agreement between Mr. Taylor and the Company or its successor.
Non-Competition and Non-Solicitation. In connection with the payment of the severance benefits described above, for a period of two years following Mr. Taylor’s separation from the Company, he may not compete with the Company in any geographic area within a 100 mile radius of a Company owned or leased facility which is Company staffed and actively engaging in business on behalf of the Company.
We do not have any written employment agreements with our other named executive officers.
Limitation on Directors’ and Officers’ Liability
Our Articles of Incorporation provide our Directors and Officers with certain limitations on liability to us or any of our shareholders for damages for breach of fiduciary duty as a Director or officer involving certain acts or omissions of any such Director or Officer.
This limitation on liability may have the effect of reducing the likelihood of derivative litigation against Directors and Officers, and may discourage or deter shareholders or management from bringing a lawsuit against Directors and Officers for breach of their duty of care even though such an action, if successful, might otherwise have benefited our shareholders and us.
Our Articles of Incorporation and bylaws provide certain indemnification privileges to our Directors, employees, agents and officers against liabilities incurred in legal proceedings. Also, our Directors, employees, agents or officers who are successful, on the merits or otherwise, in defense of any proceeding to which he or she was a party, are entitled to receive indemnification against expenses, including attorneys’ fees, incurred in connection with the proceeding.
We are not aware of any pending litigation or proceeding involving any of our Directors, Officers,officers, employees or agents as to which indemnification is being or may be sought, and we are not aware of any other pending or threatened litigation that may result in claims for indemnification by any of our Directors, officers, employees or agents.
Even though we maintain Directors’ and Officers’ liability insurance, the indemnification provisions contained in our Articles of Incorporation and bylaws remain in place.
Procedures for Reviewing Certain Transactions
On March 7, 2007, we adopted a written policy for the review, approval or ratification of related party transactions. All of our officers, Directors and employees are subject to the policy. Under this policy, the Audit Committee will review all related party transactions for potential conflict of interest situations. Generally, our policy defines a “related party transaction” as a transaction in which we are a participant and in which a related party has an interest. A “related party” is:
•any of our Directors, Officers or employees or a nominee to become a Director;
•an owner of more than 5% of our outstanding common stock;
•certain family members of any of the above persons; and
•any entity in which any of the above persons is employed or is a partner or principal or in which such person
has a 5% or greater ownership interest.
Approval Procedures
Before entering into a related party transaction, the related party or our department responsible for the potential transaction must notify the CEO or the Audit Committee of the facts and circumstances of the proposed transaction. If the amount involved is equal to or less than $100,000, the proposed transaction will be submitted to the CEO. If the amount involved exceeds $100,000, the proposed transaction will be submitted to the Audit Committee. Matters to be submitted will include:
•the related party’s relationship to us and interest in the transaction;
•the material terms of the proposed transaction;
•the benefits to us of the proposed transaction;
•the availability of other sources of comparable properties or services; and
•whether the proposed transaction is on terms comparable to terms available to an unrelated third party or to employees generally.
The CEO or the Audit Committee, as applicable, will then consider all of the relevant facts and circumstances available, including the matters described above and, if applicable, the impact on a director’sDirector’s independence. Neither the CEO
nor any member of the Audit Committee is permitted to participate in any review, consideration or approval of any related party transaction if such person or any of his or her immediate family members is the related party. After review, the CEO or the Audit Committee, as applicable, may approve, modify or disapprove the proposed transaction. Only those related party transactions that are in, or are not inconsistent with, our best interests and that of our shareholders will be approved.
Ratification Procedures
If one of our officers or Directors becomes aware of a related party transaction that has not been previously approved or ratified by the CEO or the Audit Committee, then, if the transaction is pending or ongoing, the transaction must be submitted, based on the amount involved, to either the CEO or the Audit Committee and the CEO or the Audit Committee willto consider the matters described above. Based on the conclusions reached, the CEO or the Audit Committee, as applicable, will evaluate all options, including ratification, amendment or termination of the related party transaction. If the transaction is completed, the CEO or the Audit Committee will (i) evaluate the transaction, taking into account the same factors as described above, to determine if rescission of the transaction or any disciplinary action is appropriate,appropriate; and (ii) will request that we evaluate our controls and procedures to determine the reason the transaction was not submitted to the CEO or the Audit Committee for prior approval, and whether any changes to the procedures are recommended.
We did not have any related party transactions in 20152020 with our Officersofficers or Directors.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
For purposes of the following tables, "beneficial ownership" is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, pursuant to which a person or group of persons is deemed to have "beneficial ownership" of any shares of Common Stock that such person has the right to acquire within 60 days.
The following table indicates the beneficial ownership of our Common Stock as of April 22, 201625, 2021 by: (1) each of our current directorsDirectors and nominees for election; (2) our chief executive officer,Chief Executive Officer, principal accounting officer and our other named executive officers (as defined in Item 402(a) (3) of Regulation S-K) (together as a group, the "Named Executive Officers") "); and (3) all of our current directors,Directors, nominees and executive officers as a group, based on our records and data supplied by each of the current directors,Directors, nominees and executive officers.
Schedule of Beneficial Ownership |
| | | | | | | |
| Name of Beneficial Owner and Position | Amount and Nature of Beneficial Ownership(1) | Percent of Class |
Directors & Nominees Who Are Not Named Executive Officers | | |
| | | |
| John W. Chisholm | 36,340(2)
| * |
Current Director & Director Nominee | | |
| | |
Charles G. Curtis | 85,021(3)
28,974 | * |
| Current Director | | |
| | |
William F. Hughes, Jr.Nigel J. Jenvey | 149,164(4)
5,291 | 1.16%* |
Current Director Nominee | | |
| | | |
| David L. Bradshaw | 19,04832,044 | * |
| Director Nominee | | |
| | |
| Leslie Shockley Beyer | 6,936 | * |
| Current Director | | |
| | | |
| Named Executive Officers | | |
| | | |
| Stephen C. Taylor | 446,590681,118(5)(2)
| 3.47%5.00% |
Chief Executive Officer and Current Director | | |
| | |
| James R. Hazlett | 92,723106,791(6)(3)
| * |
Vice President –- Technical Services | | |
| | |
| G. Larry Lawrence | 56,22164,259(7)(4)
| * |
| Interim Vice President and Chief Financial Officer | | |
| | |
| All Directors (and nominees) and executive officers as a group (7 persons) | 885,107925,413(8)(5)
| 6.88%6.79% |
* Less than one percent.
(1) The number of shares listed includes all shares of common stock owned or indirectly owned by, or which may be acquiredvest within 60 days of April 22, 2016 upon exercise of warrants and options held by the shareholder (or group).25, 2021, under outstanding restricted stock units. Beneficial ownership is calculated in accordance with the rules of the Securities and Exchange Commission. Unless otherwise indicated, all shares of common stock are held
directly with sole voting and investment powers. As of April 22, 2016,25, 2021, none of the shares of common stock owned by our officers and Directors had been pledged as collateral to secure repayment of loans.
(2) Includes 15,000(i) 113,315 shares of common stock that may be acquired upon exerciseheld indirectly by a “rabbi trust” the receipt of stock options granted under our 1998 Stock Option Plan.
(3) Includes 12,500which has been deferred by Mr. Taylor pursuant to the Company’s Nonqualified Deferred Compensation Plan and (ii) 3,138 shares of common stock that may be acquired upon exercisewhich vest within 60 days of stock options granted under our 1998 Stock Option Plan.
(4) Includes 110,500April 25, 2021. Does not include 17,248 shares of common stock indirectly owned by Mr. Hughes throughwhich may be issued upon the William and Cheryl Hughes Family Trust. Mr. and Mrs. Hughes are co-trusteesvesting of the William and Cheryl Hughes Family Trust and have shared voting and investment powers with respect to the shares held by the trust. Mr. and Mrs. Hughes are beneficiaries of the trust along with their two children.restricted stock units.
(5)(3) Includes 148,85219,000 shares of common stock that may be acquired upon exerciseheld indirectly by a “rabbi trust” the receipt of stock options grantedwhich has been deferred by Mr. Hazlett pursuant to Mr. Taylor.the Company’s Nonqualified Deferred Compensation Plan.
(6)(4) Includes 25,00010,000 shares of common stock that may be acquired upon exerciseheld indirectly by a “rabbi trust” the receipt of stock options granted under our 1998 Stock Optionwhich has been deferred by Mr. Lawrence pursuant to the Company’s Nonqualified Deferred Compensation Plan.
(7) Includes 5,000(5) Does not include 17,248 shares of common stock thatwhich may be acquiredissued upon exercisethe vesting of restricted stock options granted under our 1998 Stock Option Plan.units.
(8) Includes 206,352 shares of common stock that may be acquired upon exercise of stock options.
The following table sets forth information as of April 22, 201625, 2021 regarding the beneficial owners of more than five percent of the outstanding shares of our Common Stock. To our knowledge, there are no beneficial owners of more than five percent of the outstanding shares of our Common Stock as of April 22, 201625, 2021 other than those set forth below.
|
| | | | | | | |
| Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class |
| | | |
Blackrock, Inc. | 796,871(1)
| 6.19% |
40 East 52nd Street
| | |
New York, New York 10022 | | |
| | |
Neuberger Berman Group LLC | 1,046,735(2)
| 8.14% |
605 Third Avenue | | |
New York, New York 10158 | | |
| | |
| Dimensional Fund Advisors LP | 996,4601,022,687(3)(1)
| 7.73%7.51% |
| Palisades West, Building One, 6300 Bee Cave Road | | |
| Austin, Texas 78746 | | |
| | | |
| Mill Road Capital III, LP | 839,445(2)| 6.17% | | 382 Greenwich Avenue, Suite One | | | | Greenwich, CT 06830 | | | | | | | Franklin Mutual Advisors, LLC | 861,483(3) | 6.33% | | 101 John F. Kennedy Parkway | | | | Short Hills, New Jersey 07078 | | | | | (1) | As reported in Amendment No. 6 to Schedule 13G filed with the Securities and Exchange Commission on January 27, 2016. According to the filing, Blackrock, Inc. has the sole voting and dispositive power over the shares reported in the table above.
| | | FMR LLC | 1,076,645(4) | 7.91% | | 245 Summer Street | | | (2)Boston, Massachusetts 02210 | As reported in Amendment No. 7 to Schedule 13G filed with the Securities and Exchange Commission on February 9, 2016. According to the filing, Neuberger Berman Group LLC and Neuberger Berman LLC beneficially own the shares.
| |
(1) As reported in Amendment No. 9 to Schedule 13G filed with the Securities and Exchange Commission in February 12, 2021. According to the filing, Dimensional Fund Advisors holds voting and/or investment power over the shares, but economic ownership is beneficially held by four investment companies. Dimensional Fund Advisors has sole dispositive power over all and sole voting power over 979,721 of the shares reported in the table above.
(2) As reported in Schedule 13D filed with the Securities and Exchange Commission on January 4, 2021.
(3) As reported in Amendment No. 3 to Schedule 13G filed with the Securities and Exchange Commission on February 4, 2021. According to the filing, Franklin Advisory Services, LLC is an indirect wholly owned subsidiary of Franklin Resources, Inc., and it holds investment and voting power over the securities; however, economic ownership is held by one or more open-end investment companies or other managed accounts that are investment management clients of Franklin Advisory Services, LLC or affiliated companies.
(4) As reported in Amendment No. 1 to Schedule 13G filed with the Securities and Exchange Commission on February 8, 2021.
| | | (3) | As reported in Amendment No. 3 to schedule 13G filed with the Securities and Exchange Commission in February 9, 2016. According to the filing, Dimensional Fund Advisors holds voting and/or investment power over the shares, but economic ownership is beneficially by four investment companies.
|
Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our Directors, officers and persons who beneficially own more than 10% of our Common Stock to file certain reports of beneficial ownership with the Securities and Exchange Commission. These reports show the Directors’, officers’ and greater than 10% shareholders' ownership and the changes in ownership of our common stock and other equity securities. The SEC regulations also require that a copy of all such Section 16(a) forms filed must be furnished to us by the person or entity filing the report.
Based on a review of Section 16(a) filings furnished to us, To the Company’s knowledge, during the fiscal year ended December 31, 2020, all transactions in our equity securitiesreports required to be reported byfiled pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, were reportedfiled on a timely basis, except for the following: In Januaryreports listed below.
•Stephen C. Taylor, our President and MarchChief Executive Officer, filed one day late a Form 4 on February 14, 2020, which included three related transactions in connection with the exempt vesting of 2015, with respectrestricted stock units and related exempt payment of tax liability by withholding shares incident to the vesting of certainthe restricted common stock awards,units. •Charles Curtis, our Director who retired in 2020, filed a late report on Form 4 on June 22, 2020, regarding the exempt vesting of restricted stock units.
PROPOSAL 2 - CONSIDERATION OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), gives the shareholders the right to endorse or not endorse the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the SEC's rules. The proposal, commonly known as a “Say-on-Pay” proposal, gives our shareholders the opportunity to express their views on the Company's executive compensation.
At the Company's annual meeting of shareholders held in June 2011, our shareholders recommended that the advisory vote on the Say-on-Pay of our named executives in our proxy materials be submitted annually, notwithstanding that our Board of Directors recommended that the advisory vote be submitted every third year. In light of the recommendation of the shareholders, we decided to include the Say-on-Pay advisory vote in our proxy materials on an annual basis until the next shareholder vote on the frequency of Say-on-Pay or our Board of Directors otherwise determines that a different frequency of Say-on-Pay vote is in the best interests of the shareholders. We are asking our shareholders to indicate whether or not they support the compensation program as described in this proxy statement. This proposal is not intended to address any specific item of compensation, but rather the overall compensation of the named executive officers and the compensation policies, methodologies and practices described in this proxy statement. Accordingly, we ask our stockholders to vote “FOR” the following resolution at our annual meeting: “RESOLVED, that the shareholders approve the compensation of the Company's named executive officers, as disclosed in the compensation section, the compensation tables, and the related disclosure contained in the proxy statement set forth under the caption “Executive Compensation” of this proxy statement.” The Company believes its compensation philosophy and programs are strongly linked to performance and results and appropriately aligned with the interests of shareholders. Our compensation philosophy is to provide an executive compensation program that: •rewards performance and skills necessary to advance our objectives and further the interests of our officersshareholders; •is fair and directors inadvertently failedreasonable and appropriately applied to timely file Form 4's relating toeach executive officer; •is competitive with compensation programs offered by our competitors; and •is appropriately focused on achieving annual financial and operational goals through the disposalCompany's cash bonus plan and on maximizing stockholder value over the long term, through grants of restricted shares and stock options.
The Board of Directors recommends that you vote FOR approval, on an advisory basis, of the number of shares listed in connection with
their election to withhold shares in payment of income tax obligations arising from the vesting of the awards: David Bradshaw - 206 shares; John Chisholm - 206 shares; James R. Hazlett - two transactions of 1,088 and 4,066 shares; G. Larry Lawrence - two transactions of 1,088 and 4,067 shares; and Stephen C. Taylor - 20,547 shares. Appropriate Form 4's were filed in June 2015 when the error was discovered.
In addition, in December of 2015 Charles G. Curtis inadvertently failed to timely file a Form 4 in connection with the exercise of a stock option for 2,500 sharescompensation programs of our common stock. Mr. Curtis filed a Form 4 reportingnamed executive officers as disclosed in the missed transactionCompensation Discussion and Analysis, the compensation tables, and the related disclosure contained in January 2016.the proxy statement set forth under the caption “Executive Compensation” of this proxy statement.
All of the foregoing late filings related to exempt transactions under Section 16.
REPORT OF THE AUDIT COMMITTEE
The following reportprimary function of the Audit Committee of Natural Gas Services Group, Inc. is oversight of the Company shall not be deemed to be "soliciting material" or to be "filed" with the SEC, nor shall this report be incorporated by reference into any filing made by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates such information by reference in such filing.
Our Audit Committee, pursuant to its charter, is responsible for (i) overseeing the integrity of our financial statements; (ii)Company’s financial reporting processes; (iii) compliance with legal and regulatory requirements; (iv) the independent registeredprocess, public accounting firm qualifications and independence; (v) annually reviewing and assessing the committee's performance and its charger; (vi) and the performance of ourfinancial reports, internal accounting functions and independent registered public accounting firm.
Our independent registered public accounting firm is responsible for performing anfinancial controls, and the independent audit of ourthe annual consolidated financial statements in accordance withstatements. The Committee acts under a charter, which can be found on the StandardsCompany’s website at www.ngsgi.com. The adequacy of the Public Company Accounting Oversight Board (United States)charter is reviewed at least annually. The Chairman and to issue a report thereon. The Audit Committee reviews with management our financial statements and management’s assessment of internal controls over financial reporting; reviews with the independent registered accounting firm their independent report on the condition of the Company's financial statements; and reviews the activities of the independent registered public accounting firm. The Audit Committee selects our independent registered public accounting firm each year. The Audit Committee also considers the adequacy of our internal controls and accounting policies. While the Audit Committee has the responsibilities and powers set forth in its charter, and the Company's management and the independent registered public accounting firm are accountable to the Audit Committee, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company's financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable laws, rules and regulations.The chairman andall members of the Audit Committee are all independent Directors of our Board of Directorsdirectors within the meaning of Section 303A of the New York Stock Exchange Listed Company Manual.
The Committee met nine (9) times in 2020. In these meetings, as discussed in more detail below, it had extensive reports and discussions with the independent auditors, internal accounting professionals, and members of management. The Audit
In performing its oversight function, the Committee has reviewed and discussed our auditedthe consolidated financial statements with our management.management and Moss Adams LLP (“Moss Adams”), the Company’s independent auditors. Management indicated, and Moss Adams' audit opinion stated, that the Company’s consolidated financial statements were fairly stated in accordance with generally accepted accounting principles. The Audit Committee hasdiscussed significant accounting policies applied by the Company in its financial statements, as well as alternative treatments. It also received from, and discussed with BDO theMoss Adams matters required to be discussedcovered by Public Company Accounting Oversight Board Auditing Standard No. 16 (Communications(“PCAOB”) standards, including PCAOB AS 1301 Communication with Audit Committees).Committees. In addition, the Committee reviewed and discussed management’s report on internal control over financial reporting, which confirmed the effectiveness of the Company’s internal control over financial reporting.
The Audit Committee also discussed with Moss Adams its independence from the Company and management, including the communications Moss Adams is required to provide under applicable PCAOB rules. The Committee considered any non-audit services provided or proposed by Moss Adams to the Company, and concluded that the auditors’ independence has receivedbeen maintained. In the written disclosuresyear ended December 31, 2020 and up until the filing of this Proxy statement, Moss Adams had not provided any material non-audit services to the Company.
The Audit Committee discussed with the Company’s internal accounting professionals and Moss Adams the overall scope and plans for the audit and met periodically with Moss Adams, both with and without management present. Discussions included the results of their reviews and examination, their evaluations of the Company’s internal controls, and the letter from our independent registered public accounting firm required byoverall quality of the Public Company Accounting Oversight Board in Rule 3200T. In addition, theCompany’s financial reporting.
The Audit Committee has receivedmet with the written disclosuresCompany’s management to discuss the comprehensive risk management and compliance processes of the letter from our independent registered public accounting firm matters pertaining to their independence. Company, and reviewed other topics of interest.
Based uponon the reviews and discussions referred to above, in reliance on management and the opinion Moss Adams included in its report on the financial statements, and subject to the limitations of its role described below, the Audit Committee recommended to the Board, and the Board approved, the inclusion of Directors that the audited financial statements be included in ourthe Company’s Annual Report on Form 10-K for 2015the year ended December 31, 2020, for filing with the U.S. Securities and Exchange Commission. See “ Proposal 4– Ratification of Appointment of Independent Registered Accounting Firm” on page 55.
Members ofIn carrying out its responsibilities, the Audit Committee rely, withoutlooks to management and the independent verification, onauditors. Management is responsible for the information providedpreparation and fair presentation of the Corporation’s financial statements and for maintaining effective internal control. Management is also responsible for assessing and maintaining the effectiveness of internal control over the financial reporting process in compliance with Sarbanes-Oxley Section 404 requirements. The independent auditors are responsible for auditing the Company’s annual financial statements, and expressing an opinion as to themwhether the statements are fairly stated, in all material respects, in conformity with generally accepted accounting principles. The independent auditors perform their responsibilities in accordance with the standards of the PCAOB. Audit Committee members are not professionally engaged in the practice of accounting or auditing, and onare not experts under the representations made bySecurities Act of 1933 in either of those fields or in auditor independence.
In 2020, the Company's management andAudit Committee solicited proposals from independent registered public accounting firm. Accordingly,firms and engaged Moss Adams as the Audit Committee's oversight does not provide anCompany’s new independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations.
| | | | Respectfully submitted byauditor. Shareholders approved the appointment of Moss Adams as the Company’s independent auditors at the Audit Committee, | | | | David L. Bradshaw, Chairman | | Charles G. Curtis | | William F. Hughes, Jr. |
PROPOSAL 2 – CONSIDERATION OF AN ADVISORY VOTE ON COMPENSATION PROGRAMS FOR ITS NAMED EXECUTIVE OFFICERS
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), gives the stockholders the right to endorse or not endorse the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the SEC's rules. The proposal, commonly known as a “Say-on-Pay” proposal, gives our shareholders the opportunity to express their views on the Company's executive compensation.
At the Company's annual meeting of shareholdersthe Company held on August 13, 2020. The Audit Committee appointed Moss Adams to audit the Company’s financial statements for 2021, subject to shareholder ratification of the appointment.
The Committee, along with the other members of the Board, management, and the Company’s internal accounting professionals annually evaluates Moss Adams qualifications, performance, and independence, including the performance of the lead audit partner, in June 2011, our shareholders recommendeddeciding whether or not to retain Moss Adams. That evaluation includes consideration of: (1) Moss
Adams’ quality control; (2) All relationships between Moss Adams and the Company covered by the PCAOB; (3) Moss Adams’ expertise and experience in the oil and gas industry with specific attention to the oilfield services and compression sectors; and (4) The quality of Moss Adams’ audit plans.
The Committee believes that Moss Adams’ role as the Company’s independent registered public accounting firm is appropriate given their experience and expertise with middle market public companies in the oilfield service industry and their knowledge of the Company’s business, as well as the effectiveness of their audit plans. Based on the Audit Committee’s evaluation of Moss Adams’ qualifications, performance, and independence, as well as regular meetings with the lead partner, the Audit Committee believes that the advisory vote oncontinued retention of Moss Adams as the Say-on-Pay of our named executives in our proxy materials be submitted annually, notwithstanding that our Board of Directors recommended that the advisory vote be submitted every third year. In light of the recommendation of the shareholders, we intend to include the Say-on-Pay advisory vote in our proxy materials on an annual basis until the next shareholder vote on the frequency of Say-on-Pay or our Board of Directors otherwise determines that a different frequency of Say-on-Pay voteCompany’s independent registered public accounting firm is in the best interestsinterest of the shareholders.Company and its stockholders.
Respectfully submitted by the Audit Committee, We are asking our stockholders to indicate whether or not they support the compensation program as described in this proxy statement. This proposal is not intended to address any specific item of compensation, but rather the overall compensation of the named executive officers and the compensation policies, methodologies and practices described in this proxy statement. Accordingly, we ask our shareholder to vote “FOR” the following resolution at our annual meeting: David L. Bradshaw, Chairman
“RESOLVED, that the shareholders approve the compensation of the Company's named executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the proxy statement set forth under the caption “Executive Compensation” of this proxy statement.”Leslie A. Beyer
Nigel J. Jenvey The Company believes its compensation philosophy and programs are strongly linked to performance and results and appropriately aligned with the interests of stockholders. Our compensation philosophy is to provide an executive compensation program that:
55
rewards performance and skills necessary to advance our objectives and further the interests of our shareholders;
is fair and reasonable and appropriately applied to each executive officer;
is competitive with compensation programs offered by our competitors; and
is appropriately focused on achieving annual financial and operational goals through the Company's cash bonus plan and on maximizing stockholder value over the long term, through grants of restricted shares and stock options.
The Board of Directors recommends that you vote FOR approval, on an advisory basis, of the compensation programs of our named executive officers as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the proxy statement set forth under the caption “Executive Compensation” of this proxy statement.
PROPOSAL 3 - APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 1998 STOCK OPTION PLAN
Proposal
To consider and vote upon a proposal to amend and restate the Natural Gas Services Group, Inc. Stock Option Plan to (1) increase the number of shares authorized for issuance thereunder from 750,000 to 1,000,000 shares of common stock and (2) extend the term of the Plan for an additional ten years, until February 28, 2026.
History of the Plan and Description of the Proposed Amendment
On December 18, 1998, the Board of Directors adopted the 1998 Stock Option Plan of Natural Gas Services Group, Inc. (the “1998 Plan” or simply the “Plan”), and directed that the 1998 Plan be submitted to the shareholders for approval. The 1998 Plan became effective when it received such approval on December 18, 1998. On May 9, 2006, the Compensation Committee of the Board of Directors voted to amend the 1998 Plan and the amendments were approved by our shareholders at our 2006 Annual Meeting of Shareholders (the “2006 Plan”). The 2006 Plan amendments, among other things, extended the terms of 1998 Plan until March 1, 2016 and increased the number of shares of common stock issuable under the 2006 Plan from 150,000 to 550,000. On April 15, 2009, the Compensation Committee of the Board of Directors voted to further amend the Plan to add an additional 200,000 shares of common stock to the Plan, thereby authorizing the issuance of up to 750,000 shares of common stock under the Plan and the amendment was approved at our 2009 Annual Meeting of Shareholders.
On April 5, 2016, subject to shareholder approval, the Board of Directors voted to amend and restate the Plan to extend the Plan until February 28, 2026 (the “2016 Plan” or simply the “Plan”) and increase the number of shares of common stock issuable under the Plan from 750,000 to 1,000,000.
The 2016 Plan amendment will become effective if a majority of the votes cast are in favor of the proposal. If the amendment is not approved, no further options may be granted under the 2006 Plan, although all options granted prior to March 1, 2016, which continue to be outstanding, will remain in force until such time as the options are either exercised or expire pursuant to the terms set forth in such options.
The purposes of the Plan, which are unchanged by the proposed amendment, are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees and consultants and to promote the success of our business.
Summary Description of the Plan
The following summary of the Plan, as amended and restated, is qualified in its entirety by reference to the text of the Plan, as amended and restated, which is attached as Appendix A. The Plan has been and will continue to be administered by the Compensation Committee of the Board of Directors. The Compensation Committee has full and final authority, in its discretion, to grant incentive stock options or non-statutory stock options, to select the persons who would be granted stock options and determine the number of shares subject to each option, the duration and exercise period of each option and the terms and conditions of each option granted.
The Major Provisions of the Plan as amended and restated are as follows:
Eligibility. The Compensation Committee is authorized to grant stock options to any person selected by the Compensation Committee, including employees, officers who are also directors of Natural Gas Services Group, directors who are not employees of Natural Gas Services Group and consultants. Incentive stock options may be granted only to employees of Natural Gas Services Group.
Option Price. The option exercise price for shares of common stock issued upon exercise of an option is such price as is determined by the Compensation Committee. However, for incentive stock options granted to employees the option price will be not less than 100% of the fair market value of the Company’s common stock on the date the option is granted, except that if an incentive stock option is granted to an employee who owns more than 10% of our outstanding common stock, the option price will be not less than 110% of the fair market value of the common stock on the date of grant. Fair market value for purposes of the Plan is the closing price of the common stock as reported on the New York Stock Exchange on the relevant date.
Duration of Options. Each stock option will terminate on the date fixed by the Compensation Committee, which shall be not more than ten years after the date of grant. However, in the case of an incentive stock option granted to an employee who, at the time the option is granted, owns stock representing more than 10% of the our outstanding stock, the term of the option will be five years from the date of grant or such shorter time as may be provided in the stock option agreement.
Exercise Period. In the case of incentive stock options, if an optionee’s employment is terminated for any reason, except death or disability, the optionee has three months in which to exercise an option (but only to the extent exercisable on the date of termination) unless the option by its terms expires earlier. If the employment of the optionee terminates by reason of total and permanent disability, the option may be exercised during the period of twelve months following termination of employment. If an optionee dies while an employee or within three months from the date of termination, the right to exercise shall terminate twelve months from the date of death. The options terminate immediately prior to the dissolution or liquidation of Natural Gas Services Group, unless the Compensation Committee gives each optionee the right to exercise his option as to all or any part of the option, including shares as to which the option would not otherwise be exercisable. If we sell all or substantially all of our assets or we merge with or into another entity in a transaction in which it is not the survivor, options will be assumed or an equivalent option will be substituted by the successor corporation, unless the Compensation Committee determines that the optionee has the right to exercise the option as to all of the shares, including shares as to which the option would not otherwise be exercisable. The Compensation Committee has the right to alter the terms of any option at grant or while outstanding pursuant to the terms of the Plan.
Payment. Payment for stock purchased on the exercise of a stock option must be made in full at the time the stock option is exercised. The Compensation Committee may, in its discretion, permit payment for the exercise price to be made in cash, check, other shares of common stock having a fair market value on the date of exercise equal to the aggregate exercise price of the shares as to which the option is exercised, or any combination of such methods of payment, or such other consideration and method of payment for the issuance of shares as permitted under the Colorado Business Corporation Act.
Shares That May Be Issued under the Plan. Prior to the increase in authorized shares set forth in this proposal, a maximum of 750,000 shares of our common stock, as may be adjusted as described below, may be issued upon exercise of stock options granted under the Plan. This number includes the number of shares of Natural Gas’ common stock originally authorized in 1998 (150,000 shares) plus the additional shares added in the 2006 and 2009 amendments (600,000 shares). In connection with extending and restating the Plan, a total of 250,000 additional shares will be authorized pursuant to this proposed amendment. The 250,000 additional shares available represent approximately 1.9% of our common stock issued and outstanding on April 18, 2016. At the date of this proxy statement, 241,812 shares of common stock have already been issued under the Plan and 414,769 shares are subject to currently outstanding stock options, leaving 93,419 shares of common stock available from the 750,000 shares authorized prior to this proposal. The number of shares available under the Plan is subject to adjustment in the event of any stock split, stock dividend, recapitalization, spin-off or other similar action. If any stock option terminates or is canceled for any reason without having been exercised in full, the shares of stock not issued will then become available for additional grants of options.
Federal Income Tax Consequences Federal Income Tax Consequences
Incentive Stock Options. Some of the options granted under the Plan may constitute “incentive stock options” (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). Under current federal income tax rules, there will be no federal income tax consequences to us or an optionee upon the grant of an ISO, nor will an optionee’s exercise of an ISO result in income recognition to the optionee or a deduction or other federal income tax consequences to Natural Gas Services Group. Although an optionee will not realize ordinary income upon his exercise of an ISO, the excess of the fair market value of the common stock acquired at the time of exercise over the option price may constitute an adjustment in computing alternative minimum taxable income under Section 56 of the Code and, thus, may result in the imposition of the “alternative minimum tax” pursuant to Section 55 of the Code on the optionee. The tax consequences of a disposition of stock acquired upon exercise of an ISO depends upon how long the optionee has held the shares. If an optionee does not dispose of common stock acquired through an ISO within two years after the ISO was granted, nor within one year of the ISO’s date of exercise, any gain realized upon a subsequent disposition of common stock will constitute long-term capital gain (or loss) to the optionee equal to the difference between the sale price of the shares and the exercise price. We are not entitled to any deduction under these circumstances. If the optionee fails to satisfy either of the foregoing holding periods, he must recognize ordinary income in the year of the disposition, which is referred to as a “disqualifying disposition”. Upon the occurrence of a disqualifying disposition of an ISO, the amount of such ordinary income generally is the lesser of (i) the excess of the fair market value of the common stock on the date of exercise over the option price or (ii) the actual gain realized upon such disposition. Any gain in excess of the amount taxed as ordinary income will be treated as a long-term or short-term capital gain, depending on how long the stock was held (currently a period of more than one year). We will receive a deduction in the amount equal to the amount constituting ordinary income to an optionee in the year of the disqualifying disposition (in addition to the employer’s side of payroll/withholding taxes paid).
Non-statutory Options. Certain stock options which do not constitute ISOs (“non-statutory options”) may also be granted under the Plan. Under current federal income tax rules, there will generally be no federal income tax consequences to us or the optionee upon the grant of a non-statutory option so long as the exercise price of the option is equal to or exceeds the fair market value of the underlying stock as of the date of grant. However, the optionee will realize ordinary income upon the exercise of a non-statutory option in an amount equal to the excess of the fair market value of the common stock acquired upon the exercise of such option over the option price. We are required to pay the applicable payroll taxes on such income of the optionee, and we are required to withhold and pay over to the relevant tax authorities the applicable income tax withholding and employee portion of payroll taxes on this income (which the optionee is required to pay over to us). We will receive a corresponding deduction in the amount of the income recognized by the optionee (subject to possible limitations imposed by Section 162(m) of the Code) , as well as a deduction for the employer’s portion of payroll taxes paid. Any gain or loss realized upon the optionee’s subsequent disposition of such common stock will constitute short-term or long-term capital gain or loss depending on the optionee’s holding period following the date of exercise (currently a period of more than one year). We do not receive a tax deduction for any such capital gain.
The federal income tax consequences described in this section are based on laws and regulations in effect on the date of this proxy statement, and there is no assurance that the laws and regulations will not change in the future and affect the tax consequences of the matters discussed in this section.
Termination of and Amendments to the Plan
The Board of Directors may terminate or amend the Plan from time to time in any manner permitted by applicable laws and regulations, except that no additional shares of our common stock may be allocated to the Plan and no change in the class of employees eligible to receive incentive stock options or any other material amendment to the Plan may be made without the approval of the shareholders.
Market Price of the Company's Common Stock
The closing market price of our common stock as reported on the New York Stock Exchange for April 18, 2016 was $22.17 per share.
Estimate of Benefits
Generally, awards under the Plan are subject to the discretion of the Committee, and no determination has been made as to the types or amounts of awards that will be granted in the future to specific individuals pursuant to the Plan. Therefore, it is not possible to determine the future benefits that will be received by all potential participants. However, for illustrative purposes, 50,000 options were granted to 17 employees under the Plan during the fiscal year ended December 31, 2015.
Although executive officers and members of our Board of Directors are eligible to receive awards under the Plan, since 2006, awards under the Plan have been made exclusively to non-executive employees of the Company.
Equity Compensation Plan Information
The table below sets forth certain information, as of March 31, 2016, concerning shares of common stock authorized for issuance under all of the Company’s equity compensation plans.
| | | | | | | | | | | | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options or Issued upon Vesting | | Weighted-average Issuance or Exercise Price of Outstanding Options | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | | Equity compensation plans approved by security holders: | | | | | Stock Option Plan | 392,019 |
| | $ | 19.28 |
| | 93,419 |
| | Restricted Stock / Unit Plan | 92,391 |
| | $ | 21.53 |
| | 331,541 |
| | Total | 484,410 |
| | | | 424,960 |
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Dilution, Burn Rate and Overhang
We actively manage our long-term dilution by limiting the number of shares subject to equity awards that we grant annually, expressed as a percentage of weighted average common shares outstanding and referred to as burn rate. Burn rate is another measure of dilution that shows how rapidly a company is depleting its shares reserved for equity compensation plans and measures the potential dilutive effect of annual equity grants. Our burn rate for 2015 was 1.5%.
An additional metric that we use to measure the cumulative impact of our equity programs is overhang (number of shares subject to equity awards outstanding under our equity plans but not exercised or settled, plus number of shares available to be granted, divided by weighted average common shares outstanding plus available equity awards under our equity plans). Our overhang as of December 31, 2015 was 7.7%. If the proposal to extend the Plan and increase the shares reserved for issuance under the plan by 250,000 shares is approved, our overhang as of that date would increase to 9.4% and then would be expected to decline over time.
The following are the factors that were material to the evaluation of the Compensation Committee and Board, with input from management, in determining acceptable and targeted levels of dilution: competitive data from relevant peer companies, the current and future accounting expense associated with the Company's equity award practices, and the influence of shareholder advisory firms. The Company's equity programs are revisited at least annually and assessed against these (and other) measures. We believe that the Company's burn rate and overhang (with or without the extension and additional shares requested under the Plan) are reasonable and reflect a prudent use of equity for compensation purposes.
Summary
We strongly believe the approval of the amended and restated Plan which extends the plan for an additional 10-year term and increases the number of authorized shares for issuance from 750,000 to 1,000,000 is essential to our continued success. Awards such as those provided under the Plan provide an important incentive for participants and will help us to attract, retain and motivate qualified individuals to serve on behalf of our company.
Vote Required
Approval of this proposal requires the affirmative vote of the holders of a majority of the shares casting votes in person or by proxy on this proposal at the Annual Meeting. The number of such affirmative votes must be at least a majority of the required quorum for the meeting.
Recommendation of the Board of Directors
The Board believes the proposed amendments to and restatement of the Plan are in the best interests of Natural Gas Services Group and its shareholders, as the availability of an adequate number of shares reserved for grant under the Plan and the other amended terms described above will assist in the recruitment and retention of the best available personnel.
The Board of Directions of Natural Gas Services Group recommends a vote "FOR" the proposal to amend and restate the Stock Option Plan, a copy which is included in this Proxy Statement as Appendix A. Proxies received by the Board of Directors will be so voted unless shareholders specify in their proxies a contrary choice.
PROPOSAL 4 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We are asking the shareholders to ratify the Audit Committee’s appointment of BDO USA,Moss Adams LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016. BDO USA,2021. Moss Adams LLP is a registered public accounting firm with the Public Company Accounting Oversight Board (“PCAOB”), as required by the Sarbanes-Oxley Act of 2002 and the rules of the PCAOB. Shareholder ratification of the appointment is not required under the laws of the State of Colorado, but the Board believes it is important to allow the shareholdershareholders to vote on the proposal. In the event the shareholders fail to ratify the appointment, the Audit Committee will reconsider this appointment. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in our best interests and that of our shareholders. BDO USA,Moss Adams LLP representatives are expected to attend the 20162021 Annual Meeting in person.person or via video conference. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate shareholder questions.
The Board of Directors recommends that the shareholders vote “FOR” the ratification of the appointment of Moss Adams LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021.
Principal Accountant Fees
Our principal accountant for the fiscal year ended December 31, 2020, was Moss Adams; and for the fiscal years ended December 31, 2013, 20142019 and 20152018 was our former Principal Accountant, BDO USA, LLP. The aggregate fees billed for professional services rendered by BDO USA, LLPMoss Adams for the audit of our consolidated financial statements for our fiscalthe years ended December 31, 2014 and 20152020, and the review of the financial statements on Forms 10-Q for the fiscal quarters in such fiscal years were approximately $236,000 and $273,916, respectively.$257,575.
Audit Related Fees
During the years ended December 31, 20142020 and 2015,2019, there were no audit related fees.
Tax Fees
We were not billed by nor was there any tax feeswork performed by Moss Adams or BDO USA, LLP during the years ended December 31, 2014 or 2015.2020 and 2019.
All Other Fees
No other fees were billed by Moss Adams or BDO USA, LLP, during our fiscal years ended December 31, 20142020 and 2015,2019, other than as described above.
Audit Committee Pre-Approval Policies and Procedures
As of the date of this proxy statement, our Audit Committee has not established general pre-approval policies and as of December 31, 2015,2020, our Audit Committee had not established pre-approval policies and procedures for the engagement of our principal accountant to render audit or non-audit services. However, in accordance with Section 10A(i) of the Exchange Act, our Audit Committee, as a whole, approves the engagement of our principal accountant prior to the accountant rendering audit or non-audit services.
Certain rules of the Securities and Exchange Commission provide that an auditor is not independent of an audit client if the services it provides to the client are not appropriately approved, subject, however, to ade minimusminimis exception contained in the rules. The Audit Committee pre-approved all services provided by BDO USA, LLPMoss Adams in 20152020 and thede minimusminimis exception was not used.
The Board of Directors recommends that the shareholders vote “FOR” the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016.
PROPOSAL 5 - CONSIDERATION OF AN AMENDMENT TO THE COMPANY’S BYLAWS TO IMPLEMENT A MAJORITY VOTING STANDARD IN UNCONTESTED ELECTIONS OF DIRECTORS
Background
The Company has received a proxy statement proposal from a shareholder under Securities and Exchange Commission Rule 14a-8 requesting that a proposal be included in this Proxy Statement which would require the Board of Directors to initiate the appropriate process to provide that director nominees be elected by the affirmative vote the majority votes cast at an annual meeting in connection with uncontested elections. For reasons set forth below, and consistent with recent corporate governance initiatives described in this proxy statement, the Board of Directors agreed with the request and has initiated the process.
Amendment
56 The Board of Directors has adopted and recommends that shareholders approve an amendment (the “Amendment”) to the Company’s Bylaws to implement a majority voting standard for the election of directors in uncontested elections. A copy of the proposed amendment to the Bylaws is attached as
Appendix B to this Proxy Statement.
Implementation and Purpose of the Amendment
Section 7-107-209 of the Colorado Business Corporation Act (the “Act”) and the Company's Bylaws provide that directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting in which a quorum is present. Under plurality voting, director nominees receiving the greatest number of votes “for” election (although not necessarily a majority) are elected as directors.
Section 7-107-208 of the Act provides that a Colorado corporation may impose a greater voting requirement for the election of directors, if authorized by its articles of incorporation or, if authorized by the articles of incorporation, through bylaws adopted by the shareholders. The Company's Articles of Incorporation provide that the Bylaws may provide for a greater voting requirement as long as such Bylaws are adopted by the Company's shareholders.
Considering the foregoing, the Board of Directors has amended Section 10 of Article II of the Bylaws to provide for a majority voting standard in uncontested director elections. Under the new majority voting standard, a nominee for director in an uncontested election shall be elected to the Board if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. For this purpose, abstentions and broker non-votes will not count as votes cast. Directors will continue to be elected by plurality vote at any meeting of shareholders where the number of director nominees exceeds the number of directors to be elected, commonly referred to as a contested election. In the event a director fails to receive a majority of the votes cast in an uncontested election, the Board of Directors may, within its powers, decrease the number of directors, fill the vacancy, or take other appropriate action.
The transition from plurality voting to majority voting in the election of Directors is a current trend in corporate governance, with a significant majority of the companies in the S&P 500 having adopted the majority vote standard. By requiring that a Director nominee receive a majority of the votes cast (excluding abstentions and broker non-votes) in favor of his or her election to the Board of Directors, shareholders are provided with a more meaningful role in the election of Directors. Under the Company's current plurality voting standard in connection with uncontested elections, a nominee for the Board can be elected with as little as a single affirmative vote, because withheld votes have no effect.
If this proposal is approved by our shareholders, the Board of Directors will revise its director resignation policy to provide that any incumbent director who does not receive a majority of the votes cast is required to tender his or her resignation.
The Board continues to believe that the plurality vote standard should continue to apply in contested director elections. If a majority vote standard is used in a contested election, fewer candidates could be elected to the Board than the number of authorized board seats if too many directors receive more “against” than “for” votes. Therefore, the Amendment retains plurality voting in contested director elections.
Vote Required
Approval of this proposal requires the affirmative vote of the holders of a majority of the shares casting votes in person or by proxy on this proposal at the Annual Meeting. The number of such affirmative votes must be at least a majority of the required quorum for the meeting.
Effective Date
If approved by the Company’s shareholders, the Amendment will become immediately effective. The new majority voting standard would then be applicable to an uncontested election of directors at the Company’s 2017 annual meeting of shareholders.
Our Board of Directors recommends a vote "FOR" approval of the amendment to the Bylaws to implement a majority voting standard in uncontested elections of Directors.
SHAREHOLDER PROPOSALS
Under SEC Rule 14a-8, if a shareholder wants us to include a proposal in our proxy statement and form of proxy for presentation at our 201720222 Annual Meeting of Shareholders, the proposal must be received by us at our principal executive offices at 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 7970179705 by December 19, 2016,January 1, 2022 unless the date of our 20172022 Annual Meeting of Shareholders is more than 30 days from the anniversary date of our 20162021 Annual Meeting of Shareholders, in which case the deadline is a reasonable time before we print and mail our proxy materials for the 20172021 Annual Meeting of Shareholders. The proposal should be sent to the attention of the Corporate Secretary of Natural Gas Services Group.
Rule 14a-4 of the SEC's proxy rules allows a company to use discretionary voting authority to vote on matters coming before an annual meeting of shareholders for the prior year's annual meeting of shareholders or the date specified by an overriding advance notice provision in the company's bylaws. Our bylaws do not contain such an advance notice provision. Accordingly, for our 2017 annual meeting, shareholders' written notices must be received by us before March 9, 2017 for any proposal a shareholder wishes to bring before the meeting but for which such shareholder does not seek to have a written proposal considered for inclusion in the proxy statement and form of proxy. Your notice should be addressed to President, Natural Gas Services Group, Inc., 508 West Wall Street, Suite 550, Midland, Texas 79701.
In order to curtail controversy as to the date on which a proposal was received by us, it is suggested that proponents submit their proposals by certified mail-return receipt requested. Such proposals must also meet the other requirements established by the SEC for stockholder proposals.
In addition, pursuant to our Bylaws, a stockholder who intends to nominate a candidate for election to the Board or to propose other business for consideration at the 2022 Annual Meeting of Stockholders must deliver to the Company notice and certain information concerning themselves and their shareholder proposals.
proposal or director nomination not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting (the “annual meeting anniversary date”); provided, however, that, if the annual meeting is scheduled to be held on a date more than 30 days before or more than 60 days after the annual meeting anniversary date, notice must be delivered to us not later than the close of business on the later of the 120th day prior to the scheduled date of such annual meeting and not later than the latest of (i) the 90th day prior to such annual meeting, or (ii) the 10th day after public disclosure of the date of such annual meeting.
Accordingly, any notice given by or on behalf of a stockholder pursuant to these provisions of our Bylaws (and not pursuant to Rule 14a-8 of the Exchange Act) must be received no earlier than February 17, 2022, and no later than March 18, 2020 Such notice should be addressed to: Natural Gas Services Group, Inc., Corporate Secretary, at 404 Veterans Airpark Lane, Suite 300, Midland, Texas 79705.
With respect to special meetings of the shareholders, the business that may be brought at the meeting will be limited to that stated in the Company's notice of meeting. In the event we call a special meeting of shareholders for the purpose of electing one or more directors to the Board, any such shareholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified our notice of meeting, if such shareholder delivers a notice that complies with the requirements of our Bylaws to the secretary of the Company at its principal executive offices not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of: (x) the 90th day prior to such special meeting; or (y) the tenth (10th) day following the first date of public disclosure of the date of the special meeting and of the nominees proposed by the Board.
These requirements are separate from and in addition to the SEC’s requirements described in the first paragraph of this section relating to including a proposal in our proxy statements.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Because of our relatively small size, to date we have not developed formal processes by which shareholders or other interested parties may communicate directly with Directors. Until formal procedures are developed and posted on our website (www.ngsgi.com), any communication to one or more members of our Board of Directors may be made by sending them in care of Investor Relations, Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701.79705. Shareholders should clearly note on the mailing envelope that the letter is a “Shareholder-Board Communication.” All such communications will be forwarded to the intended recipients.
OTHER MATTERS
Our Board of Directors does not know of any matters to be presented at the meeting other than the matters set forth herein. If any other business should come before the meeting, the person’s named in the enclosed proxy card will vote such proxy according to their judgment on such matters.
New York Stock Exchange Certification. We listed our common stock on the New York Stock Exchange in October 2008. The certification of our Chief Executive Officer required by the NYSE Listing Standards, Section 303A.12(a), relating to our compliance with the NYSE Corporate Governance Listing Standards, was submitted to the NYSE on June 4, 2015,July 22, 2019, in connection with our listing on the exchange. The certifications of our Chief Executive Officer and Principal Accounting Officerprincipal accounting officer required by the SEC in connection with our Annual Report on Form 10-K for the year ended December 31, 2015,2020, were submitted to the SEC on March 11, 2016,30, 2021, with our Annual Report on Form 10-K.
You may obtain our Annual Report on Form 10-K for the fiscal year ended December 31, 2015,2020, without charge upon written request to Stephen C. Taylor, President, at Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701.79705. In addition, the exhibits to the Annual Report on Form 10-K for the fiscal year ended December 31, 2015,2020, may be obtained by any shareholder upon written request to Mr. Taylor.
In addition, we use our website as a channel of distribution for Companycompany information. We make available free of charge on the Investor Relations section of our website (www.ngsgi.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. We also make available through our website other reports filed with or furnished to the SEC under the Securities Exchange Act of 1934, as amended, including our proxy statements and reports filed by officers and directorsDirectors under Section 16(a) of the Exchange Act, as well as our Code of Business Ethics and the charters to our various Committees of our Board of Directors. We do not intend for information contained in our website to be part of this proxy statement.
| | | | | | | | | BY ORDER OF THE BOARD OF DIRECTORS | | | April 29, 201630, 2021 | /s/ Stephen C. Taylor | | Midland, Texas | Stephen C. Taylor Chairman of the Board, President and Chief Executive Officer |
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