<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] 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
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
--- ---
Common Shares outstanding at November 10, 1999 - 82,740,330
<PAGE>
KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
INDEX
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1999 and June 30, 1999........................ 3
Unaudited Consolidated Statements of
Operations for the Three Months Ended
September 30, 1999 and 1998................................. 4
Unaudited Consolidated Statements of
Cash Flows for the Three Months Ended
September 30, 1999 and 1998................................. 5
Consolidated Statements of Comprehensive
Income for the Three Months Ended
September 30, 1999 and 1998................................. 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 19
Item 2. Changes in Securities and Use of Proceeds....................... 19
Item 3. Defaults Upon Senior Securities................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............. 19
Item 5. Other Information............................................... 19
Item 6. Exhibits and Reports on Form 8-K................................ 19
Signatures ................................................................ 20
</TABLE>
2
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KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 JUNE 30, 1999
------------------ --------------
(UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<S> <C> <C>
Current assets:
Cash................................................................................ $12,371 $23,478
Accounts receivable, net............................................................ 112,198 91,998
Inventories......................................................................... 14,584 12,742
Prepaid income taxes................................................................ - 916
Prepaid expenses and other current assets........................................... 5,310 3,409
---------------- ----------------
Total current assets.................................................................. 144,463 132,543
---------------- ----------------
Property and equipment:
Oilfield service equipment.......................................................... 641,200 632,854
Contract drilling equipment......................................................... 85,734 86,225
Motor vehicles...................................................................... 66,651 70,398
Oil and gas properties and other related equipment, successful efforts method....... 42,984 42,925
Furniture and equipment............................................................. 10,034 8,452
Buildings and land.................................................................. 31,325 31,086
---------------- ----------------
877,928 871,940
Accumulated depreciation & depletion.................................................. (116,479) (102,378)
---------------- ----------------
Net property and equipment............................................................ 761,449 769,562
---------------- ----------------
Goodwill, net....................................................................... 200,527 205,423
Deferred costs, net................................................................. 23,558 23,779
Notes receivable - related parties.................................................. 4,750 2,835
Other assets........................................................................ 15,117 13,996
---------------- ----------------
Total assets........................................................................ $1,149,864 $1,148,138
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $26,211 $18,527
Other accrued liabilities........................................................... 29,370 25,291
Accrued interest.................................................................... 5,244 13,079
Current portion of long-term debt................................................... 17,239 16,254
---------------- ----------------
Total current liabilities............................................................. 78,064 73,151
---------------- ----------------
Long-term debt, less current portion.................................................. 693,947 683,724
Non-current accrued expenses.......................................................... 1,907 1,739
Deferred tax liability................................................................ 97,700 101,430
Commitments and contingencies......................................................... - -
Stockholders' equity:
Common stock, $.10 par value; 100,000,000 shares authorized, 83,155,093
and 83,155,072 shares issued, respectively at September 30, 1999 and
June 30, 1999, respectively......................................................... 8,317 8,317
Additional paid-in capital.......................................................... 301,218 301,615
Treasury stock, at cost; 416,666 shares at September 30, 1999 and June 30, 1999..... (9,682) (9,682)
Accumulated other comprehensive income.............................................. 9 9
Retained earnings (deficit)......................................................... (21,616) (12,165)
---------------- ----------------
Total stockholders' equity............................................................ 278,246 288,094
---------------- ----------------
Total liabilities and stockholders' equity............................................ $1,149,864 $1,148,138
================ ================
</TABLE>
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
3
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KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------
1999 1998
---- ----
(THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
REVENUES:
Well servicing................................................................... $130,817 $96,494
Contract drilling................................................................ 16,458 16,915
Oil and gas production........................................................... 2,020 1,770
Other, net....................................................................... 597 408
-------------- -------------
149,892 115,587
============== =============
COSTS AND EXPENSES:
Well servicing................................................................... 99,214 67,165
Contract drilling................................................................ 14,271 13,860
Oil and gas production........................................................... 1,000 759
Depreciation, depletion and amortization......................................... 16,821 10,703
General and administrative....................................................... 13,912 11,212
Bad debt expense................................................................. 477 226
Interest......................................................................... 17,388 8,505
-------------- -------------
163,083 112,430
-------------- -------------
Income (loss) before income taxes.................................................. (13,191) 3,157
Income tax benefit (expense)....................................................... 3,740 (1,320)
-------------- -------------
NET INCOME (LOSS).................................................................. $(9,451) $1,837
============== =============
EARNINGS (LOSS) PER SHARE:
Basic............................................................................ $(0.11) $0.10
Diluted.......................................................................... $(0.11) $0.10
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic............................................................................ 82,738 18,268
Diluted.......................................................................... 82,738 18,976
</TABLE>
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
4
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KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------
1999 1998
---- ----
(THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(9,451) $1,837
ADJUSTMENTS TO RECONCILE INCOME FROM OPERATIONS TO NET CASH PROVIDED BY (USED IN)
OPERATIONS:..................................................................
Depreciation, depletion and amortization....................................... 16,821 10,703
Amortization of deferred debt costs and warrants............................... 1,255 767
Bad debt expense............................................................... 477 226
Deferred income taxes.......................................................... (3,740) 1,320
Gain on sale of assets......................................................... (6) 47
Other non-cash items........................................................... 916 202
CHANGE IN ASSETS AND LIABILITIES, NET OF EFFECTS FROM THE ACQUISITIONS:
(Increase) decrease in accounts receivable.................................. (20,677) 4,477
(Increase) decrease in other current assets................................. (3,733) 537
Decrease in accounts payable, accrued interest and accrued expenses......... 3,928 (5,213)
Other assets and liabilities................................................ (185) (2,495)
-------------- --------------
Net cash provided by (used in) operating activities............................ (14,395) 12,408
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - Well servicing.......................................... (3,200) (6,587)
Capital expenditures - Contract drilling....................................... (1,100) (1,019)
Capital expenditures - Oil and gas............................................. (77) (1,608)
Capital expenditures - Other................................................... (1,233) -
Proceeds from sale of fixed assets............................................. 127 91
Cash received in acquisitions.................................................. - 27,008
Acquisitions - Well servicing.................................................. - (272,292)
Notes receivable from related parties.......................................... (1,915) -
-------------- --------------
Net cash used in investing activities.......................................... (7,398) (254,407)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt and capital lease obligations...................... (1,314) (1,713)
Borrowings under line-of-credit................................................ 12,000 128,000
Proceeds from bridge loan...................................................... - 150,000
Debt issuance costs............................................................ - (19,636)
-------------- --------------
Net cash provided by financing activities...................................... 10,686 256,651
-------------- --------------
Net increase (decrease) in cash and cash equivalents........................... (11,107) 14,652
Cash and cash equivalents at beginning of period............................... 23,478 25,265
-------------- --------------
Cash and cash equivalents at end of period..................................... $12,371 $39,917
============== ==============
</TABLE>
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
5
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KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------
1999 1998
---- ----
(THOUSANDS)
<S> <C> <C>
NET INCOME (LOSS).................................................................. $(9,451) $1,837
------------- -------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gains on available-for-sale securities, net of $821 tax............... - 1,200
------------- -------------
COMPREHENSIVE INCOME (LOSS), NET OF TAX............................................ $(9,451) $3,037
============= =============
</TABLE>
SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
6
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KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
1. SUMMARY OF SIGNFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Key Energy Services, Inc. (the
"Company") and its wholly-owned subsidiaries for the three month periods ended
September 30, 1999 and 1998 are unaudited. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted in
this Form 10-Q pursuant to the rules and regulations of the Securities and
Exchange Commission. However, in the opinion of management, these interim
financial statements include all the necessary adjustments to fairly present the
results of the interim periods presented. These unaudited interim consolidated
financial statements should be read in conjunction with the audited financial
statements included in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1999. The results of operations for the three-month period
ended September 30, 1999 are not necessarily indicative of the results of
operations for the full fiscal year ending June 30, 2000.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently issued the following
accounting standards which will be adopted by the Company in the future.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which, as amended, is effective for fiscal
years beginning after June 15, 2000. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Company is currently evaluating what effect, if any, this statement will have on
the Company's financial statements. The Company will adopt this statement no
later than July 1, 2000.
RECLASSIFICATIONS AND ADJUSTMENTS
Certain reclassifications have been made to the consolidated financial
statements for the three months ended September 30, 1998 to conform to the
presentation for the three months ended September 30, 1999.
7
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2. EARNINGS PER SHARE
The Company accounts for earnings per share based upon Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Under SFAS 128,
basic earnings per common share are determined by dividing net earnings
applicable to common stock by the weighted average number of common shares
actually outstanding during the period. Diluted earnings per common share is
based on the increased number of shares that would be outstanding assuming
conversion of dilutive outstanding convertible securities using the "as if
converted" method.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPT. 30,
---------------
1999 1998
---- ----
(THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
BASIC EPS COMPUTATION:
NUMERATOR
Net income (loss).............................................. $(9,451) $1,837
DENOMINATOR
Weighted average common shares outstanding..................... 82,738 18,268
--------------- -------------
BASIC EPS........................................................ $(0.11) $0.10
=============== =============
DILUTED EPS COMPUTATION:
NUMERATOR
Net income (loss).............................................. $(9,451) $1,837
Effect of dilutive securities, tax effected:
Convertible securities......................................... - -
--------------- -------------
$(9,451) $1,837
=============== =============
DENOMINATOR
Weighted average common shares outstanding:.................... 82,738 18,268
Warrants....................................................... - 39
Stock options.................................................. - 669
7% Convertible Debentures...................................... - -
5% Convertible Debentures...................................... - -
--------------- -------------
82,738 18,976
--------------- -------------
DILUTED EPS...................................................... $(0.11) $0.10
=============== =============
</TABLE>
The earnings per share calculation for the three months ended September
30, 1999 excludes the Company's convertible debt, outstanding warrants and stock
options, because the effects of such instruments on earnings per share would be
anti-dilutive.
3. ACQUISITIONS
There were no acquisitions by the Company during the three months ended
September 30, 1999.
DAWSON PRODUCTION SERVICES, INC.
In September 1998, the Company completed the acquisition of all of the capital
stock of Dawson Production Services, Inc. ("Dawson") for an aggregate
consideration of approximately $382.6 million, including approximately $207.1
million of cash paid for the Dawson stock and for transactional fees and
approximately $175.5 million of net liabilities assumed. The Dawson acquisition
was accounted for using the purchase method of
8
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accounting and the results of operations from the Dawson assets are included in
the Company's results of operations effective September 14, 1998.
Expenditures for the Dawson acquisition, including acquisition costs, less cash
acquired were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired, including goodwill............................................ $409,722
Liabilities assumed.......................................................................... (199,439)
Liabilities for employee termination costs and lease termination costs....................... (3,162)
--------------
Cash paid, including acquisition related expenditures and the cost of Dawson common stock
previously held............................................................................ 207,121
Less: Cash acquired.......................................................................... (27,008)
--------------
Net cash used for the acquisition............................................................ $180,113
==============
</TABLE>
At the time of the closing, Dawson owned approximately 527 well service rigs,
200 oilfield trucks, and 21 production testing units in South Texas and the Gulf
Coast, East Texas and Louisiana, the Permian Basin of West Texas and New Mexico,
the Anadarko Basin of Texas and Oklahoma, California, and in the inland waters
of the Gulf of Mexico.
OTHER FISCAL 1999 ACQUISITIONS
In addition to its acquisition of Dawson, the Company acquired the assets and/or
capital stock of six well servicing and contract drilling businesses during the
first two quarters of fiscal 1999, increasing its rig and truck fleet by a total
of approximately 93 well service rigs, 4 drilling rigs and 185 oilfield trucks
(and related equipment) for an aggregate purchase price of approximately $93.7
million in cash. Each of the acquisitions was accounted for using the purchase
method and the results of the operations, generated from the acquired assets,
are included in the Company's results of operations as of the completion date of
each acquisition.
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
The following unaudited pro forma results of operations have been prepared as
though the Dawson acquisition had been consummated on July 1, 1998 with
adjustments to record specifically identifiable decreases in direct costs and
general and administrative expenses related to the termination of individual
employees. Pro forma amounts are not necessarily indicative of the results that
may be reported in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30,
----------------------------------
1999 1998
---- ----
(THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues.......................................................... $149,892 $159,198
Net income (loss)................................................. (9,451) 605
Basic earnings (loss) per share................................... (0.11) 0.03
</TABLE>
4. STOCKHOLDERS' EQUITY
EQUITY OFFERING
On May 7, 1999, the Company closed the public offering of 55,300,000 shares of
common stock (300,000 shares of which were sold pursuant to the underwriters'
over-allotment option discussed below) at $3.00 per share, or $165.9 million
(the "Public Offering"). In addition, the Company closed the offering of
3,508,772 shares of
9
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common stock at $2.85 per share, or $10.0 million (the "Concurrent Offering"
and together with the Public Offering, the "Equity Offering"). In addition,
on June 7, 1999, the underwriters of the Public Offering exercised an
over-allotment option to purchase an additional 5,436,000 million shares to
cover over-allotments. Net proceeds from the Equity Offering of approximately
$180.4 million were used to repay a portion of the Company's term loan
borrowings under its senior credit facility.
5. COMMITMENTS AND CONTINGENCIES
Various suits and claims arising in the ordinary course of business are pending
against the Company. Management does not believe that the disposition of any of
these items will result in a material adverse impact to the consolidated
financial position, results of operations or cash flows of the Company.
6. INDUSTRY SEGMENT INFORMATION
The Company operates in three business segments: well servicing, contract
drilling and oil and gas production.
WELL SERVICING: the Company's operations provide well servicing (ongoing
maintenance of existing oil and natural gas wells), workover (major repairs or
modifications necessary to optimize the level of production from existing oil
and natural gas wells) and production services (fluid hauling and fluid storage
tank rental).
CONTRACT DRILLING: The Company provides contract drilling services for major and
independent oil companies onshore the continental United States, Argentina and
Ontario, Canada.
OIL AND GAS PRODUCTION: The Company produces crude oil and natural gas, in the
Permian Basin and Panhandle areas of West Texas.
<TABLE>
<CAPTION>
WELL CONTRACT OIL AND CORPORATE /
SERVICING DRILLING GAS PRODUCTION OTHER TOTAL
--------- -------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1999
Operating revenues...................................... $130,817 $16,458 $2,020 $597 $149,892
Operating profit ....................................... 31,603 2,187 1,020 597 35,407
Depreciation, depletion and amortization................ 14,282 1,782 570 187 16,821
Interest expense........................................ 374 - - 17,014 17,388
Net income/(loss) *..................................... 8,149 (722) 302 (17,180) (9,451)
Identifiable assets..................................... 752,167 106,975 40,544 49,651 949,337
Capital expenditures (excluding acquisitions)........... 3,200 1,100 77 1,233 5,610
THREE MONTHS ENDED SEPTEMBER 30, 1998
Operating revenues...................................... $96,494 $16,915 $1,770 $408 $115,587
Operating profit........................................ 29,329 3,055 1,011 408 33,803
Depreciation, depletion and amortization................ 8,591 1,407 624 81 10,703
Interest expense........................................ 94 - - 8,411 8,505
Net income/(loss) *..................................... 10,144 533 258 (9,098) 1,837
Identifiable assets..................................... 773,150 98,388 39,698 66,002 977,238
Capital expenditures (excluding acquisitions)........... 6,587 1,019 1,608 - 9,214
</TABLE>
* - Net income/loss for Drilling segment include a portion of well servicing
general and administrative expenses allocated on a revenue percentage
basis.
10
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Operating revenues for the Company's foreign operations for the three months
ended September 30, 1999 and 1998 were $8.0 million and $7.6 million,
respectively. Operating profits for the Company's foreign operations for the
three months ended September 30, 1999 and 1998 were $1.5 million and $1.7
million, respectively. The Company's assets related to foreign operations for
the three months ended September 30, 1999 and 1998 were $60.5 million and $48.4
million, respectively.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
NOTE REGARDING FORWARD - LOOKING STATEMENTS
The statements in this document that relate to matters that are not historical
facts are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
When used in this document and the documents incorporated by reference, words
such as "anticipate," "believe," "expect," "plan," "intend," "estimate,"
"project," "will," "could," "may," "predict" and similar expressions are
intended to identify forward-looking statements. Further events and actual
results may differ materially from the results set forth in or implied in the
forward-looking statements. Factors that might cause such a difference include:
- fluctuations in world-wide prices and demand for oil and gas;
- fluctuations in level of oil and gas exploration and development
activities;
- fluctuations in the demand for well servicing, contract drilling
and ancillary oilfield services;
- the existence of competitors, technological changes and
developments in the industry;
- the existence of operating risks inherent in the well servicing,
contract drilling and ancillary oilfield services;
- the existence of regulatory uncertainties, the possibility of
political instability in any of the countries in which the Company
does business; and
- year 2000 issues and general economic conditions, in addition to
the other matters discussed herein.
The following discussion provides information to assist in the understanding of
the Company's financial condition and results of operations. It should be read
in conjunction with the consolidated financial statements and related notes
appearing elsewhere in this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1998
The Company's revenue for the first quarter of fiscal 2000 totaled $149,892,000,
representing an increase of $34,305,000, or 30% as compared to the prior year
period. The results for the prior year period do not include a full quarter of
Dawson's results as well as several other fiscal 1999 acquisitions. Despite the
higher revenues in the current period, reduced rates and a lower margin mix of
business, higher costs associated with hiring crews and reactivating equipment
and increased interest expense have adversely impacted the Company's profits.
The Company's net loss for the first quarter of fiscal 2000 totaled $9,451,000,
or $0.11 per share, versus net income of $1,837,000, or $0.10 per share, for the
prior year period.
The Company's results for the three months ended September 30, 1999 reflect the
second consecutive quarter of sequential improvement in its business. Adverse
business conditions severely impacted the Company beginning in the second
quarter of fiscal 1999 and continued throughout the third quarter. These
conditions were caused
12
<PAGE>
by the significant and unprecedented decline in oil prices, which, in turn,
caused a sustained decline in oilfield spending by producers. Demand for much
of the Company's equipment and services, especially those yielding higher
margins, fell sharply. Beginning in March 1999, oil production cuts initiated
by the Organization of Petroleum Exporting Countries combined with increasing
worldwide demand began to strengthen both oil and natural gas prices. This
has lead to a gradual recovery in spending by oil and gas producers and
increasing hours, revenues and operating profits for the Company. Such
spending has increased cautiously as producers are taking a more conservative
stance waiting to see if the new price levels are sustainable. Management
expects demand for the Company's services and equipment to remain at least at
current levels through December 1999 and anticipates higher activity levels
for calendar 2000 if the current pricing environment continues.
OPERATING REVENUES
WELL SERVICING. Well servicing revenues increased $34,323,000, or 36%, from
$96,494,000 for the three months ended September 30, 1998 to $130,817,000 for
the three months ended September 30, 1999. The increase in revenues was
primarily due to the full quarter effect of the acquisitions completed during
the early portion of fiscal 1999 and was partially offset by a decline in
equipment utilization and, to a lesser extent, pricing of oilfield services.
CONTRACT DRILLING. Revenues from contract drilling activities decreased
$457,000, or 3%, from $16,915,000 for the three months ended September 30, 1998
to $16,458,000 for the three months ended September 30, 1999. The decrease in
revenues was primarily due to a decline in equipment utilization and, to a
lesser extent, pricing of oilfield services throughout fiscal 1999 and was
partially offset by the full quarter effect of the acquisitions completed during
the early portion of fiscal 1999.
OIL AND NATURAL GAS PRODUCTION. Revenues from oil and natural gas production
activities increased $250,000, or 14%, from $1,770,000 for the three months
ended September 30, 1998 to $2,020,000 for the three months ended September 30,
1999. The increase in revenues was primarily due to a 21.2% increase in the
price of oil and gas received on a barrel of oil equivalent ("BOE") basis for
the three months ended September 30, 1999 compared to the prior year period, and
was partially offset by a 5.9% decrease in the volume of oil and gas produced on
a BOE basis for the three months ended September 30, 1999 compared to the prior
year period.
OPERATING EXPENSES
WELL SERVICING. Well servicing expenses increased $32,049,000, or 48%, from
$67,165,000 for the three months ended September 30, 1998 to $99,214,000 for the
three months ended September 30, 1999. The increase was primarily due to the
full quarter effect of the acquisitions completed during the early portion of
fiscal 1999 and the cost of bringing crews and previously idle equipment on line
and was partially offset by cost reductions effected as a result of the
Company's restructuring efforts. Well servicing expenses, as a percentage of
well servicing revenue, increased from 70% for the three months ended September
30, 1998 to 76% for the three months ended September 30, 1999. The increase was
primarily due to a shift in revenue mix from higher margin, higher priced well
services to lower margin, lower priced well services, reduced pricing for well
services, and the start-up costs for bringing crews and equipment back on line.
CONTRACT DRILLING. Expenses related to contract drilling activities increased
$411,000, or 3%, from $13,860,000 for the three months ended September 30, 1998
to $14,271,000 for the three months ended September 30, 1999. The increase was
primarily due to full quarter effect of the acquisition completed during the
early portion of fiscal 1999 and the cost of bringing crews and previously idle
equipment on line and was partially offset by cost reductions effected as a
result of the Company's restructuring efforts. Contract drilling expenses, as a
percentage of contract
13
<PAGE>
drilling revenues, increased from 82% for the three months ended September 30,
1998 to 87% for the three months ended September 30, 1999. The increase was due
to reduced pricing for contract drilling and the start-up costs for bringing
crews and equipment back on line.
OIL AND NATURAL GAS PRODUCTION. Expenses related to oil and natural gas
production activities increased $241,000, or 32%, from $759,000 for the three
months ended September 30, 1998 to $1,000,000 for the three months ended
September 30, 1999. Oil and natural gas production costs increased from $5.23
per BOE for the three months ended September 30, 1998 to $7.32 per BOE for the
three months ended September 30, 1999. The increase per BOE is primarily due to
the costs of placing wells back on production that were not producing prior to
the quarter and, to a lesser extent, increased rates for electricity and other
operating services.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
The Company's depreciation, depletion and amortization expense increased
$6,118,000, or 57%, from $10,703,000 for the three months ended September 30,
1998 to $16,821,000 for the three months ended September 30, 1999. The increase
is primarily due to an increase in oilfield service depreciation resulting from
the effect of the acquisitions completed during the early portion of fiscal 1999
for the full quarter.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses increased $2,700,000, or 24%,
from $11,212,000 for the three months ended September 30, 1998 to $13,912,000
for the three months ended September 30, 1999. The increase was primarily due to
the effect of the acquisitions completed during the early portion of fiscal 1999
for the full quarter and was largely offset by cost reductions effected as a
result of the Company's restructuring efforts. General and administrative
expenses, as a percentage of revenues, decreased from 9.7% for the three months
ended September 30, 1998 to 9.2% for the three months ended September 30, 1999.
INTEREST EXPENSE
The Company's interest expense increased $8,883,000, or 104%, from $8,505,000
for the three months ended September 30, 1998 to $17,388,000 for the three
months ended September 30, 1999. The increase was primarily due to the full
quarter effect of the additional debt incurred in connection with the
acquisitions completed during the early portion of fiscal 1999 and, to a lesser
extent, higher interest rates and amortization of additional debt issuance
costs. Included in interest expense was the amortization of debt issuance costs
of $1,255,000 and $767,000 for the three months ended September 30, 1999 and
1998, respectively.
BAD DEBT EXPENSE
The Company's bad debt expense increased $251,000, or 111%, from $226,000 for
the three months ended September 30, 1998 to $477,000 for the three months ended
September 30, 1999. The increase was primarily due to increased revenues and the
residual effects of a significant decline in commodity prices and a
corresponding deterioration in market conditions during fiscal 1999.
14
<PAGE>
INCOME TAXES
The Company's income tax expense decreased $5,060,000 from an expense of
$1,320,000 for the three months ended September 30, 1998 to a benefit of
$3,740,000 for the three months ended September 30, 1999. The decrease in income
taxes is due to the decrease in pretax income. The Company's effective tax rate
for the three months ended September 30, 1999 and 1998 was 28% and 42%,
respectively. The effective tax rates are different from the statutory rate of
35% because of the disallowance of certain goodwill amortization, other
non-deductible expenses and state and local taxes. The Company does not expect
to be required to remit federal income taxes for the next few fiscal years
because of the availability of net operating loss carry forwards from fiscal
1999 and previous years.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations, acquisitions, capital
expenditures and working capital requirements from cash flow from operations,
bank borrowings, and the issuance of long term debt and equity. We believe that
the current reserves of cash and cash equivalents, access to our existing credit
lines and internally generated cash flow from operations are sufficient to
finance the cash requirements of our current and future operations.
As of September 30, 1999, the Company had working capital of approximately
$83,638,000 and cash and cash equivalents of approximately $12,371,000 as
compared to working capital of approximately $75,646,000 million and cash and
cash equivalents of approximately $23,478,000 as of June 30, 1999. This increase
in working capital is primarily related to the timing of cash receipts and
disbursements. Receivables are higher due to the increase in revenues caused by
the increased utilization of the Company's equipment base and payables are also
higher due to the addition of more employees and greater costs related to the
increased equipment utilization.
The reduction in the Company's cash and cash equivalents since June 30, 1999 was
primarily attributable to:
- Cash from operations of ($14,395,000)
- Borrowings, net of repayments on term debt and revolver, of
$10,686,000
- Capital expenditures of $5,610,000
- Cash from other investing activities of ($1,788,000)
CAPITAL EXPENDITURES
Capital expenditures for fiscal 2000 are expected to approximate fiscal 1999
levels. Expenditures will be directed toward maintaining and selectively
refurbishing our assets as business conditions warrant. The Company will
continue to evaluate opportunities to acquire or divest assets or businesses to
enhance the Company's primary operations. Such capital expenditures,
acquisitions and divestitures are at the discretion of the Company and will
depend on management's view of market conditions as well as other factors.
LONG-TERM DEBT
SENIOR CREDIT FACILITY
As of September 30, 1999, the Company had a $500,000,000 credit agreement (the
"Credit Agreement") with a syndicate of banks led by PNC Bank, N.A. which
consisted of a $150,000,000 revolving loan facility, $43,365,480 in Tranche A
term loans and $177,761,370 in Tranche B term loans. In addition, up to
$20,000,000
15
<PAGE>
of letters of credit can be issued under the Credit Agreement, but any
outstanding letters of credit reduce the borrowing availability under the
revolving loan facility. As of September 30, 1999, approximately $102,000,000
was drawn under the revolving loan facility and approximately $10,439,000 of
letters of credit related to workmens' compensation insurance were outstanding.
The revolving loans and Tranche A term loans bear interest based upon, at the
Company's option, the prime rate plus a variable margin of 0.75% to 2.00% or a
Eurodollar rate plus a variable margin of 2.25% to 3.50%. The Tranche B loans
bear interest based upon, at the Company's option, the prime rate plus 2.50% or
a Eurodollar rate plus 4.00%. The Credit Facility has customary affirmative and
negative covenants including a maximum debt to capitalization ratio, a minimum
interest coverage ratio, a maximum senior leverage ratio, a minimum net worth
and minimum EBITDA ratio as well as restrictions on capital expenditures,
acquisitions and dispositions.
14% SENIOR SUBORDINATED NOTES
On January 22, 1999, the Company completed the private placement of 150,000
units (the "Units") consisting of $150,000,000 of 14% Senior Subordinated Notes
due 2009 (the "14% Senior Subordinated Notes") and 150,000 warrants to purchase
2,032,565 shares of common stock at an exercise price of $4.88125 per share (the
"Unit Warrants"). The cash proceeds from the private placement, net of fees and
expenses, were used to repay substantially all of the remaining $148,600,000
principal amount (plus accrued interest) owed under the Company's bridge loan
facility arranged in connection with the acquisition of Dawson. The 14% Senior
Subordinated Notes are subordinate to the Company's senior indebtedness which
includes borrowings under the Credit Agreement and the Dawson 9 3/8% Senior
Notes.
5% CONVERTIBLE SUBORDINATED NOTES
On September 25, 1997, the Company completed an initial closing of its private
placement of $200,000,000 of 5% Convertible Subordinated Notes due 2004 (the "5%
Convertible Subordinated Notes"). On October 7, 1997, the Company completed a
second closing of its private placement of an additional $16,000,000 of the 5%
Convertible Subordinated Notes pursuant to the exercise of the remaining portion
of an over-allotment option. The 5% Convertible Subordinated Notes are
subordinate to the Company's senior indebtedness which includes borrowings under
the Credit Agreement, the 14% Senior Subordinated Notes and the Dawson 9 3/8%
Senior Notes. The 5% Convertible Subordinated Notes are convertible, at the
holder's option, into shares of the Company's common stock at a conversion price
of $38.50 per share, subject to certain adjustments.
7% CONVERTIBLE SUBORDINATED DEBENTURES
In July 1996, the Company completed a $52,000,000 private placement of 7%
Convertible Subordinated Debentures due 2003 (the "7% Convertible Subordinated
Debentures"). The 7% Convertible Subordinated Debentures are subordinate to the
Company's senior indebtedness which includes borrowings under the Credit
Agreement, the 14% Senior Subordinated Notes and the Dawson 9 3/8% Senior Notes.
The Debentures are convertible, at any time prior to maturity, at the holders'
option, into shares of the Company's common stock at a conversion price of $9.75
per share, subject to certain adjustments. In addition, holders who converted
prior to July 1, 1999 were entitled to receive a payment, in cash or the
Company's common stock (at the Company's option) generally equal to 50% of the
interest otherwise payable from the date of conversion through July 1, 1999. As
a result of conversions, only $4,600,000 principal amount of the 7% Convertible
Subordinated Debentures remained outstanding at September 30, 1999.
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<PAGE>
DAWSON 9 3/8% SENIOR NOTES
In February 1997, Dawson issued $140,000,000 9 3/8% Senior Notes due 2007 (the
"Dawson 9 3/8% Senior Notes"). As the result of the Dawson acquisition, the
Company assumed Dawson's obligations under the Dawson 9 3/8% Senior Notes which
were equally and ratably secured with the obligations under the Credit
Agreement. As a result of mandatory tender offer made in connection with the
Dawson acquisition, only $1,406,000 principal amount of the Dawson 9 3/8% Senior
Notes remained outstanding at September 30, 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently issued the following
accounting standards which will be adopted by the Company in the future.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which, as amended, is effective for fiscal
years beginning after June 15, 2000. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Company is currently evaluating what effect, if any, this statement will have on
the Company's financial statements. The Company will adopt this statement no
later than July 1, 2000.
YEAR 2000 ISSUE
Many older computer programs were written using a two-digit year instead of a
four-digit year. As a result, those computer programs may be unable to process
date-sensitive information in the year 2000 and beyond. This situation,
frequently referred to as the Year 2000 or Y2K issue, could cause a temporary
disruption of the ordinary course of business. Moreover, as a result of the
acquisitions completed by the Company over the past three years, the Company has
simultaneously utilized multiple management information systems in connection
with its business operations and financial reporting process. As a result of the
foregoing factors, the Company made an assessment of its Year 2000 issues in
early calendar year 1998, and at that time determined that many of these
management information systems might be adversely impacted by the arrival of the
Year 2000.
Accordingly, for operational efficiency and to prevent any adverse impacts that
may result from the arrival of Year 2000, in July 1998 the Company commenced the
implementation of a new integrated management information system along with
updated hardware that replaced most of the systems previously utilized by the
Company. The implementation of the new integrated management information system,
which has been certified by its vendor to be Year 2000 compliant, is
substantially complete. While this new management information system does not
cover the Company's Argentine operations, the Company is currently implementing
a separate management information system for its Argentine operations that uses
software that is virtually identical to the Company's domestic management
information system software, that the Company expects to be in place in late
calendar year 1999. Through September 30, 1999, the Company has capitalized
approximately $3,767,000 for its new management information system.
The inventory, assessment, modification and testing of smaller, less critical,
financial and operational systems have been substantially completed. In
addition, the assessment of systems embedded in the Company's buildings,
equipment and other infrastructures has also been completed. To date, there has
been no discovery of a significant non-compliant embedded system. The Company
has communicated with the suppliers, customers and financial institutions that
it considers to be material third parties and is evaluating its risks related to
any possible failure of such third parties to be year 2000 compliant. The
effect, if any, on the Company's results of operations arising from the failure
of these third parties to be Year 2000 compliant is not reasonably estimable at
this time. Risk assessment and contingency plans related to these parties are
expected to be complete by the end of
17
<PAGE>
November 1999. Contingency plans to mitigate the Company's risks from Year
2000-related interruptions are being developed and are expected to be complete
by the end of November 1999.
Although the Company believes that in a most reasonably likely worst case
scenario it will not be materially impacted by its or any third party
non-compliance, there can be no assurances that failure by the Company or by
third parties to fully implement appropriate Year 2000 plans will not have a
material adverse effect on the Company's results of operations. Adverse effects
on the Company could include, among other things: business disruptions (e.g.,
computer downtime and reversion to manual accounting records for billings,
payments and collections), increased costs, and loss of revenues.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) Exhibits
10.1* Amended and Restated Employment Agreement dated July 1, 1999
between Francis D. John and Key Energy Services, Inc.
10.2* Employment Agreement dated August 5, 1999 between Thomas K.
Grundman and Key Energy Services, Inc.
10.3* Employment Agreement dated as of July 1, 1999 between Danny R.
Evatt and Key Energy Services, Inc.
10.4* Employment Agreement dated as of July 1, 1999 between James J.
Byerlotzer and Key Energy Services, Inc.
10.5* Agreement dated as of August 2, 1999 between Francis D. John
and Key Energy Services, Inc.
10.6* Promissory Note dated August 3, 1999 made by Thomas K.
Grundman in favor of Key Energy Services, Inc.
10.7* Demand Note dated August 3, 1999 made by Thomas K. Grundman in
favor of Key Energy Services, Inc.
10.8* Confidential Separation and Release Agreement dated as of July
1, 1999 between Key Energy Services, Inc. and Stephen E.
McGregor
27* Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
- --------------------
* Filed herewith.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY ENERGY SERVICES, INC.
Dated: November 15, 1999 By /s/ Francis D. John
-------------------------------------
President and Chief Executive Officer
Dated: November 15, 1999 By /s/ Thomas K. Grundman
-------------------------------------
Chief Financial Officer and
Chief Accounting Officer
20
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (as from time to time
amended in accordance with the provisions hereof, this "Agreement"), is
entered into this 1st day of July 1999 by and between FRANCIS D. JOHN,
residing at 6731 Paxon Road, Solebury, Pennsylvania 18963 (the "Executive")
and KEY ENERGY SERVICES, INC., a Maryland corporation with its principal
offices at Two Tower Center, 20th Floor, East Brunswick, New Jersey 08816
(the "Company").
RECITALS
A. The Company and the Executive have previously entered into that certain
Employment Agreement dated as of July 1, 1995 (the "1995 Employment
Agreement") pursuant to which the Executive currently serves as Chairman of
the Board, President and Chief Executive Officer of the Company.
B. In recognition of the fact that the members of the Board of Directors of
the Company (other than the Executive) are of the view that retaining the
services of the Executive in his capacities as Chairman of the Board,
President and Chief Executive Officer of the Company is essential to the
continued growth and success of the Company and is in the best interests of
the Company and its shareholders, the Company desires to amend and restate
the 1995 Employment Agreement and continue to retain the services of the
Executive as Chairman of the Board, President and Chief Executive Officer of
the Company pursuant to the terms and conditions hereinafter set forth
effective as of July 1, 1999 (the "Commencement Date").
C. The Executive is willing to amend and restate the 1995 Employment
Agreement and to continue to serve in such capacities pursuant to the terms
and conditions hereinafter set forth effective as of the Commencement Date.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the Company and the Executive hereby agree as follows:
1. EMPLOYMENT; TERM.
(a) Effective as of the Commencement Date, the 1995 Employment Agreement
shall be terminated and of no further force or effect except for the
Company's obligations (i) to make any payments to the Executive under Section
2 thereof for services rendered and expenses incurred prior to the
Commencement Date and (ii) pertaining to the options previously granted to
the Executive identified in Schedule A hereto. The Company hereby agrees to
employ the Executive, and the Executive hereby accepts employment by the
Company, as the Company's Chairman of the Board, President and Chief
Executive Officer, such employment to commence as of July 1, 1999 (the
"Commencement Date"),
<PAGE>
and to continue until the close of business on June 30, 2004, subject to
extension as provided in this Section l(a), unless sooner terminated in
accordance herewith (the "Initial Employment Period"). On each June 30,
commencing with June 30, 2000, the term of the Executive's employment
hereunder shall be automatically extended for twelve (12) months unless
either he or the Company shall have given written notice to the other that
such automatic extension shall not occur, which notice shall have been given
no later than thirty (30) days prior to the relevant June 30th (the Initial
Employment Period, together with any extensions, until termination in
accordance herewith, is referred to herein as the "Employment Period").
(b) The Company also hereby agrees that the Executive currently serves
as a director on the Board of Directors of the Company (the "Board"), and as
a director and either the President or Chairman of the Board of Directors of
each Subsidiary(as defined in Section 17 hereof), and the Executive hereby
accepts such appointments.
(c) The Executive shall have the responsibilities, duties and authority
commensurate with his positions as the Chairman of the Board, President and
Chief Executive Officer of the Company, including, without limitation, the
general supervision and control over, and responsibility for, the general
management and operation of the Company and its Subsidiaries, subject,
however, to the supervision of the Board insofar as such supervision is
required by the Maryland General Corporation Law, and the Company's Articles
of Incorporation and By-Laws. Such responsibilities, duties and authority
shall not be expanded or contracted without the express consent of the
Executive. The Executive will report only to the Board.
(d) The Executive will devote his full time and his best efforts to the
business and affairs of the Company and its subsidiaries; PROVIDED, HOWEVER,
that nothing contained in this Section 1 shall be deemed to prevent or limit
the Executive's right to: (i) make investments in the securities of any
publicly-owned corporation; or (ii) make any other investments with respect
to which he is not obligated or required to, and to which he does not in
fact, devote substantial managerial efforts which materially interfere with
his fulfillment of his duties hereunder; or (iii) to continue to serve on
boards of directors on which he currently serves and to serve in such other
positions with non-profit and for-profit organizations as to which the Board
may from time to time consent, which consent shall not be unreasonably
withheld or delayed.
(e) The principal location at which the Executive will perform his
duties will be the Company's principal offices. The Company's principal
offices may be transferred by the Executive or by the Board, with the
Executive's consent. In the event of such a transfer, the Company will pay
moving, temporary living and other reasonable expenses in connection with the
Executive's relocation from his present primary residence to a location in
proximity to the Company's principal offices.
2
<PAGE>
2. SALARY; BONUSES; EXPENSES.
(a) During the Employment Period, the Company will pay a salary to the
Executive at the annual rate of Five Hundred Seventy-Five Thousand Dollars
($575,000) per year (the "Base Salary"), payable in substantially equal
installments in accordance with the Company's existing payroll practices, but
no less frequently than biweekly. The Company will review the Executive's
Base Salary on a yearly basis promptly following the end of each fiscal year
of the Company to determine if an increase is advisable, and the Base Salary
may be increased but not decreased at the discretion of the Board or the
Compensation Committee, taking into account, among other factors, the
Executive's performance and the performance of the Company.
(b) For each annual period commencing July 1, 1999, the Executive shall
be eligible to participate in the Company's Performance Compensation Plan
(the "Performance Compensation Plan") for the Company's executives providing
for the payment of cash bonuses, which plan will provide for the payment of
bonuses based upon the achievement of goals set forth in the Company's
strategic plan as developed by the Executive and the Board or the
Compensation Committee, as the case may be (the "Strategic Plan"), payable
within ninety (90) days after the end of each fiscal year. The performance
goals for the Performance Compensation Plan will be based on objective
criteria mutually negotiated and agreed upon in good faith in advance by the
Executive and the Board. The Executive's annual bonus determined in
accordance with this Section 2(b) is referred to herein as the "Annual Bonus."
(c) The Executive shall also receive such bonuses other than pursuant to
the Performance Compensation Plan in such amounts and at such times as the
Board or the Compensation Committee, as the case may be, in its discretion
determines are appropriate to recognize extraordinary performance by the
Executive or the Company, which would include, without limitation, (i) the
acquisition of the stock or assets, or the merger or consolidation with or
into another company or other entity; (ii) the acquisition or sale of a
division or divisions of the Company; or (iii) the acquisition or sale of a
Subsidiary or Subsidiaries, or of the Company.
(d) The Executive is authorized to incur and shall be reimbursed by the
Company for all reasonable expenses, including, but not limited to travel,
lodging, meal and other expenses as determined by him in his sole discretion,
incurred by him in carrying out his duties hereunder. All air travel by the
Executive may be in first class. Any bonus mileage will be returned to the
Company for the Company's use. In addition, it is the Company's desire for
security and other safety related issues that the Executive, in his sole
discretion have the authority to lease or otherwise contract for the services
of a private aircraft for business related travel.
3. STOCK OPTIONS.
(a) The Company acknowledges that the Executive has previously
3
<PAGE>
been awarded stock options that are either fully vested or not fully vested,
as the case may be, as identified in Schedule A and the Company reaffirms
herein its contractual commitments in those agreements. Except as otherwise
modified by the terms of this Agreement, the terms of the stock option
agreements pertaining to the stock options identified in Schedule A shall
continue to apply and be construed so as not to change or modify any rights
of the Executive set forth therein.
(b) For each annual period commencing July 1, 1999, the Executive shall
be eligible to participate in a stock option plan for the Company's
executives providing for the granting of stock options under the Company's
1997 Incentive Plan (the "1997 Incentive Plan"). The performance goals for
the grant of such options will be based on objective criteria mutually
negotiated and agreed upon in good faith in advance by the Executive and the
Board. The Executive's aggregate annual bonus determined in accordance with
this Section 3(b) is referred to herein as the "Annual Stock Option Grant."
(c) The Company agrees that it will use its best efforts to comply with
the requirements of Rule 16b-3 promulgated pursuant to the Securities
Exchange Act of 1934, as amended (the "1934 Act"), as such rule shall be in
effect from time to time, or with any successor provision to said rule("Rule
16b-3") such that in the event the Executive shall become subject to Section
16 (or a successor provision) of the 1934 Act with respect to shares of the
Company's capital stock, the Executive shall be afforded the benefits of Rule
16b-3 with respect to such restricted stock or options, including without
limitation providing for the grant of restricted stock or options pursuant to
stock plans which comply with Rule 16b-3 and permit the terms of options
contemplated by this Agreement.
(d) The Company agrees, so long as the Company shall be subject to the
reporting requirements of Section 13 or 15(d) (or any successor provision) of
the 1934 Act (referred to herein as "1934 Act Registration"), it shall use
its best efforts to cause to remain effective a registration statement on
Form S-8 (or a successor form) within ninety (90) days of the date such 1934
Act Registration becomes effective, and to maintain the effectiveness of such
registration statement, such that any restricted stock or options granted to
the Executive and the purchase of shares by the Executive (or his assignee)
upon the exercise of any such options shall be registered under the
Securities Act of 1933, as amended or any successor provision, and so long as
he is an affiliate of the Company or if he (or his assignee) shall have
exercised any of such options in whole or in part prior to the effectiveness
of such registration statement, to provide for and maintain the effectiveness
of a corresponding resale prospectus on Form S-3 providing for the resale by
the Executive (or his assignee)of the shares so granted or purchased.
4. BENEFIT PLANS; VACATIONS. In connection with the Executive's employment
hereunder, he shall be entitled during the Employment Term (and thereafter to
the extent provided in Section 5(f) hereof) to the following additional
benefits:
4
<PAGE>
(a) At the Company's expense, such fringe benefits, including, without
limitation, group medical and dental, life, executive life, accident and
disability insurance and retirement plans and supplemental and excess
retirement benefits, as the Company may provide from time to time for its
senior management, but, in any case, at least the benefits described on
SCHEDULE B hereto.
(b) The Executive shall be entitled to no less than the number of
vacation days in each calendar year determined in accordance with the
Company's vacation policy as in effect from time to time, but not less than
four (4) weeks in any calendar year (prorated in any calendar year during
which he is employed hereunder for less than the entire year in accordance
with the number of days in such calendar year in which he is so employed).
The Executive shall also be entitled to all paid holidays and personal days
given by the Company to its executives.
(c) The Company shall lease an automobile for the Executive
substantially similar to the automobile currently leased for the Executive
and shall pay all expenses, including but not limited to insurance, repair
and maintenance, incurred by the Executive in connection with the use of the
automobile during the Employment Term as well as a driver trained in security
techniques if needed for his use. In addition, it is the Company's desire
that the Executive have the authority, in his sole discretion, to contract
for the services of a car and driver for security and safety reasons for
business and/or personal use and to be at his disposal 24 hours a day, 7 days
a week.
(d) The Company will pay the reasonable fees for personal (i) financial
advisory, counseling, accounting and related services; (ii) legal advisory or
attorneys' fees and related expenses; and (iii) income tax return preparation
and tax audit services as reasonably requested by the Executive, provided by
certified public accountants and tax attorneys acceptable to him.
(e) The Company shall pay the reasonable expenses of a home office for
the Executive. It is also the Company's desire that the Executive be entitled
to establish Company paid offices for his use at or near locations in which
he may be staying for periods in excess of twenty-four (24) hours and that
the Executive shall be entitled to employ at the Company's expense such
number of administrative assistants at appropriate compensation levels as are
considered necessary by him. In addition, the Company will provide to the
Executive with a security system or security coverage at the job location, at
his residence or otherwise, if reasonably requested by the Executive.
(f) Nothing herein contained shall preclude the Executive, to the extent
he is otherwise eligible, from participation in all group insurance programs
or other fringe benefit plans which the Company may from time to time in its
sole and absolute discretion make available generally to its personnel, or
for personnel similarly situated, but the Company shall not be required to
establish or maintain any such program or plan except as may be otherwise
expressly provided herein.
5
<PAGE>
(g) The Company shall pay all membership costs, including, without
limitation, all initiation and membership fees and expenses and all annual or
other periodic fees, dues and costs (including any bond requirement), for the
Executive to become and remain a member of any one or more private country
club, golf club, tennis club, dining club, health club or similar club or
association as the Executive determines are appropriate to his carrying out
his duties hereunder.
(h) The Company shall provide to the Executive on an annual basis a
discretionary amount equal to $25,000 per year for miscellaneous business
related purposes as determined by the Executive in his sole discretion.
(i) The Executive shall be entitled to participate in all other Company
benefit plans, as well as any supplemental benefit or perquisite plans as the
Company may provide from time to time for its senior executives, on a basis
commensurate with his position.
(j) It is the intention of the Company that the Executive shall, after
taking into account any taxes or reimbursements or other benefits, be kept
whole with respect to such reimbursement or other benefit. Accordingly, to
the extent the Executive is taxable on any such reimbursements or benefits,
the Company shall pay the Executive, in connection therewith an amount which,
after all taxes incurred by the Executive on such amount, shall equal the
amount of the reimbursement or benefit being provided.
5. TERMINATION, CHANGE IN CONTROL AND REASSIGNMENT OF DUTIES.
(a) TERMINATION BY COMPANY. The Company shall have the right to
terminate the Executive's employment under this Agreement for Cause (as
defined below) at any time without obligation to make any further payments to
the Executive hereunder. The Company shall have the right to terminate the
Executive's employment for any reason other than for Cause only upon at least
ninety (90) days prior written notice to him, except as otherwise provided in
Section 5(b), which Section shall apply in the event the Executive becomes
unable to perform his obligations hereunder by reason of Disability (as
defined below). In the event the Company terminates the Executive's
employment hereunder for any reason other than for Cause or Disability, then
for the purpose of effecting a transition during the ninety (90) day notice
period of the management of the Company from the Executive to another person
or persons, during such period the Company may reassign the Executive's
duties hereunder to another person or other persons. Such reassignment shall
not reduce the Company's obligations hereunder to make salary, bonus and
other payments to the Executive and to provide other benefits to him during
the remainder of his employment and following the termination of employment,
including without limitation the use of his office and secretarial services
during the remainder of his employment.
As used in this Agreement, the term "Cause" shall mean: (i) the willful
and continued failure by the Executive to substantially perform his duties
hereunder (other than (A) any such willful or
6
<PAGE>
continued failure resulting from his incapacity due to physical or mental
illness or physical injury or (B) any such actual or anticipated failure
after the issuance of a notice of termination by the Executive for Good
Reason (as defined below)), after demand for substantial performance is
delivered by the Company to the Executive that specifically identifies the
manner in which the Company believes the Executive has not substantially
performed his duties; or (ii) the willful engaging by the Executive in
misconduct which is materially injurious to the Company, monetarily or
otherwise; or (iii) the conviction of a felony by a court of competent
jurisdiction. For purposes of this paragraph, no act, or failure to act, on
the part of the Executive shall be considered "willful" unless done or
omitted to be done by him in bad faith and without reasonable belief that his
action or omission was in the best interest of the Company. Notwithstanding
the foregoing, the Executive's employment shall not be deemed to have been
terminated for Cause unless (A) reasonable notice shall have been given to
him setting forth in detail the reasons for the Company's intention to
terminate for Cause, and if such termination is pursuant to clause (i) or
(ii) above and any damage to the Company is curable, only if Executive has
been provided a period of ten (10) business days from receipt of such notice
to cease the actions or inactions, and he has not done so; (B) an opportunity
shall have been provided for the Executive, together with his counsel, to be
heard before the Board; and (C) if such termination is pursuant to clause (i)
or (ii) above, delivery shall have been made to the Executive of a notice of
termination from the Board finding that in the good faith opinion of a
majority of the Board (excluding the Executive) he was guilty of conduct set
forth in clause (i) or (ii) above, and specifying the particulars thereof in
detail.
(b) TERMINATION UPON DISABILITY AND TEMPORARY REASSIGNMENT OF DUTIES DUE
TO DISABILITY.
(i) If the Executive becomes totally and permanently
disabled during the Employment Period so that he is unable to perform his
obligations hereunder by reasons involving physical or mental illness or
physical injury (A) for a period of ninety (90) consecutive days, or (B) for
an aggregate of ninety (90) days during any period of twelve (12) consecutive
months ("Disability"), then the term of the Executive's employment hereunder
may be terminated by the Board within sixty (60) days after the expiration of
said ninety (90) day period (whether consecutive or in the aggregate, as the
case may be), said termination to be effective ten (10) days after written
notice to the Executive. In the event the Company shall give a notice of
termination under this Section 5(b)(i), then the Company may reassign the
Executive's duties hereunder to another person or other persons. Such
reassignment shall not reduce the Company's obligations hereunder to make
salary, bonus and other payments to the Executive and to provide other
benefits to him, during the remainder of his employment and following the
termination of employment.
(ii) During any period that the Executive is totally
disabled such that he is unable to perform his obligations hereunder by
reason involving physical or mental illness or physical injury, as
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determined by a physician chosen by the Company and reasonably acceptable to
the Executive (or his legal representative), the Company may reassign the
Executive's duties hereunder to another person or other persons, provided if
the Executive shall again be able to perform his obligations hereunder, all
such duties shall again be the Executive's duties. The cost of any
examination by such physician shall be borne by the Company. Notwithstanding
the foregoing, if the Executive has been unable to perform his obligations
hereunder for reasons involving physical or mental illness or physical injury
for a period of ninety (90) consecutive days or an aggregate of ninety (90)
days during any period of twelve (12) consecutive months, then a
determination by a physician of disability will not be required prior to any
such reassignment. Any such reassignment shall not be a termination of
employment and in no event shall such reassignment reduce the Company's
obligations to make salary, bonus and other payments to the Executive and to
provide other benefits to him under this Agreement during his employment or,
if applicable, following a termination of employment.
(c) TERMINATION BY EXECUTIVE. The Executive's employment may be
terminated by him by giving written notice to the Company as follows: (i) at
any time by notice of at least thirty (30) days; (ii) at any time by notice
for a Good Reason, effective upon giving such notice; (iii) at any time, if
his health should become impaired, provided he has obtained a written
statement from a qualified doctor to such effect, effective upon giving such
notice; or (iv) at any time following but prior to the first anniversary of a
Change in Control (as defined below), effective upon giving such notice. In
the event of a termination by the Executive of his employment, the Company
may reassign the Executive's duties hereunder to another person or other
persons.
As used herein, a "Good Reason" shall mean any of the following:
(A) Failure to be nominated by the Board for election to the Board at
any time such nominations are made, or failure of the stockholders of the
Company to elect the Executive to the Board, or failure of the Board to
elect the Executive as Chairman of the Board, President and Chief Executive
Officer of the Company, or failure to be nominated by the Board of
Directors of any Subsidiary for election to such Board of Directors at any
time such nominations are made, or failure of the stockholders of any
Subsidiary to elect the Executive to the Board of Directors of such
Subsidiary, or failure of the Board of Directors of any Subsidiary to elect
the Executive as President or Chairman of the Subsidiary, or removal from
the Board, the Board of Directors of a Subsidiary or any such office of the
Company or of a Subsidiary, provided that such failure or removal is not in
connection with a termination of the Executive's employment hereunder for
Cause in accordance with Section 5(a) and provided further that any notice
of termination hereunder shall be given by the Executive within ninety (90)
days of such failure or removal;
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(B) Material change by the Company in the Executive's authority,
functions, duties or responsibilities as Chairman of the Board, President
and Chief Executive Officer of the Company (including, without limitation,
material changes in the control or structure of the Company) which would
cause his position with the Company to become of less responsibility,
importance, scope or dignity than his position as of the Commencement Date,
provided that (I) such material change is not in connection with a
termination of Executive's employment hereunder for Cause in accordance
with Section 5(a), (II) such material change is not made in accordance with
Section 5(a) following a termination of Executive's employment by the
Company other than for Cause or Disability, (III) such material change is
not made in accordance with Section 5(b) pertaining to disability,
including without limitation the time period restrictions applicable
thereunder, and (IV) any notice of termination hereunder shall be given by
him within ninety (90) days of when he becomes aware of such change; or
(C) Failure by the Company to comply with any provision of Section 1,
2, 3, 4 or 8 of this Agreement, which has not been cured within fifteen
(15) days after notice of such noncompliance has been given by the
Executive to the Company, provided any notice of termination hereunder
shall be given by the Executive within ninety (90) days after the end of
such fifteen (15) day period;
(D) Failure by the Company to obtain an assumption of this Agreement
by a successor in accordance with Section 14 unless payment or provision
for continuation of benefits under this Agreement have been made in a
manner permitted by Section 5; and
(E) Any purported termination by the Company of the Executive's
employment which is not effected in accordance with the terms of this
Agreement, including without limitation pursuant to a notice of termination
not satisfying the requirements set forth herein (and for purposes of this
Agreement no such purported termination by the Company shall be effective),
which has not been cured within ten (10) days after notice of such
nonconformance has been given by the Executive to the Company, provided any
notice of termination hereunder shall be given by the Executive within
thirty (30) days of receipt of notice of such purported termination.
(F) The Company giving to the Executive the notice contemplated by
Section 1(a) of this Agreement.
For purpose of this Agreement, a "Change in Control" of the Company
shall have the same meaning as set forth in Section 6.7 of the Company's 1997
Incentive Plan.
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(d) SEVERANCE COMPENSATION.
(i) TERMINATION FOR GOOD REASON OR OTHER THAN FOR CAUSE. In
the event the Executive's employment hereunder is terminated (A) by the
Executive or by the Company (or its successors) following a Change in
Control, or (B) by the Executive for a Good Reason or (C) by the Company
other than for Cause (including without limitation in the event the Company
elects at any time not to automatically extend the Executive's employment
hereunder pursuant to the second sentence of Section 1(a) hereof), the
Executive shall be entitled, in addition to the other compensation and
benefits herein provided for, to severance compensation in an aggregate
amount equal to three times the sum of the Final Average Base Salary and the
Final Average Annual Bonus where (A) the "Final Average Base Salary" means
the average of the Executive's Annual Base Salary as in effect for each of
the three years preceding the date of termination and commencing no earlier
than July 1, 1999 (or, if shorter, the number of years from July 1, 1999 to
the date of termination) and (B) the "Final Average Bonus" means the average
of the annual bonuses awarded to the Executive pursuant to Sections 2(b) and
2(c) of this Agreement with respect to the three years preceding the date of
termination and commencing no earlier than July 1, 1999 (or, if shorter, the
number of years from July 1, 1999 to the date of termination; PROVIDED that
if the Executive's employment is terminated prior to his eligibility to earn
an Annual Bonus for the period July 1, 1999 to June 30, 2000, then for
purposes of making the aforementioned computation he shall be deemed to have
earned the maximum Annual Bonus to which he would have been entitled assuming
the attainment by the Executive of the specified performance and other
targets related to designated performance and other goals selected by the
Compensation Committee under the Performance Compensation Plan), payable in a
lump sum at the end of the calendar month in which the termination date
occurs; PROVIDED, HOWEVER, that if the Executive's employment is terminated
following a Change in Control or is terminated by the Company other than for
Cause in anticipation of a Change in Control, such severance compensation
shall be paid in one lump sum on the date of such termination.
(ii) TERMINATION FOLLOWING DISABILITY. In the event the
Executive's employment should be terminated by the Company as a result of
Disability in accordance with Section 5(b) hereof, then the Executive shall
be entitled, in addition to the other compensation and benefits herein
provided for, to severance compensation in an aggregate amount equal to three
times the sum of the Final Average Base Salary as defined in Section
5(d)(i)above, plus the Final Average Bonus as defined in Section 5(d)(i)
above payable in a lump sum at the end of the calendar month in which the
termination date occurs, reduced by the amount of any disability insurance
proceeds actually paid to the Executive or for his benefit during the said
time period.
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(e) EFFECT OF TERMINATION OR CHANGE IN CONTROL UPON EQUITY COMPENSATION.
(i) In the event the Executive's employment hereunder is
terminated by the Company for any reason other than for Cause (including
without limitation an election by the Company not to automatically extend the
Executive's employment hereunder pursuant to the second sentence of Section
l(a) hereof), or in the event the Executive should terminate his employment
for Good Reason, then any restricted stock or unexpired options held by the
Executive (or his assignee) entitling the Executive (or his assignee) to
purchase securities of the Company shall, notwithstanding any contrary
provision in the agreement or plan pursuant to which such restricted stock or
options were granted, vest and/or be exercisable for the remainder of the
original term of such option as set forth in the pertinent option agreement.
(ii) In the event the Executive's employment hereunder is
terminated by the Company for Cause or the Executive voluntarily terminates
his employment (other than for "Good Reason," death or "Disability"), then
effective upon the date such termination is effective, any restricted stock
or options not previously vested shall be forfeited, unless there shall be a
contrary provision in the agreement or plan pursuant to which such restricted
stock or options were granted.
(iii) In the event of the Executive's death while employed
or in the event the Executive's employment should terminate as a result of
Disability, then, any restricted stock or unexpired options held by the
Executive (or his assignee) entitling the Executive (or his assignee) to
purchase securities of the Company shall, notwithstanding any contrary
provision in the agreement or plan pursuant to which such restricted stock or
options were granted, be vested and/or be exercisable for the remainder of
the original term of such option as set forth in the pertinent option
agreement.
(iv) In the event of a Change in Control while the
Executive is employed, then as of the date immediately prior to the date such
Change in Control shall occur, any restricted stock or options held by the
Executive (or his assignee) entitling the Executive (or his assignee) to
purchase securities of the Company, which restricted stock or options are
subject to vesting, shall, notwithstanding any contrary provision in the
agreement or plan pursuant to which such restricted stock or options were
granted, become fully vested and any such options shall become exercisable as
of such date and shall remain exercisable during the respective terms of such
options as set forth in the pertinent option agreement.
(f) CONTINUATION OF BENEFITS, ETC. (i) Subject to the Sections 5(f)(ii)
and 5(f)(iii) below, in the event the Executive's employment hereunder is
terminated by the Executive for a Good Reason or by the Company other than
for "Cause" (including, without limitation, death or "Disability" or in the
event the Company elects not to
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automatically extend the Executive's employment hereunder pursuant to the
second sentence of Section l(a) hereof):
(A) The Executive shall continue to be entitled to the benefits that
the Executive was receiving or to which the Executive was entitled, as of
the date immediately preceding the applicable termination date, pursuant to
Section 4 hereof (except for the benefit described in Section 4(h))at the
Company's expense for a period of time following the termination date
ending on the first to occur of (I) the third anniversary of the
termination date or (II) the date on which the Executive commences
full-time employment by another employer, but only if and to the extent the
Executive is eligible to receive through such other employer benefits which
are at least equivalent on an aggregate basis to those benefits the
Executive was receiving or to which the Executive was entitled under
Section 4 hereof as of immediately preceding the applicable termination
date. If because of limitations required by third parties or imposed by
law, the Executive cannot be provided such benefits through the Company's
plans, then the Company will provide the Executive with substantially
equivalent benefits, on an aggregate basis, at the Company's expense. For
purposes of the determination of any benefits which require a particular
period of employment by the Company and/or the attainment of a particular
age while employed by the Company in order to be payable, the Executive
shall be treated as having continued in the employment of the Company
during such period of time as the Executive is entitled to receive benefits
under this Section 5(f). At such time as the Company is no longer required
to provide the Executive with life and/or disability insurance, as the case
may be, the Executive shall be entitled at the Executive's expense to
convert such life and disability insurance, as the case may be, except if
and to the extent such conversion is not available from the provider of
such insurance.
(B) The Executive shall be entitled, at the Company's expense for a
period of time following the termination date ending on the first to occur
of (A) the third anniversary of the termination date or (B) the date on
which the Executive commences full-time employment by another employer or
becomes self-employed on a full-time basis, to office space located within
ten (10) miles of the principal offices of the Company and secretarial
services substantially commensurate with the office space and secretarial
services furnished by the Company to the Executive prior to the termination
date, and to be furnished executive job search and employment services by
an executive employment firm of national reputation selected by the
Executive and approved by the Board, which approval shall not be
unreasonably withheld or delayed.
(ii) In the event the Executive's employment is terminated
following a Change in Control or is terminated by the Company other than for
Cause in anticipation of a Change in Control, the Company shall pay to the
Executive, in lieu of providing the benefits
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contemplated by Section 5(f)(i) above, an amount in cash equal to the
aggregate reasonable expenses that the Company would incur if it were to
provide such benefits for a period of time following the termination date
ending on the third anniversary of the termination date, which amount shall
be paid in one lump sum on the date of such termination.
(iii) With respect to any termination of the Executive's
employment (other than by the Company for "Cause" or a voluntary termination
by the Executive) as described in sections 5(f)(i) and 5(f)(ii) above, the
Executive shall be entitled to receive continued participation in medical,
dental and life insurance coverage until (A) the Executive receives
equivalent coverage and benefits under the plans and programs of a subsequent
employer (such coverage and benefits to be determined on a
coverage-by-coverage or benefit-by-benefit basis) or (B) the death of the
later of the Executive or his spouse; PROVIDED that (I) if the Executive is
precluded from continuing his participation in any applicable Executive
benefit plan or program as described above and in Section 4, he shall be
provided with the after-tax economic equivalent of the benefits provided
under the plan or program in which he is able to participate for the period
specified above, (II) the economic equivalent of any benefit forgone shall be
deemed to be the lowest cost that would be incurred by the Executive in
obtaining such benefit himself on an individual basis, and (III) payment of
such after-tax economic equivalent shall be made quarterly in advance.
(g) ACCRUED COMPENSATION. In the event of any termination of the
Executive's employment for any reason, the Executive (or his estate) shall be
paid such portion of his Base Salary and bonuses as he has accrued (including
without limitation as provided below) by virtue of his employment during the
period prior to termination and has not yet been paid, together with any
amounts for expense reimbursement and similar items which have been properly
incurred in accordance with the provisions hereof prior to termination and
have not yet been paid. Such amounts shall be paid within ten (10) days of
the termination date. The amount due to the Executive (or his estate) under
this Section 5(g) in payment of any bonus, including without limitation the
Annual Bonus and/or Annual Stock Option Grant, shall be a proportionate
amount of the bonus that would next be payable to him and would otherwise
have been due to the Executive if such termination had not occurred and such
bonus had been fully earned, and which proportion shall be based on the
number of elapsed days in the applicable bonus period prior to the
termination date and in which the termination date occurs.
(h) RESIGNATION. If the Executive's employment hereunder shall be
terminated by him or by the Company in accordance with the terms set forth
herein, then effective upon the date such termination is effective, he will
be deemed to have resigned from all positions as an officer and Director of
the Company and of any of its Subsidiaries, except as the parties (or with
respect to positions with a Subsidiary, the Executive and the Subsidiary) may
otherwise agree.
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(i) CERTAIN TAX CONSEQUENCES. Whether or not the Executive becomes
entitled to the payments and benefits described in this Section 5, if any of
the payments or benefits received or to be received by the Executive in
connection with a change in ownership or control of the Company (a "Statutory
Change in Control"), as defined in section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"), or the Executive's termination of
employment (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any person whose actions
result in a Statutory Change in Control or any person affiliated with the
Company or such person) (collectively, the "Severance Benefits") will be
subject to any excise tax (the "Excise Tax") imposed under section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall
pay to the Executive an additional amount equal to the Excise Tax, plus any
additional taxes resulting from the payment to the Executive by the Company
for such Excise Tax (the "Excise Tax Payment").
For purposes of determining whether any of the Severance Benefits
will be subject to the Excise Tax and the amount of such Excise Tax:
(i) all of the Severance Benefits shall be treated as
"parachute payments" within the meaning of Code section
280G(b)(2), and all "excess parachute payments" within the
meaning of Code section 280G(b)(1) shall be treated as subject
to the Excise Tax, unless, in the opinion of tax counsel
selected by Darrell Dillard, CPA, Dillard & Fischer LLP and
reasonably acceptable to the Executive or in the event Darrell
Dillard is unable or unwilling to make such selection, by
other tax counsel selected by the Company and reasonably
acceptable to the Executive, such other payments or benefits
(in whole or in part) do not constitute parachute payments,
including by reason of Code section 280G(b)(4)(A), or such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered, within
the meaning of Code section 280G(b)(4)(B), in excess of the
"Base Amount" as defined in Code section 280G(b)(3) allocable
to such reasonable compensation, or are otherwise not subject
to the Excise Tax; and
(ii) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by Darrell Dillard,
Dillard & Fischer LLP, or in the event that Darrell Dillard is unable
or unwilling to make such determination, such determination shall be
made by such other certified public accountant as is selected by the
Company and is reasonably acceptable to the Executive, in accordance
with the principles of Code section 280G(d)(3) and (4).
In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination
of the Executive's employment, the Executive shall repay
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to the Company, at the time that the amount of such reduction in Excise Tax
is finally determined (the "Reduced Excise Tax"), the difference of the
Excise Tax Payment and the Reduced Excise Tax, plus an additional amount
representing the difference between (A) the amount of any additional taxes
paid by the Company to the Executive for such Excise Tax and (B) the amount
of any additional taxes which should have been paid to the Executive by the
Company with respect to such Reduced Excise Tax. In the event that the Excise
Tax is determined to exceed the amount taken into account hereunder at the
time of the termination of the Executive's employment (including by reason of
any payment the existence or amount of which could not be determined at the
time of the Excise Tax Payment), the Company shall make an additional Excise
Tax payment in respect of such excess (plus any interest or penalties payable
by the Executive with respect to such excess) at the time that the amount of
such excess if finally determined, plus any additional taxes resulting from
the payment to the Executive by the Company for such excess and the interest
and penalties thereon. The Executive and the Company shall each reasonably
cooperate with the other in connection with any administrative or judicial
proceedings concerning the existence or amount of liability for Excise Tax
with respect to the Severance Benefits.
6. CONFIDENTIAL INFORMATION; NON-SOLICITATION; NON-COMPETITION;
RESTRICTIONS ON DISPOSITIONS OF EQUITY SECURITIES.
(a) The Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret, confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated companies
and that shall not have been or now or hereafter have become public knowledge
(other than by acts by the Executive or representatives of the Executive in
violation of this Agreement). During the Employment Period and for a period
of five years thereafter, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal
process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it.
(b) The Executive shall not, at any time during the Employment
Period and for a period of (i) three years thereafter in the event he
continues to be entitled to receive payments and/or benefits hereunder or
(ii) one year thereafter in the event he is not entitled to receive payments
and/or benefits hereunder, (x) engage or become interested as an owner (other
than as an owner of less than 5% of the stock of a publicly owned company)
stockholder, partner, director, officer, employee, consultant or otherwise in
any business that is competitive with any business conducted by the Company
or any of its affiliated companies during the Employment Period or on the
date of termination as applicable or (y) recruit, solicit for employment,
hire or engage any employee or consultant of the Company or any person who
was an employee or consultant of the Company within two (2) years prior to
the date of termination. The Executive acknowledges that these
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provisions (I) have been specifically bargained for by the Company and are
supported by separate and specific consideration provided to him by the
Company and (II) are necessary for the Company's protection and are not
unreasonable, since he would be able to obtain employment with companies
whose businesses are not competitive with those of the Company and its
affiliated companies and would be able to recruit and hire personnel other
than employees of the Company. The duration and the scope of these
restrictions on the Executive's activities are divisible, so that if any
provision of this paragraph is held or deemed to be invalid, that provision
shall be automatically modified to the extent necessary to make it valid. The
provisions contained in this paragraph of Section 6(b) of this Agreement
shall not be applicable to the Executive in the event that his employment is
terminated as a result of or in anticipation of a "Change in Control."
(c) Executive and the Company agree that this covenant not to
compete is a reasonable covenant under the circumstances, and further agree
that if in the opinion of any court of competent jurisdiction such restraint
is not reasonable in any respect, such court shall have the right, power and
authority to excise or modify such provision or provisions of this covenant
as to the court shall appear not reasonable and to enforce the remainder of
the covenant as so amended. Executive agrees that any breach of the covenants
contained in this Section 6 would irreparably injure the Company.
Accordingly, Executive agrees that the Company may, in addition to pursuing
any other remedies it may have in law or in equity, withhold payment of any
amounts due hereunder and obtain an injunction against Executive from any
court having jurisdiction over the matter restraining any further violation
of this Agreement by Executive.
(d) The Executive will not (i) exercise any options pertaining to
the Company's Common Stock which have been granted to him (or which may be
granted to him) or (ii) sell or otherwise dispose of any of the Company's
Common Stock or other equity securities of the Company which he owns for a
period of three (3) years from the date hereof, other than in the event of a
"Change in Control": PROVIDED, HOWEVER, that if the price of the Company's
Common Stock is in excess of an average of $12.00 per share for a period of
60 days, then the Executive shall be entitled to sell or otherwise dispose of
his options, Common Stock or other equity securities of the Company
beneficially owned by him; PROVIDED FURTHER that he does not reduce his
aggregate beneficial ownership of equity securities of the Company by more
than 50% of his then aggregate beneficial ownership of the Company's equity
securities at the time of such sales or other dispositions.
7. ENFORCEABILITY. If any provision of this Agreement shall be deemed invalid
or unenforceable as written, this Agreement shall be construed, to the
greatest extent possible, or modified, to the extent allowable by law, in a
manner which shall render it valid and enforceable and any limitation on the
scope or duration of any such provision necessary to make it valid and
enforceable shall be deemed to be a part thereof. No invalidity or
unenforceability of any provision contained herein shall affect any other
portion of this Agreement unless the provision deemed to be so invalid or
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unenforceable is a material element of this Agreement, taken as a whole.
8. LEGAL EXPENSES. The Company shall pay the Executive's reasonable fees for
legal and tax advice and other related expenses associated with the
negotiation and completion of this Agreement. The Company shall also pay the
Executive's reasonable fees for legal and other related expenses associated
with any disputes arising hereunder or under the stock option agreements
referred to herein if a court of competent jurisdiction shall render a final
judgement in favor of the Executive on the issues in such dispute, from which
there is no further right of appeal. If it shall be determined in such
judicial adjudication that the Executive is successful on some of the issues
in such dispute, but not all, then the Executive shall be entitled to receive
a portion of such legal fees and other expenses as shall be appropriately
prorated.
9. NOTICES. All notices which the Company is required or permitted to give to
the Executive shall be given by registered or certified mail or overnight
courier, with a receipt obtained, addressed to the Executive at the address
referred to above, or at such other place as the Executive may from time to
time designate in writing, or by personal delivery, and to counsel for the
Executive as may be requested in writing by the Executive from time to time.
All notices which the Executive is required or permitted to give to the
Company shall be given by registered or certified mail or overnight courier,
with a receipt obtained, addressed to the Company at the address set forth
above, or at such other address as the Company may from time to time
designate in writing, or by personal delivery, and to counsel for the Company
as may be requested in writing by the Company. A notice will be deemed given
upon the mailing thereof or delivery to an overnight courier for delivery the
next business day, except for a notice of a change of address, which will not
be effective until receipt, and except as otherwise provided in Section 5(a).
10. WAIVERS. No waiver by either party of any breach or nonperformance of any
provision or obligation of this Agreement shall be deemed to be a waiver of
any preceding or succeeding breach of the same or any other provision of this
Agreement.
11. HEADINGS; OTHER LANGUAGE. The headings contained in this Agreement are
for reference purposes only and shall in no way affect the meaning or
interpretation of this Agreement. In this Agreement, as the context may
require, the singular includes the plural and the singular, the masculine
gender includes both male and female reference, the word "or" is used in the
inclusive sense and the words "including," "includes," and "included" shall
not be limiting.
12. COUNTERPARTS. This Agreement may be executed in duplicate counterparts,
each of which shall be deemed to be an original and all of which, taken
together, shall constitute one agreement.
13. AGREEMENT COMPLETE; AMENDMENTS. This Agreement, together with the stock
option agreements pertaining to the stock options referred
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to in Schedule A hereto, is the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior agreements, written or
oral, with respect thereto. This Agreement may not be amended, supplemented,
canceled or discharged except by a written instrument executed by both of the
parties hereto, PROVIDED, HOWEVER, that the immediately foregoing provision
shall not prohibit the termination of rights and obligations under this
Agreement which termination is made in accordance with the terms of this
Agreement.
14. BENEFIT AND BINDING NATURE/NONASSIGNABILITY. This Agreement shall be
binding upon and inure to the benefit of the successors and permitted assigns
of the respective parties hereto. This Agreement and the rights and
obligations hereunder are personal to the Company and the Executive and are
not assignable or transferable to any other person, firm or corporation
without the consent of the other party, except as contemplated hereby;
PROVIDED, HOWEVER, in the event of the merger or consolidation of the
Company, whether or not the Company is the surviving or resulting
corporation, the transfer of all or substantially all of the assets of the
Company, or the voluntary or involuntary dissolution of the Company, then the
surviving or resulting corporation or the transferee or transferees of the
Company's assets shall be bound by this Agreement and the Company shall take
all actions necessary to insure that such corporation, transferee or
transferees are bound by the provisions of this Agreement, and provided,
further, this Agreement shall inure to the benefit of the Executive's estate,
heirs, executors, administrators, personal and legal representatives,
distributees, devisees, and legatees. Notwithstanding the foregoing
provisions of this Section 14, the Company shall not be required to take all
actions necessary to insure that a transferee or transferees of the Company's
assets are bound by the provisions of this Agreement and such transferee or
transferees of the Company's shall not be bound by the obligations of the
Company under this Agreement if the Company shall have (a) paid to the
Executive or made provision satisfactory to the Executive for payment to him
of all amounts which are or may become payable to him hereunder in accordance
with the terms hereof and (b) made provision satisfactory to the Executive
for the continuance of all benefits required to be provided to him in
accordance with the terms hereof.
15. GOVERNING LAW. This Agreement will be governed and construed in
accordance with the law of Maryland applicable to agreements made and to be
performed entirely within such state, without giving effect to the conflicts
of laws principles thereof.
16. SURVIVAL. The provisions of Sections 3, 5(d), (e), (f), (g) and (h), 6, 7
and 8 hereof, and any restricted stock or stock option agreement entered into
as described in or pursuant to Section 3 or Schedule A hereof or during the
Executive's employment hereunder shall survive the termination of the
Executive's employment as continuing and separate agreements between the
parties.
17. SUBSIDIARIES. As used herein, the term "Subsidiaries" shall mean all
corporations a majority of the capital stock of which entitling the holder
thereof to vote is owned by the Company or a Subsidiary.
18
<PAGE>
18. INTERPRETATION. The Company and the Executive each acknowledge
and agree that this Agreement has been reviewed and negotiated by such party
and its or his counsel, who have contributed to its revision, and the normal
rule of construction, to the effect that any ambiguities are resolved against
the drafting party, shall not be employed in the interpretation of it.
[SIGNATURE PAGE TO FOLLOW]
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
KEY ENERGY SERVICES, INC.
BY: /s/ MORTON WOLKOWITZ
-----------------------------------
MORTON WOLKOWITZ
DIRECTOR
EXECUTIVE
/s/ FRANCIS D. JOHN
-------------------------------------
FRANCIS D. JOHN
<PAGE>
SCHEDULE A
-------------------------
STOCK OPTIONS GRANTED TO EXECUTIVE
PRIOR TO JULY 1, 1999
-------------------------
(i) As performance-based incentive compensation to the Executive in
connection with services to be rendered, the Company has previously granted to
the Executive pursuant to the Company's 1995 Stock Option Plan (the "1995 Stock
Option Plan") certain options (the "1995 Options")to purchase shares of the
Company's common stock, $.01 per value per share (the "Common Stock"), on the
terms described below:
<TABLE>
<CAPTION>
Date of No. of Exercise Expiration Vesting
Grant Shares Price Date Schedule
----- ------ ----- ---- --------
<S> <C> <C> <C> <C>
7/6/95 20,000 $5.00 6/30/05 Fully Vested
7/6/95 80,000 $5.00 6/30/05 Fully Vested
7/6/95 130,000 $5.00 6/30/05 Fully Vested
7/6/95 20,000 $5.00 6/30/05 Fully Vested
</TABLE>
(ii) In addition, as performance based incentive compensation to the
Executive in connection with services to be rendered, the Company has
previously granted to the Executive pursuant to the Company's 1997 Incentive
Plan (the "1997 Incentive Plan") certain options (the "1997 Options") to
purchase shares of the Company's Common Stock on the terms described below:
<TABLE>
<CAPTION>
Date of No. of Exercise Expiration Vesting
Grant Shares Price Date Schedule
----- ------ ----- ---- --------
<S> <C> <C> <C> <C>
4/16/97 125,000 $13.25 4/16/07 31,250 6/30/97
31,250 6/30/98
31,250 6/30/99
31,250 6/30/00
9/4/98 500,000 $ 7.125 9/3/08 125,000 9/4/98
125,000 9/4/99
125,000 9/4/00
125,000 9/4/01
5/4/99 700,000 $ 3.00 5/3/99 233,333 5/4/00
233,333 5/4/01
233,334 5/4/02
</TABLE>
<PAGE>
SCHEDULE B
COMPANY PAID COVERAGES
1. Life Insurance
$5,000,000 payable to beneficiaries designated by the
Executive.
2. Business Travel Accident Insurance
Death and dismemberment benefits up to $1,000,000 with
twenty-four hour business and pleasure travel coverage.
3. Long Term Disability Insurance
Salary continuation benefit for total disability.
Benefit commences with ninetieth day of disability and
continues to a maximum of age sixty-five. Annual
maximum benefit shall be 60% of Base Salary, plus any
Annual Bonus described in Section 2(b) and any bonus
described in Section 2(c) paid to the Executive as of
the end of the most recent fiscal/ calendar year
preceding the disability.
4. Medical and Dental Coverage
Comprehensive medical and dental coverage, including an
annual physical, pursuant to which all medical and
dental expenses incurred by the Executive, his spouse
and his children will be reimbursed by Company provided
insurance, or in the absence of insurance coverage,
directly by the Company. In the event that the
Executive's employment is terminated, other than (a)
for "Cause" by the Company as defined in this Agreement
or (b) voluntarily by the Executive (I.E., other than
by death or "Disability", "Good Reason" or a "Change in
Control", all as defined in this Agreement), such
coverage will be continued until the earlier of (A) the
death of the later of the Executive or his spouse or
(B) the commencement of coverage with a subsequent
employer, but only to the extent such coverage
duplicates or exceeds the coverage provided by the
Company. In addition, at least twice a year during the
Employment Period, the Executive shall submit to two
(2) additional physical examinations and regimens at
any facility selected by the Executive and the results
of such examinations and regimens will be submitted to
the Board of Directors.
5. Director and Officer Liability Insurance--Minimum coverage of
at least $50 million
6. Umbrella Policy--Company shall provide the Executive with a
personal Umbrella Policy in the amount of coverage of
$5,000,000.
<PAGE>
THOMAS K. GRUNDMAN EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (as from time to time amended in accordance with
the provisions hereof, this "Agreement"), is entered into this 5th day of
August, 1999, by and between Thomas K. Grundman (the "Executive"), and KEY
ENERGY SERVICES, INC., a Maryland corporation with its principal offices at
Two Tower Center, Twentieth Floor, East Brunswick, New Jersey 08816 (the
"Company").
WHEREAS, the Company desires to retain the services of the Executive
effective as of July 1, 1999 (the "Commencement Date") and the Executive
desires to provide such services to the Company on the terms and conditions
hereafter stated.
NOW THEREFORE, in consideration of the covenants and agreements herein
contained, the Company and the Executive hereby agree as follows:
1. Employment; Term.
(a) Effective as of the Commencement Date, the Company hereby agrees to
employ the Executive, and the Executive hereby accepts employment by the
Company, as the Company's Executive Vice President and Chief Financial
Officer, and the Executive shall hold such position and continue employment
with the Company hereunder until the close of business on July 1, 2002,
unless sooner terminated in accordance with Section 5 (the "Initial
Employment Period"). The above notwithstanding, on each July 1, commencing
with July 1, 2002, the term of the Executive's employment hereunder shall be
automatically extended for twelve (12) months (unless sooner terminated in
accordance with Section 5) unless either the Executive or the Company shall
have given written notice to the other that such automatic extension shall
not occur, which notice shall have been given no later than sixty (60) days
prior to the relevant July 1st (the Initial Employment Period, together with
any extensions, until termination in accordance herewith, is referred to
hereby as the "Employment Period").
(b) The Executive shall have the responsibilities, duties and authority
commensurate with his positions as the Executive Vice President and Chief
Financial Officer of the Company, including without limitation the general
supervision and control over, and responsibility for, the overall financial
and related activities and the international operations of the Company and
its Subsidiaries, subject, however, to the supervision of the Chief Executive
Officer and the Board of Directors of the Company (the "Board") insofar as
such Board supervision is required by applicable laws, regulations, and
the Company. Such responsibilities, duties and authority shall not be
expanded or contracted without the express consent of the Executive. The
Executive will report only to the Chief Executive Officer, and, as
appropriate, the Board.
(c) The Executive will devote his full time and his best efforts to the
business and affairs of the Company; provided, however, that nothing
contained in this Section 1 shall be deemed to prevent or limit the
Executive's right to: (i) make investments in the securities of any
publicly-owned corporation; or (ii) make any other investments with respect
to which he is not obligated or required to, and to which he does not in
fact, devote substantial managerial efforts
<PAGE>
which materially interfere with his fulfillment of his duties hereunder; or
(iii) to serve on boards of directors and to serve in such other positions
with non-profit and for-profit organizations as to which the Board may from
time to time consent, which consent shall not be unreasonably withheld or
delayed.
(d) The principal location at which the Executive will substantially
perform his duties will be the Company's principal offices, as set forth
above. In the event the Company's principal offices are moved, the Company
will pay to the Executive (i) ordinary and reasonable realtor fees and
closing costs incurred in connection with the sale of the Executive's primary
residence, (ii) ordinary and reasonable closing costs incurred in connection
with the purchase of the Executive's new primary residence in the vicinity of
the Company's new principal offices, (iii) ordinary and reasonable costs
incurred to pack, transport, unpack, and insure the Executive's household
furnishings and effects to his new primary residence, (iv) ordinary and
reasonable fees for connecting utilities in his new primary residence, (v)
ordinary and reasonable costs for trips to look for a new residence as well
as up to thirty (30) days of temporary housing, and (vi) a cash bonus
calculated to pay all of the federal, state and local income and payroll
taxes which the Executive will incur, if any, as a result of (A) the
Company's reimbursement of the preceding expenses and (B) the amount of such
bonus (that is, a "gross-up" bonus).
2. Salary; Bonuses; Expenses.
(a) During the Employment Period, the Company will pay base
compensation to the Executive at the annual rate of Two Hundred Thousand
Dollars ($200,000) per year (the "Base Salary"), payable in substantially
equal installments in accordance with the Company's existing payroll
practices, but no less frequently than monthly. The Company will review the
Executive's Base Salary on a yearly basis promptly following the end of each
fiscal year of the Company to determine if an increase is advisable, and the
Base Salary may be increased (but not decreased) at the discretion of the
Chief Executive Officer and the Board, taking into account, among other
factors, the Executive's performance and the performance of the Company.
(b) For each fiscal year of the Company commencing after June 30, 1999,
the Executive shall be eligible to participate in the Performance
Compensation Plan as well as any other incentive plan (a "Bonus Plan") for
the Company's executives providing for the payment of cash bonuses, based
upon the achievement of objective performance goals mutually negotiated and
agreed upon in good faith in advance by the Executive, the Chief Executive
Officer, and the Board. Bonuses earned under a Bonus Plan shall be payable to
the Executive within ninety (90) days after the end of each fiscal year.
(c) The Executive shall be reimbursed by the Company for reasonable
travel, lodging, meal, entertainment and other expenses incurred by him in
connection with performing his services hereunder in accordance with the
Company's reimbursement policies from time to time in effect.
(d) (i) Anything in this Agreement to the contrary notwithstanding, in
the event it is determined that any payment, award, benefit or distribution
by the Company to or for the benefit of the Executive pursuant to the terms
of this Agreement or any other agreement or plan (a "Payment") is subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code
2
<PAGE>
(the "Code") or any corresponding provisions of state or local income tax
laws (such excise tax, together with any interest and penalties incurred with
respect thereto, hereinafter collectively referred to as "Excise Tax"), the
Company shall indemnify and hold the Executive harmless, on an after-tax
basis, from and against such Excise Tax and shall make to the Executive an
additional payment (a "Gross-Up Payment") in an amount such that, after
payment by the Executive of any Excise Tax imposed upon the Payment and the
Gross-Up Payment, the Executive shall not have incurred any out-of-pocket
expense for such Excise Tax. The Gross-Up Payment shall be made at least
five (5) business days prior to the due date for payment of the Excise Tax.
(ii) The Executive shall give the Company written notice of any
determination by the Executive, or any claim by any taxing authority, that he
owes Excise Tax on a Payment. Such notice shall be given as soon as
practicable but no later than ten (10) business days after the Executive
makes such determination or is informed in writing of such claim and shall
apprise the Company of the amount of such Excise Tax and the date on which it
is required to be paid. If the Company gives the Executive written notice
at least thirty (30) days prior to the due date for payment of such Excise
Tax, or within ten (10) business days of having received the foregoing notice
from the Employee, that it disagrees with or wishes to contest the amount of
the Excise Tax, the Company and the Executive shall consult with each other
and their respective tax advisors regarding the amount and payment of any
Excise Tax. In the event there is a contest with any taxing authority
regarding the amount of the Excise Tax, the Company shall bear and pay
directly all costs and expenses (including additional interest, penalties and
legal fees) incurred in connection with any contest of such Excise Tax and
shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax and any income tax incurred by the Executive on (x) the
Gross-Up Payment (including any interest and penalties with respect thereto)
and (y) the Company's payment of the Employee's costs and expenses hereunder.
3. Stock Options.
(a) The Company has granted to the Executive under the Key Energy
Group, Inc. 1997 Incentive Plan (as amended from time to time, the "Incentive
Plan") pursuant to an agreement in the standard form used for each of its
senior management options to acquire three hundred thousand (300,000) shares
of the Company's common stock at an exercise price of three dollars ($3.00)
per share. One third (1/3) of the Options shall vest on July 1 of each
calendar year, commencing July 1, 2000, and subject to the terms of the
option agreements, the Incentive Plan and this Agreement, be exercisable at
any time prior to May 5, 2009.
(b) In addition to Section 3(a), for each fiscal year of the Company
commencing after July 1, 1999, the Executive shall be eligible to participate
in awards of stock options, at the discretion of the Board (and subject to
availability), under the Incentive Plan (or any successor stock option plan).
The performance goals for the grant of such options will be based on
objective criteria mutually negotiated and agreed upon in good faith in
advance by the Executive, the Chief Executive Officer, and the Board.
3
<PAGE>
4. Benefit Plans; Vacations.
In connection with the Executive's employment hereunder, he shall be
entitled during the Employment Period (and thereafter to the extent provided
in Section 5(f) hereof) to the following additional benefits:
(a) At the Company's expense, such fringe benefits, including without
limitation group medical and dental, life, executive life, accident and
disability insurance and retirement plans and supplemental and excess
retirement benefits, as the Company may provide from time to time for its
senior management, but in any case, at least the benefits described on
EXHIBIT A hereto.
(b) The Executive shall be entitled to no less than the number of
vacation days in each calendar year determined in accordance with the
Company's vacation policy as in effect from time to time, but not less than
fifteen (15) days in any calendar year (prorated in any calendar year during
which he is employed hereunder for less than the entire year in accordance
with the number of days in such calendar year in which he is so employed).
The Executive shall also be entitled to all paid holidays and personal days
given by the Company to its executives.
(c) The Executive shall be entitled to receive an allowance of $1,100
per month, plus reimbursement for reasonable insurance and maintenance
expenses, to cover costs incurred by the Executive in connection with the use
of his automobile during the Employment Period.
(d) Nothing herein contained shall preclude the Executive, to the
extent he is otherwise eligible, from participation in all group insurance
programs or other fringe benefit plans which the Company may from time to
time in its sole and absolute discretion make available generally to its
personnel, or for personnel similarly situated, but the Company shall not be
required to establish or maintain any such program or plan except as may be
otherwise expressly provided herein.
(e) The Company shall pay the initiation fee and any other initial
membership fee for the Executive to become and remain a member of one private
country club, golf club, tennis club or similar club or association for
business use selected by the Executive and approved by the Company, which
approval shall not be unreasonably withheld or delayed. In addition, the
Company shall pay all annual or other periodic fees, dues and costs, for the
Executive's membership in such club or association.
(f) The Company will reimburse the Executive for the following
out-of-pocket expenses that he incurs in connection with the relocation of
his primary residence from Pittsburgh, Pennsylvania to within commuting
distance of the Company's principal offices: (i) ordinary and reasonable
realtor fees and closing costs incurred in connection with the sale of the
Executive's current primary residence, (ii) ordinary and reasonable closing
costs incurred in connection with the purchase of the Executive's new primary
residence, (iii) ordinary and reasonable costs incurred to transport the
Executive's household furnishings and effects to his new primary residence,
(iv) ordinary and reasonable fees for connecting utilities in the Executive's
new primary residence, and (v) ordinary and reasonable costs for up to thirty
(30) days of temporary housing. On or prior to April 15, 2000, the Company
shall pay the Executive a
4
<PAGE>
cash bonus calculated to pay all of the federal, state and local income and
payroll taxes which the Executive will incur, if any, as a result of (i) the
Company's reimbursement of the preceding expenses and (ii) the amount of the
bonus (that is, a "gross-up" bonus).
5. TERMINATION, CHANGE OF CONTROL AND REASSIGNMENT OF DUTIES.
(a) TERMINATION BY COMPANY. The Company shall have the right to
terminate the Executive's employment under this Agreement and the Employment
Period for Cause (as defined below) at any time without obligation to make
any further payments to the Executive hereunder except the compensation
described in Section 5(g). The Company shall have the right to terminate the
Executive's employment hereunder, and the Employment Period for any reason
other than for Cause only upon at least ninety (90) days prior written notice
to him, except as otherwise provided in Section 5(b), which Section shall
apply in the event the Executive becomes unable to perform his obligations
hereunder by reason of Disability (as defined below). In the event the
Company terminates the Executive's employment hereunder for any reason other
than for Cause or Disability, then for the purpose of effecting a transition
during the ninety (90) day notice period of the Executive's management
functions from the Executive to another person or persons, during such period
the Company may reassign the Executive's duties hereunder to another person
or other persons. Such reassignment shall not reduce the Company's
obligations hereunder to make salary, bonus and other payments to the
Executive and to provide other benefits to him during the remainder of his
employment and, if applicable, following the termination of employment.
As used in this Agreement, the term "Cause" shall mean (i) the
willful and continued failure by the Executive to substantially perform his
duties hereunder (other than (A) any such willful or continued failure
resulting from his incapacity due to physical or mental illness or physical
injury or (B) any such actual or anticipated failure after the issuance of a
notice of termination by the Executive for Good Reason (as defined below)),
after demand for substantial performance is delivered by the Company to the
Executive that specifically identifies the manner in which the Company
believes the Executive has not substantially performed his duties; or (ii)
the willful engaging by the Executive in misconduct which is materially
injurious to the Company, monetarily or otherwise; or (iii) the conviction of
the Executive of a felony by a court of competent jurisdiction ; or (iv)
willful violation of the Key Energy Group, Inc. Policy Regarding Acquisition,
Ownership and Disposition of Company Securities, as amended from time to
time. For purposes of this paragraph, no act, or failure to act on the part
of the Executive shall be considered "willful" unless done or omitted to be
done by him in bad faith and without reasonable belief that his action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive's employment shall not be deemed to have been
terminated for Cause unless (A) reasonable notice shall have been given to
him setting forth in detail the reasons for the Company's intention to
terminate for Cause, and if such termination is pursuant to clause (i) or
(ii) above and any damage to the Company is curable, only if Executive has
been provided a period of ten (10) business days from receipt of such notice
to cease the actions or inactions and otherwise cure such damage, and he has
not done so; (B) an opportunity shall have been provided for the Executive,
together with his counsel, to be heard before the Board; and (C) if such
termination is pursuant to clause (i) or (ii) above, delivery shall have been
made to the Executive of a notice of termination from the Board finding that
in the good faith
5
<PAGE>
opinion of a majority of the Board (excluding the Executive) he was guilty of
conduct set forth in clause (i) or (ii) above, and specifying the particulars
thereof in detail.
(b) TERMINATION UPON DISABILITY AND TEMPORARY REASSIGNMENT OF DUTIES
DUE TO DISABILITY.
(i) If the Executive becomes totally and permanently disabled
during the Employment Period so that he is unable to perform his obligations
hereunder by reasons involving physical or mental illness or physical injury
(A) for a period of ninety (90) consecutive days during the Employment
Period, or (B) for an aggregate of ninety (90) days during any period of
twelve (12) consecutive months during the Employment Period ("Disability"),
then the Executive's employment hereunder and the Employment Period may be
terminated by the Company within sixty (60) days after the expiration of said
ninety (90) day period (whether consecutive or in the aggregate, as the case
may be), said termination to be effective ten (10) days after written notice
to the Executive, provided that the Executive shall have remained unable to
perform his obligations hereunder by reason of such illness or injury as of
the date of such termination notice. In the event the Company shall give a
notice of termination under this Section 5(b)(i), then the Company may
reassign the Executive's duties hereunder to another person or other persons.
Such reassignment shall not reduce the Company's obligations hereunder to
make salary, bonus and other payments to the Executive and to provide other
benefits to him, during the remainder of his employment and, if applicable,
following the termination of employment.
(ii) During any period that the Executive is totally disabled such
that he is unable to perform his obligations hereunder by reason involving
physical or mental illness or physical injury, as determined by a physician
chosen by the Company and reasonably acceptable to the Executive (or his
legal representative), the Company may reassign the Executive's duties
hereunder to another person or other persons, provided if the Executive shall
again be able to perform his obligations hereunder prior to the termination
of the Executive's employment hereunder and the Employment Period in
accordance with Section 5(b)(i), all such duties shall again be the
Executive's duties. The cost of any examination by such physician shall be
borne by the Company. Notwithstanding the foregoing, if the Executive has
been unable to perform his obligations hereunder by reasons involving
physical or mental illness or physical injury for a period of ninety (90)
consecutive days during the Employment Period or an aggregate of ninety (90)
days during any period of twelve (12) consecutive months during the
Employment Period, then a determination by a physician of disability will
not be required prior to any such reassignment. Any such reassignment shall
not be a termination of employment and in no event shall such reassignment
reduce the Company's obligation to make salary, bonus and other payments to
the Executive and to provide other benefits to him under this Agreement
during his employment or, if applicable, following a termination of
employment.
(c) TERMINATION BY EXECUTIVE. The Executive's employment hereunder and
the Employment Period may be terminated by the Executive by giving written
notice, to the Company as follows: (i) at any time (for any reason other than
Good Reason) by notice of at least thirty (30) days; (ii) at any time for a
Good Reason, effective upon giving notice of such; or (iii) at any time
(without any prior notice), if his health should become impaired, provided he
has obtained a written statement from a qualified doctor to such effect,
effective upon giving such
6
<PAGE>
notice. In the event of a termination by the Executive of his employment,
the Company may reassign the Executive's duties hereunder to another person
or other persons.
As used herein, a "GOOD REASON" shall mean any of the following:
(1) Failure of the Board to elect the Executive as Executive Vice
President and Chief Financial Officer of the Company, or removal from the
office of Executive Vice President and Chief Financial Officer of the Company
provided that such failure or removal is not in connection with (1) a
termination of the Executive's employment hereunder for Cause in accordance
with Section 5(a) or, (2) a termination of Executive's employment (or
reassignment of the Executive's duties) by the Company for Disability or
other than for Cause in accordance with Section 5(a) or Section 5(b), and
provided further that any notice of termination hereunder shall be given by
the Executive within ninety (90) days of such failure or removal; or
(2) Material change by the Company in the Executive's authority,
functions, duties or responsibilities as Executive Vice President and Chief
Financial Officer of the Company (including without limitation material
changes in the control or structure of the Company) which would cause his
position with the Company to become of materially less responsibility,
importance, scope or dignity than his position as of July 1, 1999, provided
that (I) such material change is not in connection with a termination of
Executive's employment hereunder for Cause in accordance with Section 5(a),
(II) such material change is not made in accordance with Section 5(a) or
Section 5(b) following a termination of Executive's employment by the Company
other than for Cause or Disability, (III) such material change is not made in
accordance with Section 5(b) pertaining to Disability, including without
limitation the time period restrictions applicable thereunder, and (IV) any
notice of termination hereunder shall be given by him within ninety (90) days
of when he becomes aware of such change; or
(3) Failure by the Company to comply with any provision of Section
1(d), 2, 3(b), or 4 of this Agreement, which has not been cured within
fifteen (15) days after notice of such noncompliance has been given by the
Executive to the Company, provided any notice of termination hereunder shall
be given by the Executive within ninety (90) days after the end of such
fifteen (15) day period; or
(4) Failure by the Company to obtain an assumption of this Agreement
(by operation of law or in writing) by a successor in accordance with Section
16 unless payment or provision for payment and provision for continuation of
benefits under this Agreement have been made as required by Section 16; or
(5) Any purported termination by the Company of the Executive's
employment which is not effected in accordance with the terms of this
Agreement, including without limitation pursuant to a notice of termination
not satisfying the requirements set forth herein (and for purposes of this
Agreement no such purported termination by the Company shall be effective),
which has not been cured within ten (10) days after notice of such
non-conformance has been given by the Executive to the Company, provided any
notice of termination hereunder shall be given by the Executive within thirty
(30) days of receipt of notice of such purported termination; or
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<PAGE>
(6) At the Executive's election at any time following, but prior to the
first anniversary of, a Change of Control (as defined below), effective upon
giving such notice.
As used herein, a "CHANGE OF CONTROL" means that any of the following events
has occurred:
a. Any person (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (or any successor provision) (the "Exchange
Act"), other than the Company, becomes the beneficial owner directly or
indirectly of more than twenty-five percent (25%) of the outstanding Common
Stock of the Company, determined in accordance with Rule 13d-3 under the
Exchange Act (or any successor provision), or otherwise becomes entitled to
vote more than twenty-five percent (25%) of the voting power entitled to be
cast at elections for directors ("Voting Power") of the Company, or in any
event such lower percentage as may at any time be provided for in any similar
provision for any director or officer of the Company or of any Subsidiary
approved by the Board; or
b. If the Company is subject to the reporting
requirements of Section 13 or 15(d) (or any successor provision) of the
Exchange Act, any person (as defined in Section 3(a)(9) of the Exchange Act),
other than the Company, purchases shares pursuant to a tender offer or
exchange offer to acquire Common Stock of the Company (or securities
convertible into or exchangeable for or exercisable for Common Stock) for
cash, securities or any other consideration, provided that after
consummation of the offer, the person in question is the beneficial owner,
directly or indirectly, of more than twenty-five percent (25%) of the
outstanding Common Stock of the Company, determined in accordance with Rule
13d-3 under the Exchange Act (or any successor provision) or such lower
percentage as may at any time be provided for in any similar provision for
any director or officer of the Company or of any Subsidiary approved by the
Board; or
c. The stockholders of the Company or the Board shall
have approved any consolidation or merger of the Company (1) in which the
Company is not the continuing or surviving corporation unless such merger is
with a Subsidiary at least eighty percent (80%) of the Voting Power of which
is held by the Company, or (2) pursuant to which the holders of the Company's
shares of Common Stock immediately prior to such merger or consolidation
would not be the holders immediately after such merger or consolidation of at
least a majority of the Voting Power of the Company or such lower percentage
as may at any time be provided for in any similar provision for any director
or officer of the Company or of any Subsidiary approved by the Board; or
d. The stockholders of the Company or the Board shall
have approved any sale, lease, exchange or other transfer (in one transaction
or a series of transactions) of all or substantially all of the assets of the
Company; or
e. Upon the election of one or more new directors of
the Company, a majority of the directors holding office, including the newly
elected directors, were not nominated as candidates by a majority of the
directors in office immediately before such election.
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As used in this definition of Change of Control, (i) "Common Stock" means the
common stock of the Company, $0.10 par value per share, and any class of
common stock into which such shares may hereafter be converted, reclassified
or recapitalized, or if changed, the capital stock of the Company as it shall
be constituted from time to time entitling the holders thereof to share
generally in the distribution of all assets available for distribution to the
Company's stockholders after the distribution to any holders of capital stock
with preferential rights, and (ii) "Subsidiary" means any corporation in an
unbroken chain of corporations beginning with the Company, if each of the
corporations (except the last corporation in the chain) owns stock possessing
50% or more of the total combined Voting Power of all classes of stock in one
of the other corporations in such claim.
(d) SEVERANCE COMPENSATION.
(i) TERMINATION FOR GOOD REASON OR OTHER THAN FOR CAUSE. In the
event the Executive's employment hereunder is terminated (A) by the Executive
for a Good Reason or (B) by the Company other than for Cause, Disability or
death (including without limitation in the event the Company elects at any
time not to automatically extend the Executive's employment hereunder
pursuant to Section 1(a) hereof), the Executive shall be entitled, in
addition to the other compensation and benefits herein provided for, to
severance compensation in an aggregate amount equal to three (3) times his
Base Salary at the rate in effect on the termination date, payable in
thirty-six (36) substantially equal monthly installments commencing at the
end of the calendar month in which the termination date occurs; provided,
however, that if the Executive's employment is terminated within one (1) year
following a Change of Control or is terminated by the Company other than for
Cause, Disability or death in anticipation of a Change of Control, the
severance compensation referred to above shall be payable in one lump sum on
the date of such termination.
(ii) TERMINATION FOLLOWING DISABILITY. In the event the
Executive's employment should be terminated by the Company as a result of
Disability in accordance with Section 5(b) hereof, then the Executive shall
be entitled, in addition to the other compensation and benefits herein
provided for, to severance compensation in an aggregate amount equal to three
(3) times his Base Salary at the rate in effect on the termination date plus
the average bonus the Company has paid to the Executive, if any, for the two
fiscal years of the Company immediately preceding such termination of
employment (or such shorter term as the Executive has been employed by the
Company) (or, if termination is prior to the end of the fiscal year
beginning July 1, 1999, a deemed bonus of 20% of Base Salary), payable in
thirty-six (36) substantially equal monthly installments commencing at the
end of the calendar month in which the termination date occurs, reduced by
the amount of any disability insurance proceeds actually paid to the
Executive or for his benefit during the said time period.
(iii) CHANGE OF CONTROL FOLLOWING TERMINATION. In the event there
is a Change of Control after Executive's employment is terminated and while
Executive is entitled to severance compensation as described above, any such
severance compensation which remains unpaid as of the Change of Control shall
be paid in one lump sum as of the Change of Control.
(iv) TERMINATION FOR DEATH. In the event of the executive's death
during the Employment Period, the Executive's estate shall not be entitled to
any severance compensation.
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(e) EFFECT OF TERMINATION OR CHANGE OF CONTROL UPON EQUITY COMPENSATION.
(i) In the event the Executive's employment hereunder is
terminated by the Company for any reason other than for Cause, Disability or
death (including without limitation an election by the Company not to
automatically extend the Executive's employment hereunder pursuant to the
second sentence of Section 1(a) hereof), or in the event the Executive should
terminate his employment for Good Reason, then, unless the provisions of
Section 5(e)(iv) hereof shall apply, any restricted stock or options
(including without limitation the stock options referred to in Section 3(a))
held by the Executive entitling the Executive to retain or purchase
securities of the Company which have not vested prior to the effective date
of such termination shall immediately vest and become exercisable as if (A)
the Executive's employment with the Company had not terminated and the
Executive remained employed with the Company up to and including the next
July 1st following the effective date of such termination, or (B) if the
Executive's employment is terminated prior to July 1, 2001, the Executive's
employment with the Company had not terminated and the Executive remained
employed with the Company up to and including July 1, 2001, and any
restricted stock or options not vested as of such July 1st shall be
forfeited. Any options or restricted stock held by the Executive entitling
the Executive to retain or purchase securities of the Company which have
vested prior to the effective date of such termination shall remain subject
to the terms and provisions of the plan and agreement under which they were
awarded.
(ii) In the event the Executive's employment hereunder is
terminated by the Company for Cause, then effective upon the date such
termination is effective, any restricted stock or options (including without
limitation the stock options referred in Section 3(a)) which have not vested
prior to the effective date of such termination shall be forfeited. Any
options or restricted stock held by the Executive entitling the Executive to
retain or purchase securities of the Company which have vested prior to the
effective date of such termination shall remain subject to the terms and
provisions of the plan and agreement under which they were awarded.
(iii) In the event of the Executive's death while employed or in
the event that the Executive's employment should terminate as a result of
Disability, then, unless the provisions of Section 5(e)(iv) hereof shall
apply, any restricted stock or options (including without limitation the
stock options referred to in Section 3(a)) held by the Executive entitling
the Executive to retain or purchase securities of the Company which have not
vested prior to the effective date of such termination shall vest and shall
remain subject to the terms and provisions of the plan and agreement under
which they were awarded.
(iv) In the event of a Change of Control while the Executive is
employed, then as of the date immediately prior to the date such Change of
Control shall occur, any restricted stock or options (including without
limitation the stock options referred to in Section 3(a)) held by the
Executive entitling the Executive to retain or purchase securities of the
Company, which restricted stock or options are subject to vesting, shall,
notwithstanding any contrary provision in the agreement or plan pursuant to
which such restricted stock or options were granted, become fully vested and
any such options shall become exercisable as of such date and shall remain
exercisable during the respective terms of such options, unless his
employment shall sooner terminate. In the event of any termination of his
employment within one (1) year following the date an option becomes fully
exercisable in accordance with the terms of this Section 5(e)(iv),
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then the applicable exercise period shall be at least twelve (12) months
following the date of termination or such longer period as set forth in the
pertinent option agreement.
(f) Continuation of Benefits.
(i) Subject to Section 5(f)(ii) hereof, in the event that
Executive's employment hereunder is terminated by the Executive for a Good
Reason or by the Company other than for Cause or death (including without
limitation, Disability or in the event the Company elects not to
automatically extend the Executive's employment hereunder pursuant to the
second sentence of Section 1(a) hereof), the Executive shall continue to be
entitled to the benefits that the Executive was receiving or to which the
Executive was entitled as of the date immediately preceding the applicable
termination date pursuant to Section 4 hereof (other than the benefits
provided under Section 4(b)) at the Company's expense for a period of time
following the termination date ending on the first to occur of (I) the third
anniversary of the termination date or (II) the date on which the Executive
commences full-time employment by another employer, but only if and to the
extent the Executive is eligible to receive through such other employer
benefits which are at least equivalent on an aggregate basis to those
benefits the Executive was receiving or to which the Executive was entitled
under Section 4 hereof as of the day immediately preceding the applicable
termination date. If because of limitations required by third parties or
imposed by law, the Executive cannot be provided such benefits through the
Company's plans, then the Company will provide the Executive with
substantially equivalent benefits, on an aggregate basis, at the Company's
expense. For purposes of the determination of any benefits which require a
particular period of employment by the Company and/or the attainment of a
particular age while employed by the Company in order to be payable, the
Executive shall be treated as having continued in the employment of the
Company during such period of time as the Executive is entitled to receive
benefits under this Section 5(f). At such time as the Company is no longer
required to provide the Executive with life and/or disability insurance, as
the case may be, the Executive shall be entitled at the Executive's expense
to convert such life and disability insurance, as the case may be, except if
and to the extent such conversion is not available from the provider of such
insurance.
(ii) In the event the Executive's employment is terminated
following a Change of Control or is terminated by the Company other than for
Cause in anticipation of a Change of Control, the Company shall pay to the
Executive, in lieu of providing the benefits contemplated by Section 5(f)(i)
above, an amount in cash equal to the aggregate reasonable expenses that the
Company would incur if it were to provide such benefits for a period of time
following the termination date ending on the third anniversary of the
termination date, which amount shall be paid in one lump sum on the date of
such termination.
(iii) In the event the Executive's employment is terminated by
reason of death, the Executive's spouse and her dependents shall be entitled
for a period of thirty-six months to receive coverage at the Company's
expense under the Company's group medical and dental plans at least
equivalent to the coverage the Executive was receiving as of the day
immediately preceding his death.
(g) ACCRUED COMPENSATION. In the event of any termination of the
Executive's employment for any reason, the Executive (or his estate) shall be
paid (i) such portion of his
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Base Salary by virtue of his employment during the period prior to
termination and has not yet been paid, including any accrued but unpaid
vacation pay, (ii) any prior fiscal year bonus earned but not paid, (iii)
provided the Executive's employment was not terminated by the Company for
Cause or by the Executive for any reason other than Good Reason, a pro-rata
portion (based upon the number of days of employment during the fiscal year)
of any bonus for the current fiscal year, so long as (A) the performance
goals required to be achieved in order to earn such bonus had been
established and (B) it is reasonably likely that such goals would have been
achieved had the Executive remained employed with the Company for the
remainder of the fiscal year, (iv) any amounts for expense reimbursement and
similar items which have been properly incurred in accordance with the
provisions hereof prior to termination and have not yet been paid, including
without limitation any sums due under Sections 2(c), 4(c), 4(e) and 4(f), and
(v) any Gross Up Payment which may become due under the terms of Section
2(d). Such amounts shall be paid within ten (10) days of the termination
date.
(h) RESIGNATION. If the Executive's employment hereunder shall be
terminated by him or by the Company in accordance with the terms set forth
herein, then effective upon the date such termination is effective, he will
be deemed to have resigned from all positions as an officer and Director of
the Company and of any of its Subsidiaries, except as the parties (or with
respect to positions with a Subsidiary, the Executive and such Subsidiary)
may otherwise agree.
6. Limitation on Competition.
During the Employment Period, and for such period thereafter (A) as the
Executive is entitled to receive severance compensation under this Agreement,
or (B) in the event payment of the Executive's severance compensation is
accelerated due to a Change of Control, for a period of twelve months
following the Employment Period, or (C) in the event the Executive's
employment is terminated by the Company for Cause or the Executive terminates
his employment without Good Reason, for a period of twelve months following
the Employment Period, (i) the Executive shall not, directly or indirectly,
without the Company's prior written consent, participate or engage in,
whether as a director, officer, employee, advisor, consultant, investor,
lender, stockholder, partner, joint venturer, owner or in any other capacity
(other than as an outside banker or investment banker), any business engaged
in the business of furnishing oil field services or onshore drilling of
natural gas or crude oil in the United States, provided, however, that the
Executive shall not be deemed to be participating or engaging in any such
business solely by virtue of his ownership of not more than five percent of
any class of stock or other securities which is publicly traded on a national
securities exchange or in a recognized over-the-counter market; (ii) the
Executive shall not, without the Company's prior written consent, (A) solicit
(other than by way of generalized employment advertising undertaken in the
ordinary course of business) the service of or employ any management employee
of the Company for the Executive's own benefit or for the benefit of any
person or entity other than the Company, (B) induce any such employee to
leave employment with the Company, or (C) employ or cause any other person or
entity other than the Company to employ any former management employee of the
Company whose termination of employment with the Company occurred less than
six (6) months prior to such employment by the Executive or such other person
or entity; and (iii) the Executive shall not, without the Company's prior
written consent, (A) induce or attempt to induce any customer, supplier or
contractor of the Company to terminate or breach any agreement or arrangement
with the Company, or (B) induce or attempt to induce any
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customer, supplier x or contractor of the Company (including any prospective
customer, supplier or contractor which the Company is actively pursuing prior
to the Executive's termination of employment), not to enter into any
agreement or arrangement with the Company.
The Executive agrees and acknowledges that a portion of the
consideration to be paid by the Company to the Executive pursuant to this
Agreement is in consideration of the covenants under this Section 6 and that
such consideration is fair and adequate, even though the Executive will not
receive any severance compensation in the event he terminates his employment
with the Company other than for Good Reason or the Company terminates his
employment for Cause. The Employee acknowledges and agrees that any breach
or anticipatory breach by him of any of the provisions of this Section 6
would cause the Company irreparable injury not compensable by monetary
damages alone and that, accordingly, in any such event, the Company shall be
entitled to injunctions, both preliminary and permanent, enjoining or
restraining such breach or anticipatory breach without the necessity of
showing irreparable injury (and the Employee hereby consents to the issuance
thereof without bond by a court of competent jurisdiction),
7. Confidential Information.
The Executive acknowledges that during the course of his employment with
the Company he will have access to trade secrets, confidential and
proprietary information and know-how of the Company ("Confidential
Information"). Except in the ordinary course of properly performing his
duties for the Company, the Executive shall not at any time, without the
Company's prior written consent while employed or after termination of his
employment, disclose, communicate or divulge, or use for the benefit of
himself or of any third party, any of the Confidential Information of the
Company. In the event the Executive learns during his employment with the
Company any trade secrets, confidential or proprietary information or
know-how of any customer, supplier or contractor of the Company, the
Executive shall maintain the confidence of such information in accordance
with the Company's obligation to such customer, supplier or contractor,
provided the Executive has actual notice of the Company's obligation therefor.
8. RETURN OF MATERIALS.
Upon termination of the Executive's employment for any reason, the
Executive shall promptly deliver to the Company or, with the Company's
consent, destroy all documents and other materials in the Executive's
possession or custody (whether prepared by the Executive or others) that the
Executive obtained from the Company or a customer, supplier or contractor of
the Company during the Employment Period and which relate to the past,
present or anticipated business and affairs of the Company, including without
limitation, any Confidential Information.
9. ENFORCEABILITY.
If any provision of this Agreement shall be deemed invalid or
unenforceable as written, this Agreement shall be construed, to the greatest
extent possible, or modified, to the extent allowable by law, in a manner
which shall render it valid and enforceable and any limitation on the scope
or duration of any such provision necessary to make it valid and enforceable
shall be
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deemed to be a part thereof. No invalidity or unenforceability of any
provision contained herein shall affect any other portion of this Agreement
unless the provision deemed to be so invalid or unenforceable is a material
element of this Agreement, taken as a whole.
10. LEGAL EXPENSES.
The Company shall pay the Executive's reasonable fees for legal and
other related expenses associated with any disputes arising hereunder or
under the stock option agreements referred to herein if either a court of
competent jurisdiction or an arbitrator shall render a final judgement or an
arbitrator's final decision in favor of the Executive on the issues in such
dispute, from which there is no further right of appeal. If it shall be
determined in such judicial adjudication or arbitration that the Executive is
successful on some of the issues in such dispute, but not all, then the
Executive shall be entitled to receive a portion of such legal fees and other
expenses as shall be appropriately prorated. The Company shall pay the
Executive's reasonable legal fees (not in excess of $7,500) and related
expenses for the preparation and review of this Agreement.
11. NOTICES.
All notices which the Company is required or permitted to give to the
Executive shall be given by registered or certified mail or overnight
courier, with a receipt obtained, addressed to the Executive at his primary
residence, or at such other place as the Executive may from time to time
designate in writing, or by personal delivery to the Executive, or by
facsimile to the Executive with oral confirmation of his receipt and with a
copy immediately sent to the Executive by first class U.S. Mail, and to
counsel for the Executive as may be requested in writing by the Executive
from time to time. All notices which the Executive is required or permitted
to give to the Company shall be given by registered or certified mail or
overnight courier, with a receipt obtained, addressed to the Company at the
address set forth above, or at such other address as the Company may from
time to time designate in writing, or by personal delivery to the Chief
Executive Officer of the Company, or by facsimile to the Chief Executive
Officer with oral confirmation of his receipt and with a copy immediately
sent to the Chief Executive Officer by first class U.S. Mail, and to counsel
for the Company as may be requested in writing by the Company. A notice will
be deemed given upon personal delivery, the mailing thereof or delivery to an
overnight courier for delivery the next business day, or the oral
confirmation of receipt by facsimile, except for a notice of change of
address, which will not be effective until receipt, and except as otherwise
provided in Section 5(a).
12. WAIVERS.
No waiver by either party of any breach or nonperformance of any
provision or obligation of this Agreement shall be deemed to be a waiver of
any preceding or succeeding breach of the same or any other provision of this
Agreement. Any waiver of any provision of this Agreement must be in writing
and signed by the party granting the waiver.
13. HEADINGS; OTHER LANGUAGE.
The headings contained in this Agreement are for reference purposes only
and shall in no way affect the meaning or interpretation of this Agreement.
In this Agreement, as the context
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may require, the singular includes the plural and the singular, the masculine
gender includes both male and female reference, the word "or" is used in the
inclusive sense and the words "including", "includes", and "included" shall
not be limiting.
14. COUNTERPARTS.
This Agreement may be executed in duplicate counterparts, each of which
shall be deemed to be an original and all of which, taken together, shall
constitute one agreement.
15. AGREEMENT COMPLETE; AMENDMENTS.
Effective as of the Commencement Date, this Agreement, together with the
Exhibits hereto and the agreements referred to herein, is the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto. This
Agreement may not be amended, supplemented, canceled or discharged except by
a written instrument executed by both of the parties hereto, provided,
however, that the immediately foregoing provision shall not prohibit the
termination of rights and obligations under this Agreement which termination
is made in accordance with the terms of this Agreement.
16. BENEFIT OF THE SUCCESSORS AND PERMITTED ASSIGNS OF THE RESPECTIVE
PARTIES HERETO.
This Agreement and the rights and obligations hereunder are personal to
the Company and the Executive and are not assignable or transferable to any
other person, firm or corporation without the consent of the other party,
except as contemplated hereby; provided, however, in the event of the sale,
merger or consolidation of the Company, whether or not the Company is the
surviving or resulting corporation, the transfer of all or substantially all
of the assets of the Company, or the voluntary or involuntary dissolution of
the Company, then the surviving or resulting corporation or the transferee or
transferees of the Company's assets shall be bound by this Agreement and the
Company shall take all actions necessary to insure that such corporation,
transferee or transferees are bound by the provision of this Agreement, and
provided, further, this Agreement shall inure to the benefit of the
Executive's estate, heirs, executors, administrators, personal and legal
representatives, distributees, devisees, and legatees. Notwithstanding the
foregoing provisions of this Section 16, the Company shall not be required to
take all actions necessary to insure that a buyer, survivor, transferee or
transferees of the Company's assets ("Transferee") are bound by the
provisions of this Agreement and such Transferee shall not be bound by the
obligations of the Company under this Agreement if the Company shall have (a)
paid to the Executive or made provision satisfactory to the Executive for
payment to him of all amounts which are or may become payable to him
hereunder in accordance with the terms hereof and (b) made provision
satisfactory to the Executive for the continuance of all benefits required to
be provided to him in accordance with the terms hereof, in each case as if
the Executive had been terminated without Cause in anticipation of a Change
of Control.
17. GOVERNING LAW.
This Agreement will be governed and construed in accordance with the law
of New Jersey applicable to agreements made and to be performed entirely
within such state, without giving effect to the conflicts of laws principles
thereof.
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18. SURVIVAL.
The covenants, agreements, representations, warranties and provisions
contained in this Agreement that are intended to survive the termination of
the Executive's employment hereunder and the termination of the Employment
Period shall so survive such termination.
19. INTERPRETATION.
The Company and the Executive each acknowledge and agree that this
Agreement has been reviewed and negotiated by such party and its or his
counsel, who have contributed to its revision, and the normal rule of
construction, to the effect that any ambiguities are resolved against the
drafting party, shall not be employed in the interpretation of it.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
KEY ENERGY SERVICES, INC.
By: /s/ Francis D. John
---------------------------
Francis D. John
President and Chief Executive Officer
/s/ Thomas K. Grundman
- ------------------------
THOMAS K. GRUNDMAN
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EXHIBIT A
Company Paid Coverages
1. Life Insurance. $1,000,000 (with a physical exam), payable to
beneficiary designated by the Executive.
2. Long Term Disability Insurance. Salary continuation benefit for total
disability. Benefit commences with ninetieth day of disability and continues
to a maximum of age sixty-five. Annual maximum benefit shall be 60% of the
Base Salary.
3. Medical and Dental Plan. Comprehensive medical and dental plans
available to the Company's senior management.
4. Director and Officer Liability Insurance.
5. Voluntary annual physicals at the Executive's option, with a report by
the examining physician to the Board regarding the Executive's ability to
perform job related functions.
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KEY ENERGY SERVICES, INC.
Two Tower Center, 20th Floor
East Brunswick, New Jersey
As of July 1, 1999
Danny R. Evatt
3900 Tanforan Court
Midland, TX 79707
EMPLOYMENT AGREEMENT
(this "Agreement")
Dear Danny:
Key Energy Services, Inc., a Maryland corporation (the "Company"), with
its principal offices at the address set forth above, and you, an individual
with your address set forth above agree as follows:
1.EMPLOYMENT; TERM. The Company agrees to employ you, and you agree to
devote your full time and best efforts to serve as the Company's Vice
President of Financial Operations, Chief Accounting Officer and Chief
Information Officer, having those duties specified from time to time by
members of the Company's senior management or the Company's Board of
Directors (the "Board"). Your employment will commence effective as of
July 1, 1999 (the "Commencement Date") and continue until the close of
business on June 30, 2002, subject to extension as provided in this Section
1, unless earlier terminated in accordance with this Agreement (the
"Initial Employment Period"). On each July 1, commencing with July 1,
2002, the term of your employment will be automatically extended for a
period of twelve (12) months unless either you or the Company gives written
notice to the other, no later than thirty (30) days prior to the relevant
July 1, that such automatic extension shall not occur. The Initial
Employment Period, together with any extensions, until termination in
accordance herewith is referred to herein as the "Employment Period." You
will, if elected, serve as an officer and/or director of the Company and
its subsidiaries and perform all duties incident to such offices.
2. SALARY; BONUS; EXPENSES. During the Employment Period, the Company will
pay a salary to you at the annual rate of not less than One Hundred
Forty-Five Thousand Dollars ($145,000) per year (the "Base Salary"),
payable in substantially equal installments in accordance with the
Company's existing payroll practices, but no less frequently than monthly.
For each fiscal year of the Company commencing after June 30, 1999, you
shall be eligible to participate in an incentive plan for the Company's
executives, key employees and other persons involved in the business of the
Company and its subsidiaries (the "Incentive Plan") and in the Company's
stock-based incentive plans outstanding from time
<PAGE>
to time. Under the Incentive Plan, you shall be eligible to earn a cash
bonus, in an amount to be determined by the senior management of the
Company or the Board based upon the level of achievement of certain goals
to be mutually established by you and the senior management of the Company
(subject to Board approval). You will be reimbursed by the Company for
reasonable travel, lodging, meals and other expenses incurred by you in
connection with performing your services hereunder in accordance with the
Company's policies from time to time in effect. You will be entitled to a
vehicle allowance of $950 per month (plus a Company fuel card and
reimbursement for reasonable insurance expenses).
3. VACATIONS; BENEFITS;. You will be entitled during the Employment
Period to (i) not less than 15 vacation days per calendar year (prorated
for any partial year of service) and (ii) such other fringe benefits,
including, without limitation, group medical and dental, life, executive
life, accident and disability insurance, retirement plans and supplemental
and excess retirement benefits as the Company may provide from time to time
for its senior management.
4. TERMINATION AND SEVERANCE. In the event your employment hereunder is
terminated (i) by the Company for Cause (defined below) or (ii) by you for
any reason other than Good Reason (defined below), the Company shall have
no further obligations to you except that you will be entitled to receive
(x) any accrued but unpaid salary through your termination date and (y) any
expense reimbursements owed you through the date of termination. In the
event your employment hereunder is terminated (i) by the Company other than
for Cause (including your death or Disability (defined below)), (ii) by you
for Good Reason or (iii) automatically as a result of the Company's
providing notice to you that automatic extension of the Employment Period
shall not occur, you will be entitled to receive severance compensation
equal to two (2) times your Base Salary in effect on the termination date,
payable in arrears, in twenty-four (24) equal monthly installments
commencing at the end of the calendar month in which the termination date
occurs; PROVIDED, HOWEVER, that (A) in the event your employment should be
terminated by the Company other than for Cause (including your death or
Disability) within six months following a Change of Control (defined below)
or in anticipation of a Change of Control, the severance compensation
referred to above shall be paid in one lump sum on the date of such
termination, and (B) in the event your employment should be terminated by
the Company as a result of your Disability, then the severance compensation
referred to above shall be reduced by the amount of any disability
insurance proceeds actually paid to you or for your benefit during the said
time period. As used in this Agreement, the term "Cause" shall mean (i)
the willful and continued failure by you to substantially perform your
duties hereunder (other than any such willful or continued failure
resulting from your incapacity due to physical or mental illness or
physical injury), (ii) the willful engaging by you in misconduct which is
materially injurious to the Company, monetarily or otherwise, (iii) your
conviction of a felony by a court of competent jurisdiction, (iv) the
material breach of any of the provisions hereof, or (v) the material
violation of any of the Company's policies, rules or regulations from time
to time in effect. As used in this Agreement, the term "Change of Control"
shall have that meaning set forth in the Key Energy Group, Inc. 1997
Incentive Plan. As used in this Agreement, the term "Disability" means
total and permanent disability rendering you unable
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to perform your obligations and duties hereunder by reasons of physical or
mental illness or injury. As used in this Agreement, the term "Good
Reason" means the Company requiring you to perform your duties hereunder
at a permanent location outside a 100-mile radius of your current primary
residence set forth above.
5. LIMITATION ON COMPETITION. During the Employment Period, and for an
additional period (the "Non-Compete Period") of (i) twenty four (24) months
after your termination if you ARE entitled to receive severance
compensation pursuant to Section 4 hereof, or (ii) twelve (12) months after
your termination if you ARE NOT entitled to receive severance compensation
pursuant to Section 4 hereof, you shall not, directly or indirectly,
without the prior written consent of the Company, participate or engage in,
whether as a director, officer, employee, advisor, lender, consultant,
stockholder, partner, joint venturer, owner or in any other capacity, any
business engaged in the business of furnishing oilfield services in any of
the onshore oil or gas producing regions in the continental United States
and Argentina or in any other oil or gas producing region throughout the
world in which the Company or any of its subsidiaries conduct their
business or operations during the Employment Period or the Non-Compete
Period (a "Competing Enterprise"); PROVIDED, HOWEVER, that you shall not be
deemed to be participating or engaging in any such business solely by
virtue of your ownership of not more than five percent of any class of
stock or other securities which is publicly traded on a national securities
exchange or in a recognized over-the-counter market. In addition, during
the Employment Period and the Non-Compete Period, you shall not, directly
or indirectly, solicit, raid, entice or otherwise induce any employee of
the Company or any of its subsidiaries to be employed by a Competing
Enterprise or to otherwise leave the employ of the Company. You hereby
agree and acknowledge that a portion of the consideration to be paid by the
Company to you pursuant to this Agreement is consideration for your
covenants under this Section 5 and such consideration is fair and adequate
whether or not you receive any severance compensation pursuant to Section 4
hereof.
6. PRIOR EMPLOYMENT AGREEMENTS TERMINATED. Effective as of the
Commencement Date, any and all prior agreements and understandings between
you and the Company and any of its subsidiaries or affiliates regarding
your employment relationship therewith, whether written or oral, including
without limitation that certain employment agreement dated as of July 1,
1995 between you and Key Energy Group, Inc., are hereby terminated and of
no further force or effect.
[Signature Page Follows]
3
<PAGE>
If this Agreement correctly sets forth your understanding of the
agreement between the Company and you, please indicate your agreement hereto
by signing this Agreement in the space for that purpose below.
KEY ENERGY SERVICES, INC.
By: /s/ Francis D. John
----------------------------------------
Francis D. John
PRESIDENT
ACCEPTED AND AGREED:
/s/ Danny R. Evatt
- -------------------------
Danny R. Evatt
4
<PAGE>
KEY ENERGY SERVICES, INC.
Two Tower Center, 20th Floor
East Brunswick, New Jersey
As of July 1, 1999
James J. Byerlotzer
3 Auburn Court
Midland, TX 79705
EMPLOYMENT AGREEMENT
(this "Agreement")
Dear Jim:
Key Energy Services, Inc., a Maryland corporation formerly known as Key
Energy Group, Inc. (the "Company"), with its principal offices at the address
set forth above, and you, an individual with your address set forth above
agree as follows:
1. EMPLOYMENT; TERM. The Company agrees to employ you, and you agree to
devote your full time and best efforts to serve as the Company's Executive
Vice President of Domestic Well Service and Drilling Operations, having
those duties specified from time to time by members of the Company's senior
management or the Company's Board of Directors (the "Board"). Your
employment will commence effective as of July 1, 1999 (the "Commencement
Date") and continue until the close of business on June 30, 2002, subject
to extension as provided in this Section 1, unless earlier terminated in
accordance with this Agreement (the "Initial Employment Period"). On each
July 1, commencing with July 1, 2002, the term of your employment will be
automatically extended for a period of twelve (12) months unless either you
or the Company gives written notice to the other, no later than thirty (30)
days prior to the relevant July 1, that such automatic extension shall not
occur. The Initial Employment Period, together with any extensions, until
termination in accordance herewith is referred to herein as the "Employment
Period." You will, if elected, serve as an officer and/or director of the
Company and its subsidiaries and perform all duties incident to such
offices.
2. SALARY; BONUS; EXPENSES. During the Employment Period, the Company will
pay a salary to you at the annual rate of not less than One Hundred Eighty-
Five Thousand Dollars ($185,000) per year (the "Base Salary"), payable in
substantially equal installments in accordance with the Company's existing
payroll practices, but no less frequently than monthly. For each fiscal
year of the Company commencing after June 30, 1999, you shall
<PAGE>
be eligible to participate in an incentive plan for the Company's
executives, key employees and other persons involved in the business of
the Company and its subsidiaries (the "Incentive Plan") and in the
Company's stock-based incentive plans outstanding from time to time. Under
the Incentive Plan, you shall be eligible to earn a cash bonus, in an
amount to be determined by the senior management of the Company or the
Board based upon the level of achievement of certain goals to be mutually
established by you and the senior management of the Company (subject to
Board approval). You will be reimbursed by the Company for reasonable
travel, lodging, meals and other expenses incurred by you in connection
with performing your services hereunder in accordance with the Company's
policies from time to time in effect.
3. VACATIONS; BENEFITS. You will be entitled during the Employment Period
to (i) not less than 15 vacation days per calendar year (prorated for any
partial year of service) and (ii) such other fringe benefits, including,
without limitation, group medical and dental, life, executive life,
accident and disability insurance, retirement plans and supplemental and
excess retirement benefits as the Company may provide from time to time for
its senior management.
4. TERMINATION AND SEVERANCE. In the event your employment hereunder is
terminated (i) by the Company for Cause (defined below) or (ii) by you for
any reason other than Good Reason (defined below), the Company shall have
no further obligations to you except that you will be entitled to receive
(x) any accrued but unpaid salary through your termination date and (y) any
expense reimbursements owed you through the date of termination. In the
event your employment hereunder is terminated (i) by the Company other than
for Cause (including your death or Disability (defined below)), (ii) by you
for Good Reason or (iii) automatically as a result of the Company's
providing notice to you that automatic extension of the Employment Period
shall not occur, you will be entitled to receive severance compensation
equal to two (2) times your Base Salary in effect on the termination date,
payable in arrears, in twenty-four (24) equal monthly installments
commencing at the end of the calendar month in which the termination date
occurs; PROVIDED, HOWEVER, that (A) in the event your employment should be
terminated by the Company other than for Cause (including your death or
Disability) within six months following a Change of Control (defined below)
or in anticipation of a Change of Control, the severance compensation
referred to above shall be paid in one lump sum on the date of such
termination, and (B) in the event your employment should be terminated by
the Company as a result of your Disability, then the severance compensation
referred to above shall be reduced by the amount of any disability
insurance proceeds actually paid to you or for your benefit during the said
time period. As used in this Agreement, the term "Cause" shall mean (i)
the willful and continued failure by you to substantially perform your
duties hereunder (other than any such willful or continued failure
resulting from your incapacity due to physical or mental illness or
physical injury), (ii) the willful engaging by you in misconduct which is
materially injurious to the Company, monetarily or otherwise, (iii) your
conviction of a felony by a court of competent jurisdiction, (iv) the
material breach of any of the provisions hereof, or
<PAGE>
(v) the material violation of any of the Company's policies, rules or
regulations from time to time in effect. As used in this Agreement, the
term "Change of Control" shall have that meaning set forth in the Key
Energy Group, Inc. 1997 Incentive Plan. As used in this Agreement, the
term "Disability" means total and permanent disability rendering you
unable to perform your obligations and duties hereunder by reasons of
physical or mental illness or injury. As used in this Agreement, the
term "Good Reason" means the Company requiring you to perform your
duties hereunder at a permanent location outside the State of Texas.
5. LIMITATION ON COMPETITION. During the Employment Period, and for an
additional period (the "Non-Compete Period") of (i) twenty four (24) months
after your termination if you ARE entitled to receive severance
compensation pursuant to Section 4 hereof, or (ii) twelve (12) months after
your termination if you ARE NOT entitled to receive severance compensation
pursuant to Section 4 hereof, you shall not, directly or indirectly,
without the prior written consent of the Company, participate or engage in,
whether as a director, officer, employee, advisor, lender, consultant,
stockholder, partner, joint venturer, owner or in any other capacity, any
business engaged in the business of furnishing oilfield services (which for
the purposes hereof shall include drilling oil and gas wells) in any of the
onshore oil or gas producing regions in the continental United States and
Argentina or in any other oil or gas producing region throughout the world
in which the Company or any of its subsidiaries conduct their business or
operations during the Employment Period or the Non-Compete Period (a
"Competing Enterprise"); PROVIDED, HOWEVER, that you shall not be deemed to
be participating or engaging in any such business solely by virtue of your
ownership of not more than five percent of any class of stock or other
securities which is publicly traded on a national securities exchange or in
a recognized over-the-counter market. In addition, during the Employment
Period and the Non-Compete Period, you shall not, directly or indirectly,
solicit, raid, entice or otherwise induce any employee of the Company or
any of its subsidiaries to be employed by a Competing Enterprise or to
otherwise leave the employ of the Company. You hereby agree and
acknowledge that a portion of the consideration to be paid by the Company
to you pursuant to this Agreement is consideration for your covenants under
this Section 5 and such consideration is fair and adequate whether or not
you receive any severance compensation pursuant to Section 4 hereof.
6. PRIOR EMPLOYMENT AGREEMENTS TERMINATED. Effective as of the
Commencement Date, any and all prior agreements and understandings between
you and the Company and any of its subsidiaries or affiliates regarding
your employment relationship therewith, whether written or oral, including
without limitation that certain employment agreement dated as of November
13, 1998 (the "Prior Employment Agreement") between you and the Company,
are hereby terminated and of no further force or effect; provided that the
following agreements are NOT so terminated and remain in full force and
effect: (i) that certain Confidential Separation and Release Agreement
dated as of November 13, 1998 between you and the Company and (ii) the
agreements referred to in Section 16 thereof (other than the Prior
Employment Agreement).
<PAGE>
If this Agreement correctly sets forth your understanding of the
agreement between the Company and you, please indicate your agreement hereto
by signing this Agreement in the space for that purpose below.
KEY ENERGY SERVICES, INC.
By: /s/ Francis D. John
--------------------------------
Francis D. John
PRESIDENT
ACCEPTED AND AGREED:
/s/ James J. Byerlotzer
- -----------------------------
James J. Byerlotzer
<PAGE>
AGREEMENT
THIS AGREEMENT is made and entered into as of this 2nd day of August,
1999, by and between FRANCIS D. JOHN, residing at 6731 Paxon Road, Solebury,
Pennsylvania 18963 (the "Borrower") and KEY ENERGY SERVICES, INC., a Maryland
corporation with its principal offices at Two Tower Center, 20th Floor, East
Brunswick, New Jersey 08816 (the "Lender").
BACKGROUND
A. The Borrower has borrowed from the Lender, on the dates and in the
amounts set forth on Schedule I hereto, an aggregate of $2,345,000.00 (the
"Bridge Indebtedness"). The Bridge Indebtedness is evidenced by a series of
demand notes which have been executed and delivered to the Lender and are
attached hereto as Exhibits A, B, and C, respectively (the "Bridge Notes").
These Bridge Notes were secured by an open-end mortgage in the amount of
$2,500,000.00, which was dated August 31, 1998 and duly filed and recorded on
September 2, 1998, in the office of the Recorder of Deeds in and for Bucks
County, Pennsylvania (the "Recorder's Office") in Book 1662, page 294, a copy
of which is attached hereto as Attachment I (the "Bridge Financing
Mortgage").
B. The Borrower has also borrowed from the Lender, on the dates and in
the amounts set forth on Schedule II hereto, an aggregate of $490,000.00 (the
"Tranche II Indebtedness"). These borrowings are evidenced by a series of
demand notes attached hereto as Exhibits D, E, F, G, H and I, respectively
(the "Tranche II Notes").
C. In addition, the Borrower has borrowed from the Lender, on the
dates and in the amounts set forth on Schedule III hereto, an aggregate of an
additional $2,165,000.00 (the "Tranche III Indebtedness"). These borrowings
are evidenced by a series of demand notes attached hereto as Exhibits J and
K, respectively (the "Tranche III Notes").
D. In order to secure the repayment by the Borrower to the Lender of
the Bridge Indebtedness, Tranche II Indebtedness and Tranche III
Indebtedness, as evidenced by the Bridge Notes, Tranche II Notes and Tranche
III Notes, the Borrower will execute and deliver to the Lender a new open-end
mortgage in the amount of $5,000,000.00, a copy of the form of which is
attached hereto as Attachment II (the "New Mortgage") and the Lender will
cause the Bridge Financing Mortgage to be satisfied. In addition, the Lender
will obtain a title insurance policy in the amount of $5,000,000.00 insuring
the Lender's position as first lien holder against the parcel of real
property covered by the New Mortgage.
<PAGE>
E. The members of the Board of Directors of the Lender (other than the
Borrower) have unanimously determined that it would be in the best interests
of the Lender and its shareholders if the Borrower were to remain in his
positions as Chairman of the Board, President and Chief Executive Officer of
the Lender for a period of at least five (5) years.
F. In furtherance of that objective, the Lender has entered into an
Amended And Restated Employment Agreement, dated as of July 1, 1999 (the
"Employment Agreement"), with the Borrower which has an initial term, subject
to automatic renewals, of five (5) years.
G. As an additional inducement for the Borrower to remain in his
current positions as Chairman of the Board, President and Chief Executive
Officer of the Lender for a period of at least five (5) years, the Board of
Directors of the Lender has also determined that it would be in the best
interests of the Lender and its shareholders if the Bridge Indebtedness,
Tranche II Indebtedness and Tranche III Indebtedness between the Borrower and
Lender, as evidenced by the Bridge Notes, Tranche II Notes and the Tranche
III Notes and secured by the New Mortgage, together with accrued and unpaid
interest thereon, were to be forgiven and extinguished ratably over a five
(5) year period, commencing on July 1, 2000, on the terms and subject to the
conditions hereinafter set forth.
H. Unless the context otherwise requires, (1) the principal amount of
the Bridge Indebtedness, the Tranche II Indebtedness and the Tranche III
Indebtedness (together with the accrued but unpaid interest thereon) will
sometimes hereinafter be collectively referred to as the "Indebtedness" and
(2) the Bridge Notes, the Tranche II Notes, and the Tranche III Notes will
sometimes hereinafter be individually referred to as a "Note" and
collectively referred to as the "Notes".
NOW, THEREFORE, intending to be legally bound, the Borrower and the
Lender hereby agree as follows:
1. FORGIVENESS/CANCELLATION OF INDEBTEDNESS. Except (a) in the
event of an acceleration in Borrower's obligation to repay the outstanding
Indebtedness and make payment on any of the outstanding Notes as a result of
(i) the termination of the Borrower's employment by the Lender for "Cause"
(as defined and described below) or (ii) the voluntary termination by the
Borrower of his employment with the Lender for any reason or (b) in the event
of an acceleration in the Lender's obligation to forgive/cancel the
Indebtedness and cancel the Notes as a result of (i) the Borrower's
termination of his employment with the Lender as a result of "Good Reason",
"Change in Control" or "Disability" (as defined and described below) or (ii)
the death of the Borrower, the Lender hereby agrees that, for so long as the
Borrower remains employed by the Lender, the Indebtedness will be
forgiven/cancelled in the proportions and amounts and on the dates set forth
below:
2
<PAGE>
<TABLE>
<CAPTION>
PROPORTION/AMOUNT OF
INDEBTEDNESS TO BE
DATE FORGIVEN/CANCELLED
---- ------------------
<S> <C>
July 1, 2000 1/5th (20%)
($1,000,000.00, plus accrued
but unpaid interest thereon)
July 1, 2001 1/5th (20%)
($1,000,000.00, plus accrued
but unpaid interest thereon)
July 1, 2002 1/5th (20%)
($1,000,000.00, plus accrued
but unpaid interest thereon)
July 1, 2003 1/5th (20%)
($1,000,000.00, plus accrued
but unpaid interest thereon)
July 1, 2004 1/5th (20%)
($1,000,000.00, plus accrued
but unpaid interest thereon)
</TABLE>
The Indebtedness will be forgiven/cancelled by Lender chronologically in
the order in which it was incurred by the Borrower.
2. SURRENDER AND CANCELLATION OF NOTES.
(a) In the event of the forgiveness/cancellation of all or a
portion of the Indebtedness evidenced by the Notes in accordance with the
terms of this Agreement, the Lender will cause any one or more of the Notes
which evidence such Indebtedness to be surrendered for cancellation thereof.
To the extent that any portion of the Indebtedness represented by any such
Note surrendered for cancellation has not been forgiven/cancelled, the Lender
will cause a new demand note, evidencing the portion of the Indebtedness
represented by the cancelled Note which has not been forgiven/cancelled (the
"New Note"), to be issued in the name of the Borrower and cause such New Note
to be executed and delivered by or on behalf of the Borrower; PROVIDED,
HOWEVER, that any New Note which is issued shall be dated as of the date of
the Note which was surrendered and which evidences a portion of the
Indebtedness on the date of the surrender thereof which has not yet been
forgiven/cancelled and such New Note shall indicate that it is intended to be
secured by the New Mortgage. Notes or New Notes, as the case may be, shall
be surrendered for cancellation in chronological order of the date thereof
until all Notes or New Notes have been cancelled.
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<PAGE>
(b) The Borrower hereby agrees to take all actions (or cause
his authorized legal representative to take all actions) requested by the
Lender to cause such New Notes to be executed and delivered to the Lender.
Furthermore, Borrower hereby acknowledges his obligations under the
preceding sentence and paragraph. In order to facilitate the discharge of
his obligations thereunder, the Borrower acknowledges that contemporaneous
with the execution and delivery of this Agreement he has caused the execution
and delivery to the Lender of signature pages, executed in blank, to be
affixed to the New Notes. Borrower hereby appoints the General Counsel and
Secretary of the Lender to act as his attorney in fact in connection with the
execution and delivery of any New Notes and the Borrower also hereby
authorizes the General Counsel and Secretary of the Lender, acting as the
Borrower's attorney in fact, to affix to any New Note, which may be issued by
the Lender in accordance with the procedures described above, a signature
page which has been executed in blank by the Borrower and to cause such New
Note to be delivered to the Lender. The Borrower hereby indemnifies and
holds harmless the General Counsel and Secretary of the Lender for any and
all actions taken by him acting in his capacity as the Borrower's attorney in
fact in connection with the execution and delivery of any New Note to the
Lender in accordance with the procedures described above.
3. ADDITIONAL SECURITY; REVIEW OF ADEQUACY OF COLLATERAL. The
Borrower shall be required to post such additional collateral to secure the
Indebtedness and the Notes or New Notes, as the case may be, as the Board of
Directors of the Lender in its sole discretion may from time to time deem to
be necessary and/or appropriate under the circumstances. The Board of
Directors of the Lender will review the adequacy of collateral on at least an
annual basis and will advise the Borrower in writing regarding the need for
any additional collateral. In the event that the Board of Directors of the
Lender requires additional collateral, the Borrower hereby agrees to take all
actions, and execute and deliver all instruments and documents, deemed
necessary or appropriate by the Lender to satisfy its determination as to the
requirements for additional collateral.
4. ACCELERATION OF PAYMENT OF INDEBTEDNESS. In the event that
(a) the Borrower's employment with the Lender is terminated for "Cause" as
defined in his Employment Agreement with the Lender or (b) the voluntary
termination by the Borrower of his employment with the Lender for any reason,
any remaining amount of Indebtedness which is then outstanding, and all Notes
or New Notes, as the case may be, evidencing such Indebtedness, shall become
immediately due and payable.
5. ACCELERATION OF FORGIVENESS/CANCELLATION OF INDEBTEDNESS. In
the event that (a) the Borrower terminates his employment for "Good Reason",
or as a result of a "Change in Control" or "Disability", all as defined in
his Employment Agreement or (b) the Borrower dies, any remaining amount of
Indebtedness which is then outstanding, and all Notes or New Notes, as the
case may be, evidencing such Indebtedness, shall be immediately forgiven
and/or cancelled, and the New Mortgage released or satisfied, upon the
occurrence of such event.
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<PAGE>
6. GRANT OF NEW MORTGAGE/SATISFACTION OF BRIDGE FINANCING
MORTGAGE. The Borrower will execute and deliver to the Lender as promptly as
practicable the New Mortgage, a copy of the form of which is attached hereto
as Attachment II, and the Lender will thereafter, as promptly as practicable,
cause the Bridge Financing Mortgage to be satisfied and released.
7. CERTAIN TAX CONSEQUENCES.
(a) The Lender shall provide to the Borrower tax gross-up
payments with respect to any taxes incurred by him on any
forgiveness/cancellation of the Indebtedness as described in Sections 1
and/or 5 above, as the case may be, so that no such taxes shall be borne by
the Borrower (the "Tax Gross Up Payment"). The intent of this provision is
that all Federal, state and local income taxes, the Excise Tax Payment under
Section 6(b) below and any other taxes (including any penalties and interest
thereon) incurred by borrower on any forgiveness/ cancellation of the
Indebtedness as described in Sections 1 and/or 5 above and any additional
taxes resulting from the payment of such taxes by Lender shall also be paid
by Lender. For purposes of determining the Tax Gross Up Payment for any
calendar year in which the forgiveness/cancellation of the Indebtedness
occurs, Borrower shall be deemed to pay Federal, state and local income taxes
at the highest marginal rate of taxation in such calendar year. The amount
of such Tax Gross Up Payment for any calendar year shall be determined by
Darrell Dillard, CPA, Dillard & Fischer LLP, or in the event Darrell Dillard
is unable or unwilling to make such computation, such computation shall be
made by such other certified public accountant as is selected by Lender and
is reasonably acceptable to Borrower, no later than 30 days after the date of
the forgiveness/cancellation of the Indebtedness occurs and shall be paid by
Lender to Borrower in one lump sum within 30 days of such determination
(b) If any (a) forgiveness/cancellation of Indebtedness
described in Sections 1 or 5 of this Agreement or (b) Tax Gross Up Payment
described in Section 6 (a) of this Agreement received or to be received by
the Borrower in connection with a change in ownership or control of the
Lender (a "Statutory Change in Control"), described in section 280G(b)(2)(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and defined in
Proposed Treas. Reg. Section 1.280G-1Q/A-27, or the Borrower's termination of
employment (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Lender, any person whose actions
result in a Statutory Change in Control or any person affiliated with the
Lender or such person) (collectively, the "Severance Benefits") will be
subject to any excise tax (the "Excise Tax") imposed under section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), the Lender shall
pay to the Borrower an additional amount equal to the Excise Tax (the "Excise
Tax Payment"). Such Excise Tax Payment shall be included in the Tax Gross Up
Payment provided for under Section 6(a) of this Agreement.
For purposes of determining whether any of the Severance Benefits
will be subject to the Excise Tax and the amount of such Excise Tax:
(i) all of the Severance Benefits shall be treated as
"parachute payments" within the meaning of Code section 280(G)(b)(2),
and all "excess
5
<PAGE>
parachute payments" within the meaning of Code section 280G(b)(1)
shall be treated as subject to the Excise Tax, unless, in the
opinion of tax counsel selected by Darrell Dillard, CPA, Dillard &
Fischer LLP, and reasonably acceptable to the Borrower, or, in the
event Darrell Dillard is unable or unwilling to make such selection,
by other tax counsel selected by Lender and reasonably acceptable to
Borrower, such other payments or benefits (in whole or in part) do not
constitute parachute payments, including by reason of Code section
280G(b)(4)(A), or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered,
within the meaning of Code section 280G(b)(4)(B), in excess of the
"Base Amount" as defined in Code section 280G(b)(3) allocable to such
reasonable compensation, or are otherwise not subject to the Excise
Tax; and
(ii) the value of any non-cash benefits or any deferred payment
or benefit shall be determined by Darrell Dillard, CPA, Dillard &
Fischer LLP, in accordance with the principles of Code section
280G(d)(3) and (4). In the event Darrell Dillard is unable or
unwilling to make such determination, such determination shall be made
by such other certified public accountant as is selected by Lender and
is reasonably acceptable to Borrower.
In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination
of the Borrower's employment, the Borrower shall repay to the Lender, at the
time that the amount of such reduction in Excise Tax is finally determined
(the "Reduced Excise Tax"), the difference of the Excise Tax Payment and the
Reduced Excise Tax. In the event that the Excise Tax is determined to exceed
the amount taken into account hereunder at the time of the termination of the
Borrower's employment (including by reason of any payment the existence or
amount of which could not be determined at the time of the Excise Tax
Payment), the Lender shall make an additional Excise Tax payment in respect
of such excess (plus any interest or penalties payable by the Borrower with
respect to such excess) at the time that the amount of such excess is finally
determined. The Borrower and the Lender shall each reasonably cooperate with
the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect
to the Severance Benefits.
(c) All Computations of any Tax Gross Up Payment and/or
Excise Tax Payment to be made pursuant to the terms of this Agreement shall
be made by Darrell Dillard, CPA, Dillard & Fischer LLP. In the event Darrell
Dillard is unable or unwilling to make such computations, such computations
shall be made by such other certified public accountant as is selected by
Lender and is reasonably acceptable to borrower.
8. ENFORCEABILITY. If any provision of this Agreement shall be
deemed invalid or unenforceable as written, this Agreement shall be
construed, to the greatest extent possible, or modified, to the extent
allowable by law, in a manner which shall render it valid and enforceable and
any limitation on the scope or duration of any such provision necessary to
make it valid and
6
<PAGE>
enforceable shall be deemed to be a part thereof. No invalidity or
unenforceability of any provision contained herein shall affect any other
portion of this Agreement unless the provision deemed to be so invalid or
unenforceable is a material element of this Agreement, taken as a whole.
9. LEGAL EXPENSES. The Lender shall pay the Borrower's
reasonable fees for legal and tax advice and other related expenses
associated with the negotiation and completion of this Agreement.
10. NOTICES. All notices which the Lender is required or
permitted to give to the Borrower shall be given by registered or certified
mail or overnight courier, with a receipt obtained, addressed to the Borrower
at the address referred to above, or at such other place as the Borrower may
from time to time designate in writing, or by personal delivery, and to
counsel for the Borrower as may be requested in writing by the Borrower from
time to time. All notices which the Borrower is required or permitted to give
to the Lender shall be given by registered or certified mail or overnight
courier, with a receipt obtained, addressed to the Lender at the address set
forth above, or at such other address as the Lender may from time to time
designate in writing, or by personal delivery, and to counsel for the Lender
as may be requested in writing by the Lender. A notice will be deemed given
upon the mailing thereof or delivery to an overnight courier for delivery the
next business day, except for a notice of a change of address, which will not
be effective until receipt.
11. WAIVERS. No waiver by either party of any breach or
nonperformance of any provision or obligation of this Agreement shall be
deemed to be a waiver of any preceding or succeeding breach of the same or
any other provision of this Agreement.
12. HEADINGS; OTHER LANGUAGE. The headings contained in this
Agreement are for reference purposes only and shall in no way affect the
meaning or interpretation of this Agreement. In this Agreement, as the
context may require, the singular includes the plural and the singular, the
masculine gender includes both male and female reference, the word "or" is
used in the inclusive sense and the words "including," "includes," and
"included" shall not be limiting.
13. COUNTERPARTS. This Agreement may be executed in duplicate
counterparts, each of which shall be deemed to be an original and all of
which, taken together, shall constitute one agreement.
14. AGREEMENT COMPLETE; AMENDMENTS. This Agreement, together with
the Notes attached hereto as Exhibits A through K, any New Notes which may be
issued pursuant to the terms hereof, and the New Mortgage attached hereto as
Attachment II, is the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, written or oral,
with respect thereto. This Agreement may not be amended, supplemented,
cancelled or discharged except by a written instrument executed by both of
the parties hereto, PROVIDED, HOWEVER, that the immediately foregoing
provision shall not prohibit the
7
<PAGE>
termination of rights and obligations under this Agreement which termination
is made in accordance with the terms of this Agreement.
15. BENEFIT AND BINDING NATURE/NONASSIGNABILITY. This Agreement
shall be binding upon and inure to the benefit of the successors and
permitted assigns of the respective parties hereto. This Agreement and the
rights and obligations hereunder are personal to the Lender and the Borrower
and are not assignable or transferable to any other person, firm or
corporation without the consent of the other party, except as contemplated
hereby; PROVIDED, HOWEVER, in the event of the merger or consolidation of the
Lender, whether or not the Lender is the surviving or resulting corporation,
the transfer of all or substantially all of the assets of the Lender, or the
voluntary or involuntary dissolution of the Lender, then the surviving or
resulting corporation or the transferee or transferees of the Lender's assets
shall be bound by this Agreement and the Lender shall take all actions
necessary to insure that such corporation, transferee or transferees are
bound by the provisions of this Agreement, and provided, further, this
Agreement shall inure to the benefit of the Borrower's estate, heirs,
executors, administrators, personal and legal representatives, distributees,
devisees, and legatees. Notwithstanding the foregoing provisions of this
Section 15, the Lender shall not be required to take all actions necessary to
insure that a transferee or transferees of the Lender's assets are bound by
the provisions of this Agreement and such transferee or transferees of the
Lender's shall not be bound by the obligations of the Lender under this
Agreement if the Lender shall have (a) paid to the Borrower or made provision
satisfactory to the Borrower for payment to him of all amounts which are or
may become payable to him hereunder in accordance with the terms hereof and
(b) made provision satisfactory to the Borrower for the
forgiveness/cancellation of the Indebtedness and the cancellation of the
Notes and/or New Notes, as the case may be in accordance with the terms
hereof.
16. GOVERNING LAW. This Agreement will be governed and construed
in accordance with the law of Pennsylvania applicable to agreements made and
to be performed entirely within such state, without giving effect to the
conflicts of laws principles thereof.
17. INTERPRETATION. The Lender and the Borrower each acknowledge
and agree that this Agreement has been reviewed and negotiated by such party
and its or his counsel, who have contributed to its revision, and the normal
rule of construction, to the effect that any ambiguities are resolved against
the drafting party, shall not be employed in the interpretation of it.
[SIGNATURE PAGE TO FOLLOW]
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
KEY ENERGY SERVICES, INC.,
THE LENDER
BY: /s/ MORTON WOLKOWITZ
----------------------------------
MORTON WOLKOWITZ
DIRECTOR
BORROWER
/s/ FRANCIS D. JOHN
---------------------------------
FRANCIS D. JOHN
<PAGE>
$240,000 August 3, 1999
PROMISSORY NOTE
-----------------
FOR VALUE RECEIVED, the undersigned, THOMAS K. GRUNDMAN ("MAKER"), who
currently resides at 106 Sherbourne Drive, McMurray, PA 15217 (the "MCMURRAY
RESIDENCE") promises to pay to KEY ENERGY SERVICES, INC., a Maryland
corporation, with its address at Two Tower Center, 20th Floor, East
Brunswick, N.J. 08816 ("PAYEE"), principal in the aggregate amount of
$240,000, with interest accruing at 6L% per annum in accordance with the
terms of this Note.
Maker hereby agrees to be bound by all the terms contained in this Note.
1. PAYMENT DATE AND INSTRUCTIONS. Payment of the principal balance
outstanding under this Note together with all interest thereon accruing
through the date of such payment shall be made on the earlier of (i) the date
of the closing of Maker's sale of the McMurray Residence (or within five days
thereafter), (ii) the date on which the Maker's employment relationship with
the Payee pursuant to that certain Employment Agreement dated as of July 1,
1999 between Maker and Payee (the "Employment Agreement") is terminated
either (A) by the Maker for any reason other than Good Reason (as defined in
the Employment Agreement) or (B) by the Payee for Cause (as defined in the
Employment Agreement), (or within five days thereafter) or (iii) January 1,
2000. Payment upon this Note shall be made in immediately available funds
and in lawful currency of the United States of America by check or checks
payable to Payee at the address set forth in the first paragraph hereof or by
wire transfer in accordance with wire tra
2. PREPAYMENT. This Note may be prepaid by the Maker, in whole or in
part, at any time without premium or penalty.
3. RIGHTS OF PAYEE UNAFFECTED BY EXTENSIONS. No delay or omission on
the part of Payee in exercising any right hereunder shall operate as a waiver
of such right or of any other right of Payee, nor shall any delay, omission
or waiver on any one occasion be deemed a bar to or waiver of the same or any
other right on any other occasion. No single or partial exercise by Payee of
any power hereunder shall preclude any other or future exercise thereof or
the exercise of any other power.
4. EVENTS OF DEFAULT. Each of the following shall constitute an event
of default hereunder:
a. If Maker fails to render payment of interest and principal
under this Note when such payment is due and payable if such default shall
continue unremedied for ten (10) days;
<PAGE>
b. If Maker makes an assignment for the benefit of creditors or
admits his inability to pay his debts generally as they become due; or
c. If any action or proceeding is commenced by or against Maker
under the Federal Bankruptcy Act or under any other present or future state
or Federal law for the relief of debtors or for the appointment of a receiver
or trustee or the issuance of an attachment of substantially all the assets
of Maker, and is not stayed, satisfied or discharged within sixty (60) days.
Upon the occurrence of any such Event of Default, Payee may (unless all
defaults shall theretofore have been remedied) at its option declare this
Note to be immediately due and payable, and the entire unpaid balance of this
Note then outstanding shall be and become immediately due and payable without
presentment, demand, protest or other notice of any kind (all of which are
hereby expressly waived by Maker) and Payee may exercise any and all rights
and remedies under this Note and may proceed to protect and enforce its
rights under this Note and/or applicable law, by action at law, in equity, or
other appropriate proceeding. Following a demand for payment hereunder,
interest will be assessed on the outstanding principal and interest at a rate
of 8 1/8% per annum, and such default rate of interest shall also be charged
on the amounts owed by the Maker to the Payee pursuant to any judgments
entered in favor of Payee pursuant to this Note.
5. PAYMENT BY MAKER OF COSTS OF COLLECTION. Maker shall pay on demand
of Payee all reasonable out-of-pocket costs of collection, including
reasonable attorneys' fees, incurred by Payee in enforcing collection of this
Note on default.
6. AMENDMENT. No provision of this Note shall be modified except by a
written instrument executed by Maker and by Payee expressly referring to this
Note and to the provision modified.
7. BINDING EFFECT; ASSIGNMENT. This Note shall be binding upon Maker
and Payee and their respective successors and assigns. Neither Maker nor
Payee shall have any right to assign any rights or obligations hereunder
without the prior written consent of the other party hereto.
8. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW JERSEY (WITHOUT REGARD TO THE
CHOICE OF LAW RULES THEREOF).
9. JURISDICTION AND VENUE. MAKER AGREES TO THE JURISDICTION OF ANY
DISTRICT OR FEDERAL COURT WITHIN THE STATE OF NEW JERSEY, AND WAIVES ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER.
<PAGE>
10. Judicial Proceedings; Waivers. THE MAKER AND THE PAYEE ACKNOWLEDGE
AND AGREE THAT (i) ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR
COUNTERCLAIM, BROUGHT OR INSTITUTED BY THE PAYEE OR THE MAKER OR ANY
SUCCESSOR OR ASSIGN OF THE PAYEE OR THE MAKER, ON OR WITH RESPECT TO THIS
NOTE OR THE DEALINGS OF THE PARTIES WITH RESPECT HERETO, OR THERETO, SHALL BE
TRIED ONLY BY A COURT AND NOT BY A JURY AND EACH PARTY WAIVES THE RIGHT TO
TRIAL BY JURY; (ii) EACH WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN
ANY SUCH SUIT, ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES; AND (iii) THIS SECTION 10 IS A SPECIFIC AND MATERIAL ASPECT OF THIS
NOTE AND THE PAYEE WOULD NOT EXTEND CREDIT TO THE MAKER IF THE WAIVERS SET
FORTH IN THIS SECTION WERE NOT A PART OF THIS NOTE.
11. SEVERABILITY OF PROVISIONS. The provisions of this Note are hereby
declared to be severable, and if any provision or the application of any
provision to any entity or in any circumstances shall be held to be invalid
or unconstitutional, such invalidity or unconstitutionality shall not be
construed to affect the validity or constitutionality of any of the remaining
provisions as applied to entities, or in circumstances, other than those as
to which it is held invalid.
IN WITNESS WHEREOF, this Note has been duly executed by Maker as of the
date first above written.
By: /s/ Thomas K. Grundman
--------------------------
Thomas K. Grundman
<PAGE>
DEMAND NOTE
$150,000.00 EAST BRUNSWICK, NEW JERSEY
AUGUST 3, 1999
FOR VALUE RECEIVED, and intending to be legally bound hereby, THOMAS K.
GRUNDMAN, an individual (the "Borrower") promises to pay to the order of KEY
ENERGY SERVICES, INC., a Maryland corporation (the "Lender"), having an
address of Two Tower Center, 20th Floor, East Brunswick, New Jersey 08816,
the sum of ONE HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($150,000.00),
together with accrued, unpaid interest thereon at the rate hereinafter
provided. THE BORROWER UNDERSTANDS AND ACKNOWLEDGES THAT IF THE EVENTS
SPECIFIED IN SECTION 3 OF THIS NOTE OCCUR, THE LENDER MAY DEMAND PAYMENT
HEREUNDER AT ANY TIME FOR ANY REASON WHATSOEVER AND THAT UPON SUCH DEMAND,
THE BORROWER SHALL BE IMMEDIATELY OBLIGATED TO PAY THE LENDER THE LESSER OF
(i) THE OUTSTANDING BALANCE HEREUNDER, OR (ii) THE AMOUNT DEMANDED.
A. TERMS OF NOTE.
1. INTEREST. Except as provided in Section A.3 and A.5 of this Note,
interest on the principal balance outstanding hereunder shall accrue
at the rate equal to the greater of (i) 6.125% per annum and (ii) the
federal short term rate as specified in Section 1274(d)(1) of the
Internal Revenue Code.
2. FORGIVENESS OF PRINCIPAL AND INTEREST PAYMENTS. Payments of
principal and accrued interest on this Note shall be forgiven by
the Lender as follows:
(a) On each of July 1, 2000, July 1, 2001 and July 1, 2002 BUT ONLY
if the Borrower's employment relationship with the Lender pursuant to
that certain Employment Agreement dated as of July 1, 1999 between the
Borrower and the Lender (the "Employment Agreement") shall not have
been terminated on or prior to such payment date, Fifty Thousand and
00/100 Dollars ($50,000) of principal together with any interest on
the outstanding principal balance under this Note accrued through such
payment date not previously forgiven shall be forgiven on such payment
date.
(b) In the event that the Borrower's employment relationship with the
Lender pursuant to the Employment Agreement is terminated (i) by the
Borrower for a Good
<PAGE>
Reason (as defined in the Employment Agreement) or (ii) by the Company
other than for Cause (as defined in the Employment Agreement),
including termination for Disability (as defined in the Employment
Agreement) or death, then the entire amount of the principal balance
outstanding under this Note together with any interest on the
outstanding principal balance under this Note accrued through the
date of such termination not previously forgiven shall be forgiven
on the date of such termination.
3. DEMAND PAYMENT. In the event the Borrower's employment relationship
with the Lender pursuant to the Employment Agreement is terminated (i)
by the Borrower for any reason other than a Good Reason or (ii) by the
Lender for Cause, then all or a portion of the amount of the principal
balance outstanding under this Note together with any interest on the
outstanding principal balance under this Note accrued through the
date of such termination not previously forgiven (the "Demand Amount")
shall become due and payable immediately upon demand by the Lender.
From and after such termination date, interest on any unpaid portion
of the Demand Amount shall accrue at the rate specified in Section A.1
of this Note until demand is made therefor after which time interest
shall accrue at the rate specified in Section A.5 of this Note.
4. DEMAND PAYMENT TERMS. All payments made hereunder shall be in
immediately available funds and in lawful currency of the United
States of America. All payments made hereunder shall be made to the
Lender at the address set forth in this Note or at such other address
as the Lender shall notify the Borrower of in writing.
5. DEFAULT RATE. Following a demand for payment hereunder, interest will
be assessed on that portion of the Demand Amount for which demand was
made, at a rate which is two percent (2%) higher than the rate
otherwise charged hereunder (the "Default Rate") provided that at no
time shall the Default Rate exceed the highest rate of interest
allowed by law. Such Default Rate of interest shall also be charged
on the amounts owed by the Borrower to the Lender pursuant to any
judgments entered in favor of Lender pursuant to this Note.
6. PREPAYMENT. This Note may be prepaid in whole or in part without
prepayment penalty or premium. All payments received on this Note may
be applied in such order as the Lender in its sole discretion shall
determine.
B. DEFINITIONS. As used herein, the term "Note" means this Demand Note and
all amendments and modifications hereto in effect from time to time.
2
<PAGE>
C. REMEDIES.
1. ACCELERATION OF LIABILITIES; RIGHTS OF LENDER. Upon and following a
demand for payment hereunder and the failure of the Borrower to pay
the amount demanded, at the Lender's option, this Note shall
immediately become due and payable in full, all without protest,
presentment, demand or further notice of any kind to the Borrower, all
of which are expressly waived. Upon and following a demand hereunder
and failure of the Borrower to pay the amount demanded, the Lender, at
its option, may exercise any and all rights and remedies it has under
this Note and under applicable law, including, without limitation, the
right to charge and collect interest on the principal portion of the
balance hereunder at the Default Rate. Upon and following a demand
hereunder and failure of the Borrower to pay the amount demanded, the
Lender may proceed to protect and enforce the Lender's rights under
this Note and/or under applicable law by action at law, in equity, or
other appropriate proceeding.
2. CONFESSION OF JUDGMENT.
Upon and following a demand for payment hereunder and the failure of
the Borrower to pay the amount demanded within thirty (30) days of
demand, the Borrower hereby authorizes and empowers any attorney of
any court of record or the prothonotary or clerk of any county in the
Commonwealth of New Jersey, or in any jurisdiction where permitted by
law or the clerk of any United States District Court, to appear for
the Borrower in any and all actions which may be brought hereunder and
enter and confess judgment against the Borrower or any of them in
favor of the Lender for such sums as are due or may become due
hereunder, together with costs of suit and actual collection costs
including, without limitation, reasonable attorneys' fees equal to
five percent (5%) of the amounts then due and owing but in no event
less than $3000 with or without declaration. If a copy of this Note
verified by affidavit of any officer of the Lender shall have been
filed in such action, it shall not be necessary to file the original
thereof as a warrant of attorney, any practice or usage to the
contrary notwithstanding.
3. BANKRUPTCY EVENT. In the event Borrower commences any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under
the United States Bankruptcy Code or under any similar foreign,
federal, state, or local statute, or any dissolution or liquidation
proceeding, or makes a general assignment for the benefit of
creditors, or takes any action for the purpose of effecting the
foregoing or if any bankruptcy, reorganization, debt arrangement, or
other case or proceeding under the United States Bankruptcy Code or
under any similar foreign, federal, state or local statute, or any
dissolution or liquidation proceeding is involuntarily commenced
against or in respect of Borrower or an order for relief is entered in
any such proceeding (collectively, a "Bankruptcy Event") the Lender
shall be deemed to have
3
<PAGE>
made a demand for payment of all amounts outstanding hereunder
immediately prior to such Bankruptcy Event.
4. REMEDIES CUMULATIVE; NO WAIVER. The rights, powers and remedies
hereunder are cumulative and concurrent, and are not exclusive of any
other right, power or remedy available to the Lender. No failure or
delay on the part of the Lender in the exercise of any right, power or
remedy shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or remedy preclude any other or
further exercise thereof, or the exercise of any other right, power or
remedy.
D. MISCELLANEOUS.
1. WAIVER. The Borrower (a) waives presentment, protest, notice of
protest, and notice of dishonor of this Note; and (b) consents to any
and all extensions of time, renewals, waivers, or modifications that
may be granted by the Lender with respect to the payment or other
provisions of this Note.
2. NOTICES. Notices and communications under this Note shall be in
writing and shall be given by either (i) hand-delivery, (ii) first
class mail (postage prepaid), or (iii) reliable overnight commercial
courier (charges prepaid) to the addresses listed in this Note.
Notice by overnight courier shall be deemed to have been given and
received on the date scheduled for delivery. Notice by mail shall be
deemed to have been given and received three (3) calendar days after
the date first deposited in the United States Mail. Notice by
hand-delivery shall be deemed to have been given and received upon
delivery. A party may change its address by giving written notice to
the other party as specified herein.
3. COSTS AND EXPENSES. The Borrower shall promptly reimburse Lender for
all reasonable costs and expenses which the Lender may incur after a
demand for payment in connection with the interpretation, perfection,
protection of collateral, monitoring, administration and enforcement
of this Note, the collection of all amounts due under this Note, and
all amendments, modifications, consents and/or waivers, if any, to
this Note. The Borrower's reimbursement obligations under this
Paragraph shall survive any termination of this Note.
4. GOVERNING LAW. This Note shall be construed in accordance with and
governed by the substantive laws of the Commonwealth of New Jersey
without reference to conflict of laws principles.
5. INTEGRATION; AMENDMENT. This Note constitutes the sole agreement of
the parties with respect to the subject matter hereof and thereof and
supersedes all oral negotiations and prior writings with respect to
the subject matter hereof and thereof. No amendment of this Note, and
no waiver of any one or more of the provisions hereof shall be
effective unless set forth in writing and signed by the parties
hereto.
4
<PAGE>
6. SUCCESSORS AND ASSIGNS. This Note (a) shall be binding upon the
Borrower and the Lender and, where applicable, their respective heirs,
executors, administrators, successors and permitted assigns, and (b)
shall inure to the benefit of the Borrower and the Lender and, where
applicable, their respective heirs, executors, administrators,
successors and permitted assigns; provided, however, that the Borrower
may not assign its rights or obligations hereunder or any interest
herein without the prior written consent of the Lender, and any such
assignment or attempted assignment by the Borrower shall be void and
of no effect with respect to the Lender.
7. SEVERABILITY. The illegality, unenforceability or inconsistency of
any provision of this Note or any instrument or agreement required
hereunder shall not in any way affect or impair the legality,
enforceability or consistency of the remaining provisions of this Note
or any instrument or agreement required hereunder.
8. JUDICIAL PROCEEDINGS; WAIVERS. THE BORROWER AND THE LENDER
ACKNOWLEDGE AND AGREE THAT (a) ANY SUIT, ACTION OR PROCEEDING, WHETHER
CLAIM OR COUNTERCLAIM, BROUGHT OR INSTITUTED BY THE LENDER OR THE
BORROWER OR ANY SUCCESSOR OR ASSIGN OF THE LENDER OR THE BORROWER, ON
OR WITH RESPECT TO THIS NOTE OR THE DEALINGS OF THE PARTIES WITH
RESPECT HERETO, OR THERETO, SHALL BE TRIED ONLY BY A COURT AND NOT BY
A JURY AND EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY; (b) EACH
WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT,
ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES; AND (c) THIS SECTION D.8 IS A SPECIFIC AND MATERIAL
ASPECT OF THIS NOTE AND THE LENDER WOULD NOT EXTEND CREDIT TO THE
BORROWER IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF
THIS NOTE.
IN WITNESS WHEREOF, the Borrower has duly executed and delivered to the Lender
this Note as of the day and year first above written.
/s/ Thomas K. Grundman
------------------------------
THOMAS K. GRUNDMAN
<PAGE>
CONFIDENTIAL SEPARATION AND RELEASE AGREEMENT
This CONFIDENTIAL SEPARATION AND RELEASE AGREEMENT ("AGREEMENT") is made
and entered into by and between KEY ENERGY SERVICES, INC., a Maryland
corporation ("COMPANY"), and STEPHEN E. MCGREGOR ("EXECUTIVE") as of this 1st
day of July, 1999.
WHEREAS, Executive was the Executive Vice President and Chief Financial
Officer of the Company;
WHEREAS, the Executive and the Company desire to terminate the
employment relationship between the Executive and the Company effective as of
July 1, 1999; and
WHEREAS, it is the desire of the Company and Executive that they enter
into a written agreement in order to confirm and establish their respective
rights, duties, and obligations, to resolve any and all claims and
differences that may exist or that in the future may arise, and generally to
provide mutual releases to one another from any and all claims or other
matters as set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the
consideration more fully set forth hereinafter, and intending to be legally
bound hereby, the Company and Executive mutually agree as follows:
1. COMPANY REFERENCES. All references used herein to "Company" shall
refer to Key Energy Services, Inc. and its subsidiaries and affiliates and
the successors of the Company and its subsidiaries and affiliates.
2. TERMINATION DATE. The employment relationship between the
Executive and Company shall terminate and cease as of the close of business
on July 1, 1999 ("TERMINATION DATE"), and neither party shall have any
further rights or obligations with respect to or arising from such employment
relationship except as provided herein.
Effective as of the Termination Date, Executive hereby tenders, and
Company accepts, Executive's resignation from any and all board seats,
offices and positions that Executive may hold.
3. SEVERANCE BENEFITS.
(a) The Company has paid to Executive $100,000, including amounts
withheld for payroll taxes and other appropriate withholdings. In
addition, the Company will pay to Executive $725,000, subject to
withholdings for payroll taxes and other appropriate withholdings,
which payment shall be made on the date of the closing
<PAGE>
of the sale by the Company of certain of its assets to be
specified by the Chief Executive Officer of the Company.
Executive also acknowledges that, with respect to the Company's
obligation to make the aforementioned payment of $725,000 to
him, he has already received an advance payment thereon in the
amount of $100,000.00. In the event that Executive revokes this
Agreement within the seven-day revocation period referred to at
the end of this Agreement, the Company and any other parties
that would otherwise have been released under SECTION 7 and
SECTION 8 hereof shall be entitled to set-off against any claims,
or judgments in favor of, Executive amounts paid hereunder.
Except as specifically provided in this Agreement, no other
amounts will be payable by Company to Executive resulting from
his termination of employment.
(b)(i) Executive was granted options with a date of grant of July 15,
1997 to acquire (A) 200,000 shares and (B) 50,000 shares of the
Company's common stock each at an exercise price of $20.4375 per
share. The Executive is fully (100%) vested with respect to
these options as of the date hereof. The company agrees that
such options shall remain exercisable for the three (3) month
period commencing on the Termination Date.
(b)(ii) The Executive was also granted options with a date of grant of
September 4, 1998 to acquire 100,000 shares of the Company's
common stock each at an exercise price of $7.125 per share. The
Company agrees that such options, when issued, (I) shall be
fully (100%) vested from the date of grant and (II) shall remain
exercisable for the five (5) year period commencing on the
Termination Date.
(b)(iii) In addition, the Executive was also granted options with a date
of grant of May 5, 1999 to acquire 300,000 shares of the
Company's common stock each at an exercise price of $3.00 per
share. The Company agrees that such options, when issued, (I)
shall be fully (100%) vested from the date of grant and (II)
shall remain exercisable for the five (5) year period commencing
on the Termination Date.
(b)(iv) With respect to each of the shares of the Company's common stock
acquired by the Executive in connection with the exercise by him
of any of the options described in sections 3 (b)(i) - (iii)
above, the Company agrees that the Executive is hereby granted
piggy-bag registration rights as set forth in Exhibit A hereto
for the shares of the Company's common stock acquired by him
pursuant to the exercise of such options for a period of five
(5) years from the Termination Date.
(c) The Executive shall be entitled to the benefits described in
Exhibit B hereto at the Company's expense for a period of time
following the Termination Date ending on the first to occur of
(i) the third anniversary of the Termination Date or (ii) the
date on which the Executive commences full-time employment by
another employer, but only if and to the extent the Executive is
eligible to receive through such other employer benefits which
are at least equivalent on an aggregate basis to those
2
<PAGE>
benefits described in Exhibit B hereto. If because of
limitations required by third parties or imposed by law, the
Executive cannot be provided such benefits through the Company's
plans, then the Company will provide the Executive with
substantially equivalent benefits, on an aggregate basis, at the
Company's expense. For purposes of the determination of any
benefits which require a particular period of employment by the
Company and/or the attainment of a particular age while employed
by the Company in order to be payable, the Executive shall be
treated as having continued in the employment of the Company
during such period of time as the Executive is entitled to
receive benefits under this Section 3 (c). At such time as the
Company is no longer required to provide the Executive with life
and/or disability insurance, as the case may be, the Executive
shall be entitled at the Executive's expense to convert such life
and disability insurance, as the case may be, except if and to
the extent such conversion is not available from the provider of
such insurance.
4. WELFARE BENEFIT PLAN CONTRIBUTIONS AND ACCRUALS. After the
Termination Date, except as provided in Section 3 (c) and Exhibit B, SECTION
5 AND SECTION 6 hereof, the Company shall not be obligated to continue, pay
for, or provide Executive's health, dental, disability, life insurance and
any other "welfare benefits" (as such term is defined under Section 3(1) of
ERISA) or fringe benefits or perquisites.
5. CHANGE IN CONTROL. In the event of a "Change in Control" of
the Company, the Company shall pay to the Executive (a) any further payment
he is entitled to receive pursuant to Section 3(a) and (b) in lieu of
providing the benefits contemplated by Section 3 (c) and Exhibit B hereof, an
amount in cash equal to the aggregate reasonable expenses that the Company
would incur if it were to provide such benefits for the period of time for
which the Executive is entitled to receive such benefits hereunder.
For purposes of this Agreement, a "Change in Control" of the
Company shall have the same meaning as set forth in Section 6.7 of the
Company's 1997 Incentive Plan.
6. PENSION PLAN CONTRIBUTIONS AND ACCRUALS. After the
Termination Date, no further contributions, either by Executive or by the
Company, shall be made to, or benefits accrued under, any employee pension
benefit plan (as defined in Section 3(2) of ERISA) or deferred compensation
plan or agreement (collectively, the "COMPANY PLANS") on behalf of Executive;
provided, however, Executive shall be entitled to receive any vested benefits
due to him under such Company Plans as determined in accordance with the
terms and conditions of such Company Plans.
7. RECIPROCAL RELEASES AND WAIVERS OF CLAIMS.
(a) Except with respect to a claim for any compensation or
benefits under the employee benefit plans in which the
Executive participated by virtue of his employment, and
except for claims under this Agreement, the Executive, as
his free and voluntary act, on behalf of himself and his
spouse, dependents,
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heirs, attorneys, successors and permitted assigns, hereby
fully releases and discharges the Company, and its
successors and assigns, and the active and former owners,
directors, officers, employees, and agents of the Company
(collectively, the "Releasees"), of and from any and all
debts, obligations, claims, demands, judgments or causes
of action of any kind whatsoever, known or unknown, in
tort, contract, by statute or on any other basis, for
equitable relief, compensatory, punitive or other damages,
expenses (including attorneys' fees), reimbursements of
costs of any kind, including but not limited to, any and
all claims, demands, rights and/or causes of action,
including, without limitation, any negligence claims and
those which might arise out of allegations relating to a
claimed breach of Executive's employment contract or stock
option agreements, or relating to purported employment
discrimination or civil rights violations, such as, but
not limited to, those arising under Title VII of the Civil
Rights Act of 1964, the Civil Rights Acts of 1866 and
1871, Executive Order 11246, as amended, the Age
Discrimination in Employment Act, the Employee Retirement
Income Security Act of 1974, the Equal Pay Act of 1963,
the Rehabilitation Act of 1973, the Civil Rights Act of
1991, the Americans with Disabilities Act, and the Family
and Medical Leave Act, as each such Act may be amended
from time to time, or any other applicable federal, state
or local employment discrimination statute or ordinance,
which the Executive might have or assert against any of
the Releasees by reason of (a) any event which occurred on
or before the time of his execution of this Agreement, in
connection with the Executive's employment by the Company,
and all circumstances related thereto, (b) the termination
of his employment (including any rights of the Executive
under any employment contract), or (c) any matter, cause
or thing whatsoever which may have occurred prior to the
time of his execution of this Agreement. It is understood
that the Executive's release under this paragraph, as
applied to former officers, former directors, former
employees, and former agents of the Company, is applicable
solely with respect to claims which arose during the
period when such released person was serving in such a
capacity for Company.
(b) Executive acknowledges that Company's agreement to provide
Executive with the payments and other benefits recited in
SECTION 3 hereof is in consideration for Executive's
release and waiver of claims, demands and causes of action
as set forth in the immediately preceding paragraph.
Executive understands and acknowledges that the Executive
would not receive the payments and benefits recited in
SECTION 3 hereof but for his execution of this Agreement.
The Company, on behalf of itself and its directors,
officers and employees, hereby releases and discharges the
Executive, and his heirs and assigns, of and from any and
all debts, obligations, claims, demands, judgments or
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causes of action of any kind whatsoever, known or unknown, in
tort, contract, by statute or on any other basis, for equitable
relief, compensatory, punitive or other damages, expenses
(including attorneys' fees), reimbursements or costs of any
kind, including but not limited to, any and all claims, demands,
rights and/or causes of action, including breach of fiduciary
duty, breach of the duty or confidentiality, tortious
interference with contract, defamation, libel, civil conspiracy,
false light invasion of privacy, actions which might arise out
of allegations relating to a claimed breach of Executive's
employment contract, or relating to purported employment
discrimination or civil rights violations, which the Company, or
its directors, officers or employees, might have or assert
against the Executive, but only with respect to or by reason of
any event which is known to the Company at the time of the
execution of this Agreement by an officer of the Company and
which occurred on or before said time of execution.
8. NO LITIGATION
(a) Except with respect to either:
(1) a claim for compensation or benefits under an employee benefit
plan (as described in section 3(3) of the Employment Retirement
Income Security Act of 1974, as amended ("ERISA")) in which the
Executive participated by virtue of his employment (in which
case, the Executive's remedy shall be the claims and appeals
procedures under the terms of said plan);
(2) upon exhausting administrative remedies described in clause
"(1)" above, any litigation under ERISA for employee benefits
of the type described in that clause;
(3) a claim that the Company is in violation of a provision of this
Agreement; or
(4) a claim alleging an offending act or omission which occurs
after the date that Executive executes this Agreement;
the Executive, on behalf of his spouse, dependants, heirs, attorneys,
successors, and assigns, promises not to initiate a lawsuit or to
bring any other claim, charge or action of any nature against the
Company, or its owners, directors, officers, employees, or agents, in
any court, government agency, arbitration proceeding, or otherwise,
relating in any way to the Executive's employment (or the termination
thereof) or other events, including, but not limited to, any claim,
charge or action under any federal, state or local statute, ordinance,
or rule of law. Except with respect to an
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alleged offending act or omission as described in clause "(4)" of
this paragraph (a), (i) the Executive agrees not to request, or to
directly or indirectly cause, any governmental agency or other person
to commence any investigation or bring any action against the Company
or its owners, directors, officers, employees or agents, and (ii) the
Executive waives any remedy or recovery in any such action which may
be brought on the Executive's behalf by any government agency or
other person or entity.
Executive affirms that he has no claims against the Company arising
out of his employment or any other matter, and that he has not filed
any lawsuits, charges, complaints, petitions, or accusatory pleading
against the Company with any governmental agency or in any court,
based upon or related in any way to any events occurring on or prior
to the date that he executes this Agreement.
(b) Except with respect to either: (1) a claim that the Executive is in
violation of a provision of this Agreement, or (2) a claim alleging
an offending act or omission which occurs after the date that
Executive signs this Agreement, the Company, on behalf of itself and
its directors, officers, and employees, promises not to initiate a
lawsuit or to bring a claim against the Executive, his heirs or
assigns, in any court, government agency, arbitration proceeding,
or otherwise, relating to the Executive's employment (or the
termination thereof) or other events, including, but not limited to,
any claim under any federal, state or local statute, ordinance, or
rule of law. Except with respect to an alleged offending act or
omission as described in clause "(2)" of this paragraph (b), (i) the
Company, on behalf of itself and its directors, officers, and
employees, agrees not to request, or to directly or indirectly cause,
any governmental agency or other person or entity to commence any
investigation or bring any action against the Executive, and (ii) the
Company, on behalf of itself and its directors, officers, and
employees, waives any remedy or recovery in any such action which may
be brought on the Company's behalf by any government agency or other
person or entity.
9. COOPERATION AND INDEMNIFICATION IN THE EVENT OF THIRD-PARTY LITIGATION
(a) In the event that any third-party (including, without limitation, any
private party or governmental entity) asserts a claim or legal cause
of action, initiates a governmental review, or initiates a legal
proceeding (civil or criminal), with respect to any events or matters
with which the Executive was formerly involved as an employee of the
Company, the Company shall indemnify the Executive to the same extent,
and subject to the same terms, conditions and limitations, as would
be applicable under the by-laws of the Company to an individual who
is a former officer of the Company; provided, however, that no
indemnification shall apply with respect to damages, costs or expenses
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(including attorney's fees) of any kind which relate to the conduct
of Executive which was outside the scope of his duties as an employee
of the Company or was in violation of law or a written policy of the
Company.
(b) In consideration for such indemnification, Executive agrees to make
himself freely available to cooperate in the defense and in the
preparation of the legal response to any such matter and, in such a
case, the Company shall reimburse the Executive for reasonable travel
costs in connection with rendering any such assistance. Executive
agrees to cooperate to the fullest extent of his abilities with
Company and, if requested by Company to do so, with any attorney,
expert or other person Company may designate, in the investigation,
defense and resolution of any threatened or asserted litigation,
claim, potential claim, or investigation initiated by or involving
the Company, including, without limitation, truthfully testifying on
behalf of Company in connection with any such investigation or
proceeding.
In payment for any such cooperation rendered by the Executive pursuant
to the immediately preceding paragraph after the Termination Date, the
Company shall pay the Executive $100.00 per hour for the reasonable
period of time, including travel time, at the request of the Company,
devoted exclusively to rendering such assistance. Such hourly fee
shall be payable for all hours actually devoted to such assistance
(including hours in transit), and will not be limited to 8 hours per
day if the hours of active assistance (and travel) exceed 8 hours in
any given day.
(c) Subject to the scope of the indemnification in paragraph "(a)" above,
in the event of a civil action commenced by a private party which
implicates the Executive in connection with his conduct during his
period of service as an employee of the Company, the Company reserves
the right and discretion to retain counsel to jointly represent the
Company and the Executive, unless and until such counsel determines
that the interests of the Company and the Executive pose a conflict
of interest for such counsel under the applicable code of
professional conduct. In the event that separate counsel is necessary
for the Executive, he may select counsel of his choice subject to the
approval of the Company which shall not be unreasonably withheld.
The Company will reimburse the reasonable attorney's fees and costs
of counsel for the Executive, and such reimbursement will be paid as
services are rendered, subject to a right of the Company to recover
the amount of such payments from the Executive in the event, and to
the extent, that a court or agency finds that the relevant actions of
the Executive were unlawful or outside the scope of his duties as an
employee.
(d) As used in this SECTION 9, the term "reasonable attorneys' fees" shall
not include any attorney time or expense for the purpose of
initiating or
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maintaining any counterclaim by the Executive against the Company or
any private party or governmental entity, unless the Company then
consents, in its sole discretion and in writing, to cover the
Executive's attorneys' fees for any such counterclaim.
(e) The provisions of this SECTION 9 shall expire six (6) years from the
Termination Date.
10. NON-COMPETITION. In consideration for the severance benefits to be
provided to the Executive pursuant to the provisions of Section 3 hereof, the
Executive hereby agrees that, for a period ending on the earlier of (a) two
(2) years from the Termination Date or (b) the date on which a Change in
Control is deemed to have taken place, (i) he shall not, directly or
indirectly, without prior written consent of the Chief Executive Officer of
the Company or the Board of Directors of the Company participate or engage
in, whether as a director, officer, employee, advisor, consultant,
stockholder, partner, joint venturer, owner or in any other capacity (other
than as an outside attorney or investment banker), any business engaged in
the business of furnishing oil field services, including drilling and well
servicing (a "Competing Enterprise"); PROVIDED, HOWEVER, that the Executive
shall not be deemed to be participating or engaging in any such business
solely by virtue of his ownership of not more than five percent of any class
of stock or other securities of an issuer which is publicly traded on a
national securities exchange or in a recognized over-the-counter market; and
(ii) he shall not, directly or indirectly solicit, raid, entice or otherwise
induce any employee of the Company or any of its Subsidiaries to be employed
by a Competing Enterprise.
11. NON-ADMISSION OF LIABILITY. This Agreement shall not constitute or
be construed as an admission by the Company or any other person or entity of
any liability to, or the validity of, any claim by the Executive. Executive
acknowledges and agrees that he has been treated in a fair and lawful manner,
and it is agreed between the parties that nothing herein is intended or shall
be construed as an admission of fault or liability by the Company or its
directors, officers, employees, agents, successors and assigns.
12. CONFIDENTIALITY. Except as may be required under compulsion of
law, Executive agrees not to disclose or discuss, other than with his legal
counsel, personal tax or financial adviser, or his spouse, any details of
this Agreement. With respect to any financial adviser (other than his tax
adviser), the Executive may disclose the compensation and benefits which may
result as a consequence of this Agreement, but Executive shall not disclose
to any such financial adviser any other sections or provisions of this
Agreement or any related matter. In the event the Executive discusses this
Agreement with any such legal counsel or advisor, or with his spouse, he will
instruct such person not to disclose or discuss the existence or any details
of this Agreement, or any related matter, with any other person, except as
may be required under compulsion of law.
In the event that the disclosure of the terms of this Agreement is
ordered in the context of a court proceeding, the party so ordered shall
notify the other party within a reasonable time prior to disclosure.
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Executive agrees that he will not disparage, harm or embarrass the
Company or its directors, officers, employees, agents or successors; provided
however, Executive shall retain the right to discuss information concerning
the duties and responsibilities of his former employment with prospective
employers; and provided further, that Executive fully retains the right to
inform his legal counsel of all matters concerning his former employment
and the termination thereof if said information is communicated as a matter
of confidential attorney-client privilege. Executive shall not make any
statements, whether regarded as true or not, which would have the effect of
causing any existing or prospective lenders, purchasers, creditors,
customers, suppliers, employees or other persons or entities to question the
financial condition, integrity, reputation, character or quality of the
Company, or its management, employees, and affiliates. Executive shall not
at any time make any voluntary statement of any kind, or make any untrue
statement while under any compulsory legal process, which is calculated to,
or which foreseeably will, damage the business or reputation of the Company
or its affiliates, or the past or present directors, officers or employees of
any of them.
13. CONFIDENTIAL INFORMATION
(a) Executive agrees that he shall not, without the express written
consent of the Chief Executive Officer or General Counsel of the
Company, directly or indirectly communicate or divulge to, or
make available to, or use of his own benefit or for the benefit
of, any competitor or any other person or entity, any of the
Company's trade secrets, proprietary data or other confidential
information (hereafter collectively referred to as "CONFIDENTIAL
INFORMATION"), which confidential information was communicated
to or otherwise learned or acquired by Executive during his
employment relationship with the Company, except that Executive
may disclose confidential information only to the extent that
disclosure is required (i) at the Company's direction or (ii) by
a court or other governmental agency of competent jurisdiction.
As long as such matters remain confidential information,
Executive shall not use such confidential information in any way
or in any capacity other than as expressly consented to by the
Chief Executive Officer or General Counsel of the Company.
(b) Such confidential information includes, but is not limited to,
personnel information, ideas, discoveries, designs, inventions,
improvements, trade secrets, know-how, manufacturing processes,
design specifications, writings and other works of authorship,
computer programs, financial information, accounting information,
marketing plans, customer lists and data, business plans or
methods and the like, that relate in any manner to the actual
or anticipated business of the Company.
(c) Executive agrees that all records, drawings, data, samples,
models, correspondence, manuals, notes, reports, notebooks,
proposals, and any other documents concerning the Company's
customers or products or other technical or business information
used by the Company and any other tangible materials or copies
or extracts of tangible materials regarding the Company's
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<PAGE>
operations or business, received by Executive during his
employment with the Company are, and shall be, the property of
the Company exclusively. Executive agrees to immediately return
to the Company all of the material mentioned above, including
writing notes, memoranda or notes taken by Executive and all
tangible materials, including, without limitation,
correspondence, drawings, blueprints, letters, notebooks,
reports, flow-charts, computer programs and data proposals.
No copies will be made by Executive, or retained by Executive,
of any such confidential information, whether or not developed
by Executive.
(d) Executive agrees that he shall engage in no act which is
intended, or may reasonably be expected, to harm the reputation,
business, prospects, or operations of the Company.
(e) The parties agree that all work product conceived, created or
developed by Executive either solely or jointly with others in
the course or as a result of his employment with the Company is
proprietary to Company and constitutes confidential information
subject to this Agreement. The parties further agree that
Company is the sole owner of all such work product.
14. WAIVER OF AGE DISCRIMINATION CLAIMS. Executive specifically,
knowingly and voluntarily waives any and all rights and claims arising under
the Age Discrimination in Employment Act (ADEA), which claims have arisen as
of the date this Agreement is executed by Executive. Executive acknowledges
that the consideration set forth in SECTION 3 hereof includes consideration
for Executive's agreement herein to waive any and all rights and claims
arising under the ADEA.
15. SEVERABILITY. The parties acknowledge and agree that each
provision of this Agreement shall be enforceable independently of every other
provision. Should any provision of this Agreement be declared by a court of
competent jurisdiction to be unenforceable or invalid as drafted, it may and
shall be reformed or modified by a court to the form of an enforceable and
valid provision that achieves, to the greatest extent possible, the result
intended by the parties in drafting and agreeing to the unenforceable and
invalid provision. In the event that a court should decline to so reform or
modify such a provision, or determine that no enforceable and valid provision
can be created to achieve the intended result, the unenforceability and
invalidity of the remaining provisions of this Agreement shall not be
affected thereby and said unenforceable or invalid provision shall be deemed
not to be a part of this Agreement and the remaining provisions hereof shall
remain in full force and effect.
16. NO WAIVER AND HEADINGS. The parties acknowledge and agree
that the failure of either party to enforce any provision of this Agreement
shall not constitute a waiver of that provision, or of any other provision in
this Agreement. The headings of sections as used herein are intended for
reference purposes only and shall not affect the interpretation of this
Agreement.
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17. ENTIRE AGREEMENT. The parties acknowledge and agree that this
Agreement constitutes the complete and entire agreement between the parties;
that the parties have executed this Agreement based upon the express terms
and provisions set forth herein and therein; that the parties have not relied
on any representations, oral or written, which are not set forth in this
Agreement; that no previous employment, severance or other agreement, whether
oral or written, shall have any effect on the terms and provisions of this
Agreement except as expressly provided herein; and that all such previous
agreements, except as expressly provided in this Agreement, are expressly
superseded and revoked by this Agreement. The Executive hereby declares and
represents that no promise, inducement, or agreement not contained in this
Agreement has been made or offered to him, and that the terms hereof are
contractual and not a mere recital.
18. AMENDMENT. This Agreement shall not be modified by any
subsequent agreement unless the modifying agreement (a) is in writing, (b)
contains an express provision referencing this Agreement, (c) is executed by
a designated officer of the Company, and (d) is executed by Executive.
19. CONSULTATION WITH LEGAL COUNSEL. Executive acknowledges and
agrees that he has been provided a reasonable time to review this Agreement
with legal counsel and to consider the terms and provisions of this
Agreement. Both parties acknowledge and agree that they are voluntarily
entering into this Agreement, after consultation with their legal counsel if
so desired, and after full disclosure of all the facts and circumstances
surrounding the execution of this Agreement and its legal effect.
20. BINDING EFFECT: This Agreement shall inure to the benefit of
the Company (as defined in SECTION 1 hereof), and to its successors and
assigns, and to the persons released hereunder pursuant to SECTIONS 7 AND 8
hereof. This Agreement shall inure to the benefit of Executive and his
heirs, executors and personal representatives.
This Agreement is personal to Executive, and Executive may
not assign, delegate or otherwise transfer any of his rights, duties or
obligations hereunder without the written consent of the Chief Executive
Officer or General Counsel of the Company, and any attempt to do so without
such written consent shall be deemed void and of no force and effect.
21. NOTICES. Notices provided for in this Agreement shall be in
writing and shall be deemed to have been duly received (a) when delivered in
person or sent by facsimile transmission, (b) on the first business day after
it is sent by air express overnight courier service, or (c) on the fourth
business day following deposit in the United States mail, registered or
certified mail, return receipt requested, postage prepaid and addressed, to
the following address, as applicable:
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(1) If to Company, addressed to:
Key Energy Services, Inc.
Two Tower Center, 20th Floor
East Brunswick, NJ 08816
Attention: General Counsel
(2) If to Executive, addressed to the address set forth below
his name on the execution page hereof;
or to such other address as either party may have furnished to the other
party in writing in accordance with this SECTION 21.
22. EXECUTIVE ACKNOWLEDGMENT/NO STRICT CONSTRUCTION. The
Executive represents to Company that he is knowledgeable and sophisticated as
to business matters, including the subject matter of this Agreement, that he
has read the Agreement and that he understands its terms and conditions. The
parties hereto agree that the language used in this Agreement shall be deemed
to be the language chosen by them to express their mutual intent, and no rule
of strict construction shall be applied against either party hereto.
Executive also represents that he is free to enter into this Agreement.
Executive acknowledges that he has had the opportunity to consult with
counsel of his choice, independent of Employer's counsel, regarding the terms
and conditions of this Agreement.
23. GOVERNING LAW. The laws of the State of Maryland, without
regard to conflicts of law provisions, shall govern the enforceability,
interpretation and legal effect of this Agreement.
24. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the
same instrument. Facsimile signatures shall be enforceable.
STATEMENT BY EXECUTIVE: THE COMPANY HAS ADVISED ME IN WRITING
TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT. I HAVE
CAREFULLY READ AND FULLY UNDERSTOOD THE PROVISIONS OF THIS AGREEMENT AND
HAVE HAD SUFFICIENT TIME AND OPPORTUNITY (NOT LESS THAN A PERIOD OF 21
DAYS) TO CONSULT WITH MY PERSONAL TAX, FINANCIAL AND LEGAL ADVISORS PRIOR
TO EXECUTING THIS AGREEMENT, AND I INTEND TO BE LEGALLY BOUND BY ITS
TERMS. I UNDERSTAND THAT I MAY REVOKE MY CONSENT TO THIS AGREEMENT WITHIN
SEVEN (7) DAYS FOLLOWING THE DATE I SIGN IT BY NOTIFYING THE COMPANY OF MY
REVOCATION; THEREAFTER, I CANNOT REVOKE THIS AGREEMENT. I UNDERSTAND THAT
MY RIGHTS UNDER THIS AGREEMENT ARE CONTINGENT ON MY SIGNATURE BELOW, AND
NOT REVOKING THIS AGREEMENT WITHIN THE 7-DAY PERMITTED REVOCATION PERIOD.
I ACKNOWLEDGE THAT THE PAYMENTS DESCRIBED IN SECTION 3 HEREOF WILL NOT BE
MADE BEFORE THE 7-DAY REVOCATION PERIOD HAS EXPIRED.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
KEY ENERGY SERVICES, INC.
/s/ Francis D. John
------------------------------------------------
Francis D. John
Chairman of the Board, President
and Chief Executive Officer
EXECUTIVE:
/s/ Stephen E. McGregor
------------------------------------------------
Stephen E. McGregor
2329 California Street
Washington, D.C. 20008
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EXHIBIT A
PIGGYBACK REGISTRATION RIGHTS
AND
PROCEDURES
----------------
CERTAIN DEFINED TERMS
As used herein --
"Person" shall mean any individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement with respect to the
terms of the offering of the Common Stock covered by the Registration
Statement, and by all other amendments and supplements to such Prospectus,
including posteffective amendments, and in each case including all material
incorporated by reference therein.
"Registration Statement" shall mean any registration statement of the
Company on an appropriate form under the Securities Act (other than any
registration statement with respect to equity securities filed on a Form S-4
or any other form prescribed for the same or similar purposes) and all
amendments and supplements to such registration statement, including
posteffective amendments, in each case including the prospectus contained
therein, all material incorporated by reference therein and all exhibits
thereto.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"underwritten registration" or "underwritten offering" shall mean an
offering of the Common Stock pursuant to a Registration Statement in which
the Common Stock of the Company is sold to an underwriter in a firm
committment underwriting for reoffering to the public.
1. PIGGYBACK REGISTRATION. In the event the Company proposes to file a
Registration Statement with respect to its Common Stock in an underwritten
offering, it will give written notice to the Executive of the Company's
intention to do so and, upon the written request of the Executive given
within 20 days after receipt of such notice, the Company will use its best
efforts to effect the registration of the Common Stock or the Executive (the
"Piggyback Securities") which it shall have been so requested to register by
including such Piggyback Securities in the Registration Statement ("Piggyback
Registration Rights"). Piggyback Securities are to be included in the
Registration Statement on the same terms and conditions as the shares of
Common Stock of the Company otherwise being sold through underwriters under
such Registration Statement; PROVIDED, HOWEVER,
<PAGE>
that if the managing underwriter or underwriters of any proposed underwritten
offering determines and advises the Company in writing that the inclusion in
the Registration Statement of all Piggyback Securities proposed to be
included would adversely affect the success of the proposed underwritten
offering, then the number of Piggyback Securities to be included in the
underwritten offering shall be either (i) reduced to the amount recommended
by such managing underwriter or underwriters or (ii) if recommended by such
managing underwriter or underwriters, excluded from the Registration
Statement entirely. Any Piggyback Securities not included in the Registration
Statement because of the proviso in the preceding sentence will continue to be
eligible for registration pursuant hereto until the fifth anniversary of the
date of this Agreement.
II. REGISTRATION PROCEDURES.
In connection with any "underwritten registration," the Company will
use its best efforts to effect the "underwritten offering" of the Piggyback
Securities for which registration is requested, and pursuant thereto the
Company shall:
(a) prepare and file with the SEC, as soon as practible, a
Registration Statement relating to the underwritten offering on any
appropriate form under the Securities Act, which form shall be available for
the sale of the Company's Common Stock in accordance with the intended
method or methods of distribution thereof and shall include all financial
statements and other information required by the SEC to be filed therewith,
and use its best efforts to cause such Registration Statement to become
effective;
(b) prepare and file with the SEC such amendments to the
Registration Statement as may be necessary to keep the Registration Statement
effective until the distribution of the Eligible Common Stock under the
Registration Statement is complete (which period shall not exceed 90 days
from the date the Registration Statement is declared effective); cause the
Prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Securities Act;
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during
the applicable period pursuant to an underwritten offering;
(c) notify the Executive and the managing underwriter or
underwriters, promptly, and (if requested by any such person) confirm such
advice in writing, (i) when the Registration Statement has become effective
and when any posteffective amendment or supplements thereto become effective,
(ii) of the issuance by the SEC of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose, (iii) if between the effective date of the Registration Statement
and the closing of the sale of the securities covered thereby, the
representations and warranties of the Company contemplated by paragraph II
(j) below cease to be true and correct, (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Company's Common Stock for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (v) of the happening of
any event which makes any statement made in the Registration Statement or the
Prospectus or any document incorporated therein by reference untrue or which
requires the making
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<PAGE>
of any changes in the Registration Statement or the Prospectus or any
document incorporated therein by reference to make the statements therein not
misleading;
(d) make reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible time;
(e) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement), provide copies of such
document to the Executive and to the managing underwriters, make the
Company's representatives available for discussion of such document and make
such changes in such document prior to the filing thereof as the Executive or
underwriters may reasonable request;
(f) upon request, furnish to each managing underwriter, without
charge, at least one signed copy of the Registration Statement and any
posteffective amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference); and furnish to the Executive,
without charge, at least one conformed copy of each Registration Statement
and any posteffective amendment thereto (without documents incorporated
therein by reference or exhibits thereto, unless requested);
(g) deliver to the Executive and each underwriter, without charge,
as many copies of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Executive or underwriter may
reasonably request; the Company consents to the use of the Prospectus or any
amendment or supplement thereto by the Executive and the underwriters, in
connection with the offering and sale of the Common Stock covered by the
Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of the Company's Common Stock,
use its best efforts to register or qualify or cooperate with the Executive,
the underwriters and their respective counsel in connection with the
registration or qualification of such Common Stock for offer and sale under
the securities or blue sky laws of such jurisdictions as any seller or
underwriter reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the underwriters to consummate the
disposition in such jurisdiction of the Common Stock covered by the
Registration Statement; PROVIDED that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it is not then so
qualified; (ii) subject itself to taxation in any such jurisdiction, or (iii)
take any action which would subject it to general service of process in any
such jurisdiction where it is not then so subject;
(i) cooperate with the Executive and the managing underwriters to
facilitate the timely preparation and delivery of certificates representing
the Common Stock to be sold and not bearing any restrictive legends; and
enable such Common Stock to be in such denominations and registered in such
names as the managing underwriters may request at least two business days
prior to any sale of the Common Stock to the underwriters;
- 3 -
<PAGE>
(j) as promptly as practicable following the occurrence of any event
contemplated by paragraph II (c) (v) above, use its best efforts to prepare a
supplement or posteffective amendment to the Registration Statement or the
related Prospectus or any document incorporated by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Common Stock, the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(k) use its best efforts to cause all the Common Stock covered by
the Registration Statement to be listed on each securities exchange or
automated quotation system, if any, on which similar securities issued by
the Company are then listed;
(l) enter into an underwriting agreement with an underwriter or
underwriters providing for the sale of such Common Stock in an underwritten
offering which shall be customary in form, substance and scope and shall
contain customary requirements for representations, warranties, covenants and
opinions of counsel; and use its best efforts to obtain any customary
opinions of counsel or customary accountants' "cold comfort" letters referred
to in such underwriting agreement, and enter into such other customary
agreements and take all such other reasonable actions in connection therewith
to expedite or facilitate the disposition of the common stock as contemplated
by such agreements;
(m) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC.
The Company may require the Executive (i) to furnish the Company such
information regarding the distribution of the Piggyback Securities as the
Company may from time to time reasonably request in writing and (ii) to enter
into an underwriting agreement in the form contemplated by Section I(i).
The Executive agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section II (c) (v)
hereof, the Executive will forthwith discontinue the offering and disposition
of the Piggyback Securities until such Executive's receipt of the copies of
the supplemental or amended Prospectus contemplated by Section II (j) hereof,
or until it is advised in writing (the "Advice") by the Company that the use
of the Prospectus may be resumed, and has received copies of any additional
or supplemental filings which are incorporated by reference in the
Prospectus, and, if so directed by the Company, the Executive will deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies then in the Executive's possession, of the Prospectus covering such
Common Stock current at the time of receipt of such notice. In the event the
Company shall give any such notice to suspend the offering and disposition of
the Common Stock, the time periods regarding the maintenance of the
applicable Registration Statement shall be extended by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section II (c) (v) hereof to and including the date when the
Executive shall have received the copies of the supplemented or amended
prospectus contemplated by Section II (j) hereof or the Advice.
- 4 -
<PAGE>
EXHIBIT B
BENEFITS TO BE PROVIDED
TO THE EXECUTIVE
-------------------------
(1) Group medical and dental, life, executive life, accident and disability
insurance, all as set forth below:
a) LIFE INSURANCE - Retain coverage under policy which Company
purchased for the Executive in 1999.
b) LONG-TERM DISABILITY INSURANCE - Salary continuation benefit for
total disability. Benefit commences with ninetieth day of disability
and continues to a maximum of age sixty-five. Annual maximum benefit
shall be 60% of the Base Salary (which at date of separation was
$275,000 per year).
c) MEDICAL AND DENTAL PLAN - Comprehensive medical and dental plans are
available to the Company's senior management.
(2) An allowance of $1,000 per month to costs incurred by the Executive in
connection with the use of his automobile.
(3) Payments to Cover Short-Fall in Medical Benefits Coverage -
(i) A payment in an amount to be determined by agreement between the
Chief Executive Officer of the Company and the Executive to compensate
the Executive for medical payments from date of employment to
termination date for which the Executive did not receive reimbursement
pursuant to the Company's medical insurance coverage.
(ii) Agreement, in an amount to be determined by agreement between the
Chief Executive Officer of the Company and the Executive, to reimburse
the Executive during three (3) year period commencing on July 1, 1999
for medical payments for which the Executive does not receive
reimbursement pursuant to the Company's medical insurance coverage.
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<PAGE>
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<PERIOD-START> JUN-30-1999
<PERIOD-END> SEP-30-1999
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0
0
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