<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A-2
(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, 1999
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 SERVICES, 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, 20th 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
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 November 17, 1999 was approximately $451,086,762.
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 November 17, 1999: 82,740,330
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth the names and ages, as of November 17,
1999, 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............................... 45 Chairman of the Board, President, Chief Executive
Officer and Chief Operating Officer
David J. Breazzano............................ 43 Director
Kevin P. Collins.............................. 48 Director
William D. Manly.............................. 76 Director
W. Phillip Marcum............................. 55 Director
Morton Wolkowitz.............................. 71 Director
Thomas K. Grundman ........................... 39 Executive Vice President, Chief Financial Officer,
Chief Accounting Officer and Treasurer
James J. Byerlotzer........................... 53 Executive Vice President of Domestic Well Service
and Drilling Operations
D. Kirk Edwards............................... 39 Senior Vice President of Safety, Human Resources
and Technology
</TABLE>
Francis D. John has been Chairman of the Board since August 1996,
the Chief Executive Officer since October 1989 and the Chief Operating
Officer since April 1999. 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 one of the founding principals at DDJ Capital Management, LLC,
an investment management firm 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 Waste Systems International, Inc. and Samuels Jewelers,
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
has been a managing member of the Old Hill Company LLC since 1997. From 1992
to 1997, he 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. He holds a BS and an
MBA from the University of Minnesota.
William D. 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 when WellTech
was merged into the Company. 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 Metretek
Technologies, Inc., formerly known as Marcum Natural Gas
1
<PAGE>
Services, Inc. ("Metretek Technologies"), since January 1991 and is a
director of TestAmerica, Inc. He holds a BBA from Texas Tech University.
Morton Wolkowitz has been a Director since December 1989. Mr.
Wolkowitz served as 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.
Thomas K. Grundman has been Executive Vice President, Chief
Financial Officer and Treasurer since July 1999 and Chief Accounting Officer
since November 1999. He joined the Company in April 1999 as Sr. Vice
President of Strategic and Business Development. From late 1996 to April
1999, Mr. Grundman was Senior Vice President at PNC Bank, N.A. where he ran
the Oil and Gas Corporate Finance Group and was responsible for providing
financing and advisory services in all sectors of the energy industry. From
1984 through 1996, Mr. Grundman held several positions at Chase Manhattan
Bank and its predecessor institutions, most recently as a Managing Director
in the oil and gas group. Mr. Grundman holds a BS in Finance from Syracuse
University.
James J. Byerlotzer has been Executive Vice President of Domestic
Well Service and Drilling Operations since July 1999. He 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 Vice President -- Permian Basin of
Pride 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.
D. Kirk Edwards has been Senior Vice President of Safety, Human
Resources and Technology since July 1999. He has been President and Chief
Executive Officer of Odessa Exploration Incorporated, a wholly-owned
subsidiary of the Company ("Odessa"), since July 1993. He was a member of the
Board of Directors from July 1994 to March 1996. Mr. Edwards was the owner
and president of Odessa from 1987 until it was acquired by the Company in
1993. Mr. Edwards holds a BS from the University of Texas at Austin.
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 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.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
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 furnished to the Company, the Company believes that its directors,
executive officers or 10% stockholders complied with all Section 16(a) filing
requirements during the fiscal year ended June 30, 1999, other than Messrs.
Furrow and Grundman, each of whom did not file initial reports of ownership
on Form 3 on a timely basis, and Mr. Byerlotzer who did not file an initial
report of ownership on Form 3 and report a change in ownership on Form 4,
with respect to one transaction, on a timely basis.
2
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE. The following table reflects the
compensation for services to the Company for the years ended June 30, 1999,
1998, and 1997 for (i) the Chief Executive Officer of the Company, (ii) the
four most highly compensated executive officers of the Company other than the
Chief Executive Officer who were serving as executive officers at June 30,
1999 and (iii) a former executive officer of the Company for whom disclosure
would have been provided pursuant to clause (ii) above but for the fact that
such individual was not serving as an executive officer of the Company at
June 30, 1999 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------- OTHER
ANNUAL SHARES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(1) ($)
- ----------------------------------------- --------- ------------ ----------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Francis D. John ......................... 1999 429,000(2) -- -- 1,200,000 --
President and Chief Executive Officer 1998 395,000 -- -- -- --
1997 341,250 500,000 -- 250,000(3) --
Kenneth V. Huseman ...................... 1999 257,650 -- -- 300,000 10,210(5)
Executive Vice President and Chief 1998 240,000 400,000(6) -- -- --
Operating Officer (4) 1997 200,000 125,000 -- 100,000 --
Stephen E. McGregor ..................... 1999 240,000 -- -- 400,000 --
Executive Vice President, Chief 1998 272,500(7) 275,000(8) -- 250,000 --
Financial Officer and Treasurer (9)
James J. Byerlotzer ..................... 1999 121,153 -- -- 260,000 75,000(10)
Vice President-- Permian
Basin Operations (11)
Michael R. Furrow ....................... 1999 112,759 -- 13,333(13) 75,000 --
Vice President--Central Operations
(11)(12)
Danny R. Evatt .......................... 1999 145,000 -- -- 90,000 --
Vice President of Financial 1998 137,500 30,000 -- -- --
Operations and Chief Information 1997 125,000 25,080 -- 15,000 --
Officer (14)
</TABLE>
(1) Represents the number of shares issuable pursuant to vested and
non-vested stock options granted during the applicable fiscal year.
(2) Reflects a salary decrease of 38% effective December 1, 1998 as
compared to the salary in effect at July 1, 1998.
(3) 125,000 of these options were transferred in fiscal 1999 pursuant to a
marital property settlement.
(4) Mr. Huseman's employment with the Company was terminated effective
April 9, 1999 and all options awarded to Mr. Huseman have been
forfeited.
(5) Represents insurance premiums paid by the Company with respect to life
insurance for the benefit of Mr. Huseman.
(6) 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.
(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.
3
<PAGE>
(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) Mr. McGregor's employment with the Company was terminated effective as
of July 1, 1999.
(10) Represents payments to Mr. Byerlotzer pursuant to a non-competition
agreement entered into in connection with the Company's acquisition of
Dawson Production Services, Inc.
(11) Messrs. Byerlotzer and Furrow joined the Company on September 21, 1998.
(12) Mr. Furrow ceased serving as an executive officer effective as of July
1, 1999.
(13) Represents amounts reimbursed to Mr. Furrow for certain relocation
expenses.
(14) Mr. Evatt ceased serving as an executive officer effective as of
November 11, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information relating to options
granted under the 1997 Incentive Plan to the Named Executive Officers during
fiscal 1999. The Company did not grant any stock appreciation rights during
fiscal 1999.
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS
NUMBER OF % OF TOTAL
SECURITIES OF OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR(1) SHARE DATE VALUE(2)
- ---- --------------- ---------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
Francis D. John............... 500,000 (3) 10.1% $7.125 09/04/08 $2,705,000
700,000 (4) 14.1 3.00 05/05/09 1,673,000
Kenneth V. Huseman............ 300,000 (3) 6.0 7.125 09/04/08 1,623,000
Stephen E. McGregor........... 100,000 (3) 2.0 7.125 09/04/08 541,000
300,000 (5) 6.0 3.00 05/05/09 717,000
James J. Byerlotzer........... 10,000 (6) 0.2 7.125 10/15/08 52,400
250,000 (4) 5.0 3.00 05/05/09 597,500
Michael R. Furrow............. 10,000 (6) 0.2 7.125 10/15/08 52,400
65,000 (4) 1.3 3.00 05/05/09 155,350
Danny R. Evatt................ 10,000 (3) 0.2 7.125 09/04/08 54,100
80,000 (4) 1.6 3.00 05/05/09 191,200
</TABLE>
- ---------------
(1) Based on options to purchase a total of 4,969,444 shares of Common
Stock granted under the 1997 Incentive Plan during fiscal 1999.
(2) The grant date value of stock options was estimated using the
Black-Scholes option pricing model with the following assumptions:
expected volatility--98%; risk-free interest rate--5.09%; time of
exercise--5 years; and no dividend yield.
(3) These options were granted on September 4, 1998, and vest in four equal
annual installments commencing on the date of grant.
(4) These options were granted on May 5, 1999, and vest in three equal
annual installments commencing July 1, 2000.
(5) These options were granted on May 5, 1999, and vested on the date of
grant.
(6) These options were granted on October 15, 1998, and vest in four equal
annual installments commencing on the date of grant.
4
<PAGE>
AGGREGATED OPTION EXERCISES AND VALUES AS OF FISCAL YEAR END
The following table sets forth certain information as of June 30, 1999
relating to the value of unexercised options held by the Named Executive
Officers. None of the Named Executive Officers exercised stock options during
fiscal 1999.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY-OPTIONS
NUMBER OF UNEXERCISED AT JUNE 30, 1999(1)
OPTIONS AT JUNE 30, 1999 ----------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Francis D. John (2)..................... 468,750 1,106,250 $ - $ 584,375
Kenneth V. Huseman (3).................. 233,334 - - -
Stephen E. McGregor..................... 391,667 258,333 168,750 -
James J. Byerlotzer..................... 2,500 257,500 - 140,525
Michael R. Furrow....................... 2,500 72,500 - 36,562
Danny R. Evatt.......................... 33,750 91,250 - 45,000
</TABLE>
- -------------------
(1) The dollar values in this column are calculated by determining the
difference between the fair market value of the Common Stock for which
the applicable options are exercisable as of the end of the fiscal year
and the exercise price of such options. The fair market value is based
on the last sale price of the Common Stock on the NYSE on June 30,
1999, which was $3.5625.
(2) With respect to Mr. John, the amount reported reflects the transfer of
375,000 options in fiscal 1999 pursuant to a marital property
settlement.
(3) All options awarded to Mr. Huseman have been forfeited since his
employment with the Company ceased.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
The Company entered into an employment agreement with Mr. John
effective as of July 1, 1995, which provided 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.
Under this agreement, Mr. John initially received annual base compensation of
$325,000. Mr. John's base compensation was reviewed annually under this
agreement and could be increased by the Board of Directors in its discretion.
Mr. John's annual base salary at June 30, 1999 was $429,000.
Effective as of July 1, 1999, the Company entered into a new employment
agreement with Mr. John, which provides that Mr. John will serve as Chairman of
the Board, President, Chief Executive Officer and Chief Operating Officer of the
Company for a five-year term commencing July 1, 1999 and continuing until June
30, 2004 with an automatic one-year renewal on each anniversary date commencing
July 1, 2000, unless terminated no later than 30 days before a renewal. Under
this agreement, Mr. John's annual base salary will be $575,000 per year subject
to annual review by the Board of Directors; PROVIDED, HOWEVER, that his base
salary may be increased, but not decreased. This agreement also provides that he
will be entitled to (i) participate in the Company's Performance Compensation
Plan, with performance criteria to be approved by the Compensation Committee,
(ii) receive additional bonuses at the discretion of the Compensation Committee,
and (iii) participate in the 1997 Incentive Plan. In addition to salary and
bonus, Mr. John is entitled to life insurance in an amount equal to $5 million,
reimbursement of expenses, various perquisites and a personal umbrella policy in
the amount of $5 million. Also, if Mr. John is subject to the tax imposed by
Section 4999 of the Internal Revenue Code, the Company has agreed to reimburse
him for such tax on an after-tax basis.
5
<PAGE>
In the event that Mr. John's employment agreement is terminated by the
Company without "Cause" or by Mr. John for "Good Reason", death, "Disability",
or as a result of a "Change in Control," all as defined in the agreement, Mr.
John will be entitled to receive: (i) accrued but unpaid salary to the date of
termination; (ii) any prior year bonus earned but not paid and a pro rata bonus
for the year in which the termination occurs; (iii) a severance payment in the
amount of three times the sum of the average of his total annual compensation
(i.e., salary plus bonus) for the preceding three years; (iv) immediate vesting
and exercisability of all stock options held by him (to the extent not already
vested and exercisable) for the remainder of the original term of the option;
(v) any other amounts earned, accrued or owing to Mr. John, but not yet paid
including any and all obligations to be performed with respect to applicable
benefits or perquisites to be provided to him following his termination; and
(vi) continued participation in medical, dental, and life insurance coverage
until Mr. John receives equivalent coverage and benefits under the plans and
programs of a subsequent employer, or the death of the latter of Mr. John or his
spouse. In the event that Mr. John's employment is terminated for Cause or as a
result of his resignation, he will be entitled to receive (a) accrued unpaid
salary to the date of the termination, (b) any prior year-end bonus earned but
not paid; and (c) the vested portion of stock options which he then holds.
Furthermore, Mr. John's new employment agreement also provides for a
three-year non-competition provision in the event that he is receiving severance
payments pursuant to the terms of his employment agreement or, in the event that
no payments are being made pursuant to the agreement, a one-year prohibition
against competition applies. In the event Mr. John's employment is terminated as
a result of a Change in Control, the agreement provides that the non-competition
provision will not apply.
Finally, Mr. John's new employment agreement provides that he will not
(i) exercise any option pertaining to shares of Common Stock that has been
granted to him (or which may be granted to him) or (ii) sell any Common Stock or
other equity securities of the Company that he owns for a period of three years
from the effective date of his new employment agreement, other than in the event
of a Change in Control. However, if the price of the Common Stock is in excess
of an average of $12.00 per share for a period of 60 days, then Mr. John shall
be entitled to sell or otherwise dispose of any equity securities of the Company
owned by him provided he does not reduce his aggregate beneficial ownership of
equity securities of the Company by more than 50% of his then aggregate holdings
at the time of such sales or other disposition.
Mr. Grundman entered into an employment agreement with the Company
effective as of July 1, 1999. This agreement is for a three-year term and
thereafter for successive one-year terms unless terminated 60 days prior to the
commencement of an extension term. Under this agreement, Mr. Grundman initially
receives annual base compensation of $200,000 and is eligible for additional
annual incentive bonuses. If during the term of his employment agreement Mr.
Grundman 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 his base compensation in effect at the time of termination
payable in equal installments over a 36-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. Also, if Mr. Grundman is subject to the tax imposed by Section 4999
of the Internal Revenue Code, the Company has agreed to reimburse him for such
tax on an after-tax basis.
Mr. Byerlotzer entered into an employment agreement with the Company
effective as of November 13, 1998. Under this agreement, Mr. Byerlotzer
initially received annual base compensation of $170,000. Mr. Byerlotzer entered
into a new employment agreement with the Company effective as of July 1, 1999
for a three-year term and thereafter for successive one-year terms unless
terminated 30 days prior to the commencement of an extension term. Under the new
agreement, Mr. Byerlotzer receives annual base compensation of $185,000 and is
eligible for additional annual incentive bonuses. If during the term of his
employment agreement Mr. Byerlotzer is terminated by the Company for any reason
other than for cause, he will be entitled to severance compensation equal to 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.
6
<PAGE>
Mr. Edwards entered into an employment agreement with the Company
effective as of July 1, 1996. The agreement is for a three-year term and
thereafter for successive one-year terms unless terminated 30 days prior to the
commencement of the extension term. Under this agreement, Mr. Edwards initially
received annual base compensation of $165,000, and is eligible for an additional
annual incentive bonus of up to 30% of his base compensation. Mr. Edward's
employment agreement provides that if during the term of his employment
agreement Mr. Edwards 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 is 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 is payable in a lump
sum on the date of termination.
Mr. Huseman entered into an employment agreement with the Company
effective as of August 3, 1996. This employment agreement was for a three year
term commencing on August 3, 1996. Under this agreement, Mr. Huseman initially
received annual base compensation of $200,000 and was eligible for an additional
annual incentive bonus of up to 50% of his base compensation. If during the term
of his employment agreement, Mr. Huseman was terminated by the Company for any
reason other than for cause, or if he terminated his employment because of a
material breach by the Company or following a change of control of the Company,
he was 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 resulted from a change of control of the Company, severance
compensation was payable in a lump sum on the date of termination. Mr. Huseman
was also subject to restrictions on competition during the term of this
agreement. Mr. Huseman's employment with the Company ceased effective as of
April 9, 1999. The Company did not pay Mr. Huseman any severance compensation in
connection with the termination of his employment.
Mr. McGregor entered into an employment agreement with the Company
effective as of January 1, 1998. Under this agreement, Mr. McGregor initially
received annual base compensation of $240,000, and was eligible for an
additional annual incentive bonus of up to 50% of his base compensation. Mr.
McGregor's employment agreement provided that if during the term of his
employment agreement Mr. McGregor was terminated by the Company for any reason
other than for cause, or if he terminated his employment because of a material
breach by the Company or following a change of control of the Company, he was
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 resulted
from a change of control of the Company, severance compensation was payable in a
lump sum on the date of termination. Mr. McGregor was subject to restrictions on
competition during the term of this agreement. Mr. McGregor's employment with
the Company ceased effective as of July 1, 1999 and he was paid severance
benefits as discussed below.
Mr. Evatt entered into an employment agreement with the Company
effective as of July 1, 1995. Mr. Evatt entered into a new employment agreement
with the Company effective as of July 1, 1999 for a three-year term, and
thereafter for successive one-year terms unless terminated 30 days prior to the
commencement of an extension term. Under the new agreement, Mr. Evatt initially
receives annual base compensation of $145,000 per year and is eligible for
additional incentive bonuses. If during the term of his agreement Mr. Evatt is
terminated by the Company for any reason other than for cause, he will be
entitled to receive severance compensation equal to his base compensation,
payable in equal installments over a 24-month period following the 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. Evatt ceased serving as an executive officer of the Company
effective as of November 11, 1999, however his employment agreement remains in
effect.
Mr. Furrow entered into an employment agreement with the Company
effective as of January 4, 1999. This agreement is for a three-year term and
thereafter for successive one-year terms unless terminated 30 days prior to the
commencement of an extension term. Under this agreement, Mr. Furrow initially
received an annual base compensation of $160,000 and is eligible for additional
annual incentive bonuses. If during the term of his employment agreement, Mr.
Furrow is terminated by the Company for any reason other than for cause, he will
be entitled to severance compensation equal to his base compensation in effect
at the time of termination payable in equal installments over a 12-month period
following termination; PROVIDED, HOWEVER, that if termination results from a
change of control of the
7
<PAGE>
Company, severance compensation will be payable in a lump sum on the date of
termination. Mr. Furrow ceased serving as an executive officer of the Company
effective as of July 1, 1999, however his employment agreement remains in
effect.
SEVERANCE AGREEMENTS
Effective as of July 1, 1999, the Company entered into a severance
arrangement with Mr. McGregor pursuant to which the Company made a one-time
severance payment to Mr. McGregor in the amount of $100,000. In addition, Mr.
McGregor will be entitled to receive additional payments of $725,000 for
services to be rendered by him in connection with the disposition by the Company
of certain of its assets to be specified. The Company has advanced Mr. McGregor
$425,000 against these payments. In addition, the severance arrangement provides
that Mr. McGregor will be entitled to receive certain group medical and dental,
life, executive life, accident and disability benefits for a three-year period
following his termination, as well as an automobile allowance and certain
additional payments to cover any short-fall in any payments made pursuant to the
Company's medical insurance coverage. Mr. McGregor's severance arrangement with
the Company also provides that certain options to acquire shares of Common Stock
that have been granted to him will become immediately vested and that certain of
those options will remain exercisable for a period of five years. The severance
arrangement also provides Mr. McGregor with certain piggy-back registration
rights with respect to shares of the Common Stock acquired by him upon the
exercise of those options.
DIRECTOR COMPENSATION
No director who is also an employee of the Company or any of its
subsidiaries receives any fees from the Company for his services as a Director
or as a member of any committee of the Board of Directors. During the fiscal
year ended June 30, 1999 all other Directors ("Non-employee Directors") received
a fee equal to $3,000 per month for each month of service and are reimbursed for
travel and other expenses directly associated with Company business.
Additionally, during fiscal 1999 the Company paid the premiums with respect to
life insurance for the benefit of Messrs. Collins and Marcum in the amount of
$2,871 and $5,389, respectively. Each Non-employee Director was granted options
under the 1997 Incentive Plan on September 4, 1998 and May 5, 1999 to purchase
50,000 and 100,000 shares of Common Stock, respectively, other than Mr.
Wolkowitz who was granted options to purchase 60,000 shares of Common Stock on
September 4, 1998 and options to purchase 120,000 shares of Common Stock on May
5, 1999. The options granted on September 4, 1998 and May 5, 1999, vest in four
equal annual installments commencing on the date of grant of each of the
options.
OTHER COMPENSATION
The Company has no other deferred compensation, pension or retirement
plans in which Directors or executive officers participate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On January 6, 1998, Metretek Technologies, 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. Metretek Technologies sold the assets for a total
consideration of $700,000. Metretek Technologies 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>
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
MANAGEMENT
The following sets forth, as of November 17, 1999, the number of shares
of Common Stock beneficially owned by each (i) Director, (ii) executive officer,
and (iii) 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OUTSTANDING
NAME OF BENEFICIAL OWNER SHARES(1) SHARES(2)
------------------------ --------- -------------
<S> <C> <C>
Francis D. John(3).............................................. 671,164 *
Kevin P. Collins(4)............................................. 165,072 *
William D. Manly(5)............................................. 112,709 *
W. Philip Marcum(6)............................................. 165,072 *
David J. Breazzano(7)........................................... 95,000 *
Morton Wolkowitz(8)............................................. 491,216 *
James J. Byerlotzer (9)......................................... 27,000 *
D. Kirk Edwards (10)............................................ 151,400 *
Thomas K. Grundman (11)......................................... 10,000 *
Directors and Executive Officers as a group (9 persons) ........ 1,888,633 2.2%
- ----------------
* Less than 1%
</TABLE>
(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 82,740,330 shares of Common stock outstanding at November 17,
1999, plus, for each beneficial owner, those number of shares
underlying currently exercisable options or warrants held by each
executive officer or Director.
(3) Includes 593,750 shares issuable upon exercise of vested options and
6,914 shares issuable pursuant to currently exercisable warrants. Does
not include (i) 981,250 shares issuable pursuant to options that have
not vested and (ii) shares issuable pursuant to 375,000 options that
were disposed of pursuant to a marital property settlement in fiscal
1999.
(4) Includes 110,000 shares issuable upon the exercise of vested options.
Does not include 110,000 shares issuable pursuant to options that have
not vested.
(5) Includes 110,000 shares issuable upon the exercise of vested options.
Does not include 110,000 shares issuable pursuant to options that have
not vested.
(6) Includes 110,000 shares issuable upon the exercise of vested options.
Does not include 110,000 shares issuable pursuant to options that have
not vested.
(7) Includes 45,000 shares issuable upon the exercise of vested options.
Does not include 105,000 shares issuable pursuant to options that have
not vested.
(8) Includes 144,000 shares issuable upon the exercise of vested options
and 6,914 shares issuable pursuant to currently exercisable warrants.
Does not include 131,000 shares issuable pursuant to options that have
not vested.
9
<PAGE>
(9) Includes 5,000 shares issuable upon the exercise of vested options.
Does not include 255,000 shares issuable pursuant to options that have
not vested.
(10) Includes 32,500 shares issuable upon the exercise of vested options.
Does not include 152,500 shares issuable pursuant to options that have
not vested.
(11) Does not include 300,000 shares issuable pursuant to options that have
not vested.
In addition, the following Named Executive Officers who were not
executive officers of the Company at November 17, 1999 beneficially own (based
on available information) Common Stock as follows: Danny R. Evatt - 51,250
shares (includes 36,250 shares issuable upon the exercise of vested options);
Michael R. Furrow - 28,000 shares (includes 5,000 shares issuable upon the
exercise of vested options); Stephen E. McGregor - 440,000 shares (includes
400,000 shares issuable upon the exercise of vested options); and Kenneth V.
Huseman - 2,500 shares.
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of November 17, 1999, certain
information regarding the beneficial ownership of Common Stock by each person,
other than the Company's directors or executive officers, who is known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AT NOVEMBER 17, 1999
NAME AND ADDRESS OF BENEFICIAL -------------------------------------
OWNER, IDENTITY OF GROUP NUMBER PERCENT
- ------------------------------------------------------------------- -------------------------------------
<S> <C> <C>
West Highland Capital, Inc. (1).................................... 8,000,000 9.7%
Lang H. Gerhard
300 Drake's Landing Road, Suite 290
Greenbrae, California 94904
</TABLE>
- ---------------------
(1) As reported on Schedule 13G (Amendment No. 1) filed with the Commission
on July 6, 1999.
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 provided Mr. John interim
or bridge loans in the aggregate amount of $2,350,000, pending Mr. John
obtaining 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.
Subsequent to the bridge loans described above, during the period from
December 1998 to August 1999, the Company also provided additional cash
advances, in the form of personal loans, to Mr. John in the aggregate amount of
$2,655,000. Mr. John's additional indebtedness to the Company is evidenced by
seven (7) additional notes payable to the Company on demand, which also bear
interest on the principal balance outstanding thereunder at the rate equal to
125 basis points above the most recently published LIBOR for one-month
contracts, redetermined on each monthly anniversary of the dates thereof. These
notes likewise provide that interest is due and payable upon the payment of any
principal thereunder in an amount equal to accrued and unpaid interest
calculated as described above on the amount of
10
<PAGE>
the principal payment being made. Payment of these additional notes is also
secured by a mortgage on Mr. John's personal residence executed by Mr. John
in favor of the Company. As a result of these additional borrowings, Mr. John
currently has aggregate borrowings outstanding from the Company in the amount
of $5 million, which are secured by a first mortgage on his principal
residence.
In connection with the negotiation of the terms of a five year
employment agreement with Mr. John and as an inducement to Mr. John to enter
into the new employment agreement, the Company entered into an agreement with
Mr. John, dated as of August 2, 1999, whereby, with respect to the aggregate of
$5 million in loans by the Company to Mr. John described above, the Company has
agreed that such loans, together with the accrued interest payable thereon, will
be forgiven ratably during the five year period commencing on July 1, 2000 and
ending on July 1, 2004. The agreement provides that the foregoing forgiveness of
indebtedness is predicated and conditioned upon Mr. John remaining employed by
the Company during the period from July 1, 1999 to July 1, 2004. In the event
that Mr. John is terminated by the Company for "Cause" (as defined in the
agreement), or in the event that Mr. John voluntarily terminates his employment
with the Company, the agreement further provides that the entire remaining
principal balance of these loans, together with accrued interest payable
thereon, will become immediately due and payable by Mr. John. However, in the
event that Mr. John's employment is terminated for "Good Reason", or as a result
of Mr. John's death or "Disability", or as a result of a "Change in Control"
(all as defined in that agreement), the agreement stipulates that the remaining
principal balance outstanding on the loans, together with accrued interest
thereon, will be forgiven.
The agreement provides that, during the term thereof, Mr. John shall be
required to post such additional collateral to secure such loans as the Board of
Directors of the Company in its sole discretion may from time to time deem to be
necessary and/or appropriate under the circumstances and that the Board shall
review the adequacy of the collateral on at least an annual basis.
This agreement further provides that with respect to any forgiveness of
the payment of principal and interest on the loans, Mr. John will be entitled to
receive a "gross-up" payment in an amount sufficient for him to pay any federal,
state, or local income taxes that may be due and payable by him with respect to
the forgiveness of such indebtedness (principal and interest). In addition, the
agreement provides that if Mr. John is subject to the tax imposed by Section
4999 of the Internal Revenue Code, the Company will reimburse him for such tax
on an after-tax basis.
The agreement also provides that he will not (i) exercise any option
pertaining to shares of Common Stock that has been granted to him (or which may
be granted to him) or (ii) sell any Common Stock or other equity securities of
the Company that he owns for a period of three years from the effective date of
his new employment agreement, other than in the event of a Change in Control.
However, if the price of the Common Stock is in excess of an average of $12.00
per share for a period of 60 days, then Mr. John shall be entitled to sell or
otherwise dispose of any equity securities of the Company owned by him provided
he does not reduce his aggregate beneficial ownership of equity securities of
the Company by more than 50% of his then aggregate holdings at the time of such
sales or other disposition.
On January 6, 1998, Metretek Technologies, 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, to Odessa. Metretek
Technologies sold the assets for a total consideration of $700,000. Metretek
Technologies 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 1998, the Company deposited $250,000 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.
In fiscal 1999, an investment management firm in which David J.
Breazzano, one of the Company's Directors, is a principal, purchased $25 million
principal amount of the Company's borrowings under a bridge loan agreement which
has since been repaid in full.
11
<PAGE>
In fiscal 1999, the Company entered into a consulting agreement with
an investment banking firm in which Kevin P. Collins, one of the Company's
Directors is a principal, pursuant to which such firm provided financial
advisory services to the Company in connection with the Equity Offering and
for which such firm received a total of $167,000.
In connection with the negotiation of an employment agreement with
Thomas K. Grundman, the Company's Executive Vice President, Chief Financial
Officer and Treasurer, the Company made a $240,000 bridge loan and a $150,000
relocation loan to assist Mr. Grundman's relocation to the Company's executive
offices. Interest on these loans accrues at a rate of 6.125% per annum. The
bridge loan has been repaid. The relocation loan together with accrued interest
will be forgiven in three installments of $50,000 each on July 1, 2000, 2001 and
2002; PROVIDED that if Mr. Grundman's employment is terminated during such
period in a way that (i) triggers severance obligations, all amounts owed shall
be immediately forgiven or (ii) does not trigger severance obligations, all
amounts owed shall be immediately due and payable.
12
<PAGE>
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 SERVICES, 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. Signatures
Title Date
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ FRANCIS D. JOHN Chairman of the Board, President, November 24, 1999
- -------------------------------------------- and Chief Executive Officer
Francis D. John
/s/ DAVID J. BREAZZANO Director November 24, 1999
- --------------------------------------------
David J. Breazzano
/s/ KEVIN P. COLLINS Director November 24, 1999
- --------------------------------------------
Kevin P. Collins
/s/ WILLIAM D. MANLY Director November 24, 1999
- --------------------------------------------
William D. Manly
/s/ W. PHILLIP MARCUM Director November 24, 1999
- --------------------------------------------
W. Phillip Marcum
/s/ MORTON WOLKOWITZ Director November 24, 1999
- --------------------------------------------
Morton Wolkowitz
/s/ THOMAS K. GRUNDMAN Chief Financial Officer and Chief November 24, 1999
- -------------------------------------------- Accounting Officer
Thomas K. Grundman
</TABLE>
13
