<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission file number 1-8038
KEY ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Maryland 04-2648081
--------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Tower Center, Tenth Floor, East Brunswick, NJ 08816
------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (908) 247-4822
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C>
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.10 par value American Stock Exchange
7% Convertible Subordinated Debentures Due 2003 None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Shares held by nonaffiliates of the
Registrant as of October 27, 1997 was approximately $546,864,025.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
Common Shares outstanding at October 27, 1997: 18,094,724
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE> 2
Item 10. Directors and Executive Officers.
The following table sets forth the names and ages of each of the
Company's executive officers and Directors and includes their current
positions.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Francis D. John . . . . . . 43 Chairman of the Board, Chief Executive
Officer and President
Kevin P. Collins . . . . . 46 Director
William Manly . . . . . . . 74 Director
W. Phillip Marcum . . . . . 53 Director
Morton Wolkowitz . . . . . 67 Director
David J. Breazzano. . . . . 41 Director
Kenneth V. Huseman . . . . 44 Executive Vice President and Chief
Operating Officer
Stephen E. McGregor . . . . 48 Executive Vice President and Chief
Financial Officer
Danny R. Evatt . . . . . . 38 Vice President, Chief Accounting Officer and Treasurer
</TABLE>
Francis D. John has been Chairman of the Board since August 1996 and the
Chief Executive Officer since October 1989. He has been a Director and President
since June 1988 and 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, Mack Trucks and Arthur
Andersen. He received a BS from Seton Hall University and an MBA from Fairleigh
Dickinson University.
Kevin P. Collins has been a Director since March 1996. Since 1992, he
has served as a principal of JHP Enterprises, Ltd., 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 from January 1994 until March 1996. He holds a BS and an MBA from the
University of Minnesota.
William Manly has been a Director since December 1989. He retired from
his position as an Executive Vice President of Cabot Corporation in 1986, a
position he had held since 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.
<PAGE> 3
W. Phillip Marcum has been a Director since March 1996. Mr. Marcum was a
director of WellTech from January 1994 until March 1996. From October 1995 until
March 1996, Mr. Marcum was the non-executive 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.
Morton Wolkowitz has been a Director since December 1989. From 1958
through 1989, Mr. Wolkowitz served as the President and Chief Executive Officer
of Wolkow Braker Roofing Corporation, a company that provided a variety of
roofing services. Since 1989, Mr. Wolkowitz has been a private investor. He
holds a BS from Syracuse University.
David J. Breazzano, has been a Director since October 1997. Mr.
Breazzano is currently one of the three principals at DDJ Capital Management,
LLC, an investment management firm which was established in 1996 and is based in
Wellesley, Massachusetts. Mr. Breazzano previously served as a Vice President
and Portfolio Manager at Fidelity Investments ("Fidelity") from 1990 to 1996.
Prior to joining Fidelity, Mr. Breazzano was President and Chief Investment
Officer of the T. Rowe Price Recovery Fund. He is also currently a director of
BioSafe International, Inc., a publicly-traded company. He holds a B.S. from
Union College and an M.B.A. from Cornell University.
Kenneth V. Huseman became an Executive Vice President of the Company in
March 1996 and the Chief Operating Officer of the Company 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. He holds a
BBA from Texas Tech University.
Stephen E. McGregor 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 A.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 B.A. from Boston
University and a J.D. from the College of William and Mary.
Danny R. Evatt 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.
Directors are elected at the Company's annual meeting of stockholders
and serve until the next annual meeting of stockholders and until their
successors are elected and qualified. Each officer holds office until the first
meeting of the Board of Directors following the annual meeting of stockholders
and until his successor has been duly elected and qualified. The Company has not
announced its nominees for Directors to be elected at its upcoming annual
shareholders meeting which is expected to occur before the end of 1997.
Section 16(a) Beneficial Ownership Compliance
In 1992, Mr. John failed to file a report on Form 4. The transaction
was reported on Form 4 on August 14, 1997.
<PAGE> 4
Item 11. Executive Compensation.
The following table sets forth the compensation, including bonuses, paid by
Key and its subsidiaries for services rendered in all capacities to Key and its
subsidiaries during each of the three fiscal years ended June 30, 1997 to the
Chief Executive Officer and to each of the four most highly compensated
executive officers (other than the Chief Executive Officer) of Key and its
subsidiaries.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards
(a) ----------------------
Name and Options/
Principal Salary Bonus SARs
Position Year ($) ($) (#)
---- ------ --------- -------
<S> <C> <C> <C>
Francis D. John 1997 $ 325,000 $500,000 250,000
Chief Executive 1996 325,000 257,250(2) 500,000
Officer 1995 225,000 --- ---
Ken Huseman 1997 200,000 125,000 100,000
Chief Operating 1996 45,000(1) --- 100,000
Officer
Kenneth C. Hill 1997 180,000 --- 10,000
Vice President 1996 45,000(1) --- 75,000
C. Ron Laidley 1997 204,000 95,000 20,000
Chief Executive 1996 194,000 97,250(2) 125,000
Officer Yale E. 1995 155,000 --- ---
Key
D. Kirk Edwards 1997 165,000 25,000 10,000
Chief Executive 1996 135,000 --- 100,000
Officer of 1995 125,000 --- ---
Odessa Exploration
</TABLE>
(1) Messrs. Huseman and Hill became employed by Key upon consummation of Key's
merger with WellTech 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.
(2) Used to purchase Common Stock on the open market.
<PAGE> 5
OPTION GRANTS IN 1997
Subject to shareholder approval, the following table sets forth certain
information relating to option grants pursuant to the Company's 1995 Stock
Option Plan (the "Option Plan") in the fiscal year 1997 to the individuals
named in the Summary Compensation Table above.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------------------------
Potential Realizable Value
Number of % of Total At Assumed Annual Rates
Securities of Options Exercise of Stock Price Appreciation
Underlying Granted to Price For Option Term (3)
Options Employees in per Expiration (In thousands)
Name Granted (1) Fiscal 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
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
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
</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 Option Plan during fiscal 1997.
(3) Potential Realizable Value is based on assumed growth rates for
the 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.
Aggregated Option Exercises and Year-End Value. 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 Option Plan 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.
<PAGE> 6
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the Money-Options
Options at June 30, 1997 at June 30, 1997 (a)
---------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Francis D. John 365,000 385,000 $4,676,562 $2,870,312
C. Ron Laidley 75,000 70,000 960,937 731,875
D. Kirk Edwards 50,000 60,000 640,625 686,250
Kenneth Huseman 50,000 150,000 515,625 1,215,625
Kenneth C. Hill 40,000 45,000 398,125 420,937
</TABLE>
(a) Based on the last sale price of the Common Stock on the AMEX on June 30,
1997 of $17.8125.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Effective as of July 1, 1995, Key entered into an employment agreement with
Mr. John which provides that Mr. John will serve as President, Chief Executive
Officer and a Director of Key for a three-year term commencing July 1, 1995 and
continuing until June 30, 1998, and thereafter the term will be automatically
extended for successive one-year terms unless terminated no later than 30 days
prior to the commencement of the next extension term. Under this agreement,
Mr. John will receive a base compensation of $325,000 per year and will be
eligible for annual incentive compensation of up to 30% of base compensation
contingent upon Key's achievement of goals to be set forth in a strategic plan
to be developed by the Executive Committee. Base compensation will be reviewed
annually and may be increased (but not decreased) by the Board of Directors in
its discretion. Pursuant to the agreement, upon and subject to completion by
Key of a significant merger or other major corporate transaction in fiscal 1996
or 1997, Mr. John will also receive a bonus of $300,000 payable in four equal
installments, commencing on the date of completion of the merger or other
transaction and thereafter at equal intervals determined so that the final
installment is paid on January 1, 1998. Payments made after July 1, 1995 will
bear interest at 6%. The determination of when a merger is "significant" or
other corporate transaction "major", so as to entitle Mr. John to the bonus,
will be made by the Board of Directors. The Board has determined that the
merger with WellTech was a significant merger and, accordingly, Mr. John was
entitled to the bonus as described above. The agreement also provides for the
grant of options to Mr. John under the Option Plan. If during the term of the
agreement Mr. John is terminated by Key for any reason other than for cause, or
if he terminates his employment because of a material breach by Key or
following a change of control of Key, he will receive severance compensation
equal to three times his base compensation in effect at the time of
termination, payable in 36 equal monthly installments; provided, however, that
if termination results from a change of control, severance compensation will be
payable in a lump sum on the date of termination. Mr. John is also subject to
restrictions on competition during the term of the agreement and, with certain
exceptions, the severance period. Mr. John has waived his rights with respect
to a change of control resulting from the merger with WellTech.
Mr. Huseman has entered into an employment agreement with Key for a three
year term commencing on August 3, 1996 and continuing until August 2, 1999.
Thereafter the term will be automatically extended for successive one year terms
unless terminated no later than 30 days prior to the commencement of the next
extension term. Under the agreement, Mr. Huseman will receive a base
compensation of $200,000 per year (subject to increase) and will be eligible for
annual incentive compensation of up to 50% of his base compensation. The
agreement also provides for a grant of options to Mr. Huseman to purchase 50,000
shares of Common Stock under the Option Plan in addition to options already
issued to Mr. Huseman. If during the term of his employment agreement, Mr.
Huseman is terminated by Key for any reason other than for cause, or if he
terminates his employment because of a material breach by Key or following a
change of control of Key, he will be entitled to severance compensation equal to
his base compensation in effect at the time of termination payable within a
24-month period following termination. Mr. Huseman also is subject to
restrictions on competition during the term of his agreement and, with certain
exceptions, during the severance period.
Mr. Hill has entered into an employment agreement with Key for a three year
terms commencing on March 29, 1996 and continuing until March 29, 1999.
Thereafter the term will be automatically extended for successive one year terms
unless terminated no later than 30 days prior to the commencement of the next
extension term. Under the agreement, Mr. Hill will receive a base compensation
of $180,000 per year (subject to increase) and will be eligible for annual
incentive compensation of up to 50% of his base compensation. The agreement
also provides for a grant
<PAGE> 7
of options to Mr. Hill to purchase 75,000 shares of Common Stock under the
Option Plan. If during the term of his employment agreement, Mr. Hill is
terminated by Key for any reason other than for cause, or if he terminates his
employment because of a material breach by Key or following a change of control
of Key, he will be entitled to severance compensation equal to his base
compensation in effect at the time of termination payable within an 18-month
period following termination. Mr. Hill also is subject to restrictions on
competition during the term of his agreement and, with certain exceptions,
during the severance period.
<PAGE> 8
Key has also entered into employment agreements as of July 1, 1995 with
Messrs. Laidley and Evatt. Mr. Laidley's agreement provides that he will serve
as President of Yale E. Key for a three year term commencing July 1, 1995, and
thereafter for successive one year terms unless terminated 30 days prior to the
commencement of an extension term, receive base compensation of $192,000 per
year (subject to increase), participate in an incentive compensation plan
providing for cash bonuses up to 50% of base compensation, and receive stock
options under the Option Plan. If during the term of his agreement Mr. Laidley
is terminated for any reason other than for cause or if he terminates his
employment because of a material breach by Yale E. Key or following a change of
control of Yale E. Key, he will be entitled to severance compensation equal to
his base compensation, payable during an 18 month period following termination.
Mr. Evatt's agreement provides that he will serve as Key's Chief Accounting
Officer and Treasurer for a term identical to the term in Mr. Laidley's
agreement, receive base compensation of $105,000 per year (subject to increase),
participate in an incentive compensation plan providing for cash bonuses up to
30% of base compensation, and receive stock options under the Option Plan. If
during the term of his agreement Mr. Evatt is terminated by Key for any reason
other than for cause, or if Mr. Evatt terminates his employment because of a
material breach by Key, he will be entitled to receive severance compensation
equal to his base compensation, payable within a 12 month period following the
termination. Both Mr. Laidley's and Mr. Evatt's agreements contain restrictions
on competition.
Mr. Edwards has entered into an employment agreement with Key for a three
year term commencing on July 1, 1996 and continuing until June 30, 1999.
Thereafter the term will be automatically extended for successive one year terms
unless terminated no later than 30 days prior to the commencement of the next
extension term. Under the agreement, Mr. Edwards will receive a base
compensation of $165,000 per year (subject to increase) and will be eligible for
annual incentive compensation of up to 30% of his base compensation. The
agreement also provides for a grant of working interests in certain producing
wells of Odessa Exploration. If during the term of his employment agreement Mr.
Edwards is terminated by Key for any reason other than for cause, or if he
terminates his employment because of a material breach by Key or following a
change of control of Key, he will be entitled to severance compensation equal to
his base compensation in effect at the time of termination payable within an
24-month period following termination. Mr. Edwards also is subject to
restrictions on competition during the term of his agreement and, with certain
exceptions, during the severance period.
Other Compensation
Key has no other deferred compensation, pension or retirement plans in
which executive officers participate.
Compensation Committee Interlocks and Insider Participation
The following persons served as members of the Compensation and Stock
Grant Committee of the Board of Directors (the "Compensation Committee") during
the year ended June 30, 1997: William Manly and Morton Wolkowitz. None of the
members of the Compensation Committee were employees of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table provides information as of October 27, 1997 with
respect to the shares of Common Stock beneficially owned by (i) each person
known by the Company to own more than 5% of the outstanding Common Stock; (ii)
each Director and executive officer of the Company; and (iii) by all Directors
and executive officers of the Company as a group. Except as noted below, each
holder has sole voting and investment power with respect to all shares of Common
Stock listed as owned by such person or entity.
BENEFICIAL OWNERSHIP OF COMMON STOCK(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF NUMBER OF OUTSTANDING
BENEFICIAL OWNER SHARES(1) SHARES(2)
---------------- --------- ---------
<S> <C> <C>
Francis D. John(3)(4) . . . . . . . . . . . . . 469,535 2.5%
Danny R. Evatt(3) . . . . . . . . . . . . . . . 42,500 *
David J. Breazzano . . . . . . . . . . . . . . -- --
Kenneth V. Huseman(3) . . . . . . . . . . . . . 80,323 *
Stephen E. McGregor . . . . . . . . . . . . . . -- --
Kevin P. Collins(3) . . . . . . . . . . . . . . 78,405 *
W. Phillip Marcum(3). . . . . . . . . . . . . . 78,405 *
William Manly(3) . . . . . . . . . . . . . . . 41,992 *
Morton Wolkowitz(3)(5) . . . . . . . . . . . . 368,282 2.0%
Directors and Executive Officers as a group
(9 persons) . . . . . . . . . . . . . . . . . 1,159,442 6.2%
----------
</TABLE>
* Less than 1%.
(1) Includes all shares with respect to which each person, executive
officer or Director 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 pursuant to the Option Plan. With
respect to non-employee directors, includes shares that may be
purchased under currently exercisable stock options granted pursuant
to the Company's 1995 Outside Directors Stock Option Plan.
(2) Based on 18,094,724 shares of Common Stock outstanding at
October 27, 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 the right to acquire, pursuant to the exercise of stock
options, the following numbers of shares: 432,500 shares for Mr. John,
37,500 shares for Mr. Evatt, 66,667 shares for Mr. Huseman, 23,333
shares for Mr. Collins, 23,333 shares for Mr. Marcum, 41,666 shares for
Mr. Manly, 66,666 shares for Mr. Wolkowitz, and 691,665 for the group.
(4) Includes 6,914 shares that may be acquired upon the exercise of
warrants issued in the merger with WellTech. Does not include 50,045
shares held by Mr. John as custodian for his two children as to which
Mr. John disclaims any beneficial interest, and 1,350 shares held by
Mr. John's wife, as to which Mr. John disclaims any beneficial
ownership.
(5) Includes 6,914 shares that may be acquired upon the exercise of
warrants issued in the merger with WellTech.
Item 13. Certain Relationships and Related Transactions.
Effective as of July 1, 1997, WellTech Eastern entered into three real
property leases with HIDCO Development Company, an entity in which Kenneth C.
Hill, a Vice President of the Company, 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 WellTech Eastern to operate yards
in Ripley, West Virginia, Indiana, Pennsylvania and Mt. Pleasant, Michigan.
<PAGE> 9
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused this
Report to be signed on its behalf of the undersigned, thereunto duly
authorized.
KEY ENERGY GROUP, INC.
By: /s/ FRANCIS D. JOHN
------------------------------------
Francis D. John, President
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ FRANCIS D. JOHN President, Chief Executive October 29, 1997
---------------------------------------- Officer, and Director
Francis D. John
/s/ WILLIAM S. MANLEY Director October 29, 1997
----------------------------------------
William S. Manley
/s/ MORTON WOLKOWITZ Director October 29, 1997
----------------------------------------
Morton Wolkowitz
/s/ KEVIN P. COLLINS Director October 29, 1997
----------------------------------------
Kevin P. Collins
/s/ PHILLIP W. MARCUM Director October 29, 1997
----------------------------------------
Phillip W. Marcum
/s/ DAVID J. BREAZZANO Director October 29, 1997
----------------------------------------
David J. Breazzano
/s/ STEPHEN E. MCGREGOR Executive Vice President and Chief October 29, 1997
---------------------------------------- Financial Officer
Stephen E. McGregor
/s/ DANNY R. EVATT Chief Accounting Officer and Treasurer October 29, 1997
----------------------------------------
Danny R. Evatt
</TABLE>
