Document:

exv10w3

 

Exhibit 10.3

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of January 3, 2005, is between
Screw Compression Systems, Inc., a Texas corporation (the “Company”), and Jim Hazlett, an
individual residing in Midland, Texas (the “Employee”).

     WHEREAS, simultaneously with the execution of this Agreement, all of the issued and
outstanding shares of capital stock of the Company have been acquired by Natural Gas Services
Group, Inc., a Colorado corporation (the “Parent), pursuant to the terms of that certain Stock
Purchase Agreement (the “Purchase Agreement”), dated as of October 18, 2004, as amended by
Amendment No. 1 to Stock Purchase Agreement, dated as of December 6, 2004, among the Company, Paul
D. Hensley, Tony Vohjesus, Employee and Parent;

     WHEREAS, it is a condition to consummation of the transactions contemplated by the Purchase
Agreement that Employee and the Company enter into an employment agreement on the terms and
conditions hereinafter set forth;

     WHEREAS, the Company desires to employ the Employee, and the Employee desires to be employed
by the Company, upon the terms and conditions hereinafter set forth;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the Company and the Employee hereby
agree as follows:

     1. Employment. The Company agrees to employ the Employee, and the Employee agrees to
enter the employ of the Company, upon the terms and subject to conditions herein provided.

     2. Term. The employment of the Employee shall be for a period (referred to herein as
the “Employment Term”) commencing on the date of this Agreement and ending on the earlier
of (i) January 3, 2008; (ii) the effective date of any “Fundamental Change” with respect to the
Company or the Parent; or (iii) the date of termination of Employee’s employment pursuant to
Section 5 hereof.

     For purposes hereof, a “Fundamental Change” shall occur with respect to the Company or
the Parent on the effective date of any dissolution, merger, consolidation, sale of all or
substantially all of the Company’s or the Parent’s assets, recapitalization or any other type of
transaction which results in at least 50% of the Company’s or the Parent’s common stock being
changed into, or exchanged for, different securities of the Company or the Parent, as applicable,
or other securities or interests in other persons or entities.

 

 

     3. Position and Duties.

     (a) Position. During the Employment Term, the Employee shall serve as Vice President
of the Company. In such capacity, the Employee shall have such duties, functions, responsibilities,
and authority customarily appertaining to the position of vice president of a corporation; subject,
however, to applicable restrictions imposed by the bylaws of the Company and to the directives of
the Board of Directors of the Parent or the Compensation Committee of the Board of the Parent.

     (b) Duties. During the Employment Term, the Employee shall devote his full time,
skill and attention, and his best efforts during normal business hours to, and in furtherance of,
the business and affairs of the Company and its subsidiaries and affiliates, and the Parent
(collectively, the “Related Parties”); except for usual, ordinary and customary periods of
vacation and absence due to illness or other disability; provided, however, that Employee may,
subject to the Parent’s code of ethics and conflict of interest policies as in effect from time to
time, devote reasonable periods of time in connection with the following activities, if such
activities do not materially interfere with the performance of Employee’s duties and services
hereunder and do not consume more than 10% of Employee’s working hours:

     (i) serving as a director or a member of a committee of any organization, if
serving in such capacity does not involve any conflict with the business of the
Related Parties and such organization is not in competition in any manner whatsoever
with the business of the Related Parties;

     (ii) fulfilling speaking engagements;

     (iii) engaging in charitable and community activities; and

     (iv) managing his personal investments so long as such investment activities do
not constitute an actual or potential conflict of interest with the business of the
Related Parties and comply with the provisions in Section 6.

     4. Compensation and Related Matters.

     (a) Base Salary. The Company shall pay to Employee a base salary at the rate of not
less than $105,000 per annum. This base salary may be reviewed periodically and increases in such
base salary may be granted at the sole discretion of the Board of Directors of the Parent or the
Compensation Committee of the Board of Directors of the Parent.

     (b) Bonuses. In addition to base salary, Employee shall be entitled to receive during
the Employment Term such bonuses or other discretionary compensation payments, if any, as the Board
of Directors of the Parent or the Compensation Committee of the Board of Directors of the Parent
may determine to award him from time to time which are comparable to the bonus formula for
executive officers implemented by the Parent during 2004 (e.g., a bonus pool equal to ten percent
(10%) of EBITDA shared by all executive officer participants based on the respective percentage of
base salary of each executive officer participant). Any such bonuses or

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other discretionary compensation payments shall be payable to the Employee in the manner specified
by the Board of Directors of the Parent or its Compensation Committee at the time any such bonus or
other payment is awarded.

     (c) Benefits. Employee shall, during the Employment Term, be eligible to participate
in such insurance, medical and other employee benefit plans, including, but not limited to,
retirement (401k) plans, of the Parent which may be in effect, from time to time, to the extent
such plans are generally available to executive officers of the Parent; provided, however, subject
to temporarily retaining one or more of the Company benefit plans to more efficiently transition
the Company’s employees to Parent benefit plans, Parent shall provide, or shall cause the Company
to provide, insurance, medical, and retirement benefits to Employee after the date of this
Agreement which are comparable to the insurance, medical and retirement benefits provided by the
Company to Employee on the date hereof.

     (d) Professional Organization Dues. During the Employment Term, the Company shall pay
the initiation fees and periodic dues for membership in any professional organizations in which
Employee is currently a member, or which are otherwise approved by the Board of
Directors of the Parent or the Compensation Committee of the Board, and the Company shall pay all
charges and expenses, including reasonable travel expenses, incurred by Employee in connection with
membership in such organizations.

     (e) Vacations. Employee shall be entitled to take such vacations as he may desire,
with pay, provided that such vacations do not interfere with the performance of his duties and
services hereunder.

     (f) Expenses. Employee will be reimbursed for reasonable expenses incurred in the
performance of his duties and services hereunder and in furtherance of the business of the Related
Parties upon presentation by Employee of an itemized account, accompanied by appropriate receipts
satisfactory to the Company, in substantiation of such expenses.

     (g) Parent shall provide, or cause the Company to provide, Employee with an automobile
comparable to the automobile provided by the Company to Employee on the date hereof.

     5. Termination of Employment.

     (a) Employee’s employment hereunder:

     (i) shall automatically terminate upon the occurrence of any of the following: (A) the
mental or physical incapacity or inability of Employee to perform his duties for a
consecutive period of one hundred twenty (120) days or a non-consecutive period of one
hundred eighty (180) days during any twelve month period; (B) the death of the Employee; or
(C) the voluntary resignation or retirement of Employee; and

     (ii) may be terminated by the Company, at any time, for “cause”, which shall mean by
reason of any of the following: (A) Employee’s conviction of, or plea of nolo

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contendere to, any felony or to any crime or offense causing substantial harm to any of the
Related Parties (whether or not for personal gain) or involving acts of theft, fraud,
embezzlement, moral turpitude or similar conduct; (B) malfeasance in the conduct of
Employee’s duties, including, but not limited to, (1) willful and intentional misuse or
diversion of any of the Related Parties’ funds, (2) embezzlement, or (3) fraudulent or
willful and material misrepresentations or concealments on any written reports submitted to
any of the Related Parties, (C) material failure to perform the duties of Employee’s
employment or material failure to follow or comply with the reasonable and lawful written
directives of the Board of Directors of the Company, provided, however, that Employee shall
have been informed, in writing, of such material failure and given a period of not more than
60 days to remedy same; or (D) a material breach by Employee of the provisions of this
Agreement (including, without limitation, any breach of Section 3(b) of this Agreement).

     (b) Upon any termination of Employee’s employment pursuant to this Section 5, all obligations
of the Company under this Agreement shall terminate.

     6. Business Opportunities and Intellectual Property; Personal Investments; Covenant not to
Compete; Confidentiality. Employee acknowledges that in the course of his employment by the
Company and performance of services on behalf of the Related Parties he will become privy to
various business opportunities, economic and trade secrets and relationships of the Related
Parties. Therefore, in consideration of this Agreement and the consummation of the Transaction,
Employee hereby agrees as provided below in this Section 6.

     (a) Business Opportunities and Intellectual Property. The Employee:

     (i) shall promptly disclose to the Company all business opportunities (including,
without limitation, those relating to the business of manufacturing, fabricating, selling,
leasing and maintaining of natural gas compressors or the design and manufacture of natural
gas flare systems, components and ignition systems) developed by Employee during the
Employment Term, or originated by any third party and brought to the attention of Employee
during the Employment Term, together with information relating thereto (herein collectively
called “Business Opportunities”);

     (ii) shall promptly disclose to the Company any ideas, inventions, discoveries,
processes, designs, methods, substances, articles, computer programs and improvements,
whether or not patentable or copyrightable (all of the foregoing being hereinafter
collectively called “Intellectual Property”), which the Employee discovers,
conceives, invents, creates or develops, alone or with others, during the Employment Term,
if such discovery, conception, invention, creation or development (A) occurs in the course
of the Employee’s employment with the Company, or (B) occurs with the use of any of the
Related Parties’ time, materials or facilities, or (C) in the opinion of the Board of
Directors of the Company, relates or pertains in any way to the Related Parties’ purposes,
activities or affairs;

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     (iii) hereby assigns and agrees to assign to the Company and its successors, assigns or
designees, all of the Employee’s right, title and interest in and to all Business
Opportunities and Intellectual Property that the Employee is obligated to disclose to the
Company pursuant hereto; and

     (iv) acknowledges and agrees that all Business Opportunities and Intellectual Property
constitute the exclusive property of the Company and accordingly agrees that other than
Employee’s investment in the Company, Employee will not (directly or indirectly through any
family members), and will not permit any of his controlled affiliates to, (A) invest or
otherwise participate alongside the Related Parties in any Business Opportunities, (B)
invest or otherwise participate in any business or activity relating to a Business
Opportunity, regardless of whether any of the Related Parties ultimately participates in
such business or activity, or (C) use for any purpose other than on behalf of the Related
Parties, any information pertaining to Business Opportunities.

     (b) Personal Investments. Employee agrees that during the Employment Term and the
Noncompetition Period, Employee (whether in his own name or in the name of any family members or
made by Employee’s controlled affiliates) will not make any investments with or in any person or
entity (other than the Parent) which relates to the business of manufacturing, fabricating,
selling, leasing and maintaining of natural gas compressors or the design and manufacture of
natural gas flare systems, components and ignition systems.

     (c) Confidentiality Obligations. Employee agrees that during the Employment Term and
the Noncompetition Period, Employee will not use, publish, disseminate or otherwise disclose,
directly or indirectly, to any person other than the Related Parties and their respective officers,
directors and employees, any Business Opportunities, Intellectual Property and any other
information heretofore or hereafter acquired, developed or used by any of the Related Parties
relating to their business or their operations, properties, prospects, employees, customers,
consultants, vendors, joint venture partners or co-investors which constitutes proprietary or
confidential information of any of the Related Parties (“Confidential Information”),
including, without limitation, any Confidential Information contained in any customer files,
contract files, production records, maintenance records, reports and related data, memoranda,
notes, records, drawings, manuals, correspondence, financial and accounting information, customer
lists, statistical data and compilations, patents, copyrights, trademarks, trade names, inventions,
formulae, methods, processes, agreements, contracts, manuals or any other documents relating to the
business of the Related Parties (collectively, the “Related Parties’ Business Records”),
but excluding any Confidential Information which has become part of common knowledge or
understanding in the natural gas compressor industry or otherwise in the public domain (other than
from disclosure by Employee in violation of this Agreement), provided, however, this paragraph (c)
shall not be applicable to the extent Employee is required to testify in a judicial or regulatory
proceeding pursuant to the order of a judge or administrative law judge after Employee requests
that such Confidential Information be preserved.

     (d) Non-Compete Covenant. Employee agrees that during the Employment Term, Employee
will not:

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     (i) engage or participate in any manner, whether directly or indirectly through any
family member or as an employee, employer, consultant, agent, principal, partner, more than
one percent shareholder, officer, director, licensor, lendor, lessor or in any other
individual or representative capacity, in any business activity that relates to (A) the
business of manufacturing, fabricating, selling, leasing and maintaining of natural gas
compressors, (B) the design and manufacture of natural gas flare systems, components and
ignition systems, (C) installing and servicing flare stacks and related ignition and control
devices or (D) in any other business or activity related to the natural gas compressor
industry that is in competition in any manner whatsoever with the business of any of the
Related Parties within the geographic area comprised of Tulsa County, Oklahoma and all
counties adjacent to Tulsa County, Oklahoma; provided that, this shall not preclude Employee
from:

     (A) making investments in securities of oil and gas companies and natural gas
compressor companies which are registered on a national stock exchange, if the
aggregate amount owned by Employee and all family members and affiliates does not
exceed one percent of such company’s outstanding securities; or

     (B) maintaining his personal investments (whether in his own name or in the
name of any family members), if such personal investments and controlled affiliates
do not engage in any business activity that relates to the business of
manufacturing, fabricating, selling, leasing and maintaining of natural gas
compressors, or the design and manufacture of natural gas flare systems, components
and ignition systems, or the installation and servicing of flare stacks and related
ignition and control devices; or

     (ii) solicit, entice, persuade or induce, directly or indirectly, any employee (or
person who within the preceding ninety (90) days was an employee) of any of the Related
Parties or any other person who is under contract with or rendering services to any of the
Related Parties, to terminate his or her employment by, or contractual relationship with,
such person or to refrain from extending or renewing the same (upon the same or new terms)
or to refrain from rendering services to or for such person or to become employed by or to
enter into contractual relations with any Persons other than such person or to enter into a
relationship with a competitor of any of the Related Parties.

     (e) For purposes of this Agreement, the term “Noncompetition Period” means the period
commencing on the date Employee ceases to be employed hereunder and ending on the first anniversary
of such date.

     (f) The invalidity or non-enforceability of this Section 6 in any respect shall not affect the
validity or enforceability of this Section 6 in any other respect or of any other provision of this
Agreement. If any provision of this Section 6 shall be held invalid or unenforceable by a court of
competent jurisdiction by reason of the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to the scope or duration of such provision and
shall not affect or render invalid or unenforceable any other

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provision of this Agreement, and, to the fullest extent permitted by law, this Agreement shall be
construed as if the geographic or business scope or the duration of such provision had been more
narrowly drafted so as not to be invalid or unenforceable.

     (g) Employee acknowledges that the Company’s remedy at law for any breach of the provisions of
this Section 6 is and will be insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent injunction, in addition to any
remedies the Company may have at law.

     (h) The provisions of this Section 6 shall survive termination of this Agreement.

     (i) The representations and covenants contained in this Section 6 on the part of the Employee
will be construed as ancillary to and independent of any other provision of this Agreement, and the
existence of any claim or cause of action of the Employee against the Company or any of the other
Related Parties or any officer, director or shareholder of the Company or any of the other Related
Parties, whether predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants of the Employee contained in this Section 6. In
addition, the provisions of this Section 6 shall continue to be binding upon the Employee in
accordance with their terms, notwithstanding the termination of the Employee’s employment hereunder
for any reason.

     (j) The parties to this Agreement agree that the limitations contained in this Section 6 with
respect to time, geographical area and scope of activity are reasonable. However, if any court
shall determine that the time, geographical area or scope of activity of any restriction contained
in this Section 6 is unenforceable, it is the intention of the parties that such restrictive
covenant set forth herein shall not thereby be terminated but shall be deemed amended to the extent
required to render it valid and enforceable.

     7. Business Records. The Employee agrees to promptly deliver to the Company, upon
termination of his employment hereunder, or at any other time when the Company so requests, all of
the Related Parties’ Business Records (and all copies thereof and therefrom). The Employee confirms
that all of the Related Parties’ Business Records (and all copies thereof and therefrom) constitute
the exclusive property of the Company and the other Related Parties. The obligation of
confidentiality set forth in Section 6 shall continue notwithstanding the Employee’s delivery of
any such documents to the Company. Notwithstanding the foregoing provisions of this Section 7 or
any other provision of this Agreement, the Employee shall be entitled to retain any written
materials received by the Employee in his capacity as a shareholder of the Company. The provisions
of this Section 7 shall continue in effect notwithstanding termination of the Employee’s employment
hereunder for any reason.

     8. Divisibility of Agreement. If any term, condition or provision of this Agreement
is for any reason rendered void, all remaining terms, conditions and provisions shall remain and
continue as valid and enforceable obligations of the parties hereto.

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     9. Notices. Any notices or other communications required or permitted to be sent
hereunder shall be in writing and shall be duly given if personally delivered or sent postage
pre-paid by certified or registered mail, return receipt requested, as follows:

    (a) If to Employee:

Jim Hazlett

10601 E. County Road 104

Midland, Texas 79706

    (b) If to the Company:

Screw Compression Systems, Inc.

5725 Bird Creek Avenue

Catoosa, Oklahoma 74015

with a copy to:

Natural Gas Services Group, Inc.

2911 S. County Road 1260

Midland, Texas 79706

Attn: Wallace C. Sparkman

Either party may change his or its address for the sending of notice to such party by written
notice to the other party sent in accordance with the provisions hereof.

     10. Complete Agreement. This Agreement contains the entire understanding of the
parties with respect to the employment of Employee and supersedes all prior arrangements or
understandings with respect thereto and all oral or written employment agreements or arrangements
between the Company (and any of its subsidiaries) and Employee. This Agreement may not be altered
or amended except by a writing, duly executed by the party against whom such alteration or
amendment is sought to be enforced.

     11. Assignment. This Agreement is personal and non-assignable by Employee. It shall
inure to the benefit of any corporation or other entity with which the Company shall merge or
consolidate or to which the Company shall lease or sell all or substantially all of its assets and
may be assigned by the Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire all or
substantially all of the assets of such affiliate.

     12. Counterparts. This Agreement may be executed in counterparts, each of which shall
be an original and all of which together shall constitute one and the same instrument.

[Remainder of page left blank intentionally]

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     IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement in multiple
counterparts as of the day and year first above written.

	 	 	 	 	 	 	 
	 	 	COMPANY:
	 
	 	 	 	 	 	 
	 	 	SCREW COMPRESSION SYSTEMS, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ Paul D. Hensley	 	 
	

	 	 	 	 	 	 
	

	 	 	 	Paul D. Hensley, President	 	 
	 
	 	 	 	 	 	 
	 	 	EMPLOYEE:
	 
	 	 	 	 	 	 
	

	 	 	 	/s/ Jim Hazlett	 	 
	 	 	 
	

	 	 	 	Jim Hazlett	 	 

9exv10w4

 

Exhibit 10.4

Karifico

6183 So. Willowbrook Drive

Morrison, Colorado 80465

303-697-6960

FAX 303-697-4266

karifico@aol.com

CO#: O & G – Compr-4

KT. AREA: USA            MFGR’S GAS

CATEGORY:Screw Compr’s, up to 400 & Pkg’s Screw & Recipro.

Compr’s up to 3,000 HP (majority are

under 600 HP); Gear Boxes from 100 HP up to 1500 HP; Semi-Exclusive

Distributor of Large Comp.

SALES: $17M ‘00; $18.4M ‘01; $11.6M ‘02; $10.3M ‘03

EARNINGS: $4.6M ‘00; $3.4M ‘01; $1.4M ‘02; $1.4M ‘03 (EBITDA $s)

PRICE: $11 Million

TYPE OF DEAL: Cash or Cash (65%) & Stock (35%)

Mr. Wallace Sparkman

President – Services Group

Natural Gas Services Group, Inc.

2911 S. County Road 1260

Midland, Texas 79706

Gentlemen:

This confirms our agreement wherein you or any affiliated person, or any subsidiary, or
affiliated company agrees to pay a finder’s fee in cash, in accordance with the schedule of fees
fisted below, in the event of any agreement entered into between your firm and the company that we
refer to as O & G- Compr-4 which results in a purchase and/or sale,
and/or acquisition, and/or merger of assets, and/or capital merger, or exchange of stock or any
other type of investment therein. If there is no consummated transaction by your company and the
company that we refer to above during the effectiveness of this agreement, there is no obligation
for your company to pay any fees to us or any expenses incurred by us on your behalf unless you
have given prior written authorization

The following fee schedule is based upon the percentage of gross sale price or total investment
which your firm will pay or make upon the date of consummation of a transaction between your firm
and the company that we refer to above:

	 	 	 	 	 	 	 
	6% on the first

	 	$	1,000,000	 	 	2% on the next $1,000,000
	5% on the next

	 	$	1,000,000	 	 	1% on any additional amount up to $50,000,000
	4% on the next

	 	$	1,000,000	 	 	3/4% on any additional amount thereafter
	3% on the next

	 	$	1,000,000	 	 	 

“Gross sale price” shall mean the total consideration paid in any combination of cash, notes,
stock, debt or other obligations assumed which exceed one year, or other property or type of
investment. It shall include the present value of any and all deferred payments, or royalties, or
other items, whether or not contingent on future earnings or if the transaction results from the
exercise of any option, the fee would be based on the present value of the option; all are to be
discounted on a basis of 10% per year. A copy of all closing documents will promptly be given to
Karifico.

This agreement shall stay in effect for a period of thirty (30) months. Cancellation shall not
affect fees that have been earned or may be earned in connection with presentations made prior to
the date. In the event that any dispute arising out of this agreement requires litigation, the
prevailing party shall be entitled to such reasonable attorney fees and attendant costs as may be
awarded by the court. This agreement shall be governed by the laws and courts of the State of
Colorado.

ACCEPTED BY:

	 	 	 	 	 	 	 
	

	 	/s/ Wallace Sparkman	 	 	 	 
	Company

	 	Natural Gas Services Group, Inc.
	 	 	 	Karifico /s/ Kathleen Falk Fisher
	

	 	 	 	 	 	 
	Name

	 	Mr. Wallace Sparkman
	 	By
	 	Kathleen Falk Fisher
	

	 	 	 	 	 	 
	Title

	 	Director – M&A
	 	Title
	 	Vice President
	

	 	 	 	 	 	 
	Date

	 	11-3-03
	 	 	 	Date October 28, 2003
	

	 	 	 	 	 	 

MERGER, ACQUISITION & DIVERSIFICATION CONSULTANT

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