<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
</TABLE>
<TABLE>
<S> <C>
KEY ENERGY SERVICES, INC.
--------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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:
----------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
KEY ENERGY SERVICES, INC.
TWO TOWER CENTER, 20TH FLOOR
EAST BRUNSWICK, NJ 08816
October 30, 2000
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, Trenton Room, East Brunswick, New Jersey 08816, at 1:00 P.M.
on Friday, December 8, 2000.
Matters to be considered and acted upon by the Stockholders include the
election of seven directors. This matter and the procedures for voting your
shares are discussed in the accompanying Notice of Annual Meeting and Proxy
Statement.
Your vote is important. 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,
/s/ FRANCIS D. JOHN
Francis D. John
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
KEY ENERGY SERVICES, INC.
TWO TOWER CENTER, 20TH FLOOR
EAST BRUNSWICK, NEW JERSEY 08816
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 8, 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, Trenton Room, East Brunswick, New Jersey
08816 on Friday, December 8, 2000 at 1:00 P.M. (Eastern Standard Time), to
consider and act upon the following matters:
(1) To elect seven Directors for the ensuing year or until their successors
are elected and qualified; and
(2) 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 October 23, 2000,
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,
/s/ JACK D. LOFTIS, JR.
Jack D. Loftis, Jr.
SECRETARY
East Brunswick, New Jersey
October 30, 2000
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 DECEMBER 8, 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, Trenton Room, East
Brunswick, New Jersey 08816 at 1:00 P.M. on Friday, December 8, 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 October 30, 2000.
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 costs and 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 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 October 23, 2000
(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 97,030,360
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 (48,515,181 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 any other matter as
may properly come before the Annual Meeting. 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
1
<PAGE>
plurality of the votes cast, and (ii) in the case of any other matter as may
properly come before the Annual Meeting, a majority of the votes cast.
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, seven 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 Board of Directors has designated
the persons named in the accompanying proxy to vote for the election of seven
Directors and those persons intend to vote for the election of the nominees
named below to the Board of Directors unless authority to do so is withheld by
the Stockholder submitting the proxy. The Stockholders previously have elected
six of the seven nominees as Directors (with Mr. Fertig having been added to the
Board of Directors since the Company's last annual meeting of 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
render any nominee from serving. For information regarding ownership of Common
Stock by the nominees see "Security 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, 46
Chief Executive Officer and Chief
Operating Officer
David J. Breazzano(1)(2).......... Director 44
Kevin P. Collins(1)(2)............ Director 50
William D. Fertig................. Director 44
William D. Manly(2)(3)............ Director 77
W. Phillip Marcum(3).............. Director 56
Morton Wolkowitz(1)(3)............ Director 72
</TABLE>
------------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
2
<PAGE>
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 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. Mr. Collins is also a director of The Penn Traffic
Company, Metretek Technologies, Inc. and London Fog Industries. He holds a BS
and an MBA from the University of Minnesota.
William D. Fertig has been a Director since April 2000. Mr. Fertig has been
a Principal, Manager of Sales and Training at McMahan Securities Co. L.P. since
1990. Mr. Fertig previously served as a Senior Vice President and Manager of
Convertible Sales at Drexel Burnham Lambert prior to joining McMahan Securities
in 1990, and from 1979 to 1989, served as Vice President and Convertible
Securities Sales Manager at Credit Suisse First Boston. He holds a BS from
Allegheny College and an MBA from NYU Graduate Business School.
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 seven 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.
3
<PAGE>
BOARD AND COMMITTEE MEETINGS
During the fiscal year ended June 30, 2000, the Board of Directors held ten
meetings. Each of the current directors who then were 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 2000 the Audit Committee held four meetings
and is currently composed of Messrs. Breazzano, Collins and Manly. All members
of the audit committee are independent, in accordance with the existing
requirements of the New York Stock Exchange. The functions of the Audit
Committee include meeting with the Company's independent auditors annually to
review financial results, audited financial statements, 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. The
Board of Directors has adopted a new written charter for the Audit Committee
effective June 12, 2000. A copy of the new written charter is included in this
proxy statement as Appendix A.
COMPENSATION COMMITTEE. During fiscal 2000 the Compensation Committee met
four 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 executive 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, including the
Company's stock option plan.
EXECUTIVE COMMITTEE. The Executive Committee is currently composed of
Messrs. John, Breazzano, Collins and Wolkowitz. The Executive Committee
exercises 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, 2000 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 2000 the Company paid the premiums with respect to
life insurance for the benefit of Messrs. Collins and Marcum in the amount of
$2,906 and $5,389, respectively. On April 18, 2000, Messrs Collins, Manly,
Marcum, Breazzano and Wolkowitz were granted options under the Key Energy
Group, Inc. 1997 Incentive Plan as amended from time to time (the "1997
Incentive Plan") to purchase 50,000 shares of Common Stock. On April 27, 2000,
Mr. Fertig was also granted options under the 1997 Incentive Plan to purchase
50,000 shares of Common Stock. The options granted on April 18, 2000 and
April 27, 2000 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".
4
<PAGE>
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. Effective August 2000, he resigned as
Treasurer. He joined the Company in April 1999 as Sr. Vice President of
Strategic and Business Development. From late 1996 through 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.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
MANAGEMENT
The following table sets forth as of October 23, 2000, 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).................................. 2,987,414 3.0%
Kevin P. Collins(4)................................. 184,238 *
William D. Fertig(5)................................ 17,500 *
William D. Manly(6)................................. 181,875 *
W. Philip Marcum(7)................................. 184,238 *
David J. Breazzano(8)............................... 159,166 *
Morton Wolkowitz(9)................................. 570,716 *
James J. Byerlotzer(10)............................. 196,167 *
Thomas K. Grundman(11).............................. 210,000 *
Directors and Executive Officers
as a group (9 persons)............................ 4,691,314 4.6%
</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 and warrants.
5
<PAGE>
(2) Based on 97,030,360 shares of Common stock outstanding at October 23, 2000,
plus, for each beneficial owner, those number of shares underlying
currently exercisable options or warrants held by each executive officer or
Director.
(3) Includes 2,910,000 shares issuable upon exercise of vested options and
6,914 shares issuable pursuant to currently exercisable warrants. Does not
include 1,625,000 shares issuable pursuant to options that have not vested.
(4) Includes 179,166 shares issuable upon the exercise of vested options. Does
not include 90,834 shares issuable pursuant to options that have not
vested.
(5) Includes 12,500 shares issuable upon the exercise of vested options. Does
not include 37,500 shares issuable pursuant to options that have not
vested.
(6) Includes 179,166 shares issuable upon the exercise of vested options. Does
not include 90,834 shares issuable pursuant to options that have not
vested.
(7) Includes 179,166 shares issuable upon the exercise of vested options. Does
not include 90,834 shares issuable pursuant to options that have not
vested.
(8) Includes 109,166 shares issuable upon the exercise of vested. Does not
include 90,834 shares issuable pursuant to options that have not vested.
(9) Includes 173,500 shares issuable upon the exercise of vested options and
6,914 shares issuable pursuant to currently exercisable warrants. Does not
include 101,500 shares issuable pursuant to options that have not vested.
(10) Includes 174,167 shares issuable upon the exercise of vested options. Does
not include 385,833 shares issuable pursuant to options that have not
vested.
(11) Includes 200,000 shares issuable upon the exercise of vested options. Does
not include 600,000 shares issuable pursuant to options that have not
vested.
In addition, the following Named Executive Officers (as defined "Other
Information--Executive Compensation") who were not executive officers of the
Company at October 23, 2000 beneficially own (based on available information)
Common Stock as follows: D. Kirk Edwards--201,400 shares (includes 27,500 shares
issuable upon the exercise of vested options); Danny R. Evatt--81,666 shares
(includes 15,000 share issuable upon the exercise of vested options).
6
<PAGE>
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of October 23, 2000, 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
OCTOBER 23, 2000
NAME AND ADDRESS OF BENEFICIAL ---------------------
OWNER, IDENTITY OF GROUP NUMBER PERCENT
------------------------------ ---------- --------
<S> <C> <C>
Perkins, Wolf, McDonnell and Company(1) ................. 5,954,450 6.1%
53 W. Jackson Blvd., Suite 722
Chicago, ILL 60604
T. Rowe Price Associates, Inc.(2) ....................... 7,232,100 7.5%
100 E. Pratt Street
Baltimore, MD 21202
West Highland Capital, Inc.(3) .......................... 10,000,000 10.3%
Estero Partners, LLC
Lang H. Gerhard
West Highland Partners, L.P.
300 Drakes Landing Road, Suite 290
Greenbrae, CA 94904
</TABLE>
------------------------
(1) As reported on Schedule 13G filed with the Commission on February 14, 2000.
(2) As reported on Schedule 13G filed with the Commission on February 7, 2000.
(3) As reported on Schedule 13G (Amendment No. 1) filed with the Commission on
February 11, 2000.
7
<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, 2000, 1999 and 1998 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, 2000 and
(iii) two former executive officers of the Company for whom disclosure would
have been provided pursuant to clause (ii) above but for the fact that such
individuals were not serving as executive officers of the Company at June 30,
2000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION OTHER SHARES
-------------------- ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(1) COMPENSATION($)
--------------------------- -------- --------- -------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Francis D. John ......................... 2000 589,519 307,776 -- 2,000,000 --
President, Chief Executive Officer 1999 429,000(2) -- -- 1,200,000 --
and Chief Operating Officer 1998 395,000 -- -- -- --
Thomas K. Grundman ...................... 2000 203,845 100,000 -- 500,000
Executive Vice President International 1999 35,259 -- -- 300,000 --
Operations, Chief Financial Officer,
Chief Accounting Officer and
Treasurer(3)
James J. Byerlotzer ..................... 2000 185,000 89,000 -- 300,000 100,000(4)
Executive Vice President--Domestic 1999 121,153 -- -- 260,000 75,000(4)
Operations(5)
D. Kirk Edwards ......................... 2000 165,000 -- -- -- --
Senior Vice President of Human
Resources 1999 164,551 -- -- 150,000 --
And Information Technology(6) 1998 172,562 39,437 -- -- --
Danny R. Evatt .......................... 2000 147,788 10,000 -- -- --
Vice President of Financial Operations 1999 137,500 -- -- 90,000 --
and Chief Information Officer(7) 1998 125,000 30,000 -- -- --
</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) Mr. Grundman joined the Company as an executive officer in April 1999.
Mr. Grundman resigned as Treasurer effective July 18, 2000.
(4) 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.
(5) Mr. Byerlotzer joined the Company as an executive officer in
September 1998.
(6) Mr. Edwards ceased serving as an executive officer effective March 2000, but
his employment continued through June 30, 2000.
(7) Mr. Evatt ceased serving as an executive officer in November 1999, but his
employment continued through June 30, 2000.
8
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information relating to options
granted under the 1997 Incentive Plan and outside the 1997 Incentive Plan to the
Named Executive Officers during fiscal 2000. The Company did not grant any stock
appreciation rights during fiscal 2000.
<TABLE>
<CAPTION>
NUMBER OF INDIVIDUAL GRANTS
SECURITIES OF % OF TOTAL
UNDERLYING OPTIONS GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR(1) SHARE DATE VALUE(2)
---- ------------- ------------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Francis D. John ................ 1,000,000(3) 27.1% $ 8.50 4/18/10 $5,262,199
200,000(4) 5.4% $ 8.875 4/27/10 1,098,871
800,000(5) 21.7% $ 9.50 5/08/10 4,581,208
Thomas K. Grundman ............. 500,000(6) 13.6% $ 8.50 4/18/10 2,681,099
James J. Byerlotzer ............ 300,000(7) 8.1% $ 8.50 4/18/10 1,578,660
D. Kirk Edwards ................ 0 N/A N/A N/A N/A
Danny R. Evatt ................. 0 N/A N/A N/A N/A
</TABLE>
------------------------
(1) Based on options to purchase a total of 3,687,500 shares of Common Stock
granted during fiscal 2000.
(2) The grant date value of stock options was estimated using the Black-Scholes
option pricing model with the following assumptions: expected
volatility--67%; risk-free interest rate--6.4%; time of exercise--5 years;
and no dividend yield.
(3) These options were granted on April 18, 2000, and vest in four installments
commencing on the date of grant as follows: 500,000 on April 18, 2000,
provided the stock price has reached $13; 166,667 on April 18, 2001,
provided the stock price has reached $15; 166,667 on April 18, 2002,
provided the stock price has reached $17; and 166,666 on April 18, 2003,
provided the stock price has reached $20. Regardless of price triggers, all
options vest on April 18, 2008.
(4) These options were granted on April 27, 2000 and vest in four annual
installments commencing on the date of grant as follows: 100,000 on
April 27, 2000; 33,333 on April 27, 2001; 33,334 on April 27, 2002; and
33,334 on April 27, 2003.
(5) These options were granted outside the Plan on May 8, 2000 and vest in four
annual installments commencing on the date of grant as follows: 400,000 on
May 8, 2000, 133,333 on May 8, 2001, 133,333 on May 8, 2002 and 133,334 on
May 8, 2003.
(6) These options were granted on April 18, 2000, and vest in four equal annual
installments commencing on the date of grant as follows: 125,000 on
April 18, 2000, provided the stock price has reached $13; 125,000 on
April 18, 2001, provided the stock price has reached $15; 125,000 on
April 18, 2002, provided the stock price has reached $17; and 125,000 on
April 18, 2003, provided the stock price has reached $20. Regardless of
price triggers, all options vest on April 18, 2008.
(7) These options were granted on April 18, 2000, and vest in four equal annual
installments commencing on the date of grant as follows: 75,000 on
April 18, 2000, provided the stock price has reached $13; 75,000 on
April 18, 2001, provided the stock price has reached $15; 75,000 on
April 18, 2002, provided the stock price has reached $17; and 75,000 on
April 18, 2003, provided the stock price has reached $20. Regardless of
price triggers, all options vest on April 18, 2008.
9
<PAGE>
AGGREGATED OPTION EXERCISES AND VALUES AS OF FISCAL YEAR END
The following table sets forth certain information as of June 30, 2000
relating to the value of unexercised options held by the Named Executive
Officers.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE MONEY-OPTIONS
ACQUIRED OPTIONS AT JUNE 30, 2000 AT JUNE 30, 2000(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francis D. John........ 0 0 1,825,000 1,750,000 $6,543,750 $1,875,000
Thomas K. Grundman..... 0 0 150,000 650,000 $ 993,750 $1,556,250
James J. Byerlotzer.... 0 0 130,000 430,000 $ 840,625 $1,178,125
D. Kirk Edwards........ 55,000 $562,812 0 130,000 0 $ 840,625
Danny R. Evatt......... 38,334 $388,132 15,000 71,666 $ 0 $ 454,162
</TABLE>
------------------------
(1) The dollar values in this column are calculated by determining the
difference between the fair market value of the Company's common stock on
the date of exercise of the relevant options and the exercise price of such
options. The fair market value on the date of exercise is based on the last
sale price of the Company's common stock on the NYSE on such date.
(2) The dollar values in this column are calculated by determining the
difference between the fair market value of the Common Stock for which the
relevant options are exercisable as of the end of the fiscal year and the
exercise price of the options. The fair market value is based on the last
sale price of the Common Stock on the NYSE on June 30, 2000 of $9.625.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Effective as of July 1, 1999, the Company entered into an employment
agreement with Mr. John, which provides that Mr. John will serve as Chairman of
the Board, President and Chief Executive 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 is $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 group 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.
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 of 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
10
<PAGE>
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 further 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 of 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, which was amended effective July 1, 2000. 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 an annual base compensation of
$200,000, which can be increased but not decreased, 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 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 agreement, Mr. Byerlotzer receives an 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", 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 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 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 of
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. Edwards ceased serving as an executive officer of the
Company effective March 1, 2000, however, his employment agreement remains in
effect.
Mr. Evatt entered into an 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 received annual base compensation
of $145,000 per year and was eligible for additional incentive bonuses. If
during the term of his agreement Mr. Evatt was terminated by the Company for any
reason other than for cause, he was
11
<PAGE>
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 resulted from a change of control of the
Company, severance compensation was 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 remained in
effect through August 1, 2000. Effective August 1, 2000, the Company entered
into a severance agreement with Mr. Evatt pursuant to which the Company
(i) made a one-time severance payment to Mr. Evatt in the amount of $290,000 and
(ii) agreed to immediately vest certain options to acquire shares of Common
Stock.
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 an incentive compensation plan 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 actual results of operations with
the Company's internal projections and target levels for revenues, earnings
before interest, taxes, depreciation, depletion and amortization, net income and
earnings per share. The Compensation Committee determined that the Company
exceeded its internal projections and target levels for each of these criteria
for fiscal 2000. The Compensation Committee believes that during the three-year
period ending June 30, 2000, salary increases and bonuses had been conservative
and modest compared with the Company's performance.
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 adopted the Performance Compensation Plan,
which was approved by the Company's stockholders at the Annual Meeting of
Stockholders held on December 8, 1998. 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 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
12
<PAGE>
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 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 Compensation Committee has adopted the Performance Compensation Plan in an
effort to comply with the performance-based exception to limits on deductibility
of executive officer compensation.
Fiscal year 2000 compensation for Mr. John as Chief Executive Officer
consisted of a base salary of $590,000. 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 2000, the
Committee granted to Mr. John 1,000,000, 200,000 and 800,000 stock options, with
per share exercise prices of $8.50, $8.875 and $9.50, 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.
In May 1999, Mr. John and other officers, directors and employees were
granted options to purchase common stock at an exercise price of $3.00 per share
(the "$3.00 Option"). During fiscal 2000 the Board of Directors and the
Compensation Committee voted to accelerate the vesting of all or a portion of
such options depending on the optionee. Specifically, all 700,000 of Mr. John's
$3.00 Options vested effective as of January 31, 2000.
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 $383 million at June 30, 2000. 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 two public offerings by the Company of 55,000,000 and 11,000,000
shares of its Common Stock, respectively, 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.
Morton Wolkowitz, CHAIRMAN
William D. Manly
W. Phillip Marcum
13
<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 a peer group comprised of four of the Company's competitors
("Peer Group"). The following graph assumes the investment of $100 on June 30,
1995 in the Common Stock, the Standard & Poor's 500 Index and the Peer Group and
the reinvestment of dividends (rounded to the nearest dollar).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
6/95 6/96 6/97 6/98 6/99 6/00
<S> <C> <C> <C> <C> <C> <C>
KEY ENERGY SERVICES, INC. 100.00 166.04 358.49 264.15 71.70 193.71
S & P 500 100.00 126.00 169.73 220.92 271.19 290.85
PEER GROUP 100.00 172.70 286.56 211.75 197.23 362.36
</TABLE>
------------------------
(1) All values are as of the last day of the month for the period presented.
(2) Peer Group consists of Grey Wolf, Inc., Nabors Industries, Inc., Pride
International, Inc. and Parker Drilling Company. Values are adjusted for
dividends, when applicable.
(3) The number of shares of Common Stock outstanding increased approximately
12.8% from approximately 18.5 million shares to approximately 82.7 million
shares as a result of the Company's public equity offering in the last
quarter of fiscal 1999.
14
<PAGE>
COMPARATIVE PERFORMANCE GRAPH SINCE PUBLIC EQUITY OFFERING
Set forth below is a graph comparing the cumulative total stockholder
returns on the Common Stock with the cumulative total return of (i) the
Standard & Poor's 500 Index, (ii) the Peer Group and (iii) the Philadelphia
Exchange Oil Service Index. The following graph assumes the investment of $100
on May 7, 1999 (the closing date of the Company's 55,000,000 share public equity
offering) in Common Stock, the Standard and Poor's 500 Index, the Peer Group and
the Philadelphia Exchange Oil Service Index and the reinvestment of dividends
(rounded to the nearest dollar).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
5/7/1999 5/99 6/99 7/99 8/99 9/99 10/99 11/99 12/99 1/00 2/00 3/00 4/00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
KEY ENERGY SERVICES, INC. 100.00 96.15 109.62 117.31 144.23 151.92 138.46 153.85 159.63 273.08 305.78 355.78 300.00
S & P 500 100.00 96.79 102.16 98.97 98.48 95.78 101.84 103.91 110.03 104.51 102.53 112.56 109.17
PEER GROUP 100.00 96.14 112.74 111.28 133.04 124.95 113.71 128.05 142.20 141.04 162.96 188.31 189.22
PHILADELPHIA OIL SERVICE 100.00 94.12 102.14 104.50 110.40 98.38 94.90 100.27 111.49 109.42 127.24 149.39 150.36
<CAPTION>
5/00 6/00
<S> <C> <C>
KEY ENERGY SERVICES, INC. 334.62 296.15
S & P 500 106.93 109.57
PEER GROUP 212.19 206.61
PHILADELPHIA OIL SERVICE 161.09 156.02
</TABLE>
------------------------
(1) Except for the measurement point, all values are as of the last day of the
month presented.
(2) Peer Group consists of Grey Wolf, Inc., Nabors Industries, Inc., Pride
International, Inc. and Parker Drilling Company. Values are adjusted for
dividends, when applicable.
15
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the negotiation of the terms of a five-year employment
agreement with Mr. Francis D. John, Chairman of the Board, President and Chief
Executive Officer of the Company, and as an inducement to Mr. John to enter into
such employment agreement, the Company entered into a separate agreement with
Mr. John dated as of August 2, 1999, which as amended through June 30, 2000,
provides that $5 million in loans previously made by the Company to Mr. John,
together with the accrued interest payable thereon, will be forgiven ratably
during the ten year period commencing on July 1, 2000 and ending on June 30,
2010. The agreement provides that the foregoing forgiveness of indebtedness is
predicated and conditioned upon Mr. John remaining employed by the Company
during such period. 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. 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 recieve 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).
During fiscal 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 Exploration
Incorporated, a wholly subsidiary of the Company ("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 money market account
as collateral to secure a bank loan made to a business entity in which Danny R.
Evatt, then the Chief Information Officer and Vice President of Financial
Operations of the Company, owns an interest. Such amount was returned to the
Company during fiscal 2000.
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 equity offering completed in
fiscal 1999 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 short-term 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 short-term 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,
HOWEVER, 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. This agreement
16
<PAGE>
further provides that with respect to any forgiveness of the payment of
principal and interest on the loans, Mr. Grundman will be entitled to recieve 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).
AUDITORS
KPMG LLP ("KPMG"), certified public accounting firm, has served as the
Company's independent auditor for several years. Although management anticipates
that this relationship will continue during fiscal 2001, no formal action is
proposed to be taken at the Annual Meeting with respect to the continued
employment of KPMG inasmuch as no such action is legally required. A
representative of KPMG 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 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, 2000, other than Mr. Fertig, who did not file a Form 3 and a Form 5 on
a timely basis; Mr. Wolkowitz who did not report one transaction on a Form 4 but
was reported on a Form 5; and Mr. Edwards who did not file a Form 3 and a
Form 4, 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 2001 ANNUAL MEETING
To be considered for inclusion in next year's proxy materials, stockholder
proposals to be presented at the Company's 2001 Annual Meeting must be in
writing and be received by the Company no later than July 3, 2001. 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.
17
<PAGE>
Stockholders that intend to present a proposal that will not be included in
the proxy statement for the Company's 2001 Annual Meeting must give written
notice of a stockholder's intent to submit such a proposal on or about
September 15, 2001. 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, 2000 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,
/s/ FRANCIS D. JOHN
Francis D. John
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
October 30, 2000
18
<PAGE>
APPENDIX A
KEY ENERGY SERVICES, INC.
AMENDED AND RESTATED CHARTER OF AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
ADOPTED: JUNE 12, 2000
ORGANIZATION: The Board of Directors shall have an audit committee composed
of at least three directors who are independent of the management of the
Company, and who are free of any relationship that, in the opinion of the Board
of Directors, would interfere with their exercise of independent judgment as a
committee member. At least one member of the audit committee shall have
accounting or related financial management expertise, as determined by the Board
of Directors in its business judgment.
SCOPE OF RESPONSIBILITIES: The audit committee shall provide assistance to
the corporate directors in fulfilling their responsibilities to the
shareholders, potential shareholders, and investment community relating to
corporate accounting, reporting practices of the Company, and the quality and
integrity of the financial reports of the Company. In so doing, it is the
responsibility of the audit committee to maintain free and open means of
communication between the directors, the independent auditors, and the financial
management of the corporation.
RESPONSIBILITIES: In carrying out these responsibilities, the audit
committee will:
1. Review and recommend to the Board of Directors, the independent auditors
to be selected to audit the books and records of the Company, its
divisions and subsidiaries, recognizing that the independent auditors for
the Company are ultimately accountable to the Board of Directors and the
audit committee of the Company. The Board of Directors and the audit
committee have the ultimate authority and responsibility to select,
evaluate and, where appropriate, replace the independent auditors.
2. Meet with the independent auditors and financial management of the
Company to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit including any comments or recommendations of the
independent auditors.
3. Review with the independent auditors and with the Company's financial
and accounting personnel the adequacy and effectiveness of the internal
auditing, accounting and financial controls of the Company, and elicit
any recommendations that they may have for the improvement of such
internal control procedures or particular areas where new or more
detailed controls or procedures are desirable. Particular emphasis should
be given to the adequacy of such internal controls to expose any
payments, transactions or procedures which might be deemed illegal or
otherwise improper. Further, the committee should periodically review
Company policy statements in terms of their adequately representing a
code of conduct.
4. Prior to the release of the annual report to shareholders, the committee
should review the financial statements to be contained in such report
with the independent auditors to determine that the independent auditors
are satisfied with the disclosure and content of the financial statements
to be presented to the shareholders. Any changes in accounting principles
should be reviewed.
5. At all meetings of the audit committee, sufficient opportunity should be
made available for the independent auditors to meet with the members of
the audit committee, either in person or by telephone, without members of
management present. Among the items to be discussed in these meetings are
the independent auditors' evaluation of the Company's financial,
accounting and auditing personnel, and the cooperation which the
independent auditors received during the course of their audit.
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6. Minutes of all meetings of the audit committee shall be submitted to the
Board of Directors of the Company.
7. The committee shall periodically obtain from the independent auditors a
formal written statement delineating all relationships between the
auditor and the Company and review and discuss with the independent
auditor any disclosed relationships or services that may impact the
objectivity and independence of the auditor. If appropriate, the
committee shall recommend that the Board of Directors take appropriate
action in response to the independent auditor's report to ensure the
auditor's independence.
8. The committee should cause to be made an investigation into any matter
brought to its attention within the scope of its duties, with the power
to retain outside counsel for this purpose if, in its judgement, that is
appropriate.
SUMMARY: In carrying out their responsibilities the audit committee believes
its policies and procedures should remain flexible in order that it can best
react to changing conditions and environment and to assure to the directors and
shareholders that the corporate accounting and reporting practices of the
Company are in accordance with all requirements and are of the highest quality.
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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 DECEMBER 8, 2000
The undersigned hereby constitutes and appoints Francis D. John and Jack
D. Loftis, Jr., and each of them, the true and lawful attorneys, agents and
proxies of the undersigned, with full power of substitution, to vote with
respect to all the shares of Common Stock, par value $.10, of KEY ENERGY
SERVICES, INC., standing in the name of the undersigned at the close of
business on October 23, 2000 at the Annual Meeting of Stockholders to be held
December 8, 2000, and at any and all adjournments or postponements thereof, to
vote on the matters set forth on the reverse side.
(TO BE SIGNED ON REVERSE SIDE)
<PAGE>
Please Detach and Mail in the Envelope Provided
/X/ Please mark your
votes as in this example
FOR all nominees listed at right WITHHOLD AUTHORITY
(Except as marked to the contrary below.)
1. ELECTION OF / / / /
DIRECTORS
INSTRUCTION: TO WITHHOLD AUTHORITY TO NOMINEES: FRANCIS D. JOHN
VOTE FOR ANY INDIVIDUAL DAVID J. BREAZZANO
NOMINEE, WRITE THAT PERSON'S KEVIN P. COLLINS
NAME HERE: WILLIAM D. FERTIG
WILLIAM D. MANLY
--------------------------------------- W. PHILLIP MARCUM
MORTON WOLKOWITZ
The shares represented by this Proxy will be voted in the manner directed
herein by the undersigned stockholder. If any directions to the contrary are
made, this Proxy will be voted FOR the election of all of the director nominee
names at left.
Please mark, sign, date and return promptly.
Signature:___________________________________Signature:_________________________
Date:___________________,2000
NOTE: Please sign exactly as your name appears above. Each joint owner should
sign. Executors, administrators, trustees, should give full title. If a
corporation, please sign in full corporate name by an authorized officer. If
a partnership, please sign in partnership name by an authorized person.
