<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
KEY ENERGY GROUP, INC
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
Name of Person(s) Filing Proxy Statement, if other than the Registrant
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: Schedule 14A
- --------------------------------------------------------------------------------
(3) Filing Party: Key Energy Group, Inc.
- --------------------------------------------------------------------------------
(4) Date Filed: November 10, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
[KEY ENERGY GROUP, INC. LOGO]
KEY ENERGY GROUP, INC.
TWO TOWER CENTER, 20TH FLOOR
EAST BRUNSWICK, NJ 08816
November 17, 1997
Dear Stockholder:
You are cordially invited to attend the annual meeting of Stockholders of
Key Energy Group, Inc. (the "Company") to be held at Two Tower Center, 20th
Floor, East Brunswick, New Jersey 08816, at 11:00 A.M. on Tuesday, December
16,1997.
Matters to be considered and acted upon by the Stockholders include (i) the
election of six Directors; (ii) a proposal to amend the Company's Amended and
Restated Articles of Incorporation to increase the Company's authorized capital
stock from 25,000,000 shares, par value $.10 per share, to 100,000,000 shares
(the "Amendment") and (iii) a proposal to adopt the Company's 1997 Incentive
Plan. These matters and the procedures for voting your shares are discussed in
the accompanying Notice of Annual Meeting and Proxy Statement.
The adoption of the Amendment requires the affirmative vote of two-thirds
of the outstanding shares of Common Stock. The failure to vote in person or by
proxy, or to abstain from voting, will have the same effect as a vote against
the Amendment. Therefore, the Directors urge each Stockholder, whether or not
intending to attend the meeting in person, to execute the enclosed proxy and
return it promptly in the enclosed envelope. Returning a proxy will not prevent
a Stockholder from voting in person at the meeting.
Sincerely,
Francis D. John
Chairman of the Board,
President and Chief Executive
Officer
<PAGE> 3
KEY ENERGY GROUP, INC.
TWO TOWER CENTER, 20TH FLOOR
EAST BRUNSWICK, NEW JERSEY 08816
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 16, 1997
---------------------
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Key Energy Group, Inc. (the "Company") will be held at Two Tower
Center, 20th Floor, East Brunswick, New Jersey 08816 at 11:00 A.M. on Tuesday,
December 16, 1997, to consider and act upon the following matters:
(1) To elect six Directors for the ensuing year or until their
successors are elected and qualified;
(2) To consider and act upon a proposal to amend the Company's Amended
and Restated Articles of Incorporation to increase the Company's authorized
capital stock from 25,000,000 shares, par value $.10 per share, to
100,000,000 shares;
(3) To consider and act upon a proposal to adopt the Company's 1997
Incentive Plan; and
(4) To consider and act upon such other business as may properly come
before the Annual Meeting.
The Board of Directors has fixed the close of business on November 14,
1997, as the record date for the determination of Stockholders entitled to
notice of and to vote at the Annual Meeting. Only those Stockholders of record
on that date will be entitled to notice of and to vote at the Annual Meeting.
A complete list of the Stockholders entitled to vote at the Annual Meeting
will be open for inspection at the Company's offices, Two Tower Center, 20th
Floor, East Brunswick, New Jersey, at least 10 days before the Annual Meeting.
By Order of the Board of Directors
Jack D. Loftis, Jr.
Secretary
East Brunswick, New Jersey
November 17, 1997
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL THE PROXY CARD IN THE
ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE ANNUAL
MEETING. NO POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED WITHIN THE
UNITED STATES. A STOCKHOLDER MAY, IF SO DESIRED, REVOKE HIS PROXY AND VOTE HIS
SHARES IN PERSON AT THE MEETING.
<PAGE> 4
KEY ENERGY GROUP, INC.
TWO TOWER CENTER, 20TH FLOOR
EAST BRUNSWICK, NEW JERSEY 08816
PROXY STATEMENT
FOR
ANNUAL STOCKHOLDERS MEETING
TO BE HELD DECEMBER 16, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Key Energy Group, Inc. (the "Company"), for
use at the Company's 1997 Annual Meeting of Stockholders (the "Annual Meeting")
to be held at Two Tower Center, 20th Floor, East Brunswick, New Jersey 08816 at
11:00 A.M. on Tuesday, December 16, 1997, and at any adjournment thereof. This
Proxy Statement and the accompanying form of proxy are first being mailed to the
Company's Stockholders on or about November 17, 1997. The Company's Annual
Report to Stockholders for the fiscal year ended June 30, 1997, is being mailed
to Stockholders with the mailing of this Proxy Statement.
The Company will bear all costs of solicitation of proxies. In addition to
solicitations by mail, the Company's Directors, officers and regular employees,
without additional remuneration, may solicit proxies by telephone, telegraph and
personal interviews. Brokers, custodians and fiduciaries will be requested to
forward proxy soliciting material to the owners of stock held in their names,
and the Company will reimburse them for their reasonable out-of-pocket expenses
incurred in connection with the distribution of such proxy materials. In
addition, D. F. King & Co. has been engaged to solicit proxies for the Company
for a fee of $6,500, plus costs and expenses.
REVOCABILITY OF PROXIES
Any Stockholder giving a proxy has the power to revoke it at any time
before it is exercised, by delivering to the Secretary of the Company at its
principal executive office located at Two Tower Center, 20th Floor, East
Brunswick, New Jersey 08816, a written notice of revocation or another duly
executed proxy bearing a later date. A Stockholder also may revoke his proxy by
attending the Annual Meeting and voting in person. Attendance at the Annual
Meeting will not in and of itself constitute a revocation of a proxy.
RECORD DATE, VOTING AND SHARE OWNERSHIP
Only holders of record of common stock, par value $.10 per share (the
"Common Stock"), of the Company at the close of business on November 14, 1997
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting
and at any adjournments thereof. Each share of Common Stock is entitled to one
vote. On the Record Date there were outstanding and entitled to vote
[18,223,056] shares of Common Stock.
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the votes entitled to be cast ([9,111,528] shares) will
constitute a quorum for the transaction of business at the Annual Meeting. A
proxy, if received in time for voting and not revoked, will be voted at the
Annual Meeting in accordance with the instructions contained therein. Where a
choice is not so specified, the shares represented by the proxy will be voted
"for" the election of the nominees for Directors listed herein and in favor of
the other matters set forth in the Notice of Annual Meeting accompanying this
Proxy Statement. A Stockholder marking the proxy "Abstain" will not be counted
as voting in favor of or against the particular proposal from which the
Stockholder has elected to abstain. If a quorum exists, the proposals can be
adopted by an affirmative vote of (i) in the case of election of Directors, a
plurality; (ii) in the case of the proposal to adopt the amendment to the
Company's Amended and Restated Articles of Incorporation (the "Articles of
Incorporation") to increase the Company's authorized capital stock from
25,000,000 shares to 100,000,000 shares (the "Amendment"), by an affirmative
vote of two-thirds of the issued and outstanding shares entitled to vote; and
(iii) in the case of the proposal to adopt the Company's 1997 Incentive Plan
(the "1997 Incentive Plan"), a majority of the shares voted thereon. Since the
proposal to adopt the Amendment requires the
<PAGE> 5
affirmative vote of two-thirds of the shares entitled to vote, as opposed to a
percentage of the issued and outstanding shares entitled to vote that are
present at the Annual Meeting, the failure to vote in person or by proxy will
have the same effect as a vote against the Amendment.
Votes cast at the Annual Meeting will be tabulated by a duly appointed
inspector of election or by the chairman of the Annual Meeting. The inspector or
the chairman will treat shares represented by a properly signed and returned
proxy as present at the Annual Meeting for purposes of determining a quorum
without regard to whether the proxy is marked as casting a vote or abstaining.
Likewise, the inspector or the chairman will treat shares represented by "broker
non-votes" as present for purposes of determining a quorum, although such shares
will not be voted on any matter for which the record holder of such shares lacks
authority to act. Broker non-votes are proxies with respect to shares held in
record name by brokers or nominees, as to which (i) instructions have not been
received from the beneficial owners of persons entitled to vote; (ii) the broker
or nominee does not have discretionary voting power under applicable national
securities exchange rules or the instrument under which it serves in such
capacity; and (iii) the record holder has indicated on the proxy card or has
otherwise notified the Company that it does not have authority to vote such
shares on that matter.
ELECTION OF DIRECTORS
At the Annual Meeting, six Directors are to be elected, each Director to
hold office until the next annual meeting of Stockholders and until its
successor is elected and qualifies. The persons named in the accompanying proxy
have been designated by the Board of Directors, and unless authority is
withheld, they intend to vote for the election of the nominees named below to
the Board of Directors. All of the nominees, except Mr. Breazzano (who was
elected by the Board to fill a vacancy), previously have been elected as
Directors by the Stockholders. If any of the nominees become unavailable to
serve, the shares represented by proxies will be voted for the election of a
substitute nominee selected by the persons named in the proxy, or the Board may
be reduced accordingly; however, the Board of Directors is not aware of any
circumstances likely to render any nominee unavailable for election.
Certain information concerning the nominees is set forth below.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
NOVEMBER 14, 1997(1)
-----------------------
DIRECTOR PERCENT
NAME POSITION AGE SINCE SHARES OF CLASS(2)
---- -------- --- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Francis D. John(3)(6)......... Chairman of the Board, 43 1988 469,535 2.5%
President and Chief
Executive Officer
Kevin P. Collins(3)(4)(7)..... Director 46 1996 78,405 *
William Manly(4)(5)(8)........ Director 74 1989 41,992 *
W. Phillip Marcum(5)(9)....... Director 53 1996 78,405 *
David J. Breazzano(3)(4)(5)... Director 41 1997 -- --
Morton Wolkowitz(3)(5)(10).... Director 67 1989 368,282 2.0%
</TABLE>
- ---------------
* Less than one percent.
(1) Includes all shares with respect to which each person directly, through any
contract, arrangement, understanding, relationship or otherwise, has or
shares the power to vote or to direct voting of such shares or to dispose or
to direct the disposition of such shares.
(2) Based on 18,223,056 shares of Common Stock outstanding at November 14, 1997.
(3) Member of the Executive Committee.
(4) Member of the Audit Committee.
2
<PAGE> 6
(5) Member of the Compensation Committee. Van D. Greenfield also served on the
Compensation Committee during the fiscal year ended June 30, 1997. Mr.
Greenfield resigned as a Director in October 1997.
(6) Includes 432,500 shares issuable upon the exercise of vested stock options
and 6,914 shares issuable pursuant to currently exercisable warrants. Does
not include (i) 317,500 shares issuable pursuant to options that have not
vested, including 250,000 shares subject to approval of the 1997 Incentive
Plan; or (ii) 50,045 shares held by Mr. John as custodian for his two
children, and 1,350 shares held by Mr. John's wife, as to which Mr. John
disclaims beneficial ownership.
(7) Includes 23,333 shares issuable upon the exercise of vested stock options.
Does not include 46,667 shares issuable pursuant to options that have not
vested, including 20,000 shares subject to approval of the 1997 Incentive
Plan.
(8) Includes 41,666 shares issuable upon the exercise of vested stock options.
Does not include 46,667 shares issuable pursuant to options that have not
vested, including 20,000 shares subject to approval of the 1997 Incentive
Plan.
(9) Includes 23,333 shares issuable upon the exercise of vested stock options.
Does not include 46,667 shares issuable pursuant to options that have not
vested, including 20,000 shares subject to approval of the 1997 Incentive
Plan.
(10) Includes 66,666 shares issuable upon the exercise of vested stock options
and 6,914 shares issuable pursuant to currently exercisable warrants. Does
not include 28,334 shares issuable pursuant to options that have not
vested, including 20,000 shares subject to approval of the 1997 Incentive
Plan.
Francis D. John has been Chairman of the Board since August 1996 and the
Chief Executive Officer since October 1989. He served as the Chief Financial
Officer from October 1989 through July 1997. Before joining the Company, he was
Executive Vice President of Finance and Manufacturing of Fresenius U.S.A., Inc.
Mr. John previously held operational and financial positions with Unisys
Corporation, Mack Trucks, Inc. and Arthur Andersen. He received a BS from Seton
Hall University and an MBA from Fairleigh Dickinson University.
Kevin P. Collins has served as a principal of JHP Enterprises, Ltd. since
1992, and from 1985 to 1992, as Senior Vice President of DG Investment Bank,
Ltd., both of which are engaged in providing corporate finance and advisory
services. Mr. Collins was a Director of WellTech, Inc. ("WellTech") from January
1994 until March 1996, when WellTech was merged into the Company (the "WellTech
Merger"). He holds a BS and an MBA from the University of Minnesota.
William Manly retired from his position as Executive Vice President of
Cabot Corporation in 1986, a position he had held from 1978. Mr. Manly is a
Director of Metallamics, Inc. and a Director of Forge Performance Products, Inc.
He holds a BS and an MS from the University of Notre Dame.
W. Phillip Marcum was a director of WellTech from January 1994 until March
1996. From October 1995 until March 1996, Mr. Marcum was the acting Chairman of
the Board of Directors of WellTech. He has been Chairman of the Board, President
and Chief Executive Officer of Marcum Natural Gas Services, Inc. since January
1991. He holds a BBA from Texas Tech University.
David J. Breazzano is one of the three principals at DDJ Capital
Management, LLC, an investment management firm that was established in 1996. Mr.
Breazzano previously served as a Vice President and Portfolio Manager at
Fidelity Investments ("Fidelity") from 1990 to 1996. Before joining Fidelity,
Mr. Breazzano was President and Chief Investment Officer of the T. Rowe Price
Recovery Fund. He also is a Director of BioSafe International, Inc. He holds a
BS from Union College and an MBA from Cornell University.
Mr. Wolkowitz served as the President and Chief Executive Officer of Wolkow
Braker Roofing Corporation, a company that provided a variety of roofing
services, from 1958 through 1989. Mr. Wolkowitz has been a private investor
since 1989. He holds a BS from Syracuse University.
3
<PAGE> 7
BOARD AND COMMITTEE MEETINGS
During the fiscal year ended June 30, 1997, the Board of Directors held six
meetings. Each of the current Directors who then was in office attended at least
75% of the meetings of the Board of Directors and all committees thereof on
which such Director served.
The Board of Directors has designated an Executive Committee, an Audit
Committee and a Compensation Committee. The Board has not designated a
Nominating Committee. The Executive Committee may take such actions as the Board
delegates to it. The Executive Committee held eight meetings during fiscal year
1997. The Audit Committee meets with the Company's independent auditors at least
twice annually to review financial results, internal financial controls and
procedures, and audit plans and recommendations. It also recommends the
selection, retention or termination of independent public accountants, approves
services provided by the independent public accountants before providing such
services, and evaluates the possible effect the performance of such services
will have on their independence. The Audit Committee held two meetings during
fiscal year 1997. See "Additional Information -- Auditors." The Compensation
Committee recommends to the Board of Directors the compensation of Executive
Officers and Directors and the adoption of stock grant and stock option plans.
See "Proposal to Adopt the 1997 Incentive Plan -- Administration" and "Other
Information -- Compensation Committee Report." The Compensation Committee held
two meetings during fiscal year 1997.
DIRECTOR COMPENSATION
Compensation for the non-employee Directors for fiscal year 1997 was $3,000
per month. Directors are reimbursed for travel and other expenses directly
associated with Company business. Such compensation is for service as a Director
as well as for advisory services that Directors may provide the Company from
time to time. All non-employee Directors were granted options to purchase 20,000
shares of Common Stock under the Company's 1995 Outside Directors Stock Option
Plan (the "1995 Directors Plan"). Each of the options vests in four annual
installments commencing June 30, 1997. See "Proposal to Adopt the 1997 Incentive
Plan."
EXECUTIVE OFFICERS
The Company's executive officers serve at the pleasure of the Board of
Directors and are subject to annual appointment by the Board at its first
meeting following the Annual Meeting of Stockholders. All the Company's
executive officers are listed in the foregoing table with the exception of the
following:
Kenneth V. Huseman, 44, became an Executive Vice President of the Company
in March 1996 and the Chief Operating Officer in August 1996. He was the
Mid-Continent Regional President of WellTech from August 1994 to March 1996, and
Vice President and Mid-Continent Regional Manager of WellTech from April 1993 to
August 1994. Before serving at WellTech, he worked for Pool Energy Services Co.
He holds a BBA from Texas Tech University.
Stephen E. McGregor, 48, joined the Company in July 1997 as an Executive
Vice President and Chief Financial Officer. From July 1995 until July 1997, he
was Senior Advisor to BT Wolfensohn and its predecessor, James D. Wolfensohn,
Inc. He was President and Member of Pacific Century Group L.L.C. from September
1993 until July 1995, and was a partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom in its Washington, D.C. and London, England, offices from 1982
until 1993. Mr. McGregor also served as Deputy Assistant Secretary for Oil and
Gas Policy during the Carter Administration and before that was counsel to the
United States Senate Commerce Committee. Mr. McGregor has a BA from Boston
University and a JD from the College of William and Mary.
Danny R. Evatt, 38, has been a Vice President and the Chief Accounting
Officer of the Company since July 1995 and the Treasurer of the Company since
July 1990. He has been Treasurer, Secretary and Chief Financial Officer of Yale
E. Key since 1983. He holds a BBA from Texas A&M University.
4
<PAGE> 8
During the fiscal year ended June 30, 1997, Kenneth C. Hill, C. Ron Laidley
and D. Kick Edwards served as executive officers; however, each of such persons,
although still employed by certain of the Company's subsidiaries, ceased to be
executive officers of the Company in October 1997. See "Other Information."
MANAGEMENT STOCKHOLDINGS
The following table provides information as of November 14, 1997 with
respect to the shares of Common Stock beneficially owned by (i) each Director
and executive officer of the Company and (ii) all Directors and executive
officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF NUMBER OF OUTSTANDING
BENEFICIAL OWNER SHARES(1) SHARES(2)
---------------- ----------- -------------
<S> <C> <C>
Francis D. John(3).......................................... 469,535 2.5%
Danny R. Evatt(4)........................................... 32,500 *
David J. Breazzano.......................................... -- --
Kenneth V. Huseman(5)....................................... 63,656 *
Stephen E. McGregor(6)...................................... -- *
Kevin P. Collins(7)......................................... 78,405 *
W. Phillip Marcum(8)........................................ 78,405 *
William Manly(9)............................................ 41,992 *
Morton Wolkowitz(10)........................................ 368,282 2.0%
Directors and Executive Officers as a group (9 persons)..... 1,127,775 6.0%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes all shares with respect to which each person, Director or executive
officer directly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares the power to vote or to direct
voting of such shares or to dispose or to direct the disposition of such
shares. With respect to executive officers, includes shares that may be
purchased under currently exercisable stock options granted under the
Company's 1995 Stock Option Plan (the "1995 Option Plan"). With respect to
non-employee Directors, includes shares that may be purchased under
currently exercisable stock options granted under the 1995 Directors Plan.
(2) Based on 18,094,724 shares of Common Stock outstanding at November 14, 1997,
plus, for each beneficial owner, those number of shares underlying currently
exercisable options or warrants held by each executive officer or Director.
(3) Includes 432,500 shares issuable upon the exercise of vested stock options
and 6,914 shares issuable pursuant to currently exercisable warrants. Does
not include (i) 317,500 shares issuable pursuant to options that have not
vested, including 250,000 shares subject to approval of the 1997 Incentive
Plan or (ii) 50,045 shares held by Mr. John as custodian for his two
children, and 1,350 shares held by Mr. John's wife, as to which Mr. John
disclaims beneficial ownership.
(4) Includes 27,500 shares issuable upon the exercise of vested stock options.
Does not include 27,500 shares issuable pursuant to options that have not
vested, including 15,000 shares subject to approval of the 1997 Incentive
Plan.
(5) Includes 50,000 shares issuable upon the exercise of vested stock options.
Does not include 150,000 shares issuable pursuant to options that have not
vested, including 100,000 shares subject to approval of the 1997 Incentive
Plan.
(6) Does not include 250,000 shares issuable pursuant to options subject to
approval of the 1997 Incentive Plan.
(7) Includes 23,333 shares issuable upon the exercise of vested stock options.
Does not include 46,667 shares issuable pursuant to options that have not
vested, including 20,000 shares subject to approval of the 1997 Incentive
Plan.
(8) Includes 23,333 shares issuable upon the exercise of vested stock options.
Does not include 46,667 shares issuable pursuant to options that have not
vested, including 20,000 shares subject to approval of the 1997 Incentive
Plan.
(9) Includes 41,666 shares issuable upon the exercise of vested stock options.
Does not include 46,667 shares issuable pursuant to options that have not
vested, including 20,000 shares subject to approval of the 1997 Incentive
Plan.
5
<PAGE> 9
(10) Includes 66,666 shares issuable upon the exercise of vested stock options
and 6,914 shares issuable pursuant to currently exercisable warrants. Does
not include 28,334 shares issuable pursuant to options that have not
vested, including 20,000 shares subject to approval of the 1997 Incentive
Plan.
REQUIRED VOTE
The nominees for election as Directors who receive the greatest number of
votes shall be elected as Directors.
The Board of Directors recommends that the Stockholders vote FOR the
election of each of the nominees listed above.
PROPOSED AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION
The Board of Directors has proposed an amendment (the "Amendment") to the
Company's Amended and Restated Articles of Incorporation (the "Articles of
Incorporation") which, if adopted, would authorize the issuance by the Company
of a maximum of 100,000,000 shares of capital stock, par value $.10 per share,
instead of the 25,000,000 shares presently authorized. A copy of the Amendment
is attached hereto as Exhibit A. The Board of Directors believes that the
increase in authorized capital stock is necessary for the Company to have
sufficient shares available for issuance upon conversion of outstanding
convertible securities, stock splits and for issuance pursuant to acquisitions
or other financing transactions in which the Company may desire to participate
in the future, all as more fully described below.
The Company's Articles of Incorporation currently authorize the issuance of
25,000,000 shares of capital stock which have been designated as Common Stock,
par value $.10 per share. Under the Articles of Incorporation, the Board of
Directors may reclassify and classify any unissued shares of capital stock by
setting or changing in any one or more respects the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of capital
stock. Therefore, although all of the Company's capital stock currently is
classified as Common Stock, the Board of Directors could reclassify authorized
but unissued shares of capital stock as one or more series of preferred stock.
As of November 14, 1997, the Company had issued and outstanding
[18,223,056] shares of Common Stock. In addition, as of such date (i) 1,400,000
shares were reserved for issuance under various stock option plans; (ii) 471,795
shares were reserved for issuance upon conversion of the Company's 7%
Convertible Subordinated Debentures Due 2003 (the "7% Debentures"); (iii)
119,056 shares were reserved for issuance pursuant to outstanding warrants; and
(iv) 365,000 shares were reserved for issuance in connection with the closing of
certain pending acquisitions.
The Company also has outstanding $216 million principal amount of 5%
Convertible Subordinated Notes due 2004 (the "5% Notes") which, as of the date
hereof, were convertible into an aggregate of 5,610,390 shares of Common Stock.
The Company currently does not have sufficient shares authorized for issuance
upon conversion of the 5% Notes; therefore, no shares of Common Stock have been
reserved for issuance upon conversion thereof. Until the Company's authorized
capital stock has been increased to a number of shares sufficient to reserve for
conversion of the 5% Notes in full, the Company may pay cash in an amount equal
to the Current Market Price (as defined in the terms of the 5% Notes) of the
Common Stock for which the 5% Notes are convertible in lieu, in whole or in
part, of delivering Common Stock. The Company's authority to satisfy its
conversion obligation with respect to the 5% Notes in cash rather than in Common
Stock will expire on the date the Company has shares of capital stock sufficient
for issuance upon conversion of all of the 5% Notes. Upon approval of the
Amendment, the Company will reserve 5,610,390 shares for issuance upon
conversion of the 5% Notes.
The Board of Directors believes that issuing Common Stock, rather than
paying cash, upon conversion of the 5% Notes will give the Company greater
flexibility in its use of available cash for acquisitions and other corporate
purposes. In addition, the Company's existing bank credit facility limits the
amount of cash the Company may use for payment upon conversion of the 5% Notes
to 40% of the aggregate consideration payable upon conversion and prohibits such
payment if the Company's leverage ratio exceeds 2.5 to 1. The Company currently
does not (and does not expect to) meet the leverage ratio requirements. If the
Amendment is not approved, the Company could be required to obtain a waiver, or
risk defaulting on its bank
6
<PAGE> 10
credit facility for using a prohibited amount of cash to convert 5% Notes, or
defaulting on the 5% Notes by not having enough cash or Common Stock available
to meet its conversion obligations.
The Company has achieved a significant portion of its growth through the
acquisition of other well servicing companies and related businesses and
believes that its future growth will be dependent, at least in part, on its
ability to identify and acquire similar businesses in the future. Many of the
Company's corporate acquisitions have been financed through the issuance of
Common Stock or warrants to purchase Common Stock, and the Company anticipates
that such a financing alternative to cash will continue to be beneficial to the
Company.
The Board of Directors also believes that the Company will benefit from
having available a significant number of shares of capital stock that could be
available for issuance in connection with public and private equity financings,
with the proceeds of any such financings to be used for a variety of corporate
purposes, including the repayment of debt or to pay the purchase price for
corporate acquisitions and other transactions.
The Company has no present plans for any particular issuance of additional
shares of Common Stock other than upon the conversion of the 7% Debentures and
the 5% Notes, upon the exercise of outstanding convertible securities or
pursuant to pending corporate acquisitions as described above. Nonetheless, any
authorized but unissued shares of capital stock would be available for issuance
at any time without Stockholder approval, unless such approval were required by
law, as in the case of consolidations and certain statutory mergers, or by the
rules of the American Stock Exchange or other exchanges on which the Common
Stock may be listed.
Under certain circumstances, an increase in the number of authorized shares
of capital stock can provide corporate management with a means to discourage a
change of control, such as through the issuance to Stockholders of rights to
purchase additional shares of Common Stock at bargain prices. As in the case of
other types of issuances, those intended to prevent or adversely affect changes
of control could be accomplished without further Stockholder approval. However,
the Board of Directors has no present intention of using the additionally
authorized shares for such a purpose and is not aware that any takeover or
similar action is contemplated. Moreover, the Company's Articles of
Incorporation prohibit any classification or reclassification of the Company's
capital stock that would (i) allow more than one vote per share; (ii) allow
capital stock to be issued in connection with any so-called "shareholder rights
plan", "poison pill," or other anti-takeover measure; or (iii) issue capital
stock for consideration less than the fair consideration determined in good
faith by the Board of Directors.
REQUIRED VOTE
The affirmative vote of the holders of two-thirds of the issued and
outstanding shares of Common Stock is required to approve the Amendment. Since
the affirmative vote of two-thirds of the issued and outstanding shares of
Common Stock is required to approve the Amendment, as opposed to a specified
percentage of the shares present at the Annual Meeting, the failure to vote in
person or by proxy, or an abstention from voting, will have the same effect as a
vote against the Amendment.
The Board of Directors recommends that the Stockholders vote FOR the
Amendment.
PROPOSAL TO ADOPT THE 1997 INCENTIVE PLAN
GENERAL
The description set forth below summarizes the principal terms and
conditions of the Key Energy Group, Inc. 1997 Incentive Plan (the "1997
Incentive Plan"). The Summary does not purport to be a complete description
thereof and is qualified in its entirety by reference to the 1997 Incentive
Plan, a copy of which is attached hereto as Exhibit B.
7
<PAGE> 11
The 1997 Incentive Plan is an amendment and restatement of the plans
formerly known as the "Key Energy Group, Inc. 1995 Stock Option Plan" (the "1995
Option Plan") and the "Key Energy Group, Inc. 1995 Outside Directors Stock
Option Plan" (the "1995 Directors Plan") (collectively, the "Prior Plans"). The
1995 Option Plan authorizes the issuance of up to 1,100,000 shares of Common
Stock to key employees, including officers who may be members of the Board of
Directors, Directors who are neither employees or members of the Company's
Compensation Committee and other individuals, whether or not employees, who
render services of special importance to the management, operation or
development of the Company or its subsidiaries, and who have contributed or may
be expected to contribute materially to the Company's success. As of the date
hereof, the Company had issued options to purchase 2,150,556 shares of Common
Stock under the 1995 Option Plan.
The 1995 Directors Plan authorizes the issuance of up to 300,000 shares of
Common Stock to members of the Board of Directors who are not employees of the
Company or any of its subsidiaries. As of the date hereof, the Company had
issued options to purchase 400,000 shares of Common Stock under the 1995
Directors Plan. The Company has issued options to purchase more shares of Common
Stock than are authorized for issuance under the Prior Plans; however, all
outstanding options previously granted under the Prior Plans will be assumed and
continued, without modification, under the 1997 Incentive Plan. The options to
purchase Common Stock in excess of the shares of Common Stock authorized for
issuance under the Prior Plans will be valid only if the Stockholders approve
the 1997 Incentive Plan.
The 1997 Incentive Plan is intended to foster and promote the financial
success of the Company and its subsidiaries and to increase stockholder value by
(i) encouraging commitment and motivating superior performance of key employees,
consultants and outside directors by means of equity-based performance awards
and (ii) attracting and retaining key employees, consultants and outside
directors by providing competitive incentive compensation opportunities.
Under the 1997 Incentive Plan, the Company may grant the following awards
to key employees, Directors who are not employees ("Outside Directors") and
consultants of the Company, its controlled subsidiaries, and its parent
corporation, if any: (i) incentive stock options ("ISOs") as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii)
"nonstatutory" stock options ("NSOs"), (iii) stock appreciation rights ("SARs"),
(iv) shares of restricted stock, (v) performance shares and performance units,
(vi) other stock-based awards and (vii) supplemental tax bonuses (collectively,
"Incentive Awards"). ISOs and NSOs are sometimes referred to collectively herein
as "Options".
The 1995 Option Plan provides only for the grant of Options and therefore,
no other Incentive Awards may be granted thereunder and all provisions relating
to Incentive Awards other than Options under the 1997 Incentive Plan constitute
a material change from the 1995 Option Plan. Similarly, the 1995 Directors Plan
provides only for the grant of NSOs. Therefore, insofar as any provisions of the
1997 Incentive Plan relate to Incentive Awards other than NSOs granted to
Outside Directors, such provisions constitute material changes from the 1995
Directors Plan.
The Company may grant Incentive Awards covering an aggregate of the greater
of (i) 3,000,000 shares of the Company's Common Stock and (ii) 10% of the number
of shares of Common Stock issued and outstanding on the last day of each
calendar quarter. All 3,000,000 shares of Common Stock shall be available for
Incentive Stock Options.
Any shares of Common Stock that are issued and are forfeited or are subject
to Incentive Awards under the 1997 Incentive Plan that expire or terminate for
any reason will remain available for issuance with respect to the granting of
Incentive Awards during the term of the 1997 Incentive Plan, except as may
otherwise be provided by applicable law. Shares of Common Stock issued under the
1997 Incentive Plan may be either newly issued or treasury shares, including
shares of Common Stock that the Company receives in connection with the exercise
of an Incentive Award. The number and kind of securities that may be issued
under the 1997 Incentive Plan and pursuant to then outstanding Incentive Awards
are subject to adjustments to prevent enlargement or dilution of rights
resulting from stock dividends, stock splits, recapitalizations, reorganizations
or similar transactions.
8
<PAGE> 12
The maximum number of shares of Common Stock subject to Incentive Awards
that may be granted or that may vest, as applicable, to any one Covered Employee
during any calendar year shall be 500,000 shares, subject to adjustment under
the provisions of the 1997 Incentive Plan. The maximum number of shares subject
to Options that can be granted to any employee under the 1995 Option Plan is
500,000. The 1995 Directors Plan does not include any similar limitation on the
number of Options that may be granted to any Outside Director either annually or
for the life of the 1995 Directors Plan; however, the 1995 Directors Plan
provides for formula grants such that no Outside Director could ever be granted
Options covering more than 75,000 shares.
The maximum aggregate cash payout subject to Incentive Awards (including
SARs, performance units and performance shares payable in cash, or other
stock-based awards payable in cash) that may be granted to any one Covered
Employee during any calendar year is $2,500,000. For purposes of the 1997
Incentive Plan, "Covered Employee" means a named executive officer who is one of
the group of covered employees as defined in Section 162(m) of the Code and the
regulations promulgated thereunder (i.e., generally the chief executive officer
and the other four most highly compensated executives for a given year).
No participant shall have any rights as a Stockholder with respect to
shares relating to an Incentive Award until the date of issuance of a stock
certificate or certificates representing such shares. Nothing contained in the
1997 Incentive Plan or an Incentive Award confers any right with respect to
continuation of employment or adjustment of compensation to a participant.
Furthermore, no person has a right to claim an Incentive Award under the 1997
Incentive Plan.
The Company is not required to effect registration pursuant to the
Securities Act of 1933, as amended (the "Securities Act") or state law of any
shares of Common Stock issued under the 1997 Incentive Plan. In addition, the
Company is not required to issue or deliver certificates evidencing shares of
Common Stock under the 1997 Incentive Plan until the Company is advised by its
counsel that the issuance and delivery of such certificates is in compliance
with all applicable laws, regulations of governmental authorities and the
requirements of any securities exchange on which the Common Stock is traded.
ADMINISTRATION
The 1997 Incentive Plan is administered by the Compensation Committee
appointed by the Board of Directors (the "Committee") consisting of directors
each of whom is (i) an "outside director" under Section 162(m) of the Code and
(ii) a "non-employee director" under Rule 16b-3 of the Securities Exchange Act
of 1934 (the "Exchange Act"). Whereas the 1995 Option Plan also provides for
administration by a committee consisting of outside, non-employee directors, the
1995 Directors Plan is administered by a committee consisting of directors who
are not Outside Directors. Subject to the express provisions of the 1997
Incentive Plan, the Committee is authorized to, among other things, determine
those eligible individuals to whom Incentive Awards may be granted, grant
Incentive Awards to individuals eligible to participate in the 1997 Incentive
Plan and determine the terms and conditions (which need not be identical) of
each Incentive Award. The 1997 Incentive Plan does not prescribe any factors to
be considered by the Committee in determining the individual participants and
types of Incentive Awards granted. The 1995 Directors Plan, although
administered by a committee consisting of non-Outside Directors, does not give
such committee discretionary authority to determine the grants made to Outside
Directors. Instead, the 1995 Directors Plan is a formula plan pursuant to which
Outside Directors automatically receive a certain number of NSOs on certain
dates.
The Committee also interprets, construes and administers the 1997 Incentive
Plan and any related incentive agreements, and makes all of the determinations
necessary or advisable with respect to the 1997 Incentive Plan or any Incentive
Award granted thereunder. All decisions and determinations of the Committee are
final and binding on all parties. The Company will indemnify members of the
Committee against any cost, expenses or liabilities arising out of any action,
omission or determination relating to the 1997 Incentive Plan, unless such
action, omission or determination was taken or made with gross negligence or
9
<PAGE> 13
willful misconduct. The Prior Plans do not provide for indemnification of the
committees administering such plans.
Subject to certain amendments that require Stockholder approval, the
Committee may, in its absolute discretion (i) extend the exercisability of an
Incentive Award, (ii) accelerate the vesting or exercisability of an Incentive
Award, (iii) eliminate or reduce the restrictions contained in an Incentive
Award, (iv) waive any restriction or other provision of an Incentive Award or
(v) otherwise amend or modify an Incentive Award in any manner that is either
not adverse to the grantee of such Incentive Award or is consented to by such
grantee.
In addition, the Board of Directors may grant Incentive Awards under the
1997 Incentive Plan including the grant of Incentive Awards to Outside Directors
who also are members of the Committee. In such cases, the Board has all the
powers and responsibilities of the Committee as to the Incentive Awards so
granted. However, the Board may not act in the Committee's capacity to the
extent that doing so would disqualify an employee from an exemption under
Section 16(b) of the Exchange Act, violate applicable stock exchange rules or
result in the non-deductibility of compensation under Section 162(m) of the
Code. The Board of Directors does not have the authority to grant Options under
the Prior Plans, as that power is vested solely in the committees administrating
the Prior Plans; however, the committee under the 1995 Directors Plan consists
of the Directors who are not Outside Directors.
GENERAL TERMS AND TAX INFORMATION RELATING TO INCENTIVE AWARDS
The material terms of each Incentive Award are reflected in an agreement
(the "Incentive Agreement") between the participant and the Company. A summary
of the most significant features of the Incentive Awards and their tax
consequences to participants who are United States persons and the Company is
set forth below.
Incentive and Nonstatutory Stock Options. Except in limited cases involving
certain 10% stockholders or where the terms of the grant specify otherwise, ISOs
and NSOs must be exercised within ten years of the grant date. ISOs may only be
granted to employees and the exercise price of each ISO granted may not be less
than 100% (110% in the case of certain 10% stockholders) of the fair market
value of a share of Common Stock on the date of grant. The Committee will have
the discretion to determine the exercise price of each NSO granted under the
1997 Incentive Plan; however, an NSO that is intended to qualify as performance
based compensation to a Covered Employee subject to Section 162(m) of the Code
must be granted with an exercise price equal to 100% of the fair market value of
a share of Common Stock on the grant date. To the extent that the aggregate fair
market value of shares of Common Stock with respect to which ISOs are
exercisable for the first time by any employee during calendar year exceeds
$100,000, such options must be treated as NSOs to the extent of such excess.
The exercise price of each Option is payable in cash upon the exercise of
the Option or, in the discretion of the Committee and upon such terms and
conditions as it may deem appropriate, through the delivery of shares of Common
Stock owned by the Option holder and valued at their fair market value, by
withholding shares that would otherwise be acquired on the exercise of the
Option and having an aggregate fair market value equal to the total exercise
price, or in a combination of the foregoing. The 1995 Option Plan also allows
the exercise price of Options to be paid by a promissory note executed by the
participant secured by the shares of Common Stock obtained upon exercise of the
Option.
If a participant's employment or other service with the Company is
terminated other than for Cause (as defined in the 1997 Incentive Plan), or by
reason of Disability (as defined in the 1997 Incentive Plan) or death, his
vested Options, whether ISOs or NSOs, shall remain exercisable for 30 days after
such termination. Under the 1995 Option Plan and the 1995 Directors Plan, such
Options are exercisable for a period of three months and 90 days after such
termination, respectively. If a participant's employment or other service with
the Company is terminated by reason of Disability or death, his vested Options,
whether ISOs or NSOs, shall remain exercisable for one year following such
termination. If an employee's employment with the Company is terminated due to
his retirement at or after attaining age 65, his vested NSOs shall remain
10
<PAGE> 14
exercisable for six months, and his vested ISOs shall remain exercisable for
three months, following such termination. Under the 1995 Option Plan, all
Options remain exercisable for three months after termination of employment due
to retirement. Under the 1995 Directors Plan, NSOs remain exercisable for a
period of 12 months after termination of employment due to retirement. No Option
shall be exercisable after the expiration of its term. If a participant's
employment or other service with the Company is terminated for Cause, all
outstanding Options, whether vested or otherwise, shall expire at the
commencement of business on the date of such termination. The Committee, in its
discretion, may prescribe time periods different than those set out in the
foregoing provisions of this paragraph for the exercise of Options following a
participant's termination of employment or other service. Such rights shall be
reflected in the Incentive Agreement evidencing the participant's Incentive
Award.
Upon a Change in Control (as defined in the 1997 Incentive Plan), all
outstanding Options become immediately exercisable. A Change in Control
generally means (i) a change in control as contemplated in the federal
securities laws, (ii) the acquisition by any person of 25% or more of the shares
of voting securities of the Company, (iii) certain changes in the composition of
the Board (existing as of the effective date of the 1997 Incentive Plan) as a
result of a contested election for positions on the Board, or (iv) any other
event that the Board determines to constitute a change in the control of the
Company. The Board may determine in its discretion, if it deems to be in the
best interest of the Company, that an event otherwise constituting a Change in
Control shall not be considered a Change in Control.
Neither of the Prior Plans specifically provide for the effects on
outstanding options upon a change in control of the Company. However, the 1995
Option Plan provides that, upon the occurrence of any merger or consolidation
(other than a merger effected solely for the purpose of reincorporating the
Company under the laws of another jurisdiction), whether or not the Company is
the surviving corporation, or the occurrence of any other event to which the
committee determines the following provisions should be applicable, (i) a holder
of outstanding Options may receive such stock or other securities or property he
would have received had he exercised his Options immediately before the
occurrence of such event, (ii) the committee may waive any limitations under the
1995 Option Plan to allow any or all options to be fully exercisable from and
after a date before the occurrence of such event or (iii) all options may, at
the discretion of the committee, be canceled upon 30 days' notice to the
participant by the committee (any or all of such options may be exercisable, at
the committee's discretion, during that 30 day period).
An employee who is a participant in the 1997 Incentive Plan will not
recognize any income at the time an ISO is granted, nor on the qualified
exercise of an ISO. If a participant does not dispose of the shares acquired by
exercise of an ISO within two years after the grant date of the ISO and one year
after the exercise of the ISO, the exercise is qualified and the gain or loss
(if any) on a subsequent sale will be a long-term capital gain or loss. Such
gain or loss equals the difference between the sum of the sales proceeds and the
exercise price of the Common Stock sold. The Company is not entitled to a tax
deduction as a result of the grant or qualified exercise of an ISO. However, if
the shares acquired upon the exercise of an ISO are disposed of at a gain before
the one-year and two-year holding periods and the fair market value of the
shares at the time of exercise exceeds the exercise price, the exercise is not
qualified, and special rules apply that require the participant to recognize
ordinary income (at least in part) at the time of such disposition. The Company
generally is entitled to a tax deduction at the same time and in the same amount
as the ordinary income recognized by the participant from such disposition.
Although the qualified exercise of an ISO will not produce ordinary taxable
income to the participant, it will produce an increase in the participant's
alternative taxable income and may result in an alternative minimum tax
liability.
An optionee will not recognize any income for federal income tax purposes
at the time an NSO is granted, nor will the Company be entitled to a deduction
at that time. However, when any part of an NSO is exercised, the optionee will
recognize ordinary income in an amount equal to the difference between the fair
market value of the shares received and the exercise price of the NSO, and the
Company generally will recognize a corresponding tax deduction in the same
amount at the same time.
11
<PAGE> 15
Stock Appreciation Rights (SARs). Upon exercise of an SAR, the holder
thereof will receive a number of shares of Common Stock or cash, or a
combination thereof, as the Committee determines in the Incentive Agreement, the
aggregate value of which equals the amount by which the fair market value per
share of the Common Stock on the date of exercise exceeds the exercise price of
the SAR, multiplied by the number of shares underlying the exercised portion of
the SAR. An SAR may be granted in tandem with an Option or granted independently
of an Option. The grant price per share of any SAR will be established by the
Committee but must equal at least 100% of the fair market value of a share of
Common Stock on the date the SAR is granted. The term of each SAR will be fixed
by the Committee, but not extending beyond ten years from the date of grant.
SARs will be subject to such terms and conditions and will be exercisable at
such times as determined by the Committee. The value of an SAR may be paid in
cash, in shares of Common Stock, or in some combination, as determined by the
Committee. The Committee, in its discretion, will establish a participant's
right to exercise an SAR if the participant's employment is terminated, such
rights to be reflected in the participant's Incentive Agreement. Upon a Change
in Control, all outstanding SARs that have not vested will fully vest
automatically.
The exercise of an SAR will result in the recognition of ordinary income by
the participant on the date of exercise in the amount of cash, and/or the fair
market value on such date of the shares of Common Stock, acquired pursuant to
the exercise. The Company generally will be entitled to a tax deduction at the
same time and in the same amount as the ordinary income recognized by the
participant upon exercise of the SAR. The tax treatment of an SAR is the same
whether the SAR is exercised in conjunction with an ISO or an NSO.
Neither of the Prior Plans provide for the grant of SARs.
Restricted Stock. A restricted stock award consists of a grant of Common
Stock to a participant that is subject to substantial risk of forfeiture, and
the transfer of which is subject to restrictions that lapse upon the passage of
time, the achievement of performance goals or upon the occurrence of other
events as determined by the Committee. This period of restriction is established
by the Committee at the time of grant. Unless otherwise designated by the
Committee, during the period of restriction a holder of restricted shares will
have all other rights of a Stockholder, including the right to vote the shares
and receive the dividends paid thereon. The Committee, in its discretion, will
establish a participant's rights to receive restricted stock if the
participant's employment is terminated before vesting, such rights to be
reflected in the participant's Incentive Agreement. If vesting does not occur,
shares of restricted stock are forfeited. Upon a Change in Control, all shares
of restricted stock that have not vested or been forfeited will vest
automatically.
A participant will not recognize any income for federal tax purposes at the
time shares of restricted stock are granted or issued, nor will the Company be
entitled to a tax deduction at that time. However, when either the transfer
restriction or the forfeiture risk lapses, such as on vesting, the participant
will recognize ordinary income in an amount equal to the fair market value of
the shares of restricted stock on the date on which they vest. A participant may
file with the Internal Revenue Service an appropriate election under Section
83(b) of the Code within 30 days of the issue date of the restricted stock (the
"Election"), which results in the participant's receipt of deemed ordinary
income in an amount equal to the fair market value of the shares of restricted
stock on the date on which they are issued. However, if a participant files the
Election and the restricted stock subsequently is forfeited, such participant is
not allowed a tax deduction for the amount previously reported as ordinary
income due to the Election. Gain or loss (if any) from a disposition of
restricted stock after the participant recognizes any ordinary income (whether
by vesting or an Election) generally will constitute short- or long-term capital
gain or loss. The Company generally will be entitled to a corresponding tax
deduction at the time the participant recognizes ordinary income on the
restricted stock, whether by vesting or an Election, in the same amount as the
ordinary income recognized by the participant.
Neither of the Prior Plans provide for the grant of Restricted Stock.
Performance Units and Performance Shares. Performance units and performance
shares may be granted to eligible individuals at any time as determined by the
Committee. The Committee will have discretion to establish the initial number
and value of such units and shares, the performance period, and the other
material terms of the units or shares as reflected in the participant's
Incentive Agreement. The Committee will
12
<PAGE> 16
establish performance goals in its discretion which, depending on the level of
performance achieved, will determine the number and/or value of performance
units/shares earned. Where an award to a Covered Employee is intended to meet
the requirements for the performance-based exception to the deductibility limit
imposed by Section 162(m) of the Code, the performance goals will be based on
the performance measures prescribed in regulations issued under Section 162(m).
The value of a performance share or unit (whether or not vested) is paid
immediately on the occurrence of a Change in Control.
There are no tax consequences to the Company or the participant upon the
grant of performance shares or units. Upon payout of the shares or units, the
participant will recognize taxable ordinary income in the amount of the payout
and the Company will receive a corresponding tax deduction in the same amount
and at the same time.
Neither of the Prior Plans provide for the grant of performance units or
performance shares.
Other Stock-Based Awards. To enable the Company and the Committee to
respond quickly to significant developments in applicable tax and other
legislation and regulations and to trends in executive compensation practices,
the 1997 Incentive Plan also authorizes the Committee to grant other stock-based
awards to individuals eligible to participate in the 1997 Incentive Plan. Other
stock-based awards will consist of awards that are valued in whole or in part by
reference to, or otherwise based on, the Company's Common Stock. Subject to the
terms of the 1997 Incentive Plan, the Committee may determine any terms and
conditions of other stock-based awards. Payment or settlement of other
stock-based awards will be in cash or in shares of the Company's Common Stock or
in any combination thereof as the Committee determines in its discretion.
Generally, a participant will not realize any income upon the grant of
other stock-based awards. Upon the payment of other stock-based awards, a
participant will realize compensation taxable as ordinary income, and the
Company will be entitled to a corresponding tax deduction in the same amount and
at the same time. However, if any such shares are subject to substantial
restrictions, such as a requirement of continued employment or the attainment of
certain performance objectives, the participant will not recognize income and
the Company will not be entitled to a deduction until the restrictions lapse,
unless the participant elects otherwise by filing an Election (as described
under "Restricted Stock" above). The amount of the participant's ordinary
taxable income and the Company's deduction generally will be the fair market
value of the shares at the time the restrictions lapse.
Neither of the Prior Plans provides for the grant of other stock-based
awards.
Supplemental Tax Bonuses. The Committee may grant, in connection with a
grant of an Incentive Award, a supplemental tax bonus, payable when the
participant is required to recognize ordinary income for federal income tax
purposes with respect to such Incentive Award. Receipt of any such bonus will
result in ordinary income to the participant and generally a corresponding tax
deduction to the Company at the same time and for the same amount.
Neither of the Prior Plans provides for supplemental tax bonuses.
Other Tax Considerations. Upon accelerated exercisability of Options and
accelerated lapsing of restrictions upon restricted stock or other Incentive
Awards in connection with a Change in Control, certain amounts associated with
such Incentive Awards could, depending upon the individual circumstances of the
participant, constitute "excess parachute payments" under the golden parachute
provisions of Section 280G of the Code. Pursuant to these provisions, a
participant will be subject to a 20% excise tax on any "excess parachute
payment" (as defined in Section 280G of the Code) and the Company will be denied
any deduction with respect to such excess parachute payment. The limit on the
deductibility of compensation under Section 162(m) of the Code also is reduced
by the amount of any excess parachute payments. Whether amounts constitute
excess parachute payments depends upon, among other things, the value of the
Incentive Awards accelerated and the past compensation of the participant.
Taxable compensation earned by Covered Employees subject to Section 162(m)
of the Code in respect of Options, restricted stock, performance shares or
units, or other applicable Incentive Awards is intended to
13
<PAGE> 17
constitute qualified "performance-based compensation". The Company should,
therefore, be entitled to a tax deduction for compensation paid in the same
amount as the ordinary income recognized by the Covered Employees without any
reduction under the limitations of Section 162(m) on deductible compensation
paid to such employees. However, the Committee may determine, within its sole
discretion, to grant Incentive Awards to such Covered Employees that does not
qualify as performance based compensation. Under Section 162(m), the Company is
denied a deduction for annual compensation paid to such employees in excess of
$1.0 million.
The foregoing federal income tax information is a summary only and does not
purport to be a complete statement of the relevant provisions of the Code. The
effect of any foreign, state, local or estate taxes is not addressed.
TRANSFER AND RESALE RESTRICTIONS
No Incentive Award may be assigned, transferred, pledged, or otherwise
encumbered by a participant, other than by will or by the laws of descent and
distribution. The Prior Plans provide that, at the committees' discretion,
participants may be permitted to transfer by gift NSOs to their immediate
families, trusts or partnerships for the benefit of such persons. An Incentive
Award may be exercised during the Participant's lifetime only by the participant
or the participant's legal representative. The 1995 Option Plan further
restricts the exercise of Options by providing that the committee may prohibit
the exercise of Options at any time during which, and for such period of time
as, the participant is engaged in any activity the committee determines to be
detrimental to the best interests of the Company and its stockholders.
The resale of the shares of Common Stock acquired upon exercise of Options
under the 1997 Incentive Plan will be "restricted securities" subject to the
provisions of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). Rule 144 defines restricted securities generally to mean
securities that are acquired directly or indirectly from an issuer or from an
affiliate of an issuer in a transaction or chain of transactions not involving a
public offering. Under Rule 144, restricted securities may not be resold without
registration under the Securities Act until the holder has held such securities
for one year. After the expiration of the one year holding period, a holder of
restricted securities may resell the securities without registration under the
Securities Act, subject to Rule 144's volume limitation, aggregation, broker
transaction and notice-filing requirements, and requirements concerning
publicly-available information about the Company (the "Resale Restrictions").
After the expiration of two years from the date of acquisition of restricted
securities, a holder of such securities who is not an affiliate of the Company
may resell the restricted securities without regard to the Resale Restrictions.
The Company may, but is not required, to register the Common Stock issuable upon
the exercise of Options under the 1997 Incentive Plan. If the Company were to
register such Common Stock, the securities issued under the 1997 Incentive Plan
would not be restricted securities and, therefore, would be eligible for
immediate resale without regard to the Resale Restrictions imposed by Rule 144.
Participants in the 1997 Incentive Plan may be subject to the short-swing
profit liability provisions of Section 16(b) of the Exchange Act. Section 16(b)
makes any profit realized from any sale and purchase or purchase and sale of
Common Stock within six months recoverable by the Company. For purposes of
Section 16(b), the grant of an option under the 1997 Incentive Plan is deemed a
purchase of Common Stock. Generally, however, under Exchange Act Rules 16b-3 and
16b-6, if the option grant is approved by the Board, the Committee or
stockholders, or a 1997 Incentive Plan participant subject to Section 16(b) does
not dispose of the Common Stock issued upon exercise of an option granted under
the 1997 Incentive Plan until at least six months after the date on which the
option was granted, the participant's acquisition and disposition of such Common
Stock will be exempt from the operation of Section 16(b). The 1997 Incentive
Plan is intended to comply with the requirements of Rule 16b-3, and the 1997
Incentive Plan will be construed in a manner to effect that intent. Given the
complexity of Section 16(b) and related rules, affected 1997 Incentive Plan
participants should consult qualified securities counsel regarding the
acquisition and disposition of Common Stock or derivative securities such as
Options.
14
<PAGE> 18
PLAN AMENDMENT AND TERMINATION
The Board may amend or terminate the 1997 Incentive Plan at any time,
except that the 1997 Incentive Plan may not be modified or amended, without
stockholder approval, if such amendment would (i) increase the number of shares
of Common Stock that may be issued thereunder, except in connection with a
recapitalization or reclassification of the Common Stock, (ii) amend the
eligibility requirements for individuals to participate in the 1997 Incentive
Plan, (iii) increase the maximum limits on Incentive Awards that may be issued
to Covered Employees pursuant to Section 162(m) of the Code, (iv) extend the
term of the 1997 Incentive Plan or (v) decrease the authority granted to the
Committee under the 1997 Incentive Plan in contravention of Rule 16b-3 under the
Exchange Act. Under the provisions of the 1995 Option Plan, stockholder approval
is not required for amendments that would have the effects described in
(iii)-(v), above, but is required if there is a material increase in the
benefits accruing to a participant or a "modification," as defined in Section
424(h)(3) of the Code, which adversely affects the availability of Rule 16b-3
under the Exchange Act or the qualification for "incentive stock option"
treatment under Section 422 of the Code. The 1995 Directors Plan prohibits
amendments revising the size or frequency of awards, exercise prices or dates of
exercisability more frequently than every six months unless necessary to comply
with the Code and only requires stockholder approval for amendments where the
absence of which approval would cause the 1995 Directors Plan to fail to comply
with Rule 16b-3 or any other requirement of any applicable law or regulation. No
termination or amendment of the 1997 Incentive Plan shall adversely affect in
any material way any outstanding Incentive Award previously granted to a
participant without his consent. No Incentive Award may be granted under the
1997 Incentive Plan after .
ERISA AND TAX QUALIFICATION
The Company is not aware of any material provision of the Employee
Retirement Income Security Act of 1974 to which the 1997 Incentive Plan is
subject. The 1997 Incentive Plan is not qualified as a pension or profit-sharing
plan under Section 401(a) of the Code. Therefore, 1997 Incentive Plan
participants who acquire shares of Common Stock pursuant to the 1997 Incentive
Plan are not entitled to tax treatment available to participants in plans
qualified under that section of the Code.
REQUIRED VOTE
The affirmative vote of a majority of the shares present or represented at
the Annual Meeting is required for approval of the 1997 Incentive Plan.
The Board of Directors recommends that the Stockholders vote FOR approval
of the 1997 Incentive Plan.
15
<PAGE> 19
OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation, including bonuses, paid by
the Company and its subsidiaries for services rendered in all capacities to the
Company and its subsidiaries during each of the three fiscal years ended June
30, 1997 to the Chief Executive Officer and to each of the Company's four most
highly compensated executive officers (other than the Chief Executive Officer)
of the Company and its subsidiaries.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1)
--------------------------- ---- --------- --------- ------------
<S> <C> <C> <C> <C>
Francis D. John 1997 $ 325,000 $ 500,000(2) 250,000
Chief Executive Officer 1996 325,000 257,250(3) --(4)
1995 225,000 -- --
Kenneth V. Huseman 1997 200,000 125,000 100,000
Chief Operating Officer 1996 45,000(5) -- 100,000
Kenneth C. Hill 1997 180,000 -- 10,000
Vice President 1996 45,000(5) -- 75,000
C. Ron Laidley 1997 204,000 95,000 20,000
Chief Executive Officer of 1996 194,000 97,250 125,000
Yale E. Key 1995 155,000 -- --
D. Kirk Edwards 1997 165,000 25,000 10,000
Chief Executive Officer of 1996 135,000 -- 100,000
Odessa Exploration 1995 125,000 -- --
</TABLE>
- ---------------
(1) Represents the number of shares issuable pursuant to vested and non-vested
stock options.
(2) To be paid after December 31, 1997.
(3) Consists of (i) $150,000 paid as a bonus under Mr. John's employment
agreement in connection with the WellTech Merger and (ii) $107,150 as a
performance bonus for services rendered in 1996.
(4) In October 1995 Mr. John agreed to exchange 180,000 shares of Common Stock
in which he was vested pursuant to the Company's now terminated Stock Grant
Plan for (i) options to purchase 500,000 shares of Common Stock at an
exercise price of $5.00 per share and (ii) $300,000 in cash. Such options
were issued and such cash was paid to Mr. John in November 1996.
(5) Messrs. Huseman and Hill became employed by the Company upon consummation of
the WellTech Merger in March 1996. This amount represents salary from March
29, 1996 to June 30, 1996. Messrs. Huseman's and Hill's annual salary was
$180,000 during such period.
16
<PAGE> 20
OPTION GRANTS
The following table sets forth certain information relating to option
grants pursuant to the 1995 Option Plan in fiscal year 1997 to the individuals
named in the Summary Compensation Table above. Certain of the option grants set
forth below relate to options issued in excess of the number of options
authorized under the 1995 Option Plan. Therefore, such Options will be valid
only if the 1997 Incentive Plan is approved. See "Proposal to Adopt the 1997
Incentive Plan -- General."
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
OF GRANTED TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------------------
NAME GRANTED(1) YEAR(2) SHARE DATE 5% 10%
---- ---------- --------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francis D. John......... 250,000 36.7% $13.25 4/16/07 $5,395,713 $8,591,772
Kenneth C. Huseman...... 50,000 7.5% $13.25 4/16/07 1,079,143 1,718,354
Kenneth Hill............ 10,000 1.5% $13.25 4/16/07 215,829 343,671
C. Ron Laidley.......... 20,000 3.0% $13.25 4/16/07 431,657 687,342
D. Kirk Edwards......... 10,000 1.5% $13.25 4/16/07 215,829 343,671
</TABLE>
- ---------------
(1) All the options vest in four annual installments commencing June 30, 1997.
(2) Based on options to purchase a total of 665,556 shares of Common Stock
granted under the 1995 Option Plan during fiscal 1997.
(3) Potential Realizable Value is based on assumed growth rates for a five and
ten-year option term, as applicable. A 5% per year appreciation in stock
price from $13.25 per share yields $21.58 share. A 10% per year appreciation
in stock price from $13.25 per share yields $34.37 per share.
OPTION EXERCISE AND YEAR-END VALUES
The following table sets forth certain information as of June 30, 1997 with
respect to the unexercised options to purchase Common Stock granted under the
1995 Option Plan or pursuant to predecessor stock option plans to the
individuals named in the Summary Compensation Table above. None of such
individuals exercised any stock options during the year ended June 30, 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE MONEY-OPTIONS
OPTIONS AT JUNE 30, 1997 AT JUNE 30, 1997(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Francis D. John.............................. 432,500 67,500 $5,541,406 $ 864,874
Kenneth Huseman.............................. 50,000 50,000 515,625 515,625
Kenneth C. Hill.............................. 37,500 37,500 386,719 386,719
C. Ron Laidley............................... 100,000 25,000 1,281,250 320,313
D. Kirk Edwards.............................. 75,000 25,000 960,938 320,313
</TABLE>
- ---------------
(1) Based on the last sale price of the Common Stock on June 30, 1997 of
$17.8125.
(2) Does not include options to purchase 500,000 shares of Common Stock issued
to Mr. John in exchange for 180,000 shares of Common Stock in which Mr. John
was vested pursuant to the Company's now terminated Stock Grant Plan. See
"Other Information -- Executive Compensation."
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Mr. John has entered into an employment agreement that provides Mr. John
will serve as President, Chief Executive Officer and a Director of the Company
for a three-year term commencing July 1, 1995. He receives base compensation of
$325,000 per year plus a bonus in an amount determined by the
17
<PAGE> 21
Board of Directors. Mr. Huseman has entered into an employment agreement with
the Company for a three year term commencing on August 3, 1996. He receives base
compensation of $200,000 per year plus a bonus of up to 50% of his base
compensation. Mr. Hill has entered into an employment agreement with the Company
for a three-year term commencing on March 29, 1996. He receives base
compensation of $180,000 per year plus a bonus of up to 50% of his base
compensation. Mr. Laidley has entered into an employment agreement pursuant
which he will serve as President of Yale E. Key for a three year term commencing
July 1, 1995. He receives base compensation of $192,000 per year plus a bonus of
up to 50% of base compensation. Mr. Edwards has entered into an employment
agreement with the Company for a three-year term commencing on July 1, 1996. He
receives base compensation of $165,000 per year plus a bonus of up to 30% of his
base compensation. He also receives a grant of working interests in certain of
Odessa Exploration's producing wells. Each of the employment agreements provides
for (i) successive one year extensions unless terminated by 30 days notice
before the commencement of the next extension term; (ii) severance payments upon
a termination of employment for reasons other than "cause," upon a breach of the
agreement by the Company or upon a change in control of the Company, such
severance payments ranging in amount from one to three year's base compensation
and payable over periods ranging from one to three years (with the exception of
Mr. John, who is entitled to receive his severance upon a change in control in a
lump sum); and (iii) restrictions on competition during the term of the
agreement, and with certain exceptions, during the severance period.
OTHER COMPENSATION
The Company has no other deferred compensation, pension or retirement plans
in which executive officers participate.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for establishing the Company's
compensation philosophy and policies, setting the terms of and administering its
option plans, reviewing and approving employment contracts and salary
recommendations for executive officers and setting the compensation for the
Chief Executive Officer. The Company's overall compensation philosophy is to
align the financial interests of management with those of the Company's
stockholders, taking into account the Company's expectations for growth and
profitability, the necessity to attract and retain the best possible executive
talent and to reward its executives commensurate with their ability to enhance
stockholder value. Accordingly, employment agreements with the executive
officers approved by the Compensation Committee provide for compensation
consisting of base salary, participation in an incentive compensation plan based
upon performance and stock options. The Compensation Committee's decision to
recommend adoption of the 1997 Plan and the Prior Plans was taken, in part, to
align more closely the financial interests of executive officers and key
employees with those of the Company's stockholders. The Compensation Committee
believes that providing executives with opportunities to acquire significant
stakes in the Company's growth and prosperity through grants of stock options
and other incentive awards will enable the Company to attract and retain
executives with the outstanding managerial abilities essential to the Company's
success, motivate these executives to perform to their full potential and
enhance stockholder value.
In approving base and incentive compensation levels for executive officers,
the Compensation Committee has considered the actual results of operations
compared with the Company's internal projections and target levels for revenues,
income before taxes and extraordinary items, net income and earnings per share.
The Compensation Committee determined that in each of the three years ended June
30, 1997, the Company exceeded its internal projections and target levels.
During the three year period, salary increases and bonuses had been conservative
and modest compared with the Company's performance, in large part due to the
Compensation Committee's and the Board of Directors' cautious and conservative
approach following the Company's successful reorganization in December 1992. In
lieu of bonuses for the fiscal year ended 1996, the Compensation Committee
elected to approve the employment agreements with executive officers that are
described above. These employment agreements provide for significant bonuses in
future years based upon the
18
<PAGE> 22
Company's incentive plan. Bonus awards under the incentive plan are based upon
achieving certain earnings goals and the attainment of individual qualitative
goals relating to the employee's position and responsibilities. The Board of
Directors determines the Company's overall earnings goals and, with the review
and approval of the Compensation Committee, the Chief Executive Officer sets the
earnings and individual qualitative goals for the Company's operating
subsidiaries.
Fiscal year 1997 compensation for Mr. John as Chief Executive Officer
consisted of (i) base salary of $325,000 (ii) a bonus of $500,000 that will be
paid after December 31, 1997 and (iii) options to purchase 250,000 shares of
Common Stock. Mr. John's base salary was set under the terms of his employment
agreement. His bonus and award of options were determined after consideration
and analysis of, among other things, the following factors: the Company's three
year performance history and the relationship of the Company's performance to
internal projections and targets, all of which were exceeded; the modest salary
increases and conservative bonuses paid to the Chief Executive Officer during
the three year period; average cash and other compensation and equity positions
of chief executive officers of selected companies deemed by the Compensation
Committee to be comparable; Mr. John's central role in the Company's successful
reorganization and operating results since the reorganization; the Company's
deferral of payment of emergence or success bonuses to Mr. John; the fact that
Mr. John has identified, negotiated and structured several beneficial
acquisitions and financings without payment of investment banking or finders'
fees or receipt of bonuses with respect thereto; and Mr. John's agreement to
forego designated and committed awards under the Company's previously existing
Stock Grant Plan.
Since the Company's reorganization in December 1992, total Stockholder
value has increased from a negative net worth of $5.6 million at November 30,
1992 to a positive net worth of $73.2 million at June 30, 1997. In addition to
leading the Company through its critical post-reorganization period, Mr. John
strengthened the Company's position through strategic acquisitions, and by
negotiating and structuring the Company's financings. Corporate overhead has
remained low and staffing patterns lean. In these and other initiatives, Mr.
John has enhanced the Company's ability to compete effectively and has
positioned the Company to participate in future growth in the industry and to
enhance stockholder value.
The Compensation Committee believes that its current policies have been and
will continue to be successful in aligning the financial interests of executive
officers with those of the Company's stockholders and the Company's performance.
Nevertheless, the Compensation Committee intends to continue to review whether
and how to modify its policies to further link executive compensation with both
individual and Company performance.
William Manly
Morton Wolkowitz
W. Phillip Marcum
19
<PAGE> 23
COMPARATIVE PERFORMANCE GRAPH
Set forth below is a chart comparing the yearly change in the trading price
of the Company's Common Stock against the S&P 500 Index and a peer group
comprised of six of the Company's competitors (the "Peer Group").
TOTAL SHAREHOLDERS RETURNS
(DIVIDENDS REINVESTED)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD KEY ENERGY GROUP
(FISCAL YEAR COVERED) INC. S&P 500 INDEX PEER GROUP
<S> <C> <C> <C>
JUN 92 100.00 100.00 100.00
JUN 93 243.97 113.63 141.80
JUN 94 315.73 115.23 113.39
JUN 95 287.03 145.27 119.17
JUN 96 473.59 183.04 222.26
JUN 97 1022.50 246.55 369.82
</TABLE>
- ---------------
(1) All values for the Company and the Peer Group are as of June 30 of the year
presented.
(2) The Peer Group consists of Dawson Production Services, Pool Energy Services,
Inc., Grey Wolf (formerly DI Industries, Inc.,) Nabors Industries, Inc.,
Patterson Energy, Inc. and UTI Energy, Inc. Values are adjusted for
dividends, when applicable.
CERTAIN TRANSACTIONS
Effective as of July 1, 1997, one of the Company's subsidiaries entered
into three real property leases with HIDCO Development Company, an entity in
which Kenneth C. Hill, owns an interest. Each lease is a standard form
triple-net lease, providing for a five-year term and monthly rental payments of
$3,000. The leases enable the subsidiary to operate certain yards in West
Virginia, Pennsylvania and Michigan.
AUDITORS
KPMG Peat Marwick LLP ("Peat Marwick"), certified public accounting firm,
has served as the Company's independent auditor for several years. Although
management anticipates that this relationship will continue during 1998, no
formal action is proposed to be taken at the Annual Meeting with respect to the
continued employment of Peat Marwick inasmuch as no such action is legally
required. A representative of Peat Marwick plans to attend the Annual Meeting
and will be available to answer appropriate questions. The representative also
will have an opportunity to make a statement at the meeting if he so desires,
although it is not expected that any statement will be made.
20
<PAGE> 24
The Audit Committee of the Board of Directors assists the Board of
Directors in assuring that the Company's accounting and reporting practices are
in accordance with applicable requirements. The Audit Committee reviews with the
auditors the scope of the proposed audit work and meets with the auditors to
discuss matters pertaining to the audit and any other matter that the Audit
Committee or the auditors may wish to discuss. In addition, the Audit Committee
would recommend the appointment of new auditors to the Board of Directors if
future circumstances were to indicate that such action is desirable.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities, to file reports of ownership on Form 3 and
changes in ownership on Form 4 or 5 with the Securities and Exchange Commission
(the "Commission"). Such officers, directors and 10% stockholders also are
required by Commission rules to furnish the Company with copies of all Section
16(a) reports they file. Based solely on its review of the copies of such forms
received by it, the Company believes that, during the fiscal year ended June 30,
1997, its Directors, executive officers and 10% Stockholders complied with all
Section 16(a) filing requirements applicable to such individuals, other than Mr.
John, who filed a report on Form 4 on August 14, 1996, with respect to one
transaction that should have been reported in 1992.
LIMITATION ON INCORPORATION BY REFERENCE
Notwithstanding any reference in prior or future filings by the Company
with the Commission that purport to incorporate this Proxy Statement by
reference into another filing, such incorporation shall not include any material
included herein under the captions "Other Information -- Compensation Committee
Report" or "Other Information -- Comparative Performance Graph."
OTHER MATTERS
The Board of Directors does not know of any other matters that may come
before the Annual Meeting; however, if any other matters are properly presented
to the Annual Meeting, the persons named in the accompanying proxy intend to
vote, or otherwise act, in accordance with their best judgment on such matters.
The Company expects to hold its 1998 Annual Meeting on or about December
16, 1998. A Stockholder who intends to present a proposal at the 1998 Annual
Meeting of Stockholders for inclusion in the Company's 1998 proxy statement
relating to that meeting must submit such proposal by July 21, 1998. For the
proposal to be included in the proxy statement, the Stockholder submitting the
proposal must meet certain eligibility standards and comply with certain
procedures established by the Commission, and the proposal must comply with the
requirements as to form and substance established by applicable laws and
regulations. The proposal must be mailed to the Company's principal executive
office, at the address stated herein, and should be directed to the attention of
the General Counsel.
The Company's Annual Report to Stockholders covering the fiscal year ended
June 30, 1997 has been mailed to each Stockholder entitled to vote at the Annual
Meeting or accompanies this Proxy Statement.
By Order of the Board of Directors
Francis D. John
Chairman of the Board, President and
Chief Executive Officer
November 17, 1997
21
<PAGE> 25
EXHIBIT A
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
KEY ENERGY GROUP, INC.
Key Energy Group, Inc., a Maryland corporation (the "Corporation"),
certifies to the Maryland Department of Assessments and Taxation as follows:
(1) The Corporation desires to amend its Amended and Restated Articles
of Incorporation as are currently in effect in accordance with Section
2-601 and 2-602 of the Maryland General Corporation Law.
(2) These Articles of Amendment amend Paragraph (a) of Article FIFTH
of the Articles of Incorporation of the Corporation, as heretofore amended
and restated.
(3) The Board of Directors of the Corporation, at a meeting held on
November , 1997, unanimously adopted a resolution that these Articles of
Amendment shall be submitted for shareholder approval as being advisable
and in the best interests of the Corporation.
(4) The Articles of Amendment were duly adopted by the stockholders of
the Corporation in accordance with Section 2-604 of the Maryland General
Corporation Law at the Annual Meeting held on December 16, 1997.
Paragraph (a) of Article FIFTH of the Articles of Incorporation is amended
to read in its entirety as follows:
"FIFTH: (a) The total number of shares of shares of stock of all
classes which the Corporation has authority to issue is One Hundred Million
(100,000,000) shares of capital stock amounting in aggregate par value to
$10,000,000. All of such shares are initially classified as "Common Stock"
(par value $.10 per share). The Board of Directors may classify and
reclassify any unissued shares of capital stock by setting or changing in
any one or more respects the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of such shares of stock, provided,
however, that, notwithstanding anything to the contrary in these Articles,
no such classification or reclassification shall create a class of stock
which shall (i) have more than one vote per share, (ii) be issued in
connection with any so-called "shareholder rights plan," "poison pill" or
other anti-takeover measure, or (iii) be issued for consideration which is
less than fair consideration as determined in good faith by the
Corporation's Board of Directors."
Immediately before the effectiveness of these Articles of Amendment, the
Corporation has authority to issue 25,000,000 shares of Common Stock, par value
$.10 per share, with an aggregate par value of $2,500,000.
Upon effectiveness of these Articles of Amendment, the Corporation will
have authority to issue 100,000,000 shares of capital stock, all of which will
be initially classified as Common Stock, par value $.10 per share, with an
aggregate par value of $10,000,000.
A-1
<PAGE> 26
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be signed in its name and on its behalf by its President and witnessed by its
Secretary on December , 1997.
- ------------------------------ ------------------------------------
Jack D. Loftis, Jr., Secretary Francis D. John, President
THE UNDERSIGNED, President of Key Energy Group, Inc., who executed on
behalf of the Corporation these Articles of Amendment, hereby acknowledges in
the name and on behalf of the Corporation that the foregoing Articles of
Amendment are to be the corporate act of the Corporation and hereby certifies
that the matters and facts set forth herein with respect to authorization and
approval thereof are true in all material respects under the penalties of
perjury.
-----------------------------------
Francis D. John, President
A-2
<PAGE> 27
EXHIBIT B
KEY ENERGY GROUP, INC.
1997 INCENTIVE PLAN
(AS AN AMENDMENT AND RESTATEMENT EFFECTIVE AS OF NOVEMBER 17, 1997
OF THE KEY ENERGY GROUP, INC. 1995 STOCK OPTION PLAN
AND THE KEY ENERGY GROUP, INC. 1995 OUTSIDE DIRECTORS STOCK OPTION PLAN)
<PAGE> 28
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
SECTION 1. GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE, COVERAGE AND
BENEFITS.......................................................... B-1
1.1 Amendment and Restatement of Existing Plans....................... B-1
1.2 Purpose........................................................... B-1
1.3 Definitions....................................................... B-1
(a) Appreciation................................................ B-1
(b) Authorized Officer.......................................... B-1
(c) Board....................................................... B-2
(d) Cause....................................................... B-2
(e) Change in Control........................................... B-2
(f) Code........................................................ B-2
(g) Committee................................................... B-2
(h) Common Stock................................................ B-2
(i) Company..................................................... B-2
(j) Consultant.................................................. B-2
(k) Covered Employee............................................ B-3
(l) Deferred Stock.............................................. B-3
(m) Disability.................................................. B-3
(n) Employee.................................................... B-3
(o) Employment.................................................. B-3
(p) Exchange Act................................................ B-3
(q) Fair Market Value........................................... B-3
(r) Grantee..................................................... B-4
(s) Incentive Award............................................. B-4
(t) Incentive Agreement......................................... B-4
(u) Incentive Stock Option...................................... B-4
(v) Independent SAR............................................. B-4
(w) Insider..................................................... B-4
(x) Nonstatutory Stock Option................................... B-4
(y) Option Price................................................ B-4
(z) Other Stock-Based Award..................................... B-4
(aa) Outside Director............................................ B-4
(bb) Parent...................................................... B-4
(cc) Performance-Based Exception................................. B-4
(dd) Performance Period.......................................... B-4
(ee) Performance Share or Performance Unit....................... B-4
(ff) Plan........................................................ B-4
(gg) Restricted Stock............................................ B-5
(hh) Restricted Stock Award...................................... B-5
(ii) Restriction Period.......................................... B-5
(jj) Retirement.................................................. B-5
(kk) Share....................................................... B-5
(ll) Share Pool.................................................. B-5
(mm) Spread...................................................... B-5
(nn) Stock Appreciation Right or SAR............................. B-5
(oo) Stock Option or Option...................................... B-5
(pp) Subsidiary.................................................. B-5
(qq) Supplemental Payment........................................ B-5
(rr) Tandem SAR.................................................. B-5
</TABLE>
B-i
<PAGE> 29
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
1.4 Plan Administration............................................... B-5
(a) Authority of the Committee.................................. B-5
(b) Meetings.................................................... B-5
(c) Decisions Binding........................................... B-6
(d) Modification of Outstanding Incentive Awards................ B-6
(e) Delegation of Authority..................................... B-6
(f) Expenses of Committee....................................... B-6
(g) Surrender of Previous Incentive Awards...................... B-6
(h) Indemnification............................................. B-6
1.5 Shares of Common Stock Available for Incentive Awards............. B-7
1.6 Share Pool Adjustments for Awards and Payouts..................... B-7
1.7 Common Stock Available............................................ B-8
1.8 Participation..................................................... B-8
(a) Eligibility................................................. B-8
(b) Incentive Stock Option Eligibility.......................... B-8
1.9 Types of Incentive Awards......................................... B-8
SECTION 2. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS....................... B-9
2.1 Grant of Stock Options............................................ B-9
2.2 Stock Option Terms................................................ B-9
(a) Written Agreement........................................... B-9
(b) Number of Shares............................................ B-9
(c) Exercise Price.............................................. B-9
(d) Term........................................................ B-9
(e) Exercise.................................................... B-9
(f) Incentive Stock Options..................................... B-9
2.3 Stock Option Exercises............................................ B-10
(a) Method of Exercise and Payment.............................. B-10
(b) Restrictions on Share Transferability....................... B-10
(c) Notification of Disqualifying Disposition of Shares from
Incentive Stock Options..................................... B-10
(d) Proceeds of Option Exercise................................. B-10
2.4 Stock Appreciation Rights in Tandem with Nonstatutory Stock
Options........................................................... B-11
(a) Grant....................................................... B-11
(b) General Provisions.......................................... B-11
(c) Exercise.................................................... B-11
(d) Settlement.................................................. B-11
2.5 Stock Appreciation Rights Independent of Nonstatutory Stock
Options........................................................... B-11
(a) Grant....................................................... B-11
(b) General Provisions.......................................... B-11
(c) Exercise.................................................... B-11
(d) Settlement.................................................. B-11
2.6 Reload Options.................................................... B-12
2.7 Supplemental Payment on Exercise of Nonstatutory Stock Options or
Stock Appreciation Rights......................................... B-12
SECTION 3. RESTRICTED STOCK.................................................. B-12
3.1 Award of Restricted Stock......................................... B-12
(a) Grant....................................................... B-12
(b) Immediate Transfer Without Immediate Delivery of Restricted
Stock....................................................... B-12
</TABLE>
B-ii
<PAGE> 30
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
3.2 Restrictions...................................................... B-13
(a) Forfeiture of Restricted Stock.............................. B-13
(b) Issuance of Certificates.................................... B-13
(c) Removal of Restrictions..................................... B-13
3.3 Delivery of Shares of Common Stock................................ B-13
3.4 Supplemental Payment on Vesting of Restricted Stock............... B-13
SECTION 4. PERFORMANCE UNITS AND PERFORMANCE SHARES.......................... B-14
4.1 Performance Based Awards.......................................... B-14
(a) Grant....................................................... B-14
(b) Performance Criteria........................................ B-14
(c) Modification................................................ B-14
(d) Payment..................................................... B-14
(e) Special Rule for Covered Employees.......................... B-14
4.2 Supplemental Payment on Vesting of Performance Units or
Performance Shares................................................ B-15
SECTION 5. OTHER STOCK-BASED AWARDS.......................................... B-15
5.1 Grant of Other Stock-Based Awards................................. B-15
5.2 Other Stock-Based Award Terms..................................... B-15
(a) Written Agreement........................................... B-15
(b) Purchase Price.............................................. B-15
(c) Performance Criteria and Other Terms........................ B-15
(d) Payment..................................................... B-15
(e) Dividends................................................... B-15
SECTION 6. PROVISIONS RELATING TO PLAN PARTICIPATION......................... B-16
6.1 Plan Conditions................................................... B-16
(a) Incentive Agreement......................................... B-16
(b) No Right to Employment...................................... B-16
(c) Securities Requirements..................................... B-16
6.2 Transferability................................................... B-17
(a) Non-Transferable Awards and Options......................... B-17
(b) Ability to Exercise Rights.................................. B-17
6.3 Rights as a Stockholder........................................... B-17
(a) No Stockholder Rights....................................... B-17
(b) Representation of Ownership................................. B-17
6.4 Listing and Registration of Shares of Common Stock................ B-17
6.5 Change in Stock and Adjustments................................... B-17
(a) Changes in Law or Circumstances............................. B-17
(b) Exercise of Corporate Powers................................ B-18
(c) Recapitalization of the Company............................. B-18
(d) Reorganization of the Company............................... B-18
(e) Issue of Common Stock by the Company........................ B-18
(f) Acquisition of the Company.................................. B-19
(g) Assumption of Outstanding Incentive Awards under the Plan... B-19
(h) Assumption of Incentive Awards by a Successor............... B-19
6.6 Termination of Employment, Death, Disability and Retirement....... B-20
(a) Termination of Employment................................... B-20
(b) Termination of Employment for Cause......................... B-20
(c) Retirement.................................................. B-20
</TABLE>
B-iii
<PAGE> 31
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
(d) Disability or Death......................................... B-20
(e) Continuation................................................ B-20
6.7 Change in Control................................................. B-21
6.8 Exchange of Incentive Awards...................................... B-22
6.9 Financing......................................................... B-22
SECTION 7. GENERAL........................................................... B-22
7.1 Effective Date and Grant Period................................... B-22
7.2 Funding and Liability of Company.................................. B-22
7.3 Withholding Taxes................................................. B-23
(a) Tax Withholding............................................. B-23
(b) Share Withholding........................................... B-23
(c) Incentive Stock Options..................................... B-23
(d) Loans....................................................... B-23
7.4 No Guarantee of Tax Consequences.................................. B-23
7.5 Designation of Beneficiary by Participant......................... B-23
7.6 Deferrals......................................................... B-24
7.7 Amendment and Termination......................................... B-24
7.8 Requirements of Law............................................... B-24
7.9 Rule 16b-3 Securities Law Compliance.............................. B-24
7.10 Compliance with Code Section 162(m)............................... B-24
7.11 Successors........................................................ B-25
7.12 Miscellaneous Provisions.......................................... B-25
7.13 Severability...................................................... B-25
7.14 Gender, Tense and Headings........................................ B-25
7.15 Governing Law..................................................... B-25
</TABLE>
B-iv
<PAGE> 32
KEY ENERGY GROUP, INC.
1997 INCENTIVE PLAN
SECTION 1.
GENERAL PROVISIONS RELATING TO
PLAN GOVERNANCE, COVERAGE AND BENEFITS
1.1 AMENDMENT AND RESTATEMENT OF EXISTING PLANS
The Key Energy Group, Inc. 1997 Incentive Plan is an amendment and
restatement, effective as of November 17, 1997, of the plans formerly known as
the "Key Energy Group, Inc. 1995 Stock Option Plan" and the "Key Energy Group,
Inc. 1995 Outside Directors Stock Option Plan" (the "PRIOR PLANS"). All
outstanding options previously granted under the Prior Plans shall be assumed
and continued, without modification, under the Plan.
1.2 PURPOSE
The purpose of the Plan is to foster and promote the long-term financial
success of Key Energy Group, Inc. (the "COMPANY") and its Subsidiaries and to
increase stockholder value by: (a) encouraging the commitment of selected key
Employees, Consultants and Outside Directors, (b) motivating superior
performance of key Employees, Consultants and Outside Directors by means of
long-term performance related incentives, (c) encouraging and providing key
Employees, Consultants and Outside Directors with a program for obtaining
ownership interests in the Company which link and align their personal interests
to those of the Company's stockholders, (d) attracting and retaining key
Employees, Consultants and Outside Directors by providing competitive incentive
compensation opportunities, and (e) enabling key Employees, Consultants and
Outside Directors to share in the long-term growth and success of the Company.
The Plan provides for payment of various forms of incentive compensation
and, therefore, is not intended to be a plan that is subject to the Employee
Retirement Income Security Act of 1974, as amended (ERISA). The Plan shall be
interpreted, construed and administered consistent with its status as a plan
that is not subject to ERISA.
Subject to approval by the Company's stockholders pursuant to Section 7.1,
the Plan, as an amendment and restatement of the Prior Plans, shall become
effective as of November 17, 1997 (the "EFFECTIVE DATE"). The Plan shall
commence on the Effective Date, and shall remain in effect, subject to the right
of the Board to amend or terminate the Plan at any time pursuant to Section 7.7,
until all Shares subject to the Plan have been purchased or acquired according
to its provisions. However, in no event may an Incentive Award be granted under
the Plan after the expiration of ten (10) years from the Effective Date. Any
Incentive Award granted prior to the Effective Date, other than outstanding
stock options which were granted under the Prior Plans and assumed and continued
hereunder, will be subject to the subsequent receipt of stockholder approval of
the Plan.
1.3 DEFINITIONS
The following terms shall have the meanings set forth below:
(a) Appreciation. The difference between the option exercise price per
share of the Nonstatutory Stock Option to which a Tandem SAR relates and
the Fair Market Value of a share of Common Stock on the date of exercise of
the Tandem SAR.
(b) Authorized Officer. The Chairman of the Board or the Chief
Executive Officer of the Company or any other senior officer of the Company
to whom either of them delegate the authority to execute any Incentive
Agreement for and on behalf of the Company. No officer or director shall be
an Authorized Officer with respect to any Incentive Agreement for himself.
B-1
<PAGE> 33
(c) Board. The Board of Directors of the Company.
(d) Cause. When used in connection with the termination of a Grantee's
Employment, shall mean the termination of the Grantee's Employment by the
Company by reason of (i) the conviction of the Grantee by a court of
competent jurisdiction as to which no further appeal can be taken of a
crime involving moral turpitude or a felony; (ii) the proven commission by
the Grantee of an act of fraud upon the Company; (iii) the willful and
proven theft, embezzlement or other misappropriation of any funds or
property of the Company by the Grantee; (iv) the willful and continued
failure by the Grantee to perform the material duties assigned to him; (v)
the knowing engagement by the Grantee in any direct, material conflict of
interest with the Company without compliance with the Company's conflict of
interest policy, if any, then in effect; (vi) the knowing engagement by the
Grantee, without the written approval of the Board, in any activity which
competes with the business of the Company or which would result in a
material injury to the business, reputation or goodwill of the Company;
(vii) the unauthorized disclosure of trade secrets or proprietary
information of the Company or of a third party who has entrusted such
information to the Company, (viii) the knowing and intentional engagement
in any activity which would constitute a material violation of the
provisions of the Company's policies and procedures manual, if any, then in
effect; or (ix) a termination for cause as defined in any employment
agreement with the Grantee. For purposes of this definition of "Cause", the
term "Company" shall also refer to any Parent or Subsidiary.
(e) Change in Control. Any of the events described in and subject to
Section 6.7.
(f) Code. The Internal Revenue Code of 1986, as amended, and the
regulations and other authority promulgated thereunder by the appropriate
governmental authority. References herein to any provision of the Code
shall refer to any successor provision thereto.
(g) Committee. A committee appointed by the Board consisting of not
less than two directors who fulfill the "non-employee director"
requirements of Rule 16b-3 under the Exchange Act and the "outside
director" requirements of Section 162(m) of the Code. Without limitation,
the Committee may be the Compensation Committee of the Board, or any
subcommittee of the Compensation Committee, provided that the members of
the Committee satisfy the requirements of the previous sentence. The Board
shall have the power to fill vacancies on the Committee arising by
resignation, death, removal or otherwise. The Board, in its sole
discretion, may bifurcate the powers and duties of the Committee among one
or more separate committees, or retain all powers and duties of the
Committee in a single Committee. The members of the Committee shall serve
at the discretion of the Board.
Notwithstanding the preceding paragraph, the term "Committee", as used
in the Plan with respect to any Incentive Award granted, or to be granted,
to an Outside Director or a member of the Committee, shall refer to the
Board. In the case of an Incentive Award for an Outside Director or a
member of the Committee, the Board shall have all the powers and
responsibilities of the Committee hereunder as to such Incentive Award, and
any actions as to such Incentive Award may be acted upon only by the Board
(unless it otherwise designates in its discretion). When the Board
exercises its authority to act in the capacity as the Committee hereunder
with respect to an Incentive Award, it shall so designate with respect to
any action that it undertakes in its capacity as the Committee.
(h) Common Stock. The common stock of the Company, $.10 par value per
share, and any class of common stock into which such common shares may
hereafter be converted, reclassified or recapitalized.
(i) Company. Key Energy Group, Inc., a corporation organized under the
laws of the State of Maryland, and any successor in interest thereto.
(j) Consultant. An independent agent, consultant, attorney, an
individual who has agreed to become an Employee, or any other individual
who is not an Outside Director or employee of the Company (or any Parent or
Subsidiary) and who, in the opinion of the Committee, is in a position to
contribute materially to the growth or financial success of the Company (or
any Parent or Subsidiary).
B-2
<PAGE> 34
(k) Covered Employee. A named executive officer who is one of the
group of covered employees as defined in Section 162(m) of the Code and
Treasury Regulation sec. 1.162-27(c) (or its successor).
(l) Deferred Stock. Shares of Common Stock to be issued or transferred
to a Grantee under an Other Stock-Based Award granted pursuant to Section 5
at the end of a specified deferral period, as set forth in the Incentive
Agreement pertaining thereto.
(m) Disability. As determined by the Committee in its discretion
exercised in good faith, a physical or mental condition of the Employee
that would entitle him to payment of disability income payments under the
Company's long term disability insurance policy or plan for employees, as
then effective, if any; or in the event that the Grantee is not covered,
for whatever reason, under the Company's long-term disability insurance
policy or plan, "Disability" means a permanent and total disability as
defined in Section 22(e)(3) of the Code. A determination of Disability may
be made by a physician selected or approved by the Committee and, in this
respect, the Grantee shall submit to an examination by such physician upon
request.
(n) Employee. Any employee of the Company (or any Parent or
Subsidiary) within the meaning of Section 3401(c) of the Code who, in the
opinion of the Committee, is one of a select group of executive officers,
other officers, or other key personnel of the Company (or any Parent or
Subsidiary), who is in a position to contribute materially to the growth
and development and to the financial success of the Company (or any Parent
or Subsidiary), including, without limitation, officers who are members of
the Board.
(o) Employment. Employment by the Company (or any Parent or
Subsidiary), or by any corporation issuing or assuming an Incentive Award
in any transaction described in Section 424(a) of the Code, or by a parent
corporation or a subsidiary corporation of such corporation issuing or
assuming such Incentive Award, as the parent-subsidiary relationship shall
be determined at the time of the corporate action described in Section
424(a) of the Code. In this regard, neither the transfer of a Grantee from
Employment by the Company to Employment by any Parent or Subsidiary, nor
the transfer of a Grantee from Employment by any Parent or Subsidiary to
Employment by the Company, shall be deemed to be a termination of
Employment of the Grantee. Moreover, the Employment of a Grantee shall not
be deemed to have been terminated because of absence from active Employment
on account of temporary illness or during authorized vacation or during
temporary leaves of absence from active Employment granted for reasons of
professional advancement, education, health, or government service, or
during military leave for any period (if the Grantee returns to active
Employment within 90 days after the termination of military leave), or
during any period required to be treated as a leave of absence by virtue of
any applicable statute, Company personnel policy or agreement.
Unless otherwise provided in the Incentive Agreement, the term
"Employment" for purposes of the Plan will also include compensatory
services performed by a Consultant for the Company (or any Parent or
Subsidiary) as well as membership on the Board by an Outside Director.
(p) Exchange Act. The Securities Exchange Act of 1934, as amended.
(q) Fair Market Value. The fair market value of one share of Common
Stock on the date in question, which is deemed to be (i) the closing sales
price on the immediately preceding business day of a share of Common Stock
as reported on the principal securities exchange on which Shares are then
listed or admitted to trading, or (ii) if not so reported, the average of
the closing bid and asked prices for a Share on the immediately preceding
business day as quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), or (iii) if not quoted on NASDAQ,
the average of the closing bid and asked prices for a Share as quoted by
the National Quotation Bureau's "Pink Sheets" or the National Association
of Securities Dealers' OTC Bulletin Board System. If there was no public
trade of Common Stock on the date in question, Fair Market Value shall be
determined by reference to the last preceding date on which such a trade
was so reported.
B-3
<PAGE> 35
If the Common Stock is not traded in accordance with clauses (i), (ii)
or (iii) of the preceding paragraph at the time a determination of its Fair
Market Value is required to be made hereunder, the determination of Fair
Market Value for purposes of the Plan shall be made by the Committee in its
discretion exercised in good faith. In this respect, the Committee may rely
on such financial data, valuations or experts as it deems advisable under
the circumstances.
(r) Grantee. Any Employee, Consultant or Outside Director who is
granted an Incentive Award under the Plan.
(s) Incentive Award. A grant of an award under the Plan to a Grantee,
including any Nonstatutory Stock Option, Incentive Stock Option, Reload
Option, Stock Appreciation Right, Restricted Stock Award, Performance Unit,
Performance Share, or Other Stock-Based Award, as well as any Supplemental
Payment.
(t) Incentive Agreement. The written agreement entered into between
the Company and the Grantee setting forth the terms and conditions pursuant
to which an Incentive Award is granted under the Plan, as such agreement is
further defined in Section 6.1(a).
(u) Incentive Stock Option. A Stock Option granted by the Committee to
an Employee under Section 2 which is designated by the Committee as an
Incentive Stock Option and intended to qualify as an Incentive Stock Option
under Section 422 of the Code.
(v) Independent SAR. A Stock Appreciation Right described in Section
2.5.
(w) Insider. An individual who is, on the relevant date, an officer,
director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act.
(x) Nonstatutory Stock Option. A Stock Option granted by the Committee
to a Grantee under Section 2 which is not designated by the Committee as an
Incentive Stock Option.
(y) Option Price. The exercise price at which a Share may be purchased
by the Grantee of a Stock Option.
(z) Other Stock-Based Award. An award granted by the Committee to a
Grantee under Section 5.1 that is valued in whole or in part by reference
to, or is otherwise based upon, Common Stock.
(aa) Outside Director. A member of the Board who is not, at the time
of grant of an Incentive Award, an employee of the Company or any Parent or
Subsidiary.
(bb) Parent. Any corporation (whether now or hereafter existing) which
constitutes a "parent" of the Company, as defined in Section 424(e) of the
Code.
(cc) Performance-Based Exception. The performance-based exception from
the tax deductibility limitations of Section 162(m) of the Code, as
prescribed in Code sec. 162(m) and Treasury Regulation sec. 1.162-27(e) (or
its successor).
(dd) Performance Period. A period of time determined by the Committee
over which performance is measured for the purpose of determining a
Grantee's right to and the payment value of any Performance Unit,
Performance Share or Other Stock-Based Award.
(ee) Performance Share or Performance Unit. An Incentive Award
representing a contingent right to receive cash or shares of Common Stock
(which may be Restricted Stock) at the end of a Performance Period and
which, in the case of Performance Shares, is denominated in Common Stock,
and, in the case of Performance Units, is denominated in cash values.
(ff) Plan. The Key Energy Group, Inc. 1997 Incentive Plan as set forth
herein and as it may be amended from time to time. The Plan is an amendment
and restatement, effective as of
B-4
<PAGE> 36
November 17, 1997, of both the Key Energy Group, Inc. 1995 Stock Option
Plan and the Key Energy Group, Inc. 1995 Outside Directors Stock Option
Plan.
(gg) Restricted Stock. Shares of Common Stock issued or transferred to
a Grantee pursuant to Section 3.
(hh) Restricted Stock Award. An authorization by the Committee to
issue or transfer Restricted Stock to a Grantee.
(ii) Restriction Period. The period of time determined by the
Committee and set forth in the Incentive Agreement during which the
transfer of Restricted Stock by the Grantee is restricted.
(jj) Retirement. The voluntary termination of Employment from the
Company or any Parent or Subsidiary constituting retirement for age on any
date after the Employee attains the normal retirement age of 65 years, or
such other age as may be designated by the Committee in the Employee's
Incentive Agreement.
(kk) Share. A share of the Common Stock of the Company.
(ll) Share Pool. The number of shares authorized for issuance under
Section 1.5, as adjusted for awards and payouts under Section 1.5 and as
adjusted for changes in corporate capitalization under Section 6.5.
(mm) Spread. The difference between the exercise price per Share
specified in any Independent SAR grant and the Fair Market Value of a Share
on the date of exercise of the Independent SAR.
(nn) Stock Appreciation Right or SAR. A Tandem SAR described in
Section 2.4 or an Independent SAR described in Section 2.5.
(oo) Stock Option or Option. Pursuant to Section 2, (i) an Incentive
Stock Option granted to an Employee or (ii) a Nonstatutory Stock Option
granted to an Employee, Consultant or Outside Director, whereunder the
Grantee has the right to purchase Shares of Common Stock. In accordance
with Section 422 of the Code, no Consultant or Outside Director shall be
granted an Incentive Stock Option.
(pp) Subsidiary. Any corporation (whether now or hereafter existing)
which constitutes a "subsidiary" of the Company, as defined in Section
424(f) of the Code.
(qq) Supplemental Payment. Any amount, as described in Sections 2.7,
3.4, 4.2 and/or 5.2, dedicated to payment of income taxes that are payable
by the Grantee on an Incentive Award.
(rr) Tandem SAR. A Stock Appreciation Right that is granted in
connection with a related Stock Option pursuant to Section 2.4, the
exercise of which shall require forfeiture of the right to purchase a Share
under the related Stock Option (and when a Share is purchased under the
Stock Option, the Tandem SAR shall similarly be canceled).
1.4 PLAN ADMINISTRATION
(a) Authority of the Committee. Except as may be limited by law and subject
to the provisions herein, the Committee shall have full power to (i) select
Grantees who shall participate in the Plan; (ii) determine the sizes, duration
and types of Incentive Awards; (iii) determine the terms and conditions of
Incentive Awards and Incentive Agreements; (iv) determine whether any Shares
subject to Incentive Awards will be subject to any restrictions on transfer; (v)
construe and interpret the Plan and any Incentive Agreement or other agreement
entered into under the Plan; and (vi) establish, amend, or waive rules for the
Plan's administration. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the
Plan.
(b) Meetings. The Committee shall designate a chairman from among its
members who shall preside at all of its meetings, and shall designate a
secretary, without regard to whether that person is a member of the Committee,
who shall keep the minutes of the proceedings and all records, documents, and
data pertaining to
B-5
<PAGE> 37
its administration of the Plan. Meetings shall be held at such times and places
as shall be determined by the Committee and the Committee may hold telephonic
meetings. The Committee may take any action otherwise proper under the Plan by
the affirmative vote, taken with or without a meeting, of a majority of its
members. The Committee may authorize any one or more of its members or any
officer of the Company to execute and deliver documents on behalf of the
Committee.
(c) Decisions Binding. All determinations and decisions made by the
Committee shall be made in its discretion pursuant to the provisions of the
Plan, and shall be final, conclusive and binding on all persons including the
Company, its shareholders, Employees, Grantees, and their estates and
beneficiaries. The Committee's decisions and determinations with respect to any
Incentive Award need not be uniform and may be made selectively among Incentive
Awards and Grantees, whether or not such Incentive Awards are similar or such
Grantees are similarly situated.
(d) Modification of Outstanding Incentive Awards. Subject to the
stockholder approval requirements of Section 7.7 if applicable, the Committee
may, in its discretion, provide for the extension of the exercisability of an
Incentive Award, accelerate the vesting or exercisability of an Incentive Award,
eliminate or make less restrictive any restrictions contained in an Incentive
Award, waive any restriction or other provisions of an Incentive Award, or
otherwise amend or modify an Incentive Award in any manner that is either (i)
not adverse to the Grantee to whom such Incentive Award was granted or (ii)
consented to by such Grantee. The Committee may grant an Incentive Award to an
individual who it expects to become an Employee within the next six months, with
such Incentive Award being subject to such individual actually becoming an
Employee within such time period, and subject to such other terms and conditions
as may be established by the Committee in its discretion.
(e) Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish from time to time, except that the Committee may not delegate to any
person the authority to grant Incentive Awards to, or take other action with
respect to, Grantees who are subject to Section 16 of the Exchange Act or
Section 162(m) of the Code.
(f) Expenses of Committee. The Committee may employ legal counsel,
including, without limitation, independent legal counsel and counsel regularly
employed by the Company, and other agents as the Committee may deem appropriate
for the administration of the Plan. The Committee may rely upon any opinion or
computation received from any such counsel or agent. All expenses incurred by
the Committee in interpreting and administering the Plan, including, without
limitation, meeting expenses and professional fees, shall be paid by the
Company.
(g) Surrender of Previous Incentive Awards. The Committee may, in its
absolute discretion, grant Incentive Awards to Grantees on the condition that
such Grantees surrender to the Committee for cancellation such other Incentive
Awards (including, without limitation, Incentive Awards with higher exercise
prices) as the Committee directs. Incentive Awards granted on the condition
precedent of surrender of outstanding Incentive Awards shall not count against
the limits set forth in Section 1.4 until such time as such previous Incentive
Awards are surrendered and cancelled.
(h) Indemnification. Each person who is or was a member of the Committee,
or of the Board, shall be indemnified by the Company against and from any
damage, loss, liability, cost and expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Plan, except for any such act or
omission constituting willful misconduct or gross negligence. Such person shall
be indemnified by the Company for all amounts paid by him in settlement thereof,
with the Company's approval, or paid by him in satisfaction of any judgment in
any such action, suit, or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the
B-6
<PAGE> 38
Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise,
or any power that the Company may have to indemnify them or hold them harmless.
1.5 SHARES OF COMMON STOCK AVAILABLE FOR INCENTIVE AWARDS
Subject to adjustment under Section 6.5, there shall be available for
Incentive Awards under this Plan granted wholly or partly in Common Stock
(including rights or Options that may be exercised for or settled in Common
Stock) an aggregate of the greater of (a) 3,000,000 Shares of Common Stock and
(b) 10% of the number of Shares of Common Stock issued and outstanding on the
last day of each calendar quarter. All 3,000,000 Shares of Common Stock shall be
available for Incentive Stock Options.
The number of Shares of Common Stock that are the subject of Incentive
Awards under this Plan, that are forfeited or terminated, expire unexercised,
are settled in cash in lieu of Common Stock or in a manner such that all or some
of the Shares covered by an Incentive Award are not issued to a Grantee or are
exchanged for Incentive Awards that do not involve Common Stock, shall again
immediately become available for Incentive Awards hereunder. The Committee may
from time to time adopt and observe such procedures concerning the counting of
Shares against the Plan maximum as it may deem appropriate. The Board and the
appropriate officers of the Company shall from time to time take whatever
actions are necessary to file any required documents with governmental
authorities, stock exchanges and transaction reporting systems to ensure that
Shares are available for issuance pursuant to Incentive Awards.
Unless and until the Committee determines that a particular Incentive Award
granted to a Covered Employee is not intended to comply with the
Performance-Based Exception, the following rules shall apply to grants of
Incentive Awards to Covered Employees:
(a) Subject to adjustment as provided in Section 6.5, the maximum
aggregate number of Shares of Common Stock (including Stock Options, SARs,
Restricted Stock, Performance Units and Performance Shares paid out in
Shares, or Other Stock-Based Awards paid out in Shares) that may be granted
or that may vest, as applicable, in any calendar year pursuant to any
Incentive Award held by any individual Covered Employee shall be 500,000
Shares.
(b) The maximum aggregate cash payout (including SARs, Performance
Units and Performance Shares paid out in cash, or Other Stock-Based Awards
paid out in cash) with respect to Incentive Awards granted in any calendar
year which may be made to any Covered Employee shall be $2,500,000.
(c) With respect to any Stock Option or Stock Appreciation Right
granted to a Covered Employee that is canceled or repriced, the number of
Shares subject to such Stock Option or Stock Appreciation Right shall
continue to count against the maximum number of Shares that may be the
subject of Stock Options or Stock Appreciation Rights granted to such
Covered Employee hereunder and, in this regard, such maximum number shall
be determined in accordance with Section 162(m) of the Code.
(d) The limitations of subsections (a), (b) and (c) above shall be
construed and administered so as to comply with the Performance-Based
Exception.
1.6 SHARE POOL ADJUSTMENTS FOR AWARDS AND PAYOUTS
The following Incentive Awards and payouts shall reduce, on a one Share for
one Share basis, the number of Shares authorized for issuance under the Share
Pool:
(a) Stock Option;
(b) SAR (except a Tandem SAR);
B-7
<PAGE> 39
(c) Restricted Stock;
(d) A payout of a Performance Share in Shares;
(e) A payout of a Performance Unit in Shares; and
(f) A payout of an Other Stock-Based Award in Shares.
The following transactions shall restore, on a one Share for one Share
basis, the number of Shares authorized for issuance under the Share Pool:
(a) A Payout of an SAR, Tandem SAR, Restricted Stock Award, or Other
Stock-Based Award in the form of cash;
(b) A cancellation, termination, expiration, forfeiture, or lapse for
any reason (with the exception of the termination of a Tandem SAR upon
exercise of the related Stock Option, or the termination of a related Stock
Option upon exercise of the corresponding Tandem SAR) of any Shares subject
to an Incentive Award; and
(c) Payment of an Option Price with previously acquired Shares or by
withholding Shares which otherwise would be acquired on exercise (i.e., the
Share Pool shall be increased by the number of Shares turned in or withheld
as payment of the Option Price).
1.7 COMMON STOCK AVAILABLE
The Common Stock available for issuance or transfer under the Plan shall be
made available from Shares now or hereafter (i) held in the treasury of the
Company, (ii) authorized but unissued shares, or (iii) shares to be purchased or
acquired by the Company. No fractional shares shall be issued under the Plan;
payment for fractional shares shall be made in cash.
1.8 PARTICIPATION
(a) Eligibility. The Committee shall from time to time designate those
Employees, Consultants and/or Outside Directors, if any, to be granted Incentive
Awards under the Plan, the type of Incentive Awards granted, the number of
Shares, Stock Options, rights or units, as the case may be, which shall be
granted to each such person, and any other terms or conditions relating to the
Incentive Awards as it may deem appropriate to the extent consistent with the
provisions of the Plan. A Grantee who has been granted an Incentive Award may,
if otherwise eligible, be granted additional Incentive Awards at any time.
(b) Incentive Stock Option Eligibility. No Consultant or Outside Director
shall be eligible for the grant of any Incentive Stock Option. In addition, no
Employee shall be eligible for the grant of any Incentive Stock Option who owns
or would own immediately before the grant of such Incentive Stock Option,
directly or indirectly, stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company, or any
Parent or Subsidiary. This restriction does not apply if, at the time such
Incentive Stock Option is granted, the Incentive Stock Option exercise price is
at least one hundred and ten percent (110%) of the Fair Market Value on the date
of grant and the Incentive Stock Option by its terms is not exercisable after
the expiration of five (5) years from the date of grant. For the purpose of the
immediately preceding sentence, the attribution rules of Section 424(d) of the
Code shall apply for the purpose of determining an Employee's percentage
ownership in the Company or any Parent or Subsidiary. This paragraph shall be
construed consistent with the requirements of Section 422 of the Code.
1.9 TYPES OF INCENTIVE AWARDS
The types of Incentive Awards under the Plan are Stock Options, Stock
Appreciation Rights and Supplemental Payments as described in Section 2,
Restricted Stock and Supplemental Payments as described in Section 3,
Performance Units, Performance Shares and Supplemental Payments as described in
Section 4,
B-8
<PAGE> 40
Other Stock-Based Awards and Supplemental Payments as described in Section 5, or
any combination of the foregoing.
SECTION 2.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1 GRANT OF STOCK OPTIONS
The Committee is authorized to grant Stock Options to Employees,
Consultants and/or Outside Directors in accordance with the terms and conditions
of the Plan, and with such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall determine in its
discretion. Successive grants may be made to the same Grantee whether or not any
Stock Option previously granted to such person remains unexercised.
2.2 STOCK OPTION TERMS
(a) Written Agreement. Each grant of an Stock Option shall be evidenced by
a written Incentive Agreement. Among its other provisions, each Incentive
Agreement shall set forth the extent to which the Grantee shall have the right
to exercise the Stock Option following termination of the Grantee's Employment.
Such provisions shall be determined in the discretion of the Committee, shall be
included in the Grantee's Incentive Agreement, and need not be uniform among all
Stock Options issued pursuant to the Plan.
(b) Number of Shares. Each Stock Option shall specify the number of Shares
of Common Stock to which it pertains.
(c) Exercise Price. The exercise price per Share of Common Stock under each
Stock Option shall be determined by the Committee; provided, however, that in
the case of an Incentive Stock Option, such exercise price shall not be less
than 100% of the Fair Market Value per Share on the date the Incentive Stock
Option is granted. To the extent that the Stock Option is intended to qualify
for the Performance-Based Exception, the exercise price shall not be less than
100% of the Fair Market Value per Share on the date the Stock Option is granted.
Each Stock Option shall specify the method of exercise which shall be consistent
with the requirements of Section 2.3(a).
(d) Term. The Committee shall fix the term of each Stock Option which shall
be not more than ten (10) years from the date of grant. In the event no term is
fixed, such term shall be ten (10) years from the date of grant.
(e) Exercise. The Committee shall determine the time or times at which a
Stock Option may be exercised in whole or in part. Each Stock Option may specify
the required period of continuous Employment and/or the performance objectives
to be achieved before the Stock Option or portion thereof will become
exercisable. Each Stock Option, the exercise of which, or the timing of the
exercise of which, is dependent, in whole or in part, on the achievement of
designated performance objectives, may specify a minimum level of achievement in
respect of the specified performance objectives below which no Stock Options
will be exercisable and a method for determining the number of Stock Options
that will be exercisable if performance is at or above such minimum but short of
full achievement of the performance objectives. All such terms and conditions
shall be set forth in the Incentive Agreement.
(f) Incentive Stock Options. Notwithstanding any contrary provision in the
Plan, to the extent that the aggregate Fair Market Value (determined as of the
time the Incentive Stock Option is granted) of the Shares of Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Grantee during any single calendar year (under the Plan and any other stock
option plans of the Company and its Subsidiaries or Parent) exceeds the sum of
$100,000, such Incentive Stock Option shall be treated as a Nonstatutory Stock
Option to the extent in excess of the $100,000 limit, and not an Incentive Stock
Option, but all other terms and provisions of such Stock Option shall remain
unchanged. This paragraph shall be
B-9
<PAGE> 41
applied by taking Incentive Stock Options into account in the order in which
they are granted and shall be construed in accordance with Section 422(d) of the
Code.
2.3 STOCK OPTION EXERCISES
(a) Method of Exercise and Payment. Stock Options shall be exercised by the
delivery of a signed written notice of exercise to the Company as of a date set
by the Company in advance of the effective date of the proposed exercise. The
notice shall set forth the number of Shares with respect to which the Option is
to be exercised, accompanied by full payment for the Shares.
The Option Price upon exercise of any Stock Option shall be payable to the
Company in full either: (i) in cash or its equivalent, or (ii) subject to prior
approval by the Committee, by tendering previously acquired Shares having an
aggregate Fair Market Value at the time of exercise equal to the total Option
Price (provided that the Shares which are tendered by an Insider, if applicable,
must have been held by the Insider for at least six (6) months prior to their
tender to satisfy the Option Price), or (iii) subject to prior approval by the
Committee, by withholding Shares which otherwise would be acquired on exercise
having an aggregate Fair Market Value at the time of exercise equal to the total
Option Price, or (iv) subject to prior approval by the Committee, by a
combination of (i), (ii), and (iii) above. Any payment in Shares of Common Stock
shall be effected by the delivery of such Shares to the Secretary of the
Company, duly endorsed in blank or accompanied by stock powers duly executed in
blank, together with any other documents as the Secretary shall require from
time to time.
The Committee also may allow (i) "cashless exercise" as permitted under
Federal Reserve Board's Regulation T, 12 CFR Part 220 (or its successor), and
subject to applicable securities law restrictions and tax withholdings, or (ii)
by any other means which the Committee, in its discretion, determines to be
consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to or on behalf of the Grantee, in
the name of the Grantee or other appropriate recipient, Share certificates for
the number of Shares purchased under the Stock Option. Such delivery shall be
effected for all purposes when a stock transfer agent of the Company shall have
deposited such certificates in the United States mail, addressed to Grantee or
other appropriate recipient.
During the lifetime of a Grantee, each Option granted to him shall be
exercisable only by the Grantee or a broker-dealer acting on his behalf pursuant
to a cashless exercise under the foregoing provisions of this Section 2.3(a). No
Option shall be assignable or transferable by Grantee otherwise than by will or
by the laws of descent and distribution.
(b) Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of a Stock Option
as it may deem advisable, including, without limitation, restrictions under (i)
any buy/sell agreement or right of first refusal, (ii) any applicable federal
securities laws, (iii) the requirements of any stock exchange or market upon
which such Shares are then listed and/or traded, or (iv) any blue sky or state
securities law applicable to such Shares.
(c) Notification of Disqualifying Disposition of Shares from Incentive
Stock Options. Notwithstanding any other provision of the Plan, a Grantee who
disposes of Shares of Common Stock acquired upon the exercise of an Incentive
Stock Option by a sale or exchange either (i) within two (2) years after the
date of the grant of the Incentive Stock Option under which the Shares were
acquired or (ii) within one (1) year after the transfer of such Shares to him
pursuant to exercise, shall promptly notify the Company of such disposition, the
amount realized and his adjusted basis in such Shares.
(d) Proceeds of Option Exercise. The proceeds received by the Company from
the sale of Shares pursuant to Stock Options exercised under the Plan shall be
used for general corporate purposes.
B-10
<PAGE> 42
2.4 STOCK APPRECIATION RIGHTS IN TANDEM WITH NONSTATUTORY STOCK OPTIONS
(a) Grant. The Committee may, at the time of grant of a Nonstatutory Stock
Option, or at any time thereafter during the term of the Nonstatutory Stock
Option, grant Stock Appreciation Rights with respect to all or any portion of
the Shares of Common Stock covered by such Nonstatutory Stock Option. A Stock
Appreciation Right in tandem with a Nonstatutory Stock Option is referred to
herein as a "Tandem SAR."
(b) General Provisions. The terms and conditions of each Tandem SAR shall
be evidenced by an Incentive Agreement. The Option Price per Share of a Tandem
SAR shall be fixed in the Incentive Agreement and shall not be less than one
hundred percent (100%) of the Fair Market Value of a Share on the grant date of
the Nonstatutory Stock Option to which it relates.
(c) Exercise. A Tandem SAR may be exercised at any time the Nonstatutory
Stock Option to which it relates is then exercisable, but only to the extent
such Nonstatutory Stock Option is exercisable, and shall otherwise be subject to
the conditions applicable to such Nonstatutory Stock Option. When a Tandem SAR
is exercised, the Nonstatutory Stock Option to which it relates shall terminate
to the extent of the number of Shares with respect to which the Tandem SAR is
exercised. Similarly, when a Nonstatutory Stock Option is exercised, the Tandem
SARs relating to the Shares covered by such Nonstatutory Stock Option exercise
shall terminate. Any Tandem SAR which is outstanding on the last day of the term
of the related Nonstatutory Stock Option shall be automatically exercised on
such date for cash, without the need for any action by the Grantee, to the
extent of any Appreciation.
(d) Settlement. Upon exercise of a Tandem SAR, the holder shall receive,
for each Share with respect to which the Tandem SAR is exercised, an amount
equal to the Appreciation. The Appreciation shall be payable in cash, Common
Stock, or a combination of both, as specified in the Incentive Agreement (or in
the discretion of the Committee if not so specified). The Appreciation shall be
paid within 30 calendar days of the exercise of the Tandem SAR. The number of
Shares of Common Stock which shall be issuable upon exercise of a Tandem SAR
shall be determined by dividing (1) by (2), where (1) is the number of Shares as
to which the Tandem SAR is exercised multiplied by the Appreciation in such
shares and (2) is the Fair Market Value of a Share on the exercise date.
2.5 STOCK APPRECIATION RIGHTS INDEPENDENT OF NONSTATUTORY STOCK OPTIONS
(a) Grant. The Committee may grant Stock Appreciation Rights independent of
Nonstatutory Stock Options ("Independent SARs").
(b) General Provisions. The terms and conditions of each Independent SAR
shall be evidenced by an Incentive Agreement. The exercise price per share of
Common Stock shall be not less than one hundred percent (100%) of the Fair
Market Value of a Share of Common Stock on the date of grant of the Independent
SAR. The term of an Independent SAR shall be determined by the Committee.
(c) Exercise. Independent SARs shall be exercisable at such time and
subject to such terms and conditions as the Committee shall specify in the
Incentive Agreement for the Independent SAR grant.
(d) Settlement. Upon exercise of an Independent SAR, the holder shall
receive, for each Share specified in the Independent SAR grant, an amount equal
to the Spread. The Spread shall be payable in cash, Common Stock, or a
combination of both, in the discretion of the Committee or as specified in the
Incentive Agreement. The Spread shall be paid within 30 calendar days of the
exercise of the Independent SAR. The number of Shares of Common Stock which
shall be issuable upon exercise of an Independent SAR shall be determined by
dividing (1) by (2), where (1) is the number of Shares as to which the
Independent SAR is exercised multiplied by the Spread in such Shares and (2) is
the Fair Market Value of a Share on the exercise date.
B-11
<PAGE> 43
2.6 RELOAD OPTIONS
At the discretion of the Committee, the Grantee may be granted under an
Incentive Agreement, replacement Stock Options that permit the Grantee to
purchase an additional number of Shares equal to the number of previously owned
Shares surrendered by the Grantee to pay all or a portion of the Option Price
upon exercise of his Stock Options.
2.7 SUPPLEMENTAL PAYMENT ON EXERCISE OF NONSTATUTORY STOCK OPTIONS OR STOCK
APPRECIATION RIGHTS
The Committee, either at the time of grant or as of the time of exercise of
any Nonstatutory Stock Option or Stock Appreciation Right, may provide in the
Incentive Agreement for a Supplemental Payment by the Company to the Grantee
with respect to the exercise of any Nonstatutory Stock Option or Stock
Appreciation Right. The Supplemental Payment shall be in the amount specified by
the Committee, which amount shall not exceed the amount necessary to pay the
federal and state income tax payable with respect to both the exercise of the
Nonstatutory Stock Option and/or Stock Appreciation Right and the receipt of the
Supplemental Payment, assuming the holder is taxed at either the maximum
effective income tax rate applicable thereto or at a lower tax rate as deemed
appropriate by the Committee. The Committee shall have the discretion to grant
Supplemental Payments that are payable solely in cash or Supplemental Payments
that are payable in cash, Common Stock, or a combination of both, as determined
by the Committee at the time of payment.
SECTION 3.
RESTRICTED STOCK
3.1 AWARD OF RESTRICTED STOCK
(a) Grant. In consideration of the performance of Employment by any Grantee
who is an Employee, Consultant or Outside Director, Shares of Restricted Stock
may be awarded under the Plan by the Committee with such restrictions during the
Restriction Period as the Committee may designate in its discretion, any of
which restrictions may differ with respect to each particular Grantee.
Restricted Stock shall be awarded for no additional consideration or such
additional consideration as the Committee may determine, which consideration may
be less than, equal to or more than the Fair Market Value of the shares of
Restricted Stock on the grant date. The terms and conditions of each grant of
Restricted Stock shall be evidenced by an Incentive Agreement.
(b) Immediate Transfer Without Immediate Delivery of Restricted
Stock. Unless otherwise specified in the Grantee's Incentive Agreement, each
Restricted Stock Award shall constitute an immediate transfer of the record and
beneficial ownership of the Shares of Restricted Stock to the Grantee in
consideration of the performance of services as an Employee, Consultant or
Outside Director, as applicable, entitling such Grantee to all voting and other
ownership rights in such Shares.
As specified in the Incentive Agreement, a Restricted Stock Award may limit
the Grantee's dividend rights during the Restriction Period in which the shares
of Restricted Stock are subject to a "substantial risk of forfeiture" (within
the meaning given to such term under Code Section 83) and restrictions on
transfer. In the Incentive Agreement, the Committee may apply any restrictions
to the dividends that the Committee deems appropriate. Without limiting the
generality of the preceding sentence, if the grant or vesting of Shares of
Restricted Stock granted to a Covered Employee is designed to comply with the
requirements of the Performance-Based Exception, the Committee may apply any
restrictions it deems appropriate to the payment of dividends declared with
respect to such Shares of Restricted Stock, such that the dividends and/or the
Shares of Restricted Stock maintain eligibility for the Performance-Based
Exception. In the event that any dividend constitutes a derivative security or
an equity security pursuant to the rules under Section 16 of the Exchange Act,
such dividend shall be subject to a vesting period equal to the remaining
vesting period of the Shares of Restricted Stock with respect to which the
dividend is paid.
B-12
<PAGE> 44
Shares awarded pursuant to a grant of Restricted Stock may be issued in the
name of the Grantee and held, together with a stock power endorsed in blank, by
the Committee or Company (or their delegates) or in trust or in escrow pursuant
to an agreement satisfactory to the Committee, as determined by the Committee,
until such time as the restrictions on transfer have expired. All such terms and
conditions shall be set forth in the particular Grantee's Incentive Agreement.
The Company or Committee (or their delegates) shall issue to the Grantee a
receipt evidencing the certificates held by it which are registered in the name
of the Grantee.
3.2 RESTRICTIONS
(a) Forfeiture of Restricted Stock. Restricted Stock awarded to a Grantee
may be subject to the following restrictions until the expiration of the
Restriction Period: (i) a restriction that constitutes a "substantial risk of
forfeiture" (as defined in Code Section 83), or a restriction on
transferability; (ii) unless otherwise specified by the Committee in the
Incentive Agreement, the Restricted Stock that is subject to restrictions which
are not satisfied shall be forfeited and all rights of the Grantee to such
Shares shall terminate; and (iii) any other restrictions that the Committee
determines in advance are appropriate, including, without limitation, rights of
repurchase or first refusal in the Company or provisions subjecting the
Restricted Stock to a continuing substantial risk of forfeiture in the hands of
any transferee. Any such restrictions shall be set forth in the particular
Grantee's Incentive Agreement.
(b) Issuance of Certificates. Reasonably promptly after the date of grant
with respect to Shares of Restricted Stock, the Company shall cause to be issued
a stock certificate, registered in the name of the Grantee to whom such Shares
of Restricted Stock were granted, evidencing such Shares; provided, however,
that the Company shall not cause to be issued such a stock certificate unless it
has received a stock power duly endorsed in blank with respect to such Shares.
Each such stock certificate shall bear the following legend or any other legend
approved by the Company:
The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture and restrictions against
transfer) contained in the Key Energy Group, Inc. 1997 Incentive
Plan and an Incentive Agreement entered into between the
registered owner of such shares and Key Energy Group, Inc. A
copy of the Plan and Incentive Agreement are on file in the
office of the Secretary of Key Energy Group, Inc. at its
corporate headquarters.
Such legend shall not be removed from the certificate evidencing such Shares of
Restricted Stock until such Shares vest pursuant to the terms of the Incentive
Agreement.
(c) Removal of Restrictions. The Committee, in its discretion, shall have
the authority to remove any or all of the restrictions on the Restricted Stock
if it determines that, by reason of a change in applicable law or another change
in circumstance arising after the grant date of the Restricted Stock, such
action is appropriate.
3.3 DELIVERY OF SHARES OF COMMON STOCK
Subject to withholding taxes under Section 7.3 and to the terms of the
Incentive Agreement, a stock certificate evidencing the Shares of Restricted
Stock with respect to which the restrictions in the Incentive Agreement have
been satisfied shall be delivered to the Grantee or other appropriate recipient
free of restrictions. Such delivery shall be effected for all purposes when the
Company shall have deposited such certificate in the United States mail,
addressed to the Grantee or other appropriate recipient.
3.4 SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED STOCK
The Committee, either at the time of grant or vesting of Restricted Stock,
may provide for a Supplemental Payment by the Company to the holder in an amount
specified by the Committee, which amount shall not exceed the amount necessary
to pay the federal and state income tax payable with respect to both the vesting
of the Restricted Stock and receipt of the Supplemental Payment, assuming the
Grantee is taxed at either the maximum effective income tax rate applicable
thereto or at a lower tax rate as deemed
B-13
<PAGE> 45
appropriate by the Committee. The Committee shall have the discretion to grant
Supplemental Payments that are payable solely in cash or Supplemental Payments
that are payable in cash, Common Stock, or a combination of both, as determined
by the Committee at the time of payment.
SECTION 4.
PERFORMANCE UNITS AND PERFORMANCE SHARES
4.1 PERFORMANCE BASED AWARDS
(a) Grant. The Committee is authorized to grant Performance Units and
Performance Shares to selected Grantees who are Employees or Consultants. Each
grant of Performance Units and/or Performance Shares shall be evidenced by an
Incentive Agreement in such amounts and upon such terms as shall be determined
by the Committee. The Committee may make grants of Performance Units or
Performance Shares in such a manner that more than one Performance Period is in
progress concurrently. For each Performance Period, the Committee shall
establish the number of Performance Units or Performance Shares and their
contingent values which may vary depending on the degree to which performance
criteria established by the Committee are met.
(b) Performance Criteria. At the beginning of each Performance Period, the
Committee shall (i) establish for such Performance Period specific financial or
non-financial performance objectives that the Committee believes are relevant to
the Company's business objectives; (ii) determine the value of a Performance
Unit or the number of Shares under a Performance Share grant relative to
performance objectives; and (iii) notify each Grantee in writing of the
established performance objectives and, if applicable, the minimum, target, and
maximum value of Performance Units or Performance Shares for such Performance
Period.
(c) Modification. If the Committee determines, in its discretion exercised
in good faith, that the established performance measures or objectives are no
longer suitable to the Company's objectives because of a change in the Company's
business, operations, corporate structure, capital structure, or other
conditions the Committee deems to be appropriate, the Committee may modify the
performance measures and objectives to the extent it considers to be necessary.
The Committee shall determine whether any such modification would cause the
Performance Unit or Performance Share to fail to qualify for the
Performance-Based Exception.
(d) Payment. The basis for payment of Performance Units or Performance
Shares for a given Performance Period shall be the achievement of those
performance objectives determined by the Committee at the beginning of the
Performance Period as specified in the Grantee's Incentive Agreement. If minimum
performance is not achieved for a Performance Period, no payment shall be made
and all contingent rights shall cease. If minimum performance is achieved or
exceeded, the value of a Performance Unit or Performance Share may be based on
the degree to which actual performance exceeded the preestablished minimum
performance standards. The amount of payment shall be determined by multiplying
the number of Performance Units or Performance Shares granted at the beginning
of the Performance Period times the final Performance Unit or Performance Share
value. Payments shall be made, in the discretion of the Committee as specified
in the Incentive Agreement, solely in cash or Common Stock, or a combination of
cash and Common Stock, following the close of the applicable Performance Period.
(e) Special Rule for Covered Employees. The Committee may establish
performance goals applicable to Performance Units or Performance Shares awarded
to Covered Employees in such a manner as shall permit payments with respect
thereto to qualify for the Performance-Based Exception. If a Performance Unit or
Performance Share granted to a Covered Employee is intended to comply with the
Performance-Based Exception, the Committee in establishing performance goals
shall be guided by Treasury Regulation sec. 1.162-27(e)(2) (or its successor).
B-14
<PAGE> 46
4.2 SUPPLEMENTAL PAYMENT ON VESTING OF PERFORMANCE UNITS OR PERFORMANCE SHARES
The Committee, either at the time of grant or at the time of vesting of
Performance Units or Performance Shares, may provide for a Supplemental Payment
by the Company to the Grantee in an amount specified by the Committee, which
amount shall not exceed the amount necessary to pay the federal and state income
tax payable with respect to both the vesting of such Performance Units or
Performance Shares and receipt of the Supplemental Payment, assuming the Grantee
is taxed at either the maximum effective income tax rate applicable thereto or
at a lower tax rate as seemed appropriate by the Committee. The Committee shall
have the discretion to grant Supplemental Payments that are payable in cash,
Common Stock, or a combination of both, as determined by the Committee at the
time of payment.
SECTION 5.
OTHER STOCK-BASED AWARDS
5.1 GRANT OF OTHER STOCK-BASED AWARDS
Other Stock-Based Awards may be awarded by the Committee to selected
Grantees that are denominated or payable in, valued in whole or in part by
reference to, or otherwise related to, Shares of Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan and the goals of the
Company. Other types of Stock-Based Awards include, without limitation, Deferred
Stock, purchase rights, Shares of Common Stock awarded which are not subject to
any restrictions or conditions, convertible or exchangeable debentures, other
rights convertible into Shares, Incentive Awards valued by reference to the
value of securities of or the performance of a specified Subsidiary, division or
department, and settlement in cancellation of rights of any person with a vested
interest in any other plan, fund, program or arrangement that is or was
sponsored, maintained or participated in by the Company or any Parent or
Subsidiary. As is the case with other Incentive Awards, Other Stock-Based Awards
may be awarded either alone or in addition to or in tandem with any other
Incentive Awards.
5.2 OTHER STOCK-BASED AWARD TERMS
(a) Written Agreement. The terms and conditions of each grant of an Other
Stock-Based Award shall be evidenced by an Incentive Agreement.
(b) Purchase Price. Except to the extent that an Other Stock-Based Award is
granted in substitution for an outstanding Incentive Award or is delivered upon
exercise of a Stock Option, the amount of consideration required to be received
by the Company shall be either (i) no consideration other than services actually
rendered (in the case of authorized and unissued shares) or to be rendered, or
(ii) in the case of an Other Stock-Based Award in the nature of a purchase
right, consideration (other than services rendered or to be rendered) at least
equal to 50% of the Fair Market Value of the Shares covered by such grant on the
date of grant.
(c) Performance Criteria and Other Terms. In its discretion, the Committee
may specify such criteria, periods or goals for vesting in Other Stock-Based
Awards and payment thereof to the Grantee as it shall determine; and the extent
to which such criteria, periods or goals have been met shall be determined by
the Committee. All terms and conditions of Other Stock-Based Awards shall be
determined by the Committee and set forth in the Incentive Agreement. The
Committee may also provide for a Supplemental Payment similar to such payment as
described in Section 4.2.
(d) Payment. Other Stock-Based Awards may be paid in Shares of Common Stock
or other consideration related to such Shares, in a single payment or in
installments on such dates as determined by the Committee, all as specified in
the Incentive Agreement.
(e) Dividends. The Grantee of an Other Stock-Based Award shall be entitled
to receive, currently or on a deferred basis, dividends or dividend equivalents
with respect to the number of Shares covered by the Other
B-15
<PAGE> 47
Stock-Based Award, as determined by the Committee and set forth in the Incentive
Agreement. The Committee may also provide in the Incentive Agreement that such
amounts (if any) shall be deemed to have been reinvested in additional Common
Stock.
SECTION 6.
PROVISIONS RELATING TO PLAN PARTICIPATION
6.1 PLAN CONDITIONS
(a) Incentive Agreement. Each Grantee to whom an Incentive Award is granted
shall be required to enter into an Incentive Agreement with the Company, in such
a form as is provided by the Committee. The Incentive Agreement shall contain
specific terms as determined by the Committee, in its discretion, with respect
to the Grantee's particular Incentive Award. Such terms need not be uniform
among all Grantees or any similarly-situated Grantees. The Incentive Agreement
may include, without limitation, vesting, forfeiture and other provisions
particular to the particular Grantee's Incentive Award, as well as, for example,
provisions to the effect that the Grantee (i) shall not disclose any
confidential information acquired during Employment with the Company, (ii) shall
abide by all the terms and conditions of the Plan and such other terms and
conditions as may be imposed by the Committee, (iii) shall not interfere with
the employment or other service of any employee, (iv) shall not compete with the
Company or become involved in a conflict of interest with the interests of the
Company, (v) shall forfeit an Incentive Award if terminated for Cause, (vi)
shall not be permitted to make an election under Section 83(b) of the Code when
applicable, and (vii) shall be subject to any other agreement between the
Grantee and the Company regarding Shares that may be acquired under an Incentive
Award including, without limitation, an agreement restricting the
transferability of Shares by Grantee. An Incentive Agreement shall include such
terms and conditions as are determined by the Committee, in its discretion, to
be appropriate with respect to any individual Grantee. The Incentive Agreement
shall be signed by the Grantee to whom the Incentive Award is made and by an
Authorized Officer.
(b) No Right to Employment. Nothing in the Plan or any instrument executed
pursuant to the Plan shall create any Employment rights (including without
limitation, rights to continued Employment) in any Grantee or affect the right
of the Company to terminate the Employment of any Grantee at any time without
regard to the existence of the Plan.
(c) Securities Requirements. The Company shall be under no obligation to
effect the registration pursuant to the Securities Act of 1933 of any Shares of
Common Stock to be issued hereunder or to effect similar compliance under any
state laws. Notwithstanding anything herein to the contrary, the Company shall
not be obligated to cause to be issued or delivered any certificates evidencing
Shares pursuant to the Plan unless and until the Company is advised by its
counsel that the issuance and delivery of such certificates is in compliance
with all applicable laws, regulations of governmental authorities, and the
requirements of any securities exchange on which Shares are traded. The
Committee may require, as a condition of the issuance and delivery of
certificates evidencing Shares of Common Stock pursuant to the terms hereof,
that the recipient of such Shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the Committee,
in its discretion, deems necessary or desirable.
If the Shares issuable on exercise of an Incentive Award are not registered
under the Securities Act of 1933, the Company may imprint on the certificate for
such Shares the following legend or any other legend which counsel for the
Company considers necessary or advisable to comply with the Securities Act of
1933:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH
REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION, IN FORM AND SUBSTANCE
B-16
<PAGE> 48
SATISFACTORY TO THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED FOR
SUCH SALE OR TRANSFER.
6.2 TRANSFERABILITY
(a) Non-Transferable Awards and Options. No Incentive Award and no right
under the Plan, contingent or otherwise, will be (i) assignable, saleable, or
otherwise transferable by a Grantee except by will or by the laws of descent and
distribution, or (ii) subject to any encumbrance, pledge, lien, assignment or
charge of any nature.
No transfer by will or by the laws of descent and distribution shall be
effective to bind the Company unless the Committee has been furnished with a
copy of the deceased Grantee's enforceable will or such other evidence as the
Committee deems necessary to establish the validity of the transfer. Any
attempted transfer in violation of this Section 6.2(a) shall be void and
ineffective.
(b) Ability to Exercise Rights. Subject to a beneficiary designation
pursuant to Section 7.5, only the Grantee (or his legal guardian in the event of
Grantee's Disability), or in the event of his death, his estate, may exercise
Stock Options, receive cash payments and deliveries of Shares, and otherwise
assume the rights of the Grantee.
6.3 RIGHTS AS A STOCKHOLDER
(a) No Stockholder Rights. Except as otherwise provided in Section 3.1(b)
for grants of Restricted Stock, a Grantee of an Incentive Award (or a permitted
transferee of such Grantee) shall have no rights as a stockholder with respect
to any Shares of Common Stock until the issuance of a stock certificate for such
Shares.
(b) Representation of Ownership. In the case of the exercise of an
Incentive Award by a person or estate acquiring the right to exercise such
Incentive Award by reason of the death or Disability of a Grantee, the Committee
may require reasonable evidence as to the ownership of such Incentive Award or
the authority of such person and may require such consents and releases of
taxing authorities as the Committee may deem advisable.
6.4 LISTING AND REGISTRATION OF SHARES OF COMMON STOCK
The exercise of any Incentive Award granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange on which Shares of Common Stock are
traded. The Committee may, in its discretion, defer the effectiveness of any
exercise of an Incentive Award in order to allow the issuance of Shares of
Common Stock to be made pursuant to registration or an exemption from
registration or other methods for compliance available under federal or state
securities laws. The Committee shall inform the Grantee in writing of its
decision to defer the effectiveness of the exercise of an Incentive Award.
During the period that the effectiveness of the exercise of an Incentive Award
has been deferred, the Grantee may, by written notice to the Committee, withdraw
such exercise and obtain the refund of any amount paid with respect thereto.
6.5 CHANGE IN STOCK AND ADJUSTMENTS
(a) Changes in Law or Circumstances. Subject to Section 6.7 (which only
applies in the event of a Change in Control), in the event of any change in
applicable laws or any change in circumstances which results in or would result
in any dilution of the rights granted under the Plan, or which otherwise
warrants equitable adjustment because it interferes with the intended operation
of the Plan, then, if the Committee should determine, in its absolute
discretion, that such change equitably requires an adjustment in the number or
kind of shares of stock or other securities or property theretofore subject, or
which may become subject, to
B-17
<PAGE> 49
issuance or transfer under the Plan or in the terms and conditions of
outstanding Incentive Awards, such adjustment shall be made in accordance with
such determination. Such adjustments may include changes with respect to (i) the
aggregate number of Shares that may be issued under the Plan, (ii) the number of
Shares subject to Incentive Awards, and (iii) the price per Share for
outstanding Incentive Awards. Any adjustment under this paragraph of an
outstanding Incentive Stock Option shall be made only to the extent not
constituting a "modification" within the meaning of Section 424(h)(3) of the
Code unless otherwise agreed to by the Grantee in writing. The Committee shall
give notice to each applicable Grantee of such adjustment which shall be
effective and binding.
(b) Exercise of Corporate Powers. The existence of the Plan or outstanding
Incentive Awards hereunder shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalization, reorganization or other changes in the Company's capital
structure or its business or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stocks ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding whether of a
similar character or otherwise.
(c) Recapitalization of the Company. Subject to Section 6.7, if while there
are Incentive Awards outstanding, the Company shall effect any subdivision or
consolidation of Shares of Common Stock or other capital readjustment, the
payment of a stock dividend, stock split, combination of Shares,
recapitalization or other increase or reduction in the number of Shares
outstanding, without receiving compensation therefor in money, services or
property, then the number of Shares available under the Plan and the number of
Incentive Awards which may thereafter be exercised shall (i) in the event of an
increase in the number of Shares outstanding, be proportionately increased and
the Fair Market Value of the Incentive Awards awarded shall be proportionately
reduced; and (ii) in the event of a reduction in the number of Shares
outstanding, be proportionately reduced, and the Fair Market Value of the
Incentive Awards awarded shall be proportionately increased. The Committee shall
take such action and whatever other action it deems appropriate, in its
discretion, so that the value of each outstanding Incentive Award to the Grantee
shall not be adversely affected by a corporate event described in this
subsection (c).
(d) Reorganization of the Company. Subject to Section 6.7, if the Company
is reorganized, merged or consolidated, or is a party to a plan of exchange with
another corporation, pursuant to which reorganization, merger, consolidation or
exchange, stockholders of the Company receive any Shares of Common Stock or
other securities or property, or if the Company should distribute securities of
another corporation to its stockholders, each Grantee shall be entitled to
receive, in lieu of the number of unexercised Incentive Awards previously
awarded, the number of Stock Options, Stock Appreciation Rights, Performance
Shares or Units, Restricted Stock shares, or Other Stock-Based Awards, with a
corresponding adjustment to the Fair Market Value of said Incentive Awards, to
which he would have been entitled if, immediately prior to such corporate
action, such Grantee had been the holder of record of a number of Shares equal
to the number of the outstanding Incentive Awards payable in Shares that were
previously awarded to him. For this purpose, Shares of Restricted Stock shall be
treated the same as unrestricted outstanding Shares of Common Stock. In this
regard, the Committee shall take whatever other action it deems appropriate to
preserve the rights of Grantees holding outstanding Incentive Awards.
(e) Issue of Common Stock by the Company. Except as hereinabove expressly
provided in this Section 6.5 and subject to Section 6.7, the issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services, either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon any conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of, or
Fair Market Value of, any Incentive Awards then outstanding under previously
granted Incentive Awards; provided, however, in such event, outstanding Shares
of Restricted Stock shall be treated the same as outstanding unrestricted Shares
of Common Stock.
B-18
<PAGE> 50
(f) Acquisition of the Company. Subject to Section 6.7, in the case of any
sale of assets, merger, consolidation or combination of the Company with or into
another corporation other than a transaction in which the Company is the
continuing or surviving corporation and which does not result in the outstanding
Shares being converted into or exchanged for different securities, cash or other
property, or any combination thereof (an "Acquisition"), in the absolute
discretion of the Committee, any Grantee who holds an outstanding Incentive
Award shall have the right (subject to any limitation applicable to the
Incentive Award) thereafter and during the term of the Incentive Award, to
receive upon exercise thereof the Acquisition Consideration (as defined below)
receivable upon the Acquisition by a holder of the number of Shares which would
have been obtained upon exercise of the Incentive Award immediately prior to the
Acquisition. The term "Acquisition Consideration" shall mean the kind and amount
of shares of the surviving or new corporation, cash, securities, evidence of
indebtedness, other property or any combination thereof receivable in respect of
one Share upon consummation of an Acquisition. The Committee, in its discretion,
shall have the authority to take whatever action it deems appropriate to
effectuate the provisions of this subsection (f).
(g) Assumption of Outstanding Incentive Awards under the
Plan. Notwithstanding any other provision of the Plan, the Committee, in its
absolute discretion, may authorize the assumption and continuation under the
Plan of outstanding and unexercised stock options or other types of stock-based
incentive awards that were granted under a stock option plan (or other type of
stock incentive plan or agreement) that is or was maintained by a corporation or
other entity that was merged into, consolidated with, or whose stock or assets
were acquired by, the Company as the surviving corporation. Any such action
shall be upon such terms and conditions as the Committee, in its discretion, may
deem appropriate, including provisions to preserve the holder's rights under the
previously granted and unexercised stock option or other stock-based incentive
award, such as, for example, retaining an existing exercise price under an
outstanding stock option. Any such assumption and continuation of any such
previously granted and unexercised incentive award shall be treated as an
outstanding Incentive Award under the Plan and shall thus count against the
number of Shares reserved for issuance pursuant to Section 1.4. With respect to
an incentive stock option (as described in Section 422 of the Code) subject to
this subsection (g), no adjustment to such option shall be made to the extent
constituting a "modification" within the meaning of Section 424(h)(3) of the
Code unless otherwise agreed to by the optionee in writing.
(h) Assumption of Incentive Awards by a Successor. In the event of a
dissolution or liquidation of the Company, a sale of all or substantially all of
the Company's assets, a merger or consolidation involving the Company in which
the Company is not the surviving corporation, or a merger or consolidation
involving the Company in which the Company is the surviving corporation but the
holders of Shares of Common Stock receive securities of another corporation
and/or other property, including cash, the Committee shall, in its absolute
discretion, have the right and power to:
(i) cancel, effective immediately prior to the occurrence of such
corporate event, each outstanding Incentive Award (whether or not then
exercisable), and, in full consideration of such cancellation, pay to the
Grantee to whom such Incentive Award was granted an amount in cash equal to
the excess of (A) the value, as determined by the Committee, in its
absolute discretion, of the property (including cash) received by the
holder of a Share of Common Stock as a result of such event over (B) the
exercise price of such Incentive Award, if any; or
(ii) provide for the exchange of each Incentive Award outstanding
immediately prior to such corporate event (whether or not then exercisable)
for an incentive award on some or all of the property for which such
Incentive Award is exchanged and, incident thereto, make an equitable
adjustment as determined by the Committee, in its absolute discretion, in
the exercise price of the incentive award, if any, or the number of shares
or amount of property (including cash) subject to the incentive award or,
if appropriate, provide for a cash payment to the Grantee to whom such
Incentive Award was granted in consideration for the exchange of the
Incentive Award.
B-19
<PAGE> 51
The Committee, in its discretion, shall have the authority to take whatever
action it deems appropriate to effectuate the provisions of this subsection (h).
6.6 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT
(a) Termination of Employment. Unless otherwise expressly provided in the
Grantee's Incentive Agreement, if the Grantee's Employment is terminated for any
reason other than due to his death, Disability, Retirement or for Cause, any
non-vested portion of any Stock Option or other applicable Incentive Award at
the time of such termination shall automatically expire and terminate and no
further vesting shall occur. In such event, except as otherwise expressly
provided in his Incentive Agreement, the Grantee shall be entitled to exercise
his rights only with respect to the portion of the Incentive Award that was
vested as of the termination date for a period that shall end on the earlier of
(i) the expiration date set forth in the Incentive Agreement with respect to the
vested portion of such Incentive Award or (ii) the date that occurs ninety (90)
calendar days after his termination date.
(b) Termination of Employment for Cause. Unless otherwise expressly
provided in the Grantee's Incentive Agreement, in the event of the termination
of a Grantee's Employment for Cause, all vested and nonvested Stock Options and
other Incentive Awards granted to such Grantee shall immediately expire, and
shall not be exercisable, as of the commencement of business on the date of such
termination.
(c) Retirement. Unless otherwise expressly provided in the Grantee's
Incentive Agreement, upon the Retirement of any Employee who is a Grantee:
(i) any non-vested portion of any outstanding Option or other
Incentive Award shall immediately terminate and no further vesting shall
occur; and
(ii) any vested Option or other Incentive Award shall expire on the
earlier of (A) the expiration date set forth in the Incentive Agreement for
such Incentive Award; or (B) the expiration of (1) six months after the
date of Retirement in the case of any Incentive Award other than an
Incentive Stock Option, or (2) three months after the date of Retirement in
the case of an Incentive Stock Option.
(d) Disability or Death. Unless otherwise expressly provided in the
Grantee's Incentive Agreement, upon termination of Employment as a result of the
Grantee's Disability or death:
(i) any nonvested portion of any outstanding Option or other
applicable Incentive Award shall immediately terminate upon termination of
Employment, as applicable, and no further vesting shall occur; and
(ii) any vested Incentive Award shall expire upon the earlier of
either (A) the expiration date set forth in the Incentive Agreement or (B)
the first anniversary of the Grantee's termination of Employment, as
applicable, as a result of his Disability or death.
In the case of any vested Incentive Stock Option held by an Employee
following termination of Employment, notwithstanding the definition of
"Disability" in Section 1.2, whether the Employee has incurred a "Disability"
for purposes of determining the length of the Option exercise period following
termination of Employment under this paragraph (d) shall be determined by
reference to Section 22(e)(3) of the Code to the extent required by Section
422(c)(6) of the Code. The Committee shall determine whether a Disability for
purposes of this subsection (d) has occurred.
(e) Continuation. Subject to the conditions and limitations of the Plan and
applicable law and regulation in the event that a Grantee ceases to be an
Employee, Outside Director or Consultant, as applicable, for whatever reason,
the Committee and Grantee may mutually agree with respect to any outstanding
Option or other Incentive Award then held by the Grantee (i) for an acceleration
or other adjustment in any vesting schedule applicable to the Incentive Award,
(ii) for a continuation of the exercise period following termination for a
longer period than is otherwise provided under such Incentive Award, or (iii) to
any other change in the terms and conditions of the Incentive Award. In the
event of any such change
B-20
<PAGE> 52
to an outstanding Inventive Award, a written amendment to the Grantee's
Incentive Agreement shall be required.
6.7 CHANGE IN CONTROL
Notwithstanding any contrary provision in the Plan, in the event of a
Change in Control (as defined below), the following actions shall automatically
occur as of the day immediately preceding the Change in Control date unless
expressly provided otherwise in the Grantee's Incentive Agreement:
(a) all of the Stock Options and Stock Appreciation Rights then
outstanding shall become 100% vested and immediately and fully exercisable;
(b) all of the restrictions and conditions of any Restricted Stock and
any Other Stock-Based Awards then outstanding shall be deemed satisfied,
and the Restriction Period with respect thereto shall be deemed to have
expired; and
(c) all of the Performance Shares, Performance Units and any Other
Stock-Based Awards shall become fully vested, deemed earned in full, and
promptly paid within thirty (30) days to the affected Grantees without
regard to payment schedules and notwithstanding that the applicable
performance cycle, retention cycle or other restrictions and conditions
have not been completed or satisfied.
Notwithstanding any other provision of this Plan, unless expressly provided
otherwise in the Grantee's Incentive Agreement, the provisions of this Section
6.7 may not be terminated, amended, or modified to adversely affect any
Incentive Award theretofore granted under the Plan without the prior written
consent of the Grantee with respect to his outstanding Incentive Awards subject,
however, to the last paragraph of this Section 6.7.
For all purposes of this Plan, a "CHANGE IN CONTROL" of the Company shall
mean:
(a) If any person (as defined in Section 3(a)(9) of the Exchange Act
(or any successor provision), other than the Company, becomes the
beneficial owner directly or indirectly of more than twenty-five percent
(25%) of the outstanding Common Stock of the Company, determined in
accordance with Rule 13d-3 under the Exchange Act (or any successor
provision), or otherwise becomes entitled to vote more than twenty-five
percent (25%) of the voting power entitled to be cast at elections for
directors ("Voting Power") of the Company, or in any event such lower
percentage as may at any time be provided for in any similar provision for
any director or officer of the Company or of any Subsidiary approved by the
Board;
(b) If the Company is subject to the reporting requirements of Section
13 or 15(d) (or any successor provision) of the Exchange Act, any person
(as defined in Section 3(a)(9) of the Exchange Act), other than the
Company, shall purchase shares pursuant to a tender offer or exchange offer
to acquire Common Stock of the Company (or securities convertible into or
exchangeable for or exercisable for Common Stock) for cash, securities or
any other consideration, provided that after consummation of the offer, the
person in question is the beneficial owner, directly or indirectly, of more
than twenty-five percent (25%) of the outstanding Common Stock of the
Company, determined in accordance with Rule 13d-3 under the Exchange Act
(or any successor provision) or such lower percentages as may at any time
be provided for in any similar provision for any director or officer of the
Company or of any Subsidiary approved by the Board;
(c) The stockholders or the Board shall have approved any
consolidation or merger of the Company in which (i) the Company is not the
continuing or surviving corporation unless such merger is with a Subsidiary
at least eighty percent (80%) of the Voting Power of which is held by the
Company or (ii) pursuant to which the holders of the Company's shares of
Common Stock immediately prior to such merger or consolidation of at least
a majority of the Voting Power of the Company or such lower percentage as
may at any time be provided for in any similar provision for any director
or officer of the Company or of any Subsidiary approved by the Board;
B-21
<PAGE> 53
(d) The stockholders or the Board shall have approved any sale, lease,
exchange or other transfer (in one transaction or a series of transactions)
of all or substantially all of the assets of the Company; or
(e) Upon the election of one or more new directors of the Company, a
majority of the directors holding office, including the newly elected
directors, were not nominated as candidates by a majority of the directors
in office immediately before such election.
As used in this definition of "change of control", "Common Stock" means the
Common Stock, or if changed, the capital stock of the Company as it shall be
constituted from time to time entitling the holders thereof to share generally
in the distribution of all assets available for distribution to the Company's
stockholders after the distribution to any holders of capital stock with
preferential rights.
Notwithstanding the occurrence of any of the foregoing events of this
Section 6.7 which would otherwise result in a Change in Control, the Board may
determine in its discretion, if it deems it to be in the best interest of the
Company, that an event or events otherwise constituting a Change in Control
shall not be considered a Change in Control. Such determination shall be
effective only if it is made by the Board prior to the occurrence of an event
that otherwise would be or probably would lead to a Change in Control; or after
such event if made by the Board a majority of which is composed of directors who
were members of the Board immediately prior to the event that otherwise would be
or probably would lead to a Change in Control.
6.8 EXCHANGE OF INCENTIVE AWARDS
The Committee may, in its discretion, permit any Grantee to surrender
outstanding Incentive Awards in order to exercise or realize his rights under
other Incentive Awards or in exchange for the grant of new Incentive Awards, or
require holders of Incentive Awards to surrender outstanding Incentive Awards
(or comparable rights under other plans or arrangements) as a condition
precedent to the grant of new Incentive Awards.
6.9 FINANCING
The Company may extend and maintain, or arrange for and guarantee, the
extension and maintenance of financing to any Grantee to purchase Shares
pursuant to exercise of an Incentive Award upon such terms as are approved by
the Committee in its discretion.
SECTION 7.
GENERAL
7.1 EFFECTIVE DATE AND GRANT PERIOD
This Plan is adopted by the Board effective as of November 17, 1997 (the
"Effective Date"), subject to the approval of the stockholders of the Company by
June 30, 1998. If the requisite stockholder approval is not obtained, then any
Incentive Awards granted under the Plan shall become null and void and of no
force or effect except for any stock options granted under the Prior Plans which
were assumed and continued hereunder. Unless sooner terminated by the Board, no
Incentive Award shall be granted under the Plan after ten (10) years from the
Effective Date.
7.2 FUNDING AND LIABILITY OF COMPANY
No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made, or otherwise
to segregate any assets. In addition, the Company shall not be required to
maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for
purposes of the Plan. Although bookkeeping accounts may be established with
respect to Grantees who are entitled to cash, Common Stock or rights thereto
under the Plan, any such accounts shall
B-22
<PAGE> 54
be used merely as a bookkeeping convenience. The Company shall not be required
to segregate any assets that may at any time be represented by cash, Common
Stock or rights thereto. The Plan shall not be construed as providing for such
segregation, nor shall the Company, the Board or the Committee be deemed to be a
trustee of any cash, Common Stock or rights thereto. Any liability or obligation
of the Company to any Grantee with respect to an Incentive Award shall be based
solely upon any contractual obligations that may be created by this Plan and any
Incentive Agreement, and no such liability or obligation of the Company shall be
deemed to be secured by any pledge or other encumbrance on any property of the
Company. Neither the Company, the Board nor the Committee shall be required to
give any security or bond for the performance of any obligation that may be
created by the Plan.
7.3 WITHHOLDING TAXES
(a) Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Grantee to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of the Plan or an Incentive Award hereunder.
(b) Share Withholding. With respect to tax withholding required upon the
exercise of Stock Options or SARs, upon the lapse of restrictions on Restricted
Stock, or upon any other taxable event arising as a result of any Incentive
Awards, Grantees may elect, subject to the approval of the Committee, to satisfy
the withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such elections shall be made in writing, signed by the Grantee, and shall be
subject to any restrictions or limitations that the Committee, in its
discretion, deems appropriate.
(c) Incentive Stock Options. With respect to Shares received by a Grantee
pursuant to the exercise of an Incentive Stock Option, if such Grantee disposes
of any such Shares within (i) two years from the date of grant of such Option or
(ii) one year after the transfer of such shares to the Grantee, the Company
shall have the right to withhold from any salary, wages or other compensation
payable by the Company to the Grantee an amount sufficient to satisfy federal,
state and local tax withholding requirements attributable to such disqualifying
disposition.
(d) Loans. The Committee may provide for loans, on either a short term or
demand basis, from the Company to a Grantee who is an Employee or Consultant to
permit the payment of taxes required by law.
7.4 NO GUARANTEE OF TAX CONSEQUENCES
Neither the Company nor the Committee makes any commitment or guarantee
that any federal, state or local tax treatment will apply or be available to any
person participating or eligible to participate hereunder.
7.5 DESIGNATION OF BENEFICIARY BY PARTICIPANT
Each Grantee may, from time to time, name any beneficiary or beneficiaries
(who may be named contingently or successively) to whom any benefit under the
Plan is to be paid in case of his death before he receives any or all of such
benefit. Each such designation shall revoke all prior designations by the same
Grantee, shall be in a form prescribed by the Committee, and will be effective
only when filed by the Grantee in writing with the Committee during the
Grantee's lifetime. In the absence of any such designation, benefits remaining
unpaid at the Grantee's death shall be paid to the Grantee's estate.
7.6 DEFERRALS
The Committee may permit a Grantee to defer such Grantee's receipt of the
payment of cash or the delivery of Shares that would, otherwise be due to such
Grantee by virtue of the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals with respect
to Performance Units, Performance Shares or Other Stock-Based Awards. If any
such deferral election is permitted, the
B-23
<PAGE> 55
Committee shall, in its discretion, establish rules and procedures for such
payment deferrals to the extent consistent with the Code.
7.7 AMENDMENT AND TERMINATION
The Board shall have complete power and authority to terminate or amend the
Plan at any time; provided, however, that the Board shall not, without the
approval of the stockholders of the Company within the time period required by
applicable law, (a) except as provided in Section 6.5, increase the maximum
number of Shares which may be issued under the Plan pursuant to Section 1.4, (b)
amend the requirements as to the class of Employees eligible to purchase Common
Stock under the Plan, (c) increase the maximum limits on Incentive Awards to
Covered Employees as set for compliance with the Performance-Based Exception,
(d) extend the term of the Plan, or (e) decrease the authority granted to the
Committee under the Plan in contravention of Rule 16b-3 under the Exchange Act.
No termination, amendment, or modification of the Plan shall adversely
affect in any material way any outstanding Incentive Award previously granted to
a Grantee under the Plan, without the written consent of such Grantee or other
designated holder of such Incentive Award.
In addition, to the extent that the Committee determines that (a) the
listing for qualification requirements of any national securities exchange or
quotation system on which the Company's Common Stock is then listed or quoted,
or (b) the Code (or regulations promulgated thereunder), require stockholder
approval in order to maintain compliance with such listing requirements or to
maintain any favorable tax advantages or qualifications, then the Plan shall not
be amended in such respect without approval of the Company's stockholders.
7.8 REQUIREMENTS OF LAW
The granting of Incentive Awards and the issuance of Shares under the Plan
shall be subject to all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required. Certificates evidencing shares of Common Stock delivered under this
Plan (to the extent that such shares are so evidenced) may be subject to such
stop transfer orders and other restrictions as the Committee may deem advisable
under the rules and regulations of the Securities and Exchange Commission, any
securities exchange or transaction reporting system upon which the Common Stock
is then listed or to which it is admitted for quotation, and any applicable
federal or state securities law. The Committee may cause a legend or legends to
be placed upon such certificates (if any) to make appropriate reference to such
restrictions.
7.9 RULE 16B-3 SECURITIES LAW COMPLIANCE
With respect to Insiders, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 under the Exchange Act. Any
ambiguities or inconsistencies in the construction of an Incentive Award or the
Plan shall be interpreted to give effect to such intention. However, to the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed null and void to the extent permitted by law and deemed
advisable by the Committee in its discretion.
7.10 COMPLIANCE WITH CODE SECTION 162(M)
Unless otherwise determined by the Committee with respect to any particular
Incentive Award, it is extended that the Plan comply fully with and meet all the
requirements of Section 162(m) of the Code so that any applicable types of
Incentive Awards that are granted to Covered Employees shall qualify for the
Performance-Based Exception. If any provision of the Plan or an Incentive
Agreement would disqualify the Plan or would not otherwise permit the Plan or
Incentive Award to comply with the Performance-Based Exception as so intended,
such provision shall be construed or deemed amended to conform to the
requirements of the Performance-Based Exception to the extent permitted by
applicable law and deemed
B-24
<PAGE> 56
advisable by the Committee; provided that no such construction or amendment
shall have an adverse effect on the prior grant of an Incentive Award or the
economic value to a Grantee of any outstanding Incentive Award.
7.11 SUCCESSORS
All obligations of the Company under the Plan with respect to Incentive
Awards granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
7.12 MISCELLANEOUS PROVISIONS
(a) No Employee, Consultant, Outside Director, or other person shall have
any claim or right to be granted an Incentive Award under the Plan. Neither the
Plan, nor any action taken hereunder, shall be construed as giving any Employee,
Consultant, or Outside Director any right to be retained in the Employment or
other service of the Company or any Parent or Subsidiary.
(b) No Shares of Common Stock shall be issued hereunder unless counsel for
the Company is then reasonably satisfied that such issuance will be in
compliance with federal and state securities laws, if applicable.
(c) The expenses of the Plan shall be borne by the Company.
(d) By accepting any Incentive Award, each Grantee and each person claiming
by or through him shall be deemed to have indicated his acceptance of the Plan.
7.13 SEVERABILITY
In the event that any provision of this Plan shall be held illegal, invalid
or unenforceable for any reason, such provision shall be fully severable, but
shall not affect the remaining provisions of the Plan, and the Plan shall be
construed and enforced as if the illegal, invalid, or unenforceable provision
was not included herein.
7.14 GENDER, TENSE AND HEADINGS
Whenever the context so requires, words of the masculine gender used herein
shall include the feminine and neuter, and words used in the singular shall
include the plural. Section headings as used herein are inserted solely for
convenience and reference and constitute no part of the interpretation or
construction of the Plan.
7.15 GOVERNING LAW
The Plan shall be interpreted, construed and constructed in accordance with
the laws of the State of Maryland, without regard to its conflicts of law
provisions, except as superseded by applicable the laws of the United States.
[SIGNATURE PAGE FOLLOWS]
B-25
<PAGE> 57
IN WITNESS WHEREOF, Key Energy Group, Inc. has caused this amended and
restated Plan to be duly executed in its name and on its behalf by its duly
authorized officer, to be effective as of , 1997.
<TABLE>
<S> <C>
ATTEST: KEY ENERGY GROUP, INC.
By: ---------------------------- By: ------------------------------------
Name: -------------------------- Name: ----------------------------------
Title: ------------------------- Title: ---------------------------------
</TABLE>
B-26
<PAGE> 58
- --------------------------------------------------------------------------------
PROXY
THIS PROXY IS BEING SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
KEY ENERGY GROUP, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER
16, 1996
The undersigned Stockholder of Key Energy Group, Inc. (the
"Company" or "KEG") hereby constitutes and appoints Francis D.
John and Jack D. Loftis, Jr., and each of them singly, proxies and
attorneys of the undersigned, with full power of substitution to
each, for and in the name of the undersigned to vote and act upon
all matters (unless and except as expressly limited below) at the
Annual Meeting of Stockholders to be held on Tuesday, December 16,
1996, at Two Tower Center, 20th Floor, East Brunswick, New Jersey
08816, at 11:00 a.m. local time, and at any and all adjournments
thereof, in respect of all shares of the Common Stock, $.10 par
value per share, of the Company held by the undersigned or in
respect of which the undersigned would be entitled to vote or act,
with all the powers the undersigned would possess if personally
present. All proxies heretofore given by the undersigned in
respect of said meeting are hereby revoked.
ITEM 1. TO ELECT DIRECTORS:
FOR ELECTING ALL NOMINEES WITHHOLD AUTHORITY
(except for person(s) whose name(s) to vote for all nominees listed [ ]
is (are) written below) [ ]
Nominees: Francis D. John, David J. Breazzano, Kevin P. Collins,
William Manly, W. Phillip Marcum and Morton Wolkowitz
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT PERSON'S NAME HERE:
------------------------------------------------------------------
(Continued and to be SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
<PAGE> 59
- --------------------------------------------------------------------------------
ITEM 2: TO RATIFY THE AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED ARTICLES OF INCORPORATION TO INCREASE THE COMPANY'S
AUTHORIZED CAPITAL STOCK FROM 25,000,000 SHARES PAR VALUE $.10 PER
SHARE, TO 100,000,000 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 3: TO RATIFY THE COMPANY'S 1997 INCENTIVE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Specify desired action by check marks in the appropriate
spaces. This Proxy will be voted as specified. IF NO SPECIFICATION
IS MADE, THE PROXY WILL BE VOTED FOR THE NOMINEES NAMED IN THE
PROXY STATEMENT AND IN FAVOR OF ITEMS 2 AND 3. The persons named
proxies have discretionary authority that they intend to exercise
in favor of the proposals referred to and according to their best
judgment as to other matters that properly come before the meeting
or any adjournments thereof.
Dated: ______________, 1997
Please print name
of Stockholder here: ________________
Please sign here: ___________________
THE SIGNATURE ON THIS
PROXY SHOULD CORRESPOND
EXACTLY WITH THE
STOCKHOLDER'S NAME AS
PRINTED ABOVE. IN THE CASE
OF JOINT TENANCIES,
COEXECUTORS, OR
CO-TRUSTEES, BOTH SHOULD
SIGN. PERSONS SIGNING AS
ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN SHOULD GIVE THEIR
FULL TITLE.
(PLEASE COMPLETE, SIGN,
DATE AND RETURN THIS PROXY
IN THE ENCLOSED ENVELOPE
AS SOON AS POSSIBLE.)
- --------------------------------------------------------------------------------
