<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
KEY ENERGY SERVICES, INC.
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies: _________________
2) Aggregate number of securities to which transaction applies:
________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined)
4) Proposed maximum aggregate value of transaction: $_______________
5) Total fee paid
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ________________
2) Form, Schedule or Registration Statement No.: _________________
3) Filing Party: _________________
4) Date Filed: __________________
<PAGE>
[LOGO]
KEY ENERGY SERVICES, INC.
TWO TOWER CENTER, 20TH FLOOR
EAST BRUNSWICK, NJ 08816
December 20, 1999
DEAR STOCKHOLDER:
You are cordially invited to attend the Annual Meeting of
Stockholders of Key Energy Services, Inc. (the "Company") to be held at The
Hilton Hotel, Tower Center Boulevard, Woodbridge Room, East Brunswick, New
Jersey 08816, at 11 A.M. on Monday, January 31, 2000.
Matters to be considered and acted upon by the Stockholders include
(i) the election of six directors; and (ii) a proposal to amend the Company's
Amended and Restated Articles of Incorporation to increase the Company's
authorized capital stock, par value $.10 per share, from 100,000,000 shares
to 200,000,000 shares (the "Amendment"). These matters and the procedures for
voting your shares are discussed in the accompanying Notice of Annual Meeting
and Proxy Statement.
The adoption of the Amendment requires the affirmative vote of
two-thirds of the outstanding shares of Common Stock of the Company. The
failure to vote in person or by proxy, or an abstention from voting, will
have the same effect as a vote against the Amendment. Your vote is important.
Therefore, the Board of Directors urges each Stockholder, whether or not
intending to attend the meeting in person, to execute the enclosed proxy and
return it in the enclosed envelope. Returning a proxy will not prevent a
Stockholder from voting in person at the meeting.
Sincerely,
Francis D. John
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
KEY ENERGY SERVICES, INC.
TWO TOWER CENTER, 20TH FLOOR
EAST BRUNSWICK, NEW JERSEY 08816
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JANUARY 31, 2000
-----------------------
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting) of Key Energy Services, Inc. (the "Company") will be held at
The Hilton Hotel, Tower Center Boulevard, Woodbridge Room, East Brunswick,
New Jersey 08816 on Monday, January 31, 2000 at 11:00 A.M. (Eastern Standard
Time), for the following purposes:
(1) To elect six Directors for the ensuing year or until their
successors are elected and qualified;
(2) To consider and act upon a proposal to amend the Company's
Amended and Restated Articles of Incorporation to increase the
Company's authorized capital stock, par value $.10 per share,
from 100,000,000 shares to 200,000,000 shares; and
(3) To consider and act on such other business as may properly
come before the Annual Meeting.
The Board of Directors has fixed the close of business on November
11, 1999, as the record date for the determination of Stockholders entitled
to notice of and to vote at the Annual Meeting. Only those Stockholders of
record on that date will be entitled to notice of and to vote at the Annual
Meeting and any adjournments thereof.
A complete list of the Stockholders entitled to vote at the Annual
Meeting will be open for inspection at the Company's offices, Two Tower
Center, 20th Floor, East Brunswick, New Jersey, at least 10 days before the
Annual Meeting.
By Order of the Board of Directors,
Jack D. Loftis, Jr.
SECRETARY
East Brunswick, New Jersey
December 20, 1999
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL THE PROXY CARD IN THE
ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE
ANNUAL MEETING. NO POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED WITHIN
THE UNITED STATES. A STOCKHOLDER MAY, IF SO DESIRED, REVOKE HIS PROXY AND
VOTE HIS SHARES IN PERSON AT THE MEETING.
<PAGE>
KEY ENERGY SERVICES, INC.
TWO TOWER CENTER, 20TH FLOOR
EAST BRUNSWICK, NEW JERSEY 08816
PROXY STATEMENT
FOR
ANNUAL STOCKHOLDERS MEETING
TO BE HELD JANUARY 31, 2000
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Key Energy Services,
Inc. (the "Company") for use at the Company's Annual Meeting of Stockholders
(the "Annual Meeting") to be held at The Hilton Hotel, Tower Center
Boulevard, Woodbridge Room, East Brunswick, New Jersey 08816 at 11:00 A.M. on
Monday, January 31, 2000, and at any adjournment thereof. This Proxy
Statement and the accompanying form of proxy are first being mailed to the
Company's Stockholders on or about December 20, 1999.
The Company will bear all costs of solicitation of proxies. In
addition to solicitations by mail, the Company's Directors, officers and
regular employees, without additional compensation, may solicit proxies by
telephone, telegraph and personal interviews. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting material to the
owners of stock held in their names, and the Company will reimburse them for
their reasonable out-of-pocket expenses incurred in connection with the
distribution of such proxy materials. In addition, the Company has engaged D.
F. King & Co. to assist in the solicitation for a fee of $5,000, plus
out-of-pocket expenses.
REVOCABILITY OF PROXIES
Any Stockholder giving a proxy has the power to revoke it at any
time before it is exercised, by delivering to the Secretary of the Company at
its principal executive office located at Two Tower Center, 20th Floor, East
Brunswick, New Jersey 08816, a written notice of revocation or another duly
executed proxy bearing a later date. A Stockholder of record also may revoke
his or her proxy by attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not in and of itself constitute a
revocation of a proxy.
RECORD DATE, VOTING AND SHARE OWNERSHIP
Only holders of record of common stock, par value $.10 per share
(the "Common Stock"), of the Company at the close of business on November 11,
1999 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting and at any adjournments thereof. Each share of Common Stock is
entitled to one vote. On the Record Date there were outstanding and entitled
to vote 82,740,330 shares of Common Stock.
The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the votes entitled to be cast (41,370,166 shares)
will constitute a quorum for the transaction of business at the Annual
Meeting. A proxy, if received in time for voting and not revoked, will be
voted at the Annual Meeting in accordance with the instructions contained
therein. Where a choice is not so specified, the shares represented by the
proxy will be voted "for" the election of the nominees for Directors listed
herein and in favor of the other matters set forth in the Notice of Annual
Meeting accompanying this Proxy Statement. A Stockholder marking the proxy
"Abstain" will not be counted as a vote in favor of or against the election
of Directors. If a quorum exists, a proposal can be adopted by an affirmative
vote of (i) in the case of election of Directors, a plurality; and (ii) in
the case of the proposal to adopt the amendment to the Company's Amended and
Restated Articles of Incorporation, as amended (the "Articles of
Incorporation"), to increase the Company's authorized capital stock from
100,000,000 shares, par value $.10 per share, to 200,000,000 shares, par
value $.10 per share (the "Amendment"), two-thirds of the issued and
outstanding shares of Common Stock. Since the proposal to adopt the Amendment
requires the affirmative vote of two-thirds of issued and outstanding shares
of Common Stock, as opposed to a percentage of the shares of Common Stock
that are present at the Annual Meeting (and for which a vote for the proposal
has been cast), the failure to vote in person or by proxy or an election to
abstain will have the same effect as a vote against the Amendment.
<PAGE>
Votes cast at the Annual Meeting will be tabulated by a duly
appointed inspector of election. The inspector will treat shares represented
by a properly signed and returned proxy as present at the Annual Meeting for
purposes of determining a quorum without regard to whether the proxy is
marked as casting a vote or abstaining. Likewise, the inspector will treat
shares represented by "broker non-votes" as present for purposes of
determining a quorum, although such shares will not be voted on any matter
for which the record holder of such shares lacks authority to act. Broker
non-votes are proxies with respect to shares held in record name by brokers
or nominees, as to which (i) instructions have not been received from the
beneficial owners, (ii) the broker or nominee does not have discretionary
voting power under applicable national securities exchange rules or the
instrument under which it serves in such capacity, and (iii) the record
holder has indicated on the proxy card or otherwise notified the Company that
it does not have authority to vote such shares on that matter.
ELECTION OF DIRECTORS
At the Annual Meeting, six Directors are to be elected, each
Director to hold office until the next Annual Meeting of Stockholders and
until his successor is elected and qualified unless such Director resigns or
is properly removed from office prior to such time. The persons named in the
accompanying proxy have been designated by the Board of Directors, and unless
authority is withheld, they intend to vote for the election of the nominees
named below to the Board of Directors. All of the nominees previously have
been elected as Directors by the Stockholders. If any of the nominees become
unavailable to serve, the shares represented by proxies will be voted for the
election of a substitute nominee selected by the Board of Directors, or the
size of the Board may be reduced accordingly; however, the Board of Directors
is not aware of any circumstances likely to prevent any nominee from serving.
For information regarding ownership of Common Stock by the nominees see
"Security of Ownership of Management and Certain Beneficial Owners -
Management." Certain information concerning the nominees is set forth below.
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---- -------- ---
<S> <C> <C>
Francis D. John (1)................... Chairman of the Board, President, 45
Chief Executive Officer and Chief
Operating Officer
David J. Breazzano (1) (2) ........... Director 43
Kevin P. Collins (1) (2) ............. Director 48
William D. Manly (2) (3) ............. Director 76
W. Phillip Marcum (3) ................ Director 55
Morton Wolkowitz (1) (3) ............. Director 71
</TABLE>
- -------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Francis D. John has been Chairman of the Board since August 1996 and
the Chief Executive Officer since October 1989. Mr. John re-assumed the
duties of Chief Operating Officer effective April 1999. He has been a
Director and President since June 1988 and served as the Chief Financial
Officer from October 1989 through July 1997. Before joining the Company, he
was Executive Vice President of Finance and Manufacturing of Fresenius
U.S.A., Inc. Mr. John previously held operational and financial positions
with Unisys, Mack Trucks and Arthur Andersen. He received a BS from Seton
Hall University and an MBA from Fairleigh Dickinson University.
David J. Breazzano has been a Director since October 1997. Mr. Breazzano
is one of the founding principals at DDJ Capital Management, LLC, an
investment management firm established in 1996. Mr. Breazzano previously
-2-
<PAGE>
served as a Vice President and Portfolio Manager at Fidelity Investments
("Fidelity") from 1990 to 1996. Prior to joining Fidelity, Mr. Breazzano was
President and Chief Investment Officer of the T. Rowe Price Recovery Fund. He
is also a director of Waste Systems International, Inc. and Samuels Jewelers,
Inc. He holds a BS from Union College and an MBA from Cornell University.
Kevin P. Collins has been a Director since March 1996. Mr. Collins has
been a managing member of the Old Hill Company LLC since 1997. From 1992 to
1997, he served as a principal of JHP Enterprises, Ltd., and from 1985 to
1992, as Senior Vice President of DG Investment Bank, Ltd., both of which
were engaged in providing corporate finance and advisory services. Mr.
Collins was a Director of WellTech, Inc. ("WellTech") from January 1994 until
March 1996 when WellTech was merged into the Company. He holds a BS and an
MBA from the University of Minnesota.
William D. Manly has been a Director since December 1989. He retired
from his position as an Executive Vice President of Cabot Corporation in
1986, a position he had held since 1978. Mr. Manly is a director of
Metallamics, Inc. and CitiSteel, Inc. He holds a BS and an MS from the
University of Notre Dame.
W. Phillip Marcum has been a Director since March 1996. Mr. Marcum was a
director of WellTech from January 1994 until March 1996 when WellTech was
merged into the Company. From October 1995 until March 1996, Mr. Marcum was
the acting Chairman of the Board of Directors of WellTech. He has been
Chairman of the Board, President and Chief Executive Officer of Metretek
Technologies, Inc., formerly known as Marcum Natural Gas Services, Inc.
("Metretek Technologies"), since January 1991 and is a director of
TestAmerica, Inc. He holds a BBA from Texas Tech University.
Morton Wolkowitz has been a Director since December 1989. Mr. Wolkowitz
served as President and Chief Executive Officer of Wolkow Braker Roofing
Corporation, a company that provided a variety of roofing services, from 1958
through 1989. Mr. Wolkowitz has been a private investor since 1989. He holds
a BS from Syracuse University.
REQUIRED VOTE
The six nominees for election as Directors who receive the greatest
number of votes shall be elected as Directors.
The Board of Directors recommends that the Stockholders vote FOR the
election of each of the nominees listed above.
BOARD AND COMMITTEE MEETINGS
During the fiscal year ended June 30, 1999, the Board of Directors held
eight meetings. Each of the current directors who then was in office attended
at least 75% of the meetings of the Board of Directors and each committee
thereof on which such Director served.
The Board of Directors has an Audit Committee, a Compensation Committee
and an Executive Committee.
AUDIT COMMITTEE. During fiscal 1999 the Audit Committee held one meeting
and is currently composed of Messrs. Breazzano, Collins and Manly. The
functions of the Audit Committee include meeting with the Company's
independent auditors annually to review financial results, internal financial
controls and procedures and audit plans and recommendations. The Audit
Committee also recommends the selection, retention or termination of the
Company's independent auditors, approves services provided by the independent
public accountants before providing such services, and evaluates the possible
effect the performance of such services will have on the accountants
independence.
COMPENSATION COMMITTEE. During fiscal 1999 the Compensation Committee
met five times and is currently composed of Messrs. Manly, Marcum and
Wolkowitz. The Compensation Committee (i) recommends to the Board of
Directors the compensation for the Company's officers; (ii) administers and
makes awards under the Company's compensation plans; and (iii) monitors and
makes recommendations with respect to the Company's various employee benefit
plans.
-3-
<PAGE>
EXECUTIVE COMMITTEE. The Executive Committee is currently composed of
Messrs John, Breazzano, Collins and Wolkowitz. The Executive Committee will
exercise the powers delegated to it by the Board of Directors.
DIRECTOR COMPENSATION
No director who is also an employee of the Company or any of its
subsidiaries received any fees from the Company for his services as a
Director or as a member of any committee of the Board. During the fiscal year
ended June 30, 1999 all other Directors ("Non-employee Directors") received a
fee equal to $3,000 per month for each month of service and are reimbursed
for travel and other expenses directly associated with Company business.
Additionally, during fiscal 1999 the Company paid the premiums with respect
to insurance for the benefit of Messrs. Collins and Marcum in the amount of
$2,871 and $5,389, respectively. Each Non-employee Director was granted
options under the 1997 Incentive Plan on September 4, 1998 and May 5, 1999 to
purchase 50,000 and 100,000 shares of Common Stock, respectively, other than
Mr. Wolkowitz who was granted options to purchase 60,000 shares of Common
Stock on September 4, 1998 and options to purchase 120,000 shares of Common
Stock on May 5, 1999. The options granted on September 4, 1998 and May 5,
1999 vest in four equal annual installments commencing on the date of grant
of each of the options.
EXECUTIVE OFFICERS
The Company's executive officers serve at the pleasure of the Board of
Directors and are subject to annual appointment by the Board at its first
meeting following the Annual Meeting of Stockholders. All the Company's
executive officers are listed below, with the exception of Mr. John, who is
included in the section "Election of Directors".
Thomas K. Grundman has been an Executive Vice President and the Chief
Financial Officer and Treasurer since July 1999 and the Chief Accounting
Officer since November 1999. Effective December 1999, Mr. Grundman became
Executive Vice President of International Operations. He joined the Company
in April 1999 as Sr. Vice President of Strategic and Business Development.
From late 1996 to April 1999, Mr. Grundman was Senior Vice President at PNC
Bank, N.A. where he ran the Oil and Gas Corporate Finance Group and was
responsible for providing financing and advisory services in all sectors of
the energy industry. From 1984 through 1996, Mr. Grundman held several
positions at Chase Manhattan Bank and its predecessor institutions, most
recently as a Managing Director in the oil and gas group. Mr. Grundman holds
a BS in Finance from Syracuse University.
James J. Byerlotzer has been Executive Vice President of Domestic Well
Service and Drilling Operations since July 1999. Effective December 1999, Mr.
Byerlotzer's title was changed to Executive Vice President of Domestic
Operations. He joined the Company in September 1998 as Vice President --
Permian Basin Operations after the Company's acquisition of Dawson Production
Services, Inc. ("Dawson"). From February 1997 to September 1998, he served as
the Senior Vice President and Chief Operating Officer of Dawson. From 1981 to
1997, Mr. Byerlotzer was employed by Pride Petroleum Services, Inc.
("Pride"). Beginning in February 1996, Mr. Byerlotzer served as the Vice
President Domestic Operations of Pride. Prior to that time, he served as Vice
President -- Permian Basin of Pride and in various other operating positions
in Pride's Gulf Coast and California operations. Mr. Byerlotzer holds a BA
from the University of Missouri in St. Louis.
D. Kirk Edwards has been Senior Vice President of Safety, Human
Resources and Technology since July 1999. Effective December 1999, Mr.
Edwards' title was changed to Senior Vice President of Human Resources and
Information Technology. He has been President and Chief Executive Officer of
Odessa Exploration Incorporated, a wholly-owned subsidiary of the Company
("Odessa"), since July 1993. He was a member of the Board of Directors from
July 1994 to March 1996. Mr. Edwards was the owner and president of Odessa
from 1987 until it was acquired by the Company in 1993. Mr. Edwards holds a
BS from the University of Texas at Austin.
-4-
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
MANAGEMENT
The following sets forth, as of November 17, 1999, the number of
shares of Common Stock beneficially owned by each (i) Director, (ii)
executive officer, and (iii) all Directors and executive officers of the
Company as a group. Except as noted below, each holder has sole voting and
investment power with respect to all shares of Common Stock listed as owned
by such person.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OUTSTANDING
NAME OF BENEFICIAL OWNER SHARES(1) SHARES(2)
------------------------ --------- -------------
<S> <C> <C>
Francis D. John(3)................................................ 671,164 *
Kevin P. Collins(4)............................................... 165,072 *
William D. Manly(5)............................................... 112,709 *
W. Philip Marcum(6)............................................... 165,072 *
David J. Breazzano(7)............................................. 95,000 *
Morton Wolkowitz(8)............................................... 491,216 *
James J. Byerlotzer (9)........................................... 27,000 *
D. Kirk Edwards (10).............................................. 151,400 *
Thomas K. Grundman (11)........................................... 10,000 *
Directors and Executive Officers as a group (9 persons) .......... 1,888,633 2.2%
</TABLE>
- -------------------
* Less than 1%
(1) Includes all shares with respect to which each Director or executive
officer directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares the power to
vote or to direct voting of such shares and/or to dispose or to direct
the disposition of such shares. Includes shares that may be purchased
under currently exercisable stock options granted under the 1997
Incentive Plan.
(2) Based on 82,740,330 shares of Common stock outstanding at November 17,
1999, plus, for each beneficial owner, those number of shares
underlying currently exercisable options or warrants held by each
executive officer or Director.
(3) Includes 593,750 shares issuable upon exercise of vested options and
6,914 shares issuable pursuant to currently exercisable warrants. Does
not include (i) 981,250 shares issuable pursuant to options that have
not vested and (ii) shares issuable pursuant to 375,000 options that
were disposed of pursuant to a marital property settlement in fiscal
1999.
(4) Includes 110,000 shares issuable upon the exercise of vested options.
Does not include 110,000 shares issuable pursuant to options that have
not vested.
(5) Includes 110,000 shares issuable upon the exercise of vested options.
Does not include 110,000 shares issuable pursuant to options that have
not vested.
(6) Includes 110,000 shares issuable upon the exercise of vested options.
Does not include 110,000 shares issuable pursuant to options that have
not vested.
(7) Includes 45,000 shares issuable upon the exercise of vested options.
Does not include 105,000 shares issuable pursuant to options that have
not vested.
(8) Includes 144,000 shares issuable upon the exercise of vested options
and 6,914 shares issuable pursuant to currently exercisable warrants.
Does not include 131,000 shares issuable pursuant to options that have
not vested.
-5-
<PAGE>
(9) Includes 5,000 shares issuable upon the exercise of vested options.
Does not include 255,000 shares issuable pursuant to options that have
not vested.
(10) Includes 32,500 shares issuable upon the exercise of vested options.
Does not include 152,500 shares issuable pursuant to options that have
not vested.
(11) Does not include 300,000 shares issuable pursuant to options that have
not vested.
In addition, the following Named Executive Officers (as defined in
"Other Information-Executive Compensation") who were not executive officers
of the Company at November 17, 1999 beneficially own (based on available
information) Common Stock as follows: Danny R. Evatt - 51,250 shares
(includes 36,250 shares issuable upon the exercise of vested options);
Michael R. Furrow -28,000 shares (includes 5,000 shares issuable upon the
exercise of vested options); Stephen E. McGregor - 440,000 shares (includes
400,000 shares issuable upon the exercise of vested options); and Kenneth V.
Huseman - 2,500 shares.
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of November 17, 1999, certain
information regarding the beneficial ownership of Common Stock by each
person, other than the Company's directors or executive officers, who is
known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AT NOVEMBER 17, 1999
-------------------------
NAME AND ADDRESS OF BENEFICIAL
OWNER, IDENTITY OF GROUP NUMBER PERCENT
- ------------------------------------------------- --------- -------
<S> <C> <C>
West Highland Capital, Inc. (1).................. 8,000,000 9.7%
Lang H. Gerhard
300 Drake's Landing Road, Suite 290
Greenbrae, California 94904
</TABLE>
(1) As reported on Schedule 13G (Amendment No. 1) filed with the Commission
on July 6, 1999.
PROPOSED AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION
The Board of Directors has proposed to amend the Articles of
Incorporation. The Amendment, if adopted, would increase the Company's
authorized shares of capital stock, par value $.10 per share, from
100,000,000 shares to 200,000,000 shares. The Articles of Incorporation
currently authorize the issuance of 100,000,000 shares of capital stock that
initially have been designated as Common Stock, par value $.10 per share.
Under the Articles of Incorporation, the Board of Directors may reclassify
and classify any unissued shares of capital stock by setting or changing in
any one or more respects the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of capital stock. Therefore, although
all of the Company's capital stock currently is classified as Common Stock,
the Board of Directors could reclassify authorized but unissued shares of
capital stock as one or more series of preferred stock.
The Board of Directors believes that increasing the number of authorized
shares of capital stock will provide the Company with greater flexibility to
pursue actions that enhance stockholder value. After adjusting for shares of
capital stock issuable upon conversion of its outstanding convertible
securities, the Company currently has fewer than 700,000 shares of capital
stock available for issuance. The Company has in place effective shelf
registration statements pursuant to which it can issue up to approximately
$531.0 million in publicly traded securities, including capital stock.
Increasing the number of authorized shares will allow the Company to take
advantage of its shelf registration statements should management determine
that it is in the Company's best interest. Issuing additional shares can
benefit the Company by (i) furthering its primary goal of improving its
balance sheet, (ii) enabling it to respond quickly
-6-
<PAGE>
to opportunities in the capital markets, (iii) providing it with additional
forms of consideration for strategic acquisitions, and (iv) allowing it to
enjoy capital resources similar to its peer group.
The authorization of additional shares of capital stock will not, by
itself, have any effect on the rights of the Stockholders. However, any
future issuances of capital stock may have a dilutive effect. Furthermore,
under certain circumstances, an increase in the number of authorized shares
of capital stock can provide corporate management with a means to discourage
a change of control, such as through the issuance to Stockholders of rights
to purchase additional shares of Common Stock at bargain prices. As in the
case of other types of issuances, those intended to prevent or adversely
affect changes of control could be accomplished without further Stockholder
approval. However, the Board of Directors has no present intention of using
the additional authorized shares for such a purpose and is not aware that any
takeover or similar action is contemplated. Moreover, the Articles of
Incorporation currently prohibit any classification or reclassification of
the Company's capital stock that would (i) allow more than one vote per
share; (ii) allow capital stock to be issued in connection with any so-called
"shareholder rights plan", "poison pill," or other anti-takeover measure; or
(iii) issue capital stock for consideration less than the fair consideration
determined in good faith by the Board of Directors.
Set forth in Exhibit A to this Proxy Statement are the Articles of
Amendment to the Articles of Incorporation. If this proposal is adopted by
the Stockholders, the Articles of Incorporation would be amended as provided
therein.
REQUIRED VOTE
The affirmative vote of the holders of two-thirds of the issued and
outstanding shares of Common Stock is required to approve the Amendment.
Since the affirmative vote of two-thirds of the issued and outstanding shares
of Common Stock is required to approve the amendment, as opposed to a
specified percentage of the shares present at the Annual Meeting, the failure
to vote in person or by proxy, or an abstention from voting, will have the
same affect as a vote against the Amendment.
The Board of Directors recommends that the Stockholders vote FOR the
Amendment.
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<PAGE>
OTHER INFORMATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table reflects the compensation for
services to the Company for the years ended June 30, 1999, 1998, and 1997 for
(i) the Chief Executive Officer of the Company, (ii) the Company's four most
highly compensated executive officers of the Company other than the Chief
Executive Officer who were serving as executive officers at June 30, 1999 and
(iii) a former executive officer of the Company for whom disclosure would
have been provided pursuant to clause (ii) above but for the fact that such
individual was not serving as an executive officer of the Company at June 30,
1999 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------
OTHER
ANNUAL SHARES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(1) ($)
- -------------------------------- ----- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Francis D. John ..................... 1999 429,000 (2) -- -- 1,200,000 --
President and Chief Executive 1998 395,000 -- -- -- --
Officer 1997 341,250 500,000 -- 250,000(3) --
Kenneth V. Huseman................... 1999 257,650 -- -- 300,000 10,210(5)
Executive Vice President and 1998 240,000 400,000 (6) -- -- --
Chief Operating Officer (4) 1997 200,000 125,000 -- 100,000 --
Stephen E. McGregor.................. 1999 240,000 -- -- 400,000 --
Executive Vice President, Chief 1998 272,500 (7) 275,000 (8) -- 250,000 --
Financial Officer and Treasurer (9)
James J. Byerlotzer ................. 1999 121,153 -- -- 260,000 75,000(10)
Vice President--Permian
Basin Operations (11)
Michael R. Furrow.................... 1999 112,759 -- 13,333(13) 75,000 --
Vice President--Central
Operations (11)(12)
Danny R. Evatt ...................... 1999 145,000 -- -- 90,000 --
Vice President of Financial 1998 137,500 30,000 -- -- --
Operations and Chief Information 1997 125,000 25,080 -- 15,000 --
Officer (14)
</TABLE>
(1) Represents the number of shares issuable pursuant to vested and
non-vested stock options granted during the applicable fiscal year.
(2) Reflects a salary decrease of 38% effective December 1, 1998 as compared
to the salary in effect at July 1, 1998.
(3) 125,000 of these options were transferred in fiscal 1999 pursuant to a
marital property settlement.
(4) Mr. Huseman's employment with the Company was terminated effective
April 9, 1999 and all options awarded to Mr. Huseman have been forfeited.
(5) Represents insurance premiums paid by the Company with respect to life
insurance for the benefit of Mr. Huseman.
(6) The Board awarded Mr. Huseman this discretionary bonus after fiscal
1998 in recognition of the successful completion of a series of
acquisitions in fiscal 1998 and fiscal 1999.
(7) Includes payments made to Mr. McGregor under a consulting agreement
with the Company pursuant to which he was retained from July 15, 1997
through December 31, 1997.
(8) The Board awarded Mr. McGregor this discretionary bonus after fiscal
1998 in recognition of the successful completion of a series of
financing transactions in fiscal 1998 and fiscal 1999.
-8-
<PAGE>
(9) Mr. McGregor's employment with the Company was terminated effective as
of July 1, 1999 and the options for 250,000 shares granted to him in
fiscal 1998 have been forfeited.
(10) Represents payments to Mr. Byerlotzer pursuant to a non-competition
agreement entered into in connection with the Company's acquisition of
Dawson Production Services, Inc.
(11) Messrs. Byerlotzer and Furrow joined the Company on September 21, 1998.
(12) Mr. Furrow ceased serving as an executive officer effective as of
July 1, 1999.
(13) Represents amounts reimbursed to Mr. Furrow for certain relocation
expenses.
(14) Mr. Evatt ceased serving as an executive officer effective as of
November 11, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information relating to
options granted under the 1997 Incentive Plan to the Named Executive Officers
during fiscal 1999. The Company did not grant any stock appreciation rights
during fiscal 1999.
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS
NUMBER OF % OF TOTAL
SECURITIES OF OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR(1) SHARE DATE VALUE(2)
- ---- ------------- -------------- ------------- ------------ ---------------
<S> <C> <C> <C>
Francis D. John.................. 500,000 (3) 10.1% $7.125 09/04/08 $2,705,000
700,000 (4) 14.1 3.00 05/05/09 1,673,000
Kenneth V. Huseman............... 300,000 (3) 6.0 7.125 09/04/08 1,623,000
Stephen E. McGregor.............. 100,000 (3) 2.0 7.125 09/04/08 541,000
300,000 (5) 6.0 3.00 05/05/09 717,000
James J. Byerlotzer.............. 10,000 (6) 0.2 7.125 10/15/08 52,400
250,000 (4) 5.0 3.00 05/05/09 597,500
Michael R. Furrow................ 10,000 (6) 0.2 7.125 10/15/08 52,400
65,000 (4) 1.3 3.00 05/05/09 155,350
Danny R. Evatt................... 10,000 (3) 0.2 7.125 09/04/08 54,100
80,000 (4) 1.6 3.00 05/05/09 191,200
- ---------------
</TABLE>
(1) Based on options to purchase a total of 4,969,444 shares of Common Stock
granted under the 1997 Incentive Plan during fiscal 1999.
(2) The grant date value of stock options was estimated using the
Black-Scholes option pricing model with the following assumptions:
expected volatility--98%; risk-free interest rate--5.09%; time of
exercise--5 years; and no dividend yield.
(3) These options were granted on September 4, 1998, and vest in four
equal annual installments commencing on the date of grant. Options
awarded to Mr. Huseman have been forfeited as of result of the
termination of his employment with the Company. Options awarded to
Mr. McGregor became fully vested effective July 1, 1999 pursuant to
his severance agreement.
(4) These options were granted on May 5, 1999, and vest in three equal
annual installments commencing July 1, 2000.
(5) These options were granted on May 5, 1999, and vested on the date of
grant.
(6) These options were granted on October 15, 1998, and vest in four
equal annual installments commencing on the date of grant.
-9-
<PAGE>
AGGREGATED OPTION EXERCISES AND VALUES AS OF FISCAL YEAR END
The following table sets forth certain information as of June 30,
1999 relating to the value of unexercised options held by the Named Executive
Officers. None of the Named Executive Officers exercised stock options during
fiscal 1999.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY-OPTIONS
OPTIONS AT JUNE 30, 1999 AT JUNE 30, 1999(1)
-----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Francis D. John (2)........................ 468,750 1,106,250 $ - $ 584,375
Kenneth V. Huseman (3)..................... 233,334 - - -
Stephen E. McGregor (4).................... 391,667 258,333 168,750 -
James J. Byerlotzer........................ 2,500 257,500 - 140,525
Michael R. Furrow.......................... 2,500 72,500 - 36,562
Danny R. Evatt............................. 33,750 91,250 - 45,000
</TABLE>
- -------------------
(1) The dollar values in this column are calculated by determining the
difference between the fair market value of the Common Stock for which
the applicable options are exercisable as of the end of the fiscal year
and the exercise price of such options. The fair market value is based
on the last sale price of the Common Stock on the NYSE on June 30,
1999, which was $3.5625.
(2) With respect to Mr. John, the amount reported reflects the transfer of
375,000 options in fiscal 1999 pursuant to a marital property settlement.
(3) All options awarded to Mr. Huseman have been forfeited since his
employment with the Company ceased.
(4) 250,000 options awarded to Mr. McGregor have been forfeited since his
employment with the Company ceased.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
The Company entered into an employment agreement with Mr. John
effective as of July 1, 1995, which provided that Mr. John will serve as
President, Chief Executive Officer and a Director of the Company for a
three-year term commencing July 1, 1995 and continuing until June 30, 1998.
Under this agreement, Mr. John initially received annual base compensation of
$325,000. Mr. John's base compensation was reviewed annually under this
agreement and could be increased by the Board of Directors in its discretion.
Effective as of July 1, 1999, the Company entered into a new
employment agreement with Mr. John, which provides that Mr. John will serve
as Chairman of the Board, President, Chief Executive Officer and Chief
Operating Officer of the Company for a five-year term commencing July 1, 1999
and continuing until June 30, 2004 with an automatic one-year renewal on each
anniversary date commencing July 1, 2000, unless terminated no later than 30
days before a renewal. Under this agreement, Mr. John's annual base salary
will be $575,000 per year subject to annual review by the Board of Directors;
PROVIDED, HOWEVER, that his base salary may be increased, but not decreased.
This agreement also provides that he will be entitled to (i) participate in
the Company's Performance Compensation Plan, with performance criteria to be
approved by the Compensation Committee, (ii) receive additional bonuses at
the discretion of the Compensation Committee, and (iii) participate in the
1997 Incentive Plan. In addition to salary and bonus, Mr. John is entitled to
life insurance in an amount equal to $5 million, reimbursement of expenses,
various perquisites and a personal umbrella policy in the amount of $5
million. Also, if Mr. John is subject to the tax imposed by Section 4999 of
the Internal Revenue Code, the Company has agreed to reimburse him for such
tax on an after-tax basis.
Mr. John's new employment agreement provides that he will not (i)
exercise any option pertaining to shares of Common Stock that has been
granted to him (or which may be granted to him) or (ii) sell any Common Stock
or
-10-
<PAGE>
other equity securities of the Company that he owns for a period of three
years from the effective date of his new employment agreement, other than in
the event of a Change in Control. However, if the price of the Common Stock
is in excess of an average of $12.00 per share for a period of 60 days, then
Mr. John shall be entitled to sell or otherwise dispose of any equity
securities of the Company owned by him provided he does not reduce his
aggregate beneficial ownership of equity securities of the Company by more
than 50% of his then aggregate holdings at the time of such sales or other
disposition.
In the event that Mr. John's employment agreement is terminated by
the Company without "Cause" or by Mr. John for "Good Reason," death,
"Disability", or as a result of a "Change in Control," all as defined in the
agreement, Mr. John will be entitled to receive: (i) accrued but unpaid
salary to the date of termination; (ii) any prior year bonus earned but not
paid and a pro rata bonus for the year in which the termination occurs; (iii)
a severance payment in the amount of three times the sum of the average of
his total annual compensation (i.e., salary plus bonus) for the preceding
three years; (iv) immediate vesting and exercisability of all stock options
held by him (to the extent not already vested and exercisable) for the
remainder of the original term of the option; (v) any other amounts earned,
accrued or owing to Mr. John, but not yet paid including any and all
obligations to be performed with respect to applicable benefits or
perquisites to be provided to him following his termination; and (vi)
continued participation in medical, dental, and life insurance coverage until
Mr. John receives equivalent coverage and benefits under the plans and
programs of a subsequent employer, or the death of the latter of Mr. John or
his spouse. In the event that Mr. John's employment is terminated for Cause
or as a result of his resignation, he will be entitled to receive (a) accrued
unpaid salary to the date of the termination, (b) any prior year-end bonus
earned but not paid; and (c) the vested portion of stock options which he
then holds.
Furthermore, Mr. John's new employment agreement also provides for a
three-year non-competition provision in the event that he is receiving
severance payments pursuant to the terms of his employment agreement or, in
the event that no payments are being made pursuant to the agreement, a
one-year prohibition against competition applies. In the event Mr. John's
employment is terminated as a result of a Change in Control, the agreement
provides that the non-competition provision will not apply.
Mr. Grundman entered into an employment agreement with the Company
effective as of July 1, 1999. This agreement is for a three-year term and
thereafter for successive one-year terms unless terminated 60 days prior to
the commencement of an extension term. Under this agreement, Mr. Grundman
initially receives annual base compensation of $200,000 and is eligible for
additional annual incentive bonuses. If during the term of his employment
agreement Mr. Grundman is terminated by the Company for any reason other than
for cause, or if he terminates his employment because of a material breach by
the Company or following a change of control of the Company, he will be
entitled to severance compensation equal to his base compensation in effect
at the time of termination payable in equal installments over a 36-month
period following termination; PROVIDED, HOWEVER, that if termination results
from a change of control of the Company, severance compensation will be
payable in a lump sum on the date of termination. Also, if Mr. Grundman is
subject to the tax imposed by Section 4999 of the Internal Revenue Code, the
Company has agreed to reimburse him for such tax on an after-tax basis.
Mr. Byerlotzer entered into an employment agreement with the Company
effective as of November 13, 1998. Under this agreement, Mr. Byerlotzer
initially received annual base compensation of $170,000. Mr. Byerlotzer
entered into a new employment agreement with the Company effective as of July
1, 1999 for a three-year term and thereafter for successive one-year terms
unless terminated 30 days prior to the commencement of an extension term.
Under the new agreement, Mr. Byerlotzer receives annual base compensation of
$185,000 and is eligible for additional annual incentive bonuses. If during
the term of his employment agreement Mr. Byerlotzer is terminated by the
Company for any reason other than for cause, he will be entitled to severance
compensation equal to his base compensation in effect at the time of
termination payable in equal installments over a 24-month period following
termination; PROVIDED, HOWEVER, that if termination results from a change of
control of the Company, severance compensation will be payable in a lump sum
on the date of termination.
Mr. Edwards entered into an employment agreement with the Company
effective as of July 1, 1996. The agreement is for a three-year term and
thereafter for successive one-year terms unless terminated 30 days prior to
the commencement of the extension term. Under this agreement, Mr. Edwards
initially received annual base compensation of $165,000, and is eligible for
an additional annual incentive bonus of up to 30% of his base compensation.
Mr. Edward's employment agreement provides that if during the term of his
employment agreement Mr. Edwards is
-11-
<PAGE>
terminated by the Company for any reason other than for cause, or if he
terminates his employment because of a material breach by the Company or
following a change of control of the Company, he is entitled to severance
compensation equal to two times his base compensation in effect at the time
of termination payable in equal installments over a 24-month period following
termination; PROVIDED, HOWEVER, that if termination results from a change of
control of the Company, severance compensation is payable in a lump sum on
the date of termination.
Mr. Huseman entered into an employment agreement with the Company
effective as of August 3, 1996. This employment agreement was for a three
year term commencing on August 3, 1996. Under this agreement, Mr. Huseman
initially received annual base compensation of $200,000 and was eligible for
an additional annual incentive bonus of up to 50% of his base compensation.
If during the term of his employment agreement, Mr. Huseman was terminated by
the Company for any reason other than for cause, or if he terminated his
employment because of a material breach by the Company or following a change
of control of the Company, he was entitled to severance compensation equal to
two times his base compensation in effect at the time of termination payable
in equal installments over a 24-month period following termination; PROVIDED,
HOWEVER, that if termination resulted from a change of control of the
Company, severance compensation was payable in a lump sum on the date of
termination. Mr. Huseman was also subject to restrictions on competition
during the term of this agreement. Mr. Huseman's employment with the Company
ceased effective as of April 9, 1999. The Company did not pay Mr. Huseman any
severance compensation in connection with the termination of his employment.
Mr. McGregor entered into an employment agreement with the Company
effective as of January 1, 1998. Under this agreement, Mr. McGregor initially
received annual base compensation of $240,000, and was eligible for an
additional annual incentive bonus of up to 50% of his base compensation. Mr.
McGregor's employment agreement provided that if during the term of his
employment agreement Mr. McGregor was terminated by the Company for any
reason other than for cause, or if he terminated his employment because of a
material breach by the Company or following a change of control of the
Company, he was entitled to severance compensation equal to two times his
base compensation in effect at the time of termination payable in equal
installments over a 24-month period following termination; PROVIDED, HOWEVER,
that if termination resulted from a change of control of the Company,
severance compensation was payable in a lump sum on the date of termination.
Mr. McGregor was subject to restrictions on competition during the term of
this agreement. Mr. McGregor's employment with the Company ceased effective
as of July 1, 1999 and he was paid severance benefits as discussed below.
Mr. Evatt entered into an employment agreement with the Company
effective as of July 1, 1995. Mr. Evatt entered into a new employment
agreement with the Company effective as of July 1, 1999 for a three-year
term, and thereafter for successive one-year terms unless terminated 30 days
prior to the commencement of an extension term. Under the new agreement, Mr.
Evatt initially receives annual base compensation of $145,000 per year and is
eligible for additional incentive bonuses. If during the term of his
agreement Mr. Evatt is terminated by the Company for any reason other than
for cause, he will be entitled to receive severance compensation equal to his
base compensation, payable in equal installments over a 24-month period
following the termination; PROVIDED, HOWEVER, that if termination results
from a change of control of the Company, severance compensation will be
payable in a lump sum on the date of termination. Mr. Evatt ceased serving as
an executive officer of the Company effective as of November 11, 1999,
however his employment agreement remains in effect.
Mr. Furrow entered into an employment agreement with the Company
effective as of January 4, 1999. This agreement is for a three-year term and
thereafter for successive one-year terms unless terminated 30 days prior to
the commencement of an extension term. Under this agreement, Mr. Furrow
initially received an annual base compensation of $160,000 and is eligible
for additional annual incentive bonuses. If during the term of his employment
agreement, Mr. Furrow is terminated by the Company for any reason other than
for cause, he will be entitled to severance compensation equal to his base
compensation in effect at the time of termination payable in equal
installments over a 12-month period following termination; PROVIDED, HOWEVER,
that if termination results from a change of control of the Company,
severance compensation will be payable in a lump sum on the date of
termination. Mr. Furrow ceased serving as an executive officer of the Company
effective as of July 1, 1999, however his employment agreement remains in
effect.
-12-
<PAGE>
SEVERANCE AGREEMENTS
Effective as of July 1, 1999, the Company entered into a severance
arrangement with Mr. McGregor pursuant to which the Company made a one-time
severance payment to Mr. McGregor in the amount of $100,000. In addition, Mr.
McGregor will be entitled to receive additional payments of $725,000 for
services to be rendered by him in connection with the disposition by the
Company of certain of its assets to be specified. The Company has advanced
Mr. McGregor $425,000 against these payments. In addition, the severance
arrangement provides that Mr. McGregor will be entitled to receive certain
group medical and dental, life, executive life, accident and disability
benefits for a three-year period following his termination, as well as an
automobile allowance and certain additional payments to cover any short-fall
in any payments made pursuant to the Company's medical insurance coverage.
Mr. McGregor's severance arrangement with the Company also provides that
certain options to acquire shares of Common Stock that have been granted to
him will become immediately vested and that certain of those options will
remain exercisable for a period of five years. The severance arrangement also
provides Mr. McGregor with certain piggy-back registration rights with
respect to shares of the Common Stock acquired by him upon the exercise of
those options.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for establishing the
Company's compensation philosophy and policies, setting the terms of and
administering its option plans, reviewing and approving employment contracts
and salary recommendations for executive officers and setting the
compensation for the Chief Executive Officer. The Company's overall
compensation philosophy is to align the financial interests of management
with those of the Company's stockholders, taking into account the Company's
expectations for growth and profitability, the necessity to attract and
retain the best possible executive talent and to reward its executives
commensurate with their ability to enhance stockholder value. Accordingly,
employment agreements with the executive officers approved by the
Compensation Committee provide for compensation consisting of base salary,
participation in incentive compensation and performance plans based upon
performance and stock options and other stock-based awards. The Compensation
Committee's decision to adopt the 1997 Incentive Plan and the Performance
Compensation Plan, as well as prior stock-based incentive plans, was taken,
in part, to align more closely the financial interests of executive officers
and key employees with those of the Company's stockholders. The Compensation
Committee believes that providing executives with opportunities to acquire
significant stakes in the Company's growth and prosperity through grants of
stock options and other incentive awards will enable the Company to attract
and retain executives with the outstanding managerial abilities essential to
the Company's success, motivate these executives to perform to their full
potential and enhance stockholder value.
In approving base and incentive compensation levels for executive
officers, the Compensation Committee has considered the fact that, during the
past year, the oil field services industry, and in particular drilling
contractors, have undergone severe contractions in activity forcing some
companies to withdraw or be eliminated from the market place. The Committee
is also aware that the ability of companies to compete in this new
marketplace depends in part on the need to retain and attract executives with
the necessary industry knowledge and management and financial skills to
enhance Key Energy's position in the marketplace. Despite collapsing energy
and credit markets during fiscal 1999, the Committee believes that Key has
attained a leadership position in its industry and, because of management's
strategic positioning, including diversifying the Company into natural gas
producing regions, the Company is now in a position to capitalize on its
position in the marketplace.
The employment agreements with the Company's executive officers
allow for significant bonuses in future years pursuant to the Company's
management incentive bonus plan. Bonus awards under such plan are based upon
achieving certain earnings goals and the attainment of individual qualitative
goals relating to the employee's position and responsibilities. The Board of
Directors determines the Company's overall earnings goals and, with the
review and approval of the Compensation Committee, the Chief Executive
Officer sets the earnings and individual qualitative goals for the Company's
operating subsidiaries.
The Compensation Committee has also adopted the Performance
Compensation Plan, which was approved by stockholders at the Company's Annual
Meeting. Under the Performance Compensation Plan, for each fiscal year
commencing with the Company's 1999 fiscal year, the formula for calculating
the bonus to which an executive officer who is designated as a participant
may be deemed to be entitled will be determined based upon one or more of the
following criteria, individually or in combination, adjusted in such manner
as the Compensation Committee shall
-13-
<PAGE>
determine: (a) pre-tax or after-tax return on equity; (b) earnings per share;
(c) pre-tax or after-tax net income; (d) book value per share; (e) market
price per share; (f) relative performance to peer group companies; (g)
expense management; (h) total return to stockholders; and (i) attainment of
balance sheet criteria, including but not limited to reduction(s) in
long-term and short-term indebtedness.
The Compensation Committee has concluded that the Performance
Compensation Plan provides appropriate incentives to senior management of the
Company, and is a fair and reasonable method upon which to base the incentive
compensation of the executive officers of the Company who are designated as
participants in the Plan.
Section 162(m) of the Internal Revenue Code of 1986, as amended,
limits deductibility for federal income tax purposes of compensation in
excess of $1 million paid to individual executive officers per taxable year
unless certain exceptions, including compensation based on performance goals,
are satisfied. The Performance Compensation Plan was adopted by the
Compensation Committee in an effort to comply with the performance-based
exception to limits on deductibility of executive officer compensation.
Fiscal year 1999 compensation for Mr. John as Chief Executive
Officer consisted of a total salary of $429,000, which reflects a salary
decrease of 38% effective December 1, 1998 as compared to the salary in
effect at July 1, 1998. Mr. John's salary was set under the terms of his
employment agreement. The Committee's arrangements with its Chief Executive
Officer have been designed from the outset to align his compensation to the
enhancement of shareholder value. To that end, during fiscal 1999, the
Committee granted to Mr. John 500,000 and 700,000 stock options, with per
share exercise prices of $7.125 and $3.00, respectively, representing the
market value of an underlying share of the Company's Common Stock on the date
of each grant. In addition the Committee also considered the average cash and
other compensation and equity positions of chief executive officers of
selected companies deemed by the Compensation Committee to be comparable; the
fact that Mr. John has identified, negotiated and structured numerous
beneficial acquisitions and financings; as well as the fact that Mr. John has
never exercised any stock options or sold any Common Stock.
Since the Company's reorganization in December 1992, total
stockholder value has increased from a negative net worth of $5.6 million at
November 30, 1992, to a positive net worth of approximately $288 million at
June 30, 1999. In addition to leading the Company through its critical
post-reorganization period, as noted earlier, Mr. John strengthened the
Company's position through strategic acquisitions, and by negotiating and
structuring the Company's financings; including a public offering by the
Company of 55,000,000 shares of its Common Stock and the correlative pay down
of the Company's debt and loosening of the covenants in its bank debt.
Corporate overhead has remained low and staffing patterns lean. In these and
other initiatives, Mr. John has enhanced the Company's ability to compete
effectively and has positioned the Company to participate in future growth in
the industry and to enhance stockholder value.
The Compensation Committee believes that its current policies have
been and will continue to be successful in aligning the financial interests
of executive officers with those of the Company's stockholders and the
Company's performance. Nevertheless, the Compensation Committee intends to
continue to review whether and how to modify its policies to further link
executive compensation with both individual and Company performance.
William D. Manly, Chairman
W. Phillip Marcum
Morton Wolkowitz
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<PAGE>
COMPARATIVE PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative total
stockholder returns on the Common Stock with the cumulative total return of
the Standard & Poor's 500 Index and the peer group comprised of six of the
Company's competitors (the "PEER GROUP"). The following graph assumes the
investment of $100 on June 30, 1994 in the Common Stock, the Standard &
Poor's 500 Index and the Peer Group and the reinvestment of dividends
(rounded to the nearest dollar).
[PERFORMANCE GRAPH TO BE INSERTED HERE]
- -------------------
(1) All values for the Company and the Peer Group are as of June 30 of the
year presented.
(2) Peer Group consists of Dawson Production Services, Inc. ("Dawson"),
Pool Energy Services Company, Grey Wolf, Inc.(formerly DI Industries,
Inc.), Nabors Industries, Inc., Patterson Energy, Inc. and UTI Energy,
Inc. Values are adjusted for dividends, when applicable. Due to the
Company's acquisition of Dawson in September 1998, the above data for
the Peer Group does not include Dawson for the period July 1, 1998
through June 30, 1999.
-15-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In order to assist Francis D. John, the Chairman of the Board,
President and Chief Executive Officer of the Company, with the acquisition of
and relocation to a new primary residence, the Company provided Mr. John
interim or bridge loans in the aggregate amount of $2,350,000, pending Mr.
John obtaining mortgage financing from a financial institution, or other
third party lender, or otherwise arranging for the repayment of such loans.
Mr. John's indebtedness to the Company is evidenced by three (3) notes
payable to the Company on demand, which bear interest on the principal
balance outstanding thereunder at the rate equal to 125 basis points above
the most recently published London Interbank Offered Rates ("LIBOR") for
one-month contracts, redetermined on each monthly anniversary of the dates
thereof. The notes provide that interest is due and payable upon the payment
of any principal thereunder in the amount equal to accrued and unpaid
interest calculated as described above on the amount of the principal payment
being made. Payment of the notes is secured by a mortgage on the property in
question executed by Mr. John in favor of the Company.
Subsequent to the bridge loans described above, during the period
from December 1998 to August 1999, the Company also provided additional cash
advances, in the form of personal loans, to Mr. John in the aggregate amount
of $2,655,000, a portion of which has been (and is expected in the future to
be) used for the purchase of Common Stock. Mr. John's additional indebtedness
to the Company is evidenced by seven (7) additional notes payable to the
Company on demand, which also bear interest on the principal balance
outstanding thereunder at the rate equal to 125 basis points above the most
recently published LIBOR for one-month contracts, redetermined on each
monthly anniversary of the dates thereof. These notes likewise provide that
interest is due and payable upon the payment of any principal thereunder in
an amount equal to accrued and unpaid interest calculated as described above
on the amount of the principal payment being made. Payment of these
additional notes is also secured by a mortgage on Mr. John's personal
residence executed by Mr. John in favor of the Company. As a result of these
additional borrowings, Mr. John currently has aggregate borrowings
outstanding from the Company in the amount of $5 million, which are secured
by a first mortgage on his principal residence.
In connection with the negotiation of the terms of a five-year
employment agreement with Mr. John and as an inducement to Mr. John to enter
into the new employment agreement, the Company entered into an agreement with
Mr. John, dated as of August 2, 1999, whereby, with respect to the aggregate
of $5 million in loans by the Company to Mr. John described above, the
Company has agreed that such loans, together with the accrued interest
payable thereon, will be forgiven ratably during the five year period
commencing on July 1, 2000 and ending on July 1, 2004. The agreement provides
that the foregoing forgiveness of indebtedness is predicated and conditioned
upon Mr. John remaining employed by the Company during the period from July
1, 1999 to July 1, 2004. The agreement also provides that the foregoing
forgiveness of indebtedness is also conditioned upon the price of Common
Stock reaching $12.00 per share. In addition, in the event that Mr. John is
terminated by the Company for "Cause" (as defined in the agreement), or in
the event that Mr. John voluntarily terminates his employment with the
Company, the agreement further provides that the entire remaining principal
balance of these loans, together with accrued interest payable thereon, will
become immediately due and payable by Mr. John. However, in the event that
Mr. John's employment is terminated for "Good Reason", or as a result of Mr.
John's death or "Disability", or as a result of a "Change in Control" (all as
defined in that agreement), the agreement stipulates that the remaining
principal balance outstanding on the loans, together with accrued interest
thereon, will be forgiven.
The agreement provides that, during the term thereof, Mr. John shall
be required to post such additional collateral to secure such loans as the
Board of Directors of the Company in its sole discretion may from time to
time deem to be necessary and/or appropriate under the circumstances and that
the Board shall review the adequacy of the collateral on at least an annual
basis.
This agreement further provides that with respect to any forgiveness
of the payment of principal and interest on the loans, Mr. John will be
entitled to receive a "gross-up" payment in an amount sufficient for him to
pay any federal, state, or local income taxes that may be due and payable by
him with respect to the forgiveness of such indebtedness (principal and
interest). In addition, the agreement provides that if Mr. John is subject to
the tax imposed by Section 4999 of the Internal Revenue Code, the Company
will reimburse him for such tax on an after-tax basis.
Mr. John's employment agreement also contain restrictions relating
to the price of Common Stock. Specifically it provides that he will not (i)
exercise any option pertaining to shares of Common Stock that has been
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granted to him (or which may be granted to him) or (ii) sell any Common Stock
or other equity securities of the Company that he owns for a period of three
years from the effective date of his new employment agreement, other than in
the event of a Change in Control. However, if the price of the Common Stock
is in excess of an average of $12.00 per share for a period of 60 days, then
Mr. John shall be entitled to sell or otherwise dispose of any equity
securities of the Company owned by him provided he does not reduce his
aggregate beneficial ownership of equity securities of the Company by more
than 50% of his then aggregate holdings at the time of such sales or other
disposition.
On January 6, 1998, Metretek Technologies, a diversified provider of
products and services to the natural gas industry and a company for which W.
Phillip Marcum, one of the Directors of the Company, serves as Chairman of
the Board, President and Chief Executive Officer, sold certain assets held by
its wholly owned subsidiary, Marcum Gas Transmission, to Odessa. Metretek
Technologies sold the assets for a total consideration of $700,000. Metretek
Technologies also granted Odessa a right of first refusal to participate in
future projects developed by Marcum Gas Transmission on terms and conditions
identical to those provided to Marcum Gas Transmission.
During fiscal 1998, the Company deposited $250,000 in a money market
account as collateral to secure a bank loan made to a business entity in
which Danny R. Evatt, Chief Information Officer and Vice President of
Financial Operations of the Company, owns an interest. Such amount is still
on deposit as collateral for the loan.
In fiscal 1999, an investment management firm in which David J.
Breazzano, one of the Company's Directors, is a principal, purchased $25
million principal amount of the Company's borrowings under a bridge loan
agreement which has since been repaid in full.
In fiscal 1999, the Company entered into a consulting agreement with
an investment banking firm in which Kevin P. Collins, one of the Company's
Directors, is a principal, pursuant to which such firm provided financial
advisory services to the Company in connection with the Equity Offering and
for which such firm received a total of $167,000.
In connection with the negotiation of an employment agreement with
Thomas K. Grundman, the Company's Executive Vice President of International
Operations, Chief Financial Officer, Chief Accounting Officer and Treasurer,
the Company made a $240,000 bridge loan and a $150,000 relocation loan to
assist Mr. Grundman's relocation to the Company's executive offices. Interest
on these loans accrues at a rate of 6.125% per annum. The bridge loan has
been repaid. The relocation loan together with accrued interest will be
forgiven in three installments of $50,000 each on July 1, 2000, 2001 and
2002; PROVIDED that if Mr. Grundman's employment is terminated during such
period in a way that (i) triggers severance obligations, all amounts owed
shall be immediately forgiven or (ii) does not trigger severance obligations,
all amounts owed shall be immediately due and payable.
AUDITORS
KPMG Peat Marwick LLP ("Peat Marwick"), certified public accounting
firm, has served as the Company's independent auditor for several years.
Although management anticipates that this relationship will continue during
2000, no formal action is proposed to be taken at the Annual Meeting with
respect to the continued employment of Peat Marwick inasmuch as no such
action is legally required. A representative of Peat Marwick plans to attend
the Annual Meeting and will be available to answer appropriate questions. The
representative also will have an opportunity to make a statement at the
Annual Meeting if he so desires, although it is not expected that any
statement will be made.
The Audit Committee of the Board of Directors assists the Board of
Directors in assuring that the Company's accounting and reporting practices
are in accordance with applicable requirements. The Audit Committee reviews
with the auditors the scope of the proposed audit work and meets with the
auditors to discuss matters pertaining to the audit and any other matter that
the Audit Committee or the auditors may wish to discuss. In addition, the
Audit Committee would recommend the appointment of new auditors to the Board
of Directors if future circumstances were to indicate that such action is
desirable.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and persons who
beneficially own more than 10% of a registered class of the Company's equity
securities, to
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<PAGE>
file initial reports of ownership on Form 3 and changes in ownership on Forms
4 or 5 with the Securities and Exchange Commission (the "Commission"). Such
officers, directors and 10% stockholders also are required by Commission
rules to furnish the Company with copies of all Section 16(a) reports they
file. Based solely on its review of the copies of such forms furnished to the
Company, the Company believes that its Directors, executive officers or 10%
stockholders complied with all Section 16(a) filing requirements during the
fiscal year ended June 30, 1999, other than Messrs. Furrow and Grundman, each
of whom did not file a Form 3 on a timely basis and Mr. Byerlotzer who did
not file a Form 3 and Form 4, with respect to one transaction, on a timely
basis.
LIMITATION ON INCORPORATION BY REFERENCE
Notwithstanding any reference in prior or future filings by the
Company with the Commission that purport to incorporate this Proxy Statement
by reference into another filing, such incorporation shall not include any
material herein under the captions "Other Information - Compensation
Committee Report" or "Other Information - Comparative Performance Graph."
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
To be considered for inclusion in next year's proxy materials,
stockholder proposals to be presented at the Company's 2000 Annual Meeting
must be in writing and be received by the Company no later than August 22,
2000. For the proposal to be included in the proxy statement, the Stockholder
submitting the proposal must meet certain eligibility standards and comply
with certain procedures established by the Commission, and the proposal must
comply with the requirements as to form and substance established by
applicable laws and regulations. The proposal must be mailed to the Company's
principal executive office, at the address stated herein, and should be
directed to the attention of the General Counsel.
Stockholders that intend to present a proposal that will not be
included in the proxy statement for the Company's 2000 Annual Meeting must
give written notice of a stockholder's intent to submit such a proposal on or
before November 3, 2000. The notice submitted by a stockholder should include
a statement that the proponent intends to solicit the necessary percentage of
stockholder votes to carry the proposal supported by evidence that the stated
percentage will actually be solicited.
OTHER MATTERS
The Board of Directors does not know of any other matters that may
come before the Annual Meeting; however, if any other matters are properly
presented at the Annual Meeting, the persons named in the accompanying proxy
intend to vote, or otherwise act, in accordance with their best judgment on
such matters.
The Company's Annual Report to Stockholders covering the fiscal year
ended June 30, 1999 has been mailed to each Stockholder entitled to vote at
the Annual Meeting or accompanies this Proxy Statement.
By Order of the Board of Directors
Francis D. John
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
December 6, 1999
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<PAGE>
EXHIBIT A
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
KEY ENERGY SERVICES, INC.
Key Energy Services, Inc., a Maryland corporation (the "CORPORATION"),
certifies to the Maryland Department of Assessments and Taxation as follows:
(1) The Corporation desires to amend its Amended and Restated Articles
of Incorporation as are currently in effect (the "ARTICLES OF
INCORPORATION") in accordance with Section 2-601 and 2-602 of the
Maryland General Corporation Law.
(2) These Articles of Amendment amend Paragraph (a) of Article FIFTH
of the Articles of Incorporation of the Corporation.
(3) The Board of Directors of the Corporation, by unanimous written
consent effective as of October 19, 1999, adopted a resolution that
these Articles of Amendment shall be submitted for shareholder
approval as being advisable and in the best interests of the
Corporation.
(4) These Articles of Amendment were duly adopted by the stockholders of
the Corporation in accordance with Section 2-604 of the Maryland
General Corporation Law at the Corporation's Annual Meeting held on
January 11, 2000.
Paragraph (a) of Article FIFTH of the Articles of Incorporation is amended to
read in its entirety as follows:
"FIFTH: (a) The total number of shares of shares of stock of all classes
which the Corporation has authority to issue is Two Hundred Million
(200,000,000) shares of capital stock amount in aggregate par value to
$20,000,000. All of such shares are initially classified as "Common Stock"
(par value $.10 per share). The Board of Directors may classify and
reclassify any unissued shares of capital stock by setting or changing in
any one or more respects the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of such shares of stock, PROVIDED,
HOWEVER, that, notwithstanding anything to the contrary in these Articles,
no such classification or reclassification shall create a class of stock
which shall (i) have more than one vote per share, (ii) be issued in
connection with any so-called "shareholder rights plan," "poison pill" or
other anti-takeover measure, or (iii) be issued for consideration which is
less than fair consideration as determined in good faith by the
Corporation's Board of Directors."
Immediately before the effectiveness of these Articles of Amendment, the
Corporation has authority to issue 100,000,000 shares of Common Stock, par
value $.10 per share, with an aggregate par value of $10,000,000.
Upon effectiveness of these Articles of Amendment, the Corporation will
have authority to issue 200,000,000 shares of capital stock, all of which
will be initially classified as Common Stock, par value $.10 per share, with
an aggregate par value of $20,000,000.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be signed in its name and on its behalf by its President and
witnessed by its Secretary on January 31, 2000.
- ------------------------------- -----------------------------
Jack D. Loftis, Jr., SECRETARY Francis D. John, PRESIDENT
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<PAGE>
THE UNDERSIGNED, President of Key Energy Services, Inc., who executed on
behalf of the Corporation these Articles of Amendment, hereby acknowledges in
the name and on behalf of the Corporation that the foregoing Articles of
Amendment are to be the corporate act of the Corporation and hereby certifies
that the matters and facts set forth herein with respect to authorization and
approval thereof are true in all material respects under the penalties of
perjury.
---------------------------------
Francis D. John, PRESIDENT
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<PAGE>
Please Detach and Mail in the Envelope Provided
/X/ Please mark your
votes as in this example
<TABLE>
<S> <C> <C> <C> <C>
FOR ELECTING ALL WITHHOLD
NOMINEES (except for AUTHORITY to vote
person(s) whose name(s) for all nominees listed
is (are) written below) at right FOR AGAINST ABSTAIN
ITEM 1.
To elect six / / / / Nominees: Francis D. John ITEM 2. To aprove / / / / / /
Directors David J. Breazzano the Amendment to
Kevin P. Collins the Company's
William D. Manly Amended and Restated
W. Phillip Marcum Articles of Incorpora-
Morton Wolkowitz tion to increase the
authorized common stock,
par value $.10 per share,
from 100,000,000 shares
to 200,000,000 shares.
INSTRUCTION: To withhold authority to vote for any SPECIFY DESIRED ACTION BY MARKING YOUR VOTE IN THE APPROPRIATE SPACES. THIS
individual nominee, write that person's name here: PROXY WILL BE VOTED AS DIRECTED. IF NO SPECIFIC DIRECTION IS MADE, THE PROXY
WILL BE VOTED FOR THE NOMINEES NAMED IN THE PROXY STATEMENT AND FOR ITEM 2.
THE PERSONS NAMED AS PROXIES HAVE DISCRETIONARY AUTHORITY THAT THEY INTEND
- --------------------------------------------- TO EXERCISE IN FAVOR OF THE PROPOSALS REFERRED TO AND ACCORDING TO THEIR
BEST JUDGEMENT AS TO OTHER MATTERS THAT PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENTS THEREOF.
(PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
AS SOON AS POSSIBLE.)
Dated:
- ---------------------------------------------------------------- ---------------------------------------- -------------
PLEASE PRINT NAME OF STOCKHOLDER HERE: PLEASE SIGN HERE:
NOTE: The signature on this Proxy should correspond exactly with the Stockholder's name as printed above. In the case of joint
tenancies, co-executors, or co-trustees, both should sign. Persons signing as Attorney, Executor, Administrator, Trustee or
Guardian should give their full title.
</TABLE>
<PAGE>
PROXY
THIS PROXY IS BEING SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
KEY ENERGY SERVICES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 11, 2000
The undersigned Stockholder of Key Energy Services, Inc. (the
"Company") hereby constitutes and appoints Francis D. John and Jack D.
Loftis, Jr., and each of them singly, proxies and attorneys of the
undersigned, with full power of substitution to each, for and in the name of
the undersigned to vote and act upon all matters (unless and except as
expressly limited on the reverse side hereof) at the Annual Meeting of
Stockholders to be held on Tuesday, January 11, 2000, at the Hilton Hotel,
Tower Center Boulevard, Woodbridge Room, East Brunswick, New Jersey 08816, at
11:00 a.m., local time, and at any and all adjournments thereof, in respect
of all shares of the Common Stock, par value $.10 per share, of the Company
held by the undersigned or in respect of which the undersigned would be
entitled to vote or act, with all the powers the undersigned would possess if
personally present. All proxies heretofore given by the undersigned, in
respect of said meeting are hereby revoked.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
