UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______
Commission file number 1-8038
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KEY ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Maryland 04-2648081
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) IdentificationNo.)
Two Tower Center, 20th Floor, East Brunswick, NJ 08816
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 247-4822
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange On Which Registered
------------------- -----------------------------------------
Common Stock, $.10 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
7% Convertible Subordinated Debentures Due 2003
5% Convertible Subordinated Notes Due 2004
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Shares held by nonaffiliates of the
Registrant as of October 25, 1999 was approximately $379,135,647.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
----- -----
Common Shares outstanding at October 25, 1999: 82,740,330
DOCUMENTS INCORPORATED BY REFERENCE: None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth the names and ages, as of October 28,
1999, of each of the Company's executive officers and Directors and includes
their current positions.
NAME AGE POSITIONS
---- --- ---------
Francis D. John.............. 45 Chairman of the Board, President, Chief
Executive Officer and Chief Operating
Officer
David J. Breazzano........... 43 Director
Kevin P. Collins............. 48 Director
William Manly................ 76 Director
W. Phillip Marcum............ 55 Director
Morton Wolkowitz............. 71 Director
Thomas K. Grundman........... 39 Executive Vice President, Chief Financial
Officer and Treasurer
James J. Byerlotzer.......... 53 Executive Vice President of Domestic Well
Service and Drilling Operations
D. Kirk Edwards.............. 39 Senior Vice President of Safety, Human
Resources and Technology
Danny R. Evatt............... 40 Vice President of Financial Operations,
Chief Accounting Officer and Chief
Information Officer
Francis D. John has been Chairman of the Board since August 1996, the
Chief Executive Officer since October 1989 and the Chief Operating Officer since
April 1999. He has been a Director and President since June 1988 and served as
the Chief Financial Officer from October 1989 through July 1997. Before joining
the company, he was Executive Vice President of Finance and Manufacturing of
Fresenius U.S.A., Inc. Mr. John previously held operational and financial
positions with Unisys, Mack Trucks and Arthur Andersen. He received a BS from
Seton Hall University and an MBA from Fairleigh Dickinson University.
David J. Breazzano has been a Director since October 1997. Mr.
Breazzano is one of the founding principals at DDJ Capital Management, LLC, an
investment management firm which was established in 1996. Mr. Breazzano
previously served as a Vice President and Portfolio Manager at Fidelity
Investments ("Fidelity") from 1990 to 1996. Prior to joining Fidelity, Mr.
Breazzano was President and Chief Investment Officer of the T. Rowe Price
Recovery Fund. He is also a Director of 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 is a
managing member of the Old Hill Company LLC. 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,
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President and Chief Executive Officer of Metretek Technologies, Inc., formerly
known as Marcum Natural Gas Services, Inc., since January 1991 and is a Director
of TestAmerica, Inc. He holds a BBA from Texas Tech University.
Morton Wolkowitz has been a Director since December 1989. Mr. Wolkowitz
served as President and Chief Executive Officer of Wolkow Braker Roofing
Corporation, a company that provided a variety of roofing services, from 1958
through 1989. Mr. Wolkowitz has been a private investor since 1989. He holds a
BS from Syracuse University.
Thomas K. Grundman has been Executive Vice President, Chief Financial
Officer and Treasurer since July 1999. 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 in the Acquisition Finance Group, most recently as
a Managing Director in the Oil and Gas Group. Mr. Grundman holds a BS in finance
from Syracuse University.
James J. Byerlotzer has been Executive Vice President of Domestic Well
Service and Drilling Operations since July 1999. He joined the company in
September 1998 as Vice President -- Permian Basin Operations after the company's
acquisition of dawson production services, inc. ("Dawson"). From February 1997
to September 1998, he served as the Senior Vice President and Chief Operating
Officer of Dawson. From 1981 to 1997, Mr. Byerlotzer was employed by pride
Petroleum Services, Inc. ("Pride"). Beginning in February 1996, Mr. Byerlotzer
served as the Vice President Domestic Operations of Pride. Prior to that time,
he served as Vice President -- Permian Basin of Pride and in various other
operating positions in Pride's Gulf Coast and California operations. Mr.
Byerlotzer holds a BA from the University of Missouri in St. Louis.
D. Kirk Edwards has been Senior Vice President of Safety, Human
Resources and Technology since July 1999. He has been President and Chief
Executive Officer of Odessa Exploration Incorporated, a wholly-owned subsidiary
of the Company ("Odessa"), since July 1993. He was a member of the Board of
Directors from July 1994 to March 1996. Mr. Edwards was the owner and president
of Odessa from 1987 until it was acquired by the Company in 1993. Mr. Edwards
holds a BS from the University of Texas at Austin.
Danny R. Evatt has been Treasurer, Vice President and Chief Accounting
Officer of the Company, or its functional equivalent, since July 1990. Mr. Evatt
served as the Company's Treasurer from July 1990 until January 1998 at which
time he was also appointed Chief Information Officer. Mr. Evatt also serves as
Vice President of Financial Operations. He holds a BBA from Texas A&M
University.
Directors are elected at the Company's annual meeting of stockholders
and serve until the next annual meeting of stockholders and until their
successors are elected and qualified. Each executive officer holds office until
the first meeting of the Board of Directors following the annual meeting of
stockholders and until his successor has been duly elected and qualified.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who beneficially own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
ownership on Form 3 and changes in ownership on Forms 4 or 5 with the Securities
and Exchange Commission (the "Commission"). Such officers, directors and 10%
stockholders also are required by Commission rules to furnish the Company with
copies of all Section 16(a) reports they file. Based solely on its review of the
copies of such forms 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.
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ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE. The following table reflects the
compensation for services to the Company for the years ended June 30, 1999,
1998, and 1997 for (i) the Chief Executive Officer of the Company, (ii) the four
most highly compensated executive officers of the Company other than the Chief
Executive Officer and (iii) a former executive officer (the "Named Executive
Officers").
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- ---------------
OTHER
ANNUAL SHARES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(1) ($)
- -------------------------------- ------- ------------ ------------- --------------- --------------- ---------------
Francis D. John ................ 1999 429,000 -- -- 1,200,000 --
President and Chief Executive 1998 395,000 -- -- -- --
Officer 1997 341,250 500,000 -- 250,000 --
Kenneth V. Huseman.............. 1999 257,650 -- -- 300,000 10,210(3)
Executive Vice President and 1998 240,000 400,000 (4) -- --
Chief Operating Officer (2) 1997 200,000 125,000 -- 100,000
Stephen E. McGregor............. 1999 240,000 -- -- 400,000 --
Executive Vice President, Chief 1998 272,500 (5) 275,000 (6) -- 250,000 --
Financial Officer and Treasurer (7) --
James J. Byerlotzer ............ 1999 121,153 -- -- 260,000 75,000(8)
Vice President--Permian
Basin Operations (9)
Michael R. Furrow............... 1999 112,759 -- 13,333(11) 75,000 --
Vice President--Central
Operations (8)(9)(10)
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
(1) Represents the number of shares issuable pursuant to vested and non-vested
stock options granted during the applicable fiscal year.
(2) Mr. Huseman's employment with the Company was terminated effective April 9,
1999 and all options awarded to Mr. Huseman were forfeited.
(3) Represents insurance premiums paid by the Company with respect to life
insurance for the benefit of Mr. Huseman.
(4) 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.
(5) 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.
(6) 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.
(7) Mr. McGregor's employment with the Company was terminated effective June
30, 1999.
(8) Represents a payment to Mr. Byerlotzer pursuant to a non-competition
agreement entered into in connection with the Company's acquisition of
Dawson Production Services, Inc.
(9) Messrs. Byerlotzer and Furrow joined the Company on September 21, 1998.
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(10) Mr. Furrow ceased serving as an executive officer in the capacity indicated
above effective as of June 30, 1999.
(11) Represents amounts reimbursed to Mr. Furrow for relocation expense.
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 named in
the Summary Compensation Table above during fiscal year 1999. The Company did
not grant any stock appreciation rights during fiscal year 1999.
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)
- ---- ---------------- ----------------- ------------- ------------ ---------------
Francis D. John................... 500,000 (3) 10.13% $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 (4) 6.0 3.00 05/05/09 717,000
James J. Byerlotzer............... 10,000 (5) 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 (5) 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
- ---------------
(1) Based on options to purchase a total of 4,969,444 shares of Common Stock
granted under the 1997 Incentive Plan during fiscal 1999.
(2) The grant date value of stock options was estimated using the Black-Scholes
option pricing model with the following assumptions: expected volatility
--98%; risk-free interest rate--5.09%; time of exercise--5 years; and no
dividend yield.
(3) These options were granted on September 4, 1998, and vest in four equal
annual installments commencing on the date of grant.
(4) These options were granted on May 5, 1999, and vest in three equal annual
installments commencing July 1, 2001.
(5) These options were granted on October 15, 1998, and vest in four equal
annual installments commencing on the date of grant.
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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 year 1999.
VALUE OF UNEXERCISED
IN-THE-MONEY-OPTIONS
NUMBER OF UNEXERCISED AT JUNE 30, 1999(2)
OPTIONS AT JUNE 30, 1999 ------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- --------------- ------------- ------------------
Francis D. John(3)......................... 468,750 1,106,250 - 584,375
Kenneth V. Huseman(4)...................... 233,334 - - -
Stephen E. McGregor........................ 91,667 558,333 - 168,750
James J. Byerlotzer........................ 2,500 257,500 - 140,525
Michael R. Furrow.......................... 2,500 72,500 - 36,562
Danny R. Evatt............................. 63,750 91,250 - 45,000
- -------------------
(1) The dollar values in this column are calculated by determining the
difference between the fair market value of the 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 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, 1999, which was
$3.5625.
(3) With respect to Mr. John, the amount reported reflects the transfer of
379,000 options in fiscal 1999 pursuant to a domestic relations order.
(4) All options awarded to Mr. Huseman were forfeited when 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 received an annual base compensation of $325,000
per year.
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 "evergreen" provision providing for an automatic one-year
renewal on each anniversary date commencing July 1, 2000, unless terminated no
later than thirty days. Under this agreement, Mr. John's annual base salary will
be $575,000 per year and subject to annual review by the Board. The agreement
also provides that he will be entitled (i) to participate in the Company's
Performance Compensation Plan, with performance criteria to be approved by the
Compensation Committee, (ii) to receive additional bonuses in the discretion of
the Compensation Committee, and (iii) to participate in the 1997 Incentive Plan.
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: (a) accrued but unpaid salary to the date of
termination; (b) any prior year bonus earned but not paid and a pro rata bonus
for the year in which the termination occurs; (c) 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; (d) 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;
(e) 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 (f)
continued participation in medical, dental, and life
6
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 (1) accrued unpaid salary to the date of the termination, (2) any prior
year-end bonus earned but not paid; and (3) the vested portion of stock options
which he then holds.
Mr. John's new employment agreement further provides a three-year
non-competition provision, in the event that he is receiving 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. In the event Mr. John's employment is terminated as a result of a
Change in Control, the agreement provides that the non-competition provision
will not apply.
Finally, Mr. John's new employment agreement provides that he will not
(i) exercise any option pertaining to the Company's common stock which has been
granted to him (or which may be granted to him) or (ii) sell any of the
Company's common stock or other equity securities of the Company which 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 Company's common stock is in excess of an average of $12.00 per
share for a period of 60 days, then Mr. John shall be entitled to sell or
otherwise dispose of any equity securities of the Company owned by him provided
he does not reduce his aggregate beneficial ownership of equity securities of
the Company by more than 50% of his then aggregate holdings at the time of such
sales or other disposition.
Mr. Huseman entered into employment agreement with the Company
effective as of August 3, 1996. This employment agreement was for a three year
term, commencing on March 29, 1996. Under this agreement, Mr. Huseman initially
received base compensation of $180,000 per year 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 employment agreement with the Company
effective as of January 1, 1998. Under this agreement, Mr. McGregor initially
received base compensation of $240,000 per year, 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 results
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 June 30, 1999 and he was paid $275,000 in
severance benefits.
Mr. Grundman entered into 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 day prior to the
commencement of an extension term. Under this agreement, Mr. Grundman initially
receives an annual base compensation of $200,000 per year and is eligible for an
additional annual incentive bonus of up to 50% of his base compensation. 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
7
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. Byerlotzer entered into employment agreement with the Company
effective as of November 13, 1998. Under this agreement, Mr. Byerlotzer
initially received an annual base compensation of $170,000 per year. 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 60 day prior to the commencement of an extension term.
Under the new agreement, Mr. Byerlotzer receives an annual base compensation of
$185,000 and is eligible for an additional annual incentive bonus of up to 50%
of his base compensation. 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. Furrow entered into 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 60 day prior to the commencement
of an extension term. Under this agreement, Mr. Furrow initially received an
annual base compensation of $160,000 per year and is eligible for an additional
annual incentive bonus of up to 50% of his base compensation. If during the term
of his employment agreement, Mr. Furrow 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 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. Evatt entered into an employment agreement with the Company
effective as of July 1, 1995. Mr. Evatt's agreement originally provided that he
would serve as the Company's Chief Accounting Officer and Treasurer. Mr. Evatt
entered into a new employment agreement with the Company effective as of July 1,
1999 for a three-year term commencing July 1, 1995, and thereafter for
successive one year terms unless terminated 30 days prior to the commencement of
an extension term. Under the new agreement, Mr. Evatt initially receives an
annual base compensation of $145,000 per year and is eligible to participate in
an incentive compensation plan providing for cash bonuses up to 30% of his base
compensation. Base compensation is reviewed annually and has been (and may be in
the future) increased (but not decreased) by the Board of Directors in its
discretion. If during the term of his agreement Mr. Evatt is terminated by the
Company for any reason other than for cause, or if Mr. Evatt terminates his
employment because of a material breach by the Company, he will be entitled to
receive severance compensation equal to his base compensation, payable in equal
installments over a 24-month period following the termination.
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 $275,000. In addition, Mr.
McGregor will be entitled to receive an additional one-time payment of
$550,000 which will be payable at the time of the closing of the disposition
of certain specified assets of the Company, but in all events not later than
January 1, 2000. A portion of such payment has been advanced. 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 options to acquire the Company's common stock which 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 Company's common stock acquired by him upon the
exercise of those options.
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DIRECTOR COMPENSATION
No director who is also an employee of the Company or any of its
subsidiaries receives any fees from the Company for his services as a Director
or as a member of any committee of the Board. 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, the
Company pays 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.
OTHER COMPENSATION
Key has no other deferred compensation, pension or retirement plans in
which Directors or executive officers participate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On January 6, 1998, Marcum Natural Gas Services, Inc., now known as
Metretek Technologies, Inc. ("Metretek Technologies"), a diversified provider of
products and services to the natural gas industry and a company for which W.
Phillip Marcum, one of the Directors of the Company, serves as Chairman of the
Board, President and Chief Executive Officer, sold certain assets held by its
wholly owned subsidiary, Marcum Gas Transmission, Inc. ("Marcum Gas
Transmission"), to Odessa. Metretek Technologies sold the assets for a total
consideration of $700,000. Metretek Technologies also granted Odessa a right of
first refusal to participate in future projects developed by Marcum Gas
Transmission on terms and conditions identical to those provided to Marcum Gas
Transmission.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth, as of October 25, 1999, the number of shares
of Common Stock beneficially owned by each (i) Director, (ii) Named 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 or
entity. The Company does not know of any person beneficially owning more than 5%
of the outstanding Common Stock.
PERCENTAGE OF
NUMBER OF OUTSTANDING
NAME OF BENEFICIAL OWNER SHARES(1) SHARES(2)
------------------------ --------- -------------
Francis D. John(3)................................................ 664,250 *
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)........................................... 24,500 *
D. Kirk Edwards (10).............................................. 188,900 *
Danny R. Evatt (11)............................................... 51,250 *
Thomas K. Grundman................................................ 10,000 *
Directors and Executive Officers as a group (12 persons)(12)...... 1,927,969 2.3%
- ----------------
* 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 October 25, 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 687,500 shares issuable upon exercise of vested options and 6,914
shares issuable pursuant to currently exercisable warrants. Does not
include (i) 1,1012,500 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 effective July 7,
1998.
(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.
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(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 107,500 shares issuable upon the exercise of vested options. Does
not include 152,500 shares issuable pursuant to options that have not
vested.
(11) Includes 66,250 shares issuable upon the exercise of vested options. Does
not include 153,750 shares issuable pursuant to options that have not
vested.
(12) Messrs. Huseman and McGregor, named Executive Officers, are no longer
employed with the Company. Accordingly, the above table does not include
information with respect to them.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In connection with the negotiation of the terms of a new five (5)
year employment agreement with Mr. John (which employment agreement contains
significant restrictions on exercising options and selling stock as well as
non-compete provisions and as an inducement to Mr. John to
enter into a new five (5) year employment agreement and to provide
safeguards against Mr. John terminating such employment agreement early, the
Company entered into an agreement with Mr. John, dated as of August 2, 1999,
whereby, with respect to an aggregate of $5 million in loans by the Company
to Mr. John during fiscal 1998, 1999 and 2000, the Company has agreed that
such loans, together with the accrued interest payable thereon, will be
forgiven ratably during the five (5) year period commencing on July 1, 2000
and ending on July 1, 2004. The agreement provides that the foregoing
forgiveness of indebtedness is predicated and conditioned upon Mr. John
remaining employed by the Company during the period from July 1, 1999 to July
1, 2004. In the event that Mr. John is terminated by the Company for "Cause"
(as defined in the agreement), or in the event that Mr. John voluntarily
terminates h is 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", 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 which 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.
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
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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 the 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 and for which such firm received a total of
$167,000.
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SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused this
Report to be signed on its behalf of the undersigned, thereunto duly authorized.
KEY ENERGY SERVICES, INC.
By:
---------------------------------------------
Francis D. John, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signatures Title Date
Chairman of the Board, President, October 28, 1999
--------------------------------- and Chief Executive Officer
Francis D. John
Director October 28, 1999
---------------------------------
David J. Breazzano
Director October 28, 1999
---------------------------------
Kevin P. Collins
Director October 28, 1999
---------------------------------
William D. Manly
Director October 28, 1999
---------------------------------
Phillip W. Marcum
Director October 28, 1999
---------------------------------
Morton Wolkowitz
Chief Financial Officer October 28, 1999
---------------------------------
Thomas K. Grundman
Chief Accounting Officer October 28, 1999
---------------------------------
Danny R. Evatt
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