<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON 10/28/98
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, 1998
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)
Maryland 04-2648081
(State or other jurisdiction of (I.R.S.
Employer incorporation or organization) Identification No.)
Two Tower Center, Twentieth Floor, East Brunswick, NJ 08816
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 247-4822
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.10 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
7% Convertible Subordinated Debentures Due 2003
5% Convertible Subordinated Notes Due 2004
<PAGE> 2
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 23, 1998 was approximately $167,173,172.
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 23, 1998: 18,287,392
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE> 3
Item 10. Directors and Executive Officers of the Registrant.
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>
<S> <C> <C>
Name Positions
Age
Francis D. John . . . . . . . . . . . . . . . 44 Chairman of the Board,
President and Chief Executive Officer
David J. Breazzano. . . . . . . . . . . . . . 42 Director
Kevin P. Collins. . . . . . . . . . . . . . . 47 Director
William Manly . . . . . . . . . . . . . . . . 75 Director
W. Phillip Marcum . . . . . . . . . . . . . . 54 Director
Morton Wolkowitz . . . . . . . . . . . . . . . 70 Director
Kenneth V. Huseman. . . . . . . . . . . . . . 45 Executive Vice President and Chief Operating Officer
Stephen E. McGregor. . . . . . . . . . . . . . 49 Executive Vice President, Chief Financial Officer and
Treasurer
Danny R. Evatt. . . . . . . . . . . . . . . . 39 Chief Information Officer and Vice President of
Financial Operations
James Byerlotzer. . . . . . . . . . . . . . . 52 Vice President - Permian Basin Operations
Michael R. Furrow. . . . . . . . . . . . . . 47 Vice President - Western Operations
</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.
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. 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 a director of BioSafe International, Inc. He holds a
BS from Union College and an MBA from Cornell University.
Kevin P. Collins has been a Director since March 1996. Mr. Collins is a
managing member of the Old Hill Company LLC. From 1992 to 1997, 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 were 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 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
CitiSteel, Inc. He holds a BS and an MS from the University of Notre Dame.
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 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 1991and is a Director
of Hydrologic, Inc. He holds a BBA from Texas Tech University.
Kenneth V. Huseman has served as Executive Vice President of the Company
since March 1996 and as Chief Operating Officer of the Company since August
1996. He was the Mid-Continent Regional President of WellTech from
2
<PAGE> 4
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 joined the Company in July 1997 as an Executive Vice
President and Chief Financial Officer and has held the title of Treasurer since
January 1998. 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 B.A. degree from Boston University and a
J.D. from the College of William and Mary.
Danny R. Evatt has served as Treasurer, Vice President and Chief Accounting
Officer of the Company, or its functional equivalent, since July 1990. Mr. Evatt
served as the Company's Treasurer from July 1990 until January 1998 at which
time he was also appointed Chief Information Officer. In addition to serving
as Chief Information Officer, Mr. Evatt currently holds the title of Vice
President of Financial Operations. He holds a BBA from Texas A&M University.
James Byerlotzer joined the Company in September 1998 as Vice President -
Permian Basin Operations after the Company's acquisition of Dawson Production
Services, Inc. ("Dawson"). From February 1997 to September 1998, he served as
the Senior Vice President and Chief Operating Officer of Dawson. From 1981 to
1997, Mr. Byerlotzer was employed by Pride Petroleum Services, Inc. ("Pride").
Beginning in February 1996, Mr. Byerlotzer served as the Vice President Domestic
Operations of Pride. Prior to that time, he served as Pride's Vice President -
Permian Basin and in various other operating positions in Pride's Gulf Coast and
California operations. Mr. Byerlotzer holds a BA from the University of Missouri
in St. Louis.
Michael R. Furrow joined the Company in September 1998 as Vice
President-Western Operations after the Company's acquisition of Dawson. From
February 1997 to September 1998 he served as Vice President of Permian Basin
Region of Dawson. From February 1990 to February 1997 he held the positions of
Vice President, area manager and regional manager in Alice and Midland, Texas
and Bakersfield, California for Pride. Prior to that he was Vice President -
Production with Harkins & Company in Alice, Texas from 1984 to 1990, and was
with Shell Oil Company in Houston and New Orleans from 1969 to 1984. Mr. Furrow
holds a BS in Civil Engineering from the University of Nebraska.
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, unless they resign or are properly removed from
office prior to such time. Each executive 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, unless he resigns
or is properly removed from office prior to such time.
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 beneficially own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
ownership on Form 3 and changes in ownership on Forms 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 is not aware of any failure,
during the fiscal year ended June 30, 1998 or prior fiscal years, by its
Directors, executive officers or 10% stockholders to comply with Section 16(a)
filing requirements applicable to such individuals, other than with respect to
three transactions consummated by Mr. Manley that should have been reported in
1992 and 1993. These transactions, which were reported by Mr. Manley on a Form 5
filed on August 14, 1998, were as follows: the purchase of 1,011 shares on
December 11, 1992, the purchase of 1,520 shares on January 6, 1993, and the
purchase of 178 shares on an unknown date.
3
<PAGE> 5
Item 11. Executive Compensation.
The following table sets forth the compensation, including bonuses,
earned by the Company's Chief Executive Officer and the Company's four most
highly compensated executive officers (other than the Chief Executive Officer)
during each of the three fiscal years ended June 30, 1998, 1997 and 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
Long Term
Name and Annual Compensation (1) Compensation
Principal ----------------------- ------------
<S> <C> <C> <C> <C>
Shares
Position Year Salary Bonus Underlying Options (2)
- -------- ---- ------ ----- -----------------------
Francis D. John 1998 $ 395,000 $ 0 -
President and Chief 1997 341,250 500,000 250,000
Executive Officer 1996 325,000 257,250(3) - (4)
Kenneth V. Huseman 1998 240,000 400,000 -
Executive Vice President 1997 200,000 125,000(5) 100,000
and Chief Operating 1996 45,000(6) - 100,000
Officer
Stephen E. McGregor 1998 272,500(7) 275,000(8) 250,000
Executive Vice President, 1997 - -
Chief Financial Officer 1996 - -
and Treasurer
Danny R. Evatt 1998 137,500 30,000 -
Chief Information 1997 125,000 25,080 15,000
Officer and Vice 1996 115,000 41,250 50,000
President of Financial
Operations
C. Ron Laidley 1998 225,000 - -
President of 1997 204,000 95,000 20,000
Yale E. Key (9) 1996 194,000 97,250 125,000
Kenneth C. Hill 1998 190,000 35,000 -
Vice President (9) 1997 180,000 50,000 10,000
1996 45,000(6) - 75,000
</TABLE>
(1) Perquisites and other personal benefits in each year to each named
executive office did not exceed the lesser of $50,000 or 10 percent of such
individuals total salary and bonus.
(2) Represents the number of shares issuable pursuant to vested and non-vested
stock options granted during the applicable fiscal year.
(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 paid as
a performance bonus for services rendered in fiscal 1996.
(4) In October 1995 Mr. John agreed to exchange 180,000 shares of Common Stock
in which he was vested pursuant to a predecessor stock option plan to the
1997 Incentive 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) The Board awarded Mr. Huseman this discretionary bonus after fiscal 1998 in
recognition of the successful completion of a series of acquisitions in
fiscal 1998 and fiscal 1999.
(6) Messrs. Huseman and Hill became executive officers of the Company upon
consummation of the WellTech Merger. This amount represents salary from
March 29, 1996 to June 30, 1996. Messrs. Huseman's and Hill's annual salary
for the 1996 fiscal year was $180,000.
(7) Includes payments made to Mr. McGregor under a consulting agreement with
the Company pursuant to which he was retained from July 15, 1997 through
December 31, 1997.
(8) The Board awarded Mr. McGregor this discretionary bonus after fiscal 1998
in recognition of the successful completion of a series of financing
transactions in fiscal 1998 and fiscal 1999.
(9) Messrs. Hill and Laidley served as executive officers of the Company for a
portion of the 1998 fiscal year, but as of June 30, 1998 did not serve in
such capacity.
4
<PAGE> 6
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information relating to options
to purchase Common Stock granted under the Key Energy Group, Inc. 1997 Incentive
Plan (the "1997 Incentive Plan") to the executive officers named in the Summary
Compensation Table above during fiscal year 1998.
<TABLE>
Individual Grants
Number of % of Total
Securities of Options Exercise
Underlying Granted to Price
Options Employees in per Expiration Grant Date
Name Granted Fiscal Year (2) Share Date Present Value
- ------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C>
Stephen E. McGregor 250,000(1) 61% $20.44 7/15/07 $4,180,504
</TABLE>
(1) These options vest as follows: (i) 200,000 of these options vest in three
equal annual installments commencing on July 15, 1998, and (ii) 50,000 of
these options vest on July 15, 2006 unless before July 15, 2000 the closing
price of the common stock of the Company is equal to or greater than $30
per share for 60 consecutive trading days, in which case the options will
best on such 60th consecutive trading day.
(2) Based on options to purchase a total of 416,000 shares of Common Stock
granted under the 1997 Incentive Plan during fiscal 1998.
(3) The grant date value of stock options was estimated using the Black-Scholes
option pricing model with the following assumptions: expected volatility -
112%; risk-free interest rate - 5.79%; time of exercise - 5 years; and no
dividend yield.
AGGREGATED OPTION EXERCISES AND VALUES AS OF FISCAL YEAR END
The following table sets forth certain information as of June 30, 1998
relating to option grants pursuant to the 1997 Incentive Plan (and predecessor
incentive plans) to the executive officers named in the Summary
Compensation Table above.
<TABLE>
Value of Unexercised
Number of Unexercised In-the Money-Options
Number Options at June 30, 1998 at June 30, 1998 (b)
of Shares Value ------------------------ --------------------
Acquired on Realized
Name Exercise (a) Exercisable Unexercisable Exercisable Unexercisable
- --------- -------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francis D. John - - 557,500 192,500 $3,514,063 $548,438
Stephen E. McGregor - - - 250,000 - -
Kenneth V. Huseman - - 116,667 83,333 501,043 298,997
Danny R. Evatt 30,000 $ 273,750 15,000 20,000 60,938 101,563
Kenneth C. Hill - - 61,250 23,750 316,406 105,470
C. Ron Laidley 60,000 1,725,000 110,000 35,000 812,500 203,125
</TABLE>
5
<PAGE> 7
(a) The dollar values in this column are calculated by determining the
difference between the fair market value of the Company's common stock on
the date of exercise of the relevant options and the exercise price of such
options. The fair market value on the date of exercise is based on the last
sale price of the Company's common stock on the NYSE or AMEX, as
applicable, on such date.
(b) The dollar values in this column are calculated by determining the
difference between the fair market value of the Company's common stock for
which the relevant options are exercisable as of the end of the fiscal year
and the exercise price of the options. The fair market value is based on
the last sale price of the Company's common stock on the NYSE on June 30,
1998 of $13.125.
6
<PAGE> 8
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Effective as of July 1, 1995, the Company entered into an employment
agreement with Mr. John which provides that Mr. John will serve as President,
Chief Executive Officer and a Director of the Company 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 initially received a base compensation of
$325,000 per year and is eligible for (i) an annual incentive bonus of up to 30%
of base compensation contingent upon the Company's achievement of goals to be
set forth in a strategic plan to be developed by the Executive Committee of the
Board of Directors, and (ii) additional bonuses in the discretion of the Board
of Director's to recognize extraordinary performance by Mr. John or the Company.
Base compensation is reviewed annually and has been (and may be in the future)
increased (but not decreased) by the Board of Directors in its discretion. Mr.
John's current annual base salary is $395,000. If during the term of the
agreement Mr. John is terminated the Company for any reason other than for
cause, or if he terminates his employment because of a material breach by the
Company or following a change of control of the Company, (i) 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 and (iii)
all stock options granted through such date will automatically vest. 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 WellTech Merger.
Mr. Huseman has entered into employment agreement with the Company
effective as of August 3, 1996. This employment agreement is for a three year
term, commencing on March 29, 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 this agreement, Mr. Huseman initially received base
compensation of $180,000 per year and is eligible for an additional annual
incentive bonus of up to 50% of his base compensation. Base compensation is
reviewed annually and has been (and may be in the future) increased (but not
decreased) by the Board of Directors in its discretion. Mr. Huseman's current
annual base salary is $240,000. If during the term of his employment agreement,
Mr. Huseman is terminated by the Company for any reason other than for cause, or
if he terminates his employment because of a material breach by the Company or
following a change of control of the Company, he will be entitled to severance
compensation equal to two times his base compensation in effect at the time of
termination payable in equal installments over a 24-month period following
termination; provided, however, that if termination results from a change of
control of the company, severance compensation will be payable in a lump sum on
the date of termination. Mr. Huseman is also subject to restrictions on
competition during the term of this agreement and, with certain exceptions,
during the severance period.
Mr. McGregor has entered into employment agreement with the Company
effective as of January 1, 1998. This employment agreement commences on January
1, 1998 and continues until June 30, 2000. 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. McGregor initially received base compensation of $240,000 per
year, and is eligible for an additional annual incentive bonus of up to 50% of
his base compensation. Base compensation is reviewed annually and may be in the
future increased (but not decreased) by the Board of Directors in its
discretion. Mr. McGregor's current annual base salary is $240,000. If during the
term of his employment agreement, Mr. McGregor is terminated by the Company for
any reason other than for cause, or if he terminates his employment because of a
material breach by the Company or following a change of control of the Company,
he will be entitled to severance compensation equal to two times his base
compensation in effect at the time of termination payable in equal installments
over a 24-month period following termination; provided, however, that if
termination results from a change of control of the company, severance
compensation will be payable in a lump sum on the date of termination. Mr.
McGregor is also subject to restrictions on competition during the term of this
agreement and, with certain exceptions, during the severance period.
7
<PAGE> 9
The Company has also entered into an employment agreement effective as
of July 1, 1995 with Mr. Evatt. Mr. Evatt's agreement originally provided that
he would serve as the Company's Chief Accounting Officer and Treasurer 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.
Under the agreement, Mr. Evatt initially received base compensation of $105,000
per year and is eligible to participate in an incentive compensation plan
providing for cash bonuses up to 30% of his base compensation. Base compensation
is reviewed annually and has been (and may be in the future) increased (but not
decreased) by the Board of Directors in its discretion. Mr. Evatt's current
annual base salary is $142,000. If during the term of his agreement Mr.
Evatt is terminated by the Company for any reason other than for cause, or if
Mr. Evatt terminates his employment because of a material breach by the Company,
he will be entitled to receive severance compensation equal to his base
compensation, payable in equal installments over a 12-month period following the
termination. Mr. Evatt's agreement also contains restrictions on competition.
Mr. Hill has entered into an employment agreement with the Company for
a three year term 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 and will be eligible for annual incentive
compensation of up to 50% of his base compensation. Base compensation is
reviewed annually and has been (and may be in the future) increased (but not
decreased) by the Board of Directors in its discretion. Mr. Hill's current
annual base salary is $190,000. If during the term of his employment
agreement, Mr. Hill is terminated by the Company for any reason other than for
cause, or if he terminates his employment because of a material breach by the
Company or following a change of control of the Company, he will be entitled to
severance compensation equal to one and one-half (1 1/2) times his base
compensation in effect at the time of termination payable in equal installments
over 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.
The Company has also entered into an employment agreement as of July 1,
1995 with Mr. Laidley. Mr. Laidley's agreement provides that he will serve as
President of Yale E. Key, Inc., a wholly owned subsidiary of the Company ("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 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
one and one-half (1 1/2) times his base compensation, payable in equal
installments over an 18 month period following termination. Mr. Laidley's
agreement contains restrictions on competition.
DIRECTOR COMPENSATION
Compensation for the non-employee Directors for fiscal year 1998 was
$3,000 per month. Such compensation is for service as a Director as well as for
advisory services that Directors may provide the Company from time to time.
Directors also are reimbursed for travel and other expenses directly associated
with Company business. All non-employee Directors have been granted options to
purchase shares of Common Stock under the 1997 Incentive Plan. During fiscal
year 1998, no options were granted under the 1997 Incentive Plan.
OTHER COMPENSATION
Key has no other deferred compensation, pension or retirement plans in
which directors or 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, 1998: William Manly, W. Phillip Marcum and Morton
Wolkowitz. None of the members of the Compensation Committee were employees of
the Company.
On January 6, 1998, Marcum Natural Gas Services, Inc. ("Marcum Natural
Gas"), a diversified provider of products and services to the natural gas
industry and a company for which W. Phillip Marcum, one of the Directors of the
Company, serves as Chairman of the Board, President and Chief Executive Officer,
sold certain assets held by its wholly owned subsidiary, Marcum Gas
Transmission, Inc. ("Marcum Gas Transmission"), to Odessa Incorporated,
a wholly owned subsidiary of the Company ("Odessa"). Marcum Natural
Gas sold the assets for a total consideration of $1,000,000, $600,000 of
which was paid by Odessa upon consummation of the agreement and
$400,000 of which is payable in equal quarterly installments over the
next two years. Marcum Natural Gas also granted Odessa a right of first refusal
to participate in future projects developed by Marcum Gas Transmission
on terms and conditions identical to those provided to Marcum Gas Transmission.
8
<PAGE> 10
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table provides information as of October 23, 1998 with
respect to the shares of Common Stock beneficially owned by (i) each Director
and executive officer of the Company, and (ii) 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. The Company does not know of any person
beneficially owning more than 5% of the outstanding Common Stock.
Percentage of
Name of Number of Outstanding
Beneficial Owner Shares (1) Shares (2)
- ---------------- ---------- --------------
Francis D. John (3) 474,535 2.5%
Kevin P. Collins (4) 111,738 *
William Manly (5) 72,709 *
W. Philip Marcum (6) 111,738 *
David J. Breazzano (7) 10,000 *
Morton Wolkowitz (8) 398,616 2.2%
Danny R. Evatt (9) 35,000 *
Kenneth V. Huseman (10) 221,990 1.2%
Stephen E. McGregor (11) 91,667 *
James Byerlotzer (12) 2,500 *
Michael R. Furrow (13) 2,500 *
Directors and Executive Officers as
a group (11 persons) 1,532,993 7.9%
========= =====
----------
*Less than 1%
(1) Includes all shares with respect to which each Director or executive
officer directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares the power to
vote or to direct voting of such shares and/or to dispose or to direct
the disposition of such shares. Includes shares that may be purchased
under currently exercisable stock options granted under the 1997 Incentive
Plan.
(2) Based on 18,287,392 shares of Common stock outstanding at October 23, 1998,
plus, for each beneficial owner, those number of shares underlying
currently exercisable options or warrants held by each executive officer or
Director.
(3) Includes 437,500 shares issuable upon exercise of vested options and 6,914
shares issuable pursuant to currently exercisable warrants. Does not
include (i) 437,500 shares issuable pursuant to options that have not
vested, and (ii) 50,045 shares held by Mr. John as custodian for his two
children.
(4) Includes 56,666 shares issuable upon the exercise of vested options. Does
not include 63,334 shares issuable pursuant to options that have not
vested.
(5) Includes 70,000 shares issuable upon the exercise of vested options. Does
not include 50,000 shares issuable pursuant to options that have not
vested.
(6) Includes 56,666 shares issuable upon the exercise of vested options. Does
not include 63,334 shares issuable pursuant to options that have not
vested.
(7) Includes 10,000 shares issuable upon the exercise of vested options. Does
not include 40,00 shares issuable pursuant to options that have not vested.
(8) Includes 97,000 shares issuable upon the exercise of vested options and
6,914 shares issuable pursuant to currently exercisable warrants. Does not
include 58,000 shares issuable pursuant to options that have not vested.
(9) Includes 30,000 shares issuable upon the exercise of vested options. Does
not include 15,000 shares issuable pursuant to options that have not
vested.
(10) Includes 208,334 shares issuable upon the exercise of vested options. Does
not include 291,666 shares issuable pursuant to options that have not
vested.
(11) Includes 91,667 shares issuable upon the exercise of vested options. Does
not include 258,333 shares issuable pursuant to options that have not
vested.
(12) Including 2,500 shares issuable upon the exercise of vested options. Does
not include 7,500 shares issuable pursuant to options that have not vested.
(13) Including 2,500 shares issuable upon the exercise of vested options. Does
not include 7,500 shares issuable pursuant to options that have not vested.
9
<PAGE> 11
Item 13. Certain Relationships and Related Transactions.
In order to assist Francis D. John, the Chairman of the Board, President
and Chief Executive Officer of the Company, with the acquisition of and
relocation to a new primary residence, the Company has provided to Mr. John
interim or bridge loans in the aggregate amount of $2,350,000 pending Mr. John
obtaining a mortgage financing from a financial institution, or other third
party lender, or otherwise arranging for the repayment of such loans. Mr. John's
indebtedness to the Company is evidenced by three (3) notes payable to the
Company on demand, which bear interest on the principal balance outstanding
thereunder at the rate equal to 125 basis points above the most recently
published "London Interbank Offered Rates (LIBOR)" for one month contracts,
redetermined on each monthly anniversary of the dates thereof. The notes provide
that interest is due and payable upon the payment of any principal thereunder in
the amount equal to accrued and unpaid interest calculated as described above on
the amount of the principal payment being made. Payment of the notes is secured
by a mortgage on the property in question executed by Mr. John in favor of the
Company.
Effective as of July 1, 1997, WellTech Eastern Inc., a wholly owned
subsidiary of the Company ("WellTech Eastern"), entered into three real property
leases with HIDCO Development Company, an entity in which Kenneth C. Hill, who
served as a Vice President of the Company for a portion of the 1998 fiscal year,
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.
On January 6, 1998, Marcum Natural Gas Services, Inc. ("Marcum Natural
Gas"), a diversified provider of products and services to the natural gas
industry and a company for which W. Phillip Marcum, one of the Directors of the
Company, serves as Chairman of the Board, President and Chief Executive Officer,
sold certain assets held by its wholly owned subsidiary, Marcum Gas
Transmission, Inc. ("Marcum Gas Transmission"), to Odessa Incorporated,
a wholly owned subsidiary of the Company ("Odessa"). Marcum Natural
Gas sold the assets for a total consideration of $1,000,000, $600,000 of
which was paid by Odessa upon consummation of the agreement and
$400,000 of which is payable in equal quarterly installments over the
next two years. Marcum Natural Gas also granted Odessa a right of first refusal
to participate in future projects developed by Marcum Gas Transmission
on terms and conditions identical to those provided to Marcum Gas Transmission.
During fiscal year 1998, the Company deposited $350,000 in a money
market account as collateral to secure a bank loan made to a business entity in
which Danny R. Evatt, Chief Information Officer and Vice President of Financial
Operations of the Company, owns an interest. Such amount is still on deposit as
collateral for the loan.
10
<PAGE> 12
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 and Chief Executive Officer
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>
<S> <C> <C>
Signatures Title Date
- -------------------------------------------------------------------------------------------------------------
/s/ Francis D. John President, Chief Executive Officer, and October 28, 1998
- ------------------------------ Director
Francis D. John
/s/ David J. Breazzano Director October 28, 1998
- ------------------------------
David J. Breazzano
/s/ Kevin P. Collins Director October 28, 1998
- ------------------------------
Kevin P. Collins
/s/ William S. Manly Director October 28, 1998
- ------------------------------
William S. Manly
/s/ Phillip W. Marcum Director October 28, 1998
- ------------------------------
Phillip W. Marcum
/s/ Morton Molkowitz Director October 28, 1998
- ------------------------------
Morton Wolkowitz
/s/ Stephen E. McGregor Executive Vice President, Chief October 28, 1998
- ------------------------------ Financial Officer and Treasurer
Stephen E. McGregor
/s/ Danny R. Evatt Vice President of Financial Operations October 28, 1998
- ------------------------------ (Principal Accounting Officer)
Danny R. Evatt
</TABLE>
11
