SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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
KEY ENERGY SERVICES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
KEY ENERGY SERVICES, INC.
6 DESTA DRIVE, SUITE 4400
MIDLAND, TX 79705
JANUARY 4, 2002
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, Brunswick Room, East Brunswick, New Jersey 08816, at 11 A.M.
on Thursday, January 31, 2002.
At the Annual Meeting, stockholders of the Company are being asked to elect
seven directors for the ensuing year or until their successors are elected and
qualified.
This matter and the procedure for voting your shares are discussed in the
accompanying Notice of Annual Meeting and Proxy Statement.
Whether or not you attend the Annual Meeting, it is important that your
shares be represented and voted at the meeting. Therefore, I urge you to
promptly vote and submit your proxy by phone, via the Internet or by signing,
dating, and returning the enclosed proxy card in the enclosed postage-paid
envelope. If you decide to attend the Annual Meeting, you will be able to vote
in person, even if you have previously submitted your proxy.
Sincerely,
[/S/ FRANCIS D. JOHN]
Francis D. John
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KEY ENERGY SERVICES, INC.
6 DESTA DRIVE, SUITE 4400
MIDLAND, TX 79705
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JANUARY 31, 2002
------------------------
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, Brunswick Room, East Brunswick, New Jersey
08816 at 11 A.M. (Eastern Standard Time) on Thursday, January 31, 2002, 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 December 28, 2001,
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, 400 South River Road, New
Hope, PA 18938, at least 10 days before the Annual Meeting.
By Order of the Board of Directors,
[/S/ JACK D. LOFTIS]
Jack D. Loftis, Jr.
SECRETARY
Midland, Texas
January 4, 2002
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY SUBMIT
YOUR PROXY BY PHONE, VIA THE INTERNET OR 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.
KEY ENERGY SERVICES, INC.
6 DESTA DRIVE, SUITE 4400
MIDLAND, TX 79705
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PROXY STATEMENT FOR ANNUAL
STOCKHOLDERS MEETING
TO BE HELD JANUARY 31, 2002
------------------------
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, Brunswick Room, East
Brunswick, New Jersey at 11 A.M. on Thursday, January 31, 2002, 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 January 4, 2002.
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 office
located at 400 South River Road, New Hope, PA 18938, 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 December 28, 2001
(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 107,955,279
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 (53,977,640 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 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.
1
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 has 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. 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.
NAME POSITION AGE
---- ------------------------------------------ --------
Francis D. John (1)....................... Chairman of the Board, President, and
Chief Executive Officer 48
David J. Breazzano (1) (3)................ Director 45
Kevin P. Collins (1)(2)................... Director 51
William D. Fertig (1)(3).................. Director 45
W. Phillip Marcum (2)..................... Director 57
J. Robinson West.......................... Director 55
Morton Wolkowitz (1)(2)................... Director 73
------------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Francis D. John has been the President and Chief Executive Officer since
October 1989. In addition, Mr. John has been Chairman of the Board since
August 1996. He has been a Director and President since June 1988, served as the
Chief Financial Officer from October 1989 through July 1997, and served as Chief
Operating Officer from April 1999 through December 2001. 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.
2
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 BA 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 Inc. 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 Trading 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.
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.
J. Robinson West was recently elected to the Board of Directors in
November 2001 to fill the vacancy caused by the resignation of William D. Manly.
Mr. West is the founder, and has served as Chairman and a director of The
Petroleum Finance Company, Ltd., strategic advisers to international oil and gas
companies, national oil companies, and petroleum ministries, since 1984.
Previously, Mr. West served as U.S. Assistant Secretary of the Interior with
responsibility for offshore oil leasing policy from 1981 through 1983. He was
Deputy Assistant Secretary of Defense for International Economic Affairs from
1976 through 1977 and a member of the White House Staff from 1974 through 1976.
He is currently a member of The Council on Foreign Relations. He holds a BA with
advanced standing from the University of North Carolina at Chapel Hill and a
J.D. from Temple 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
BOARD AND COMMITTEE MEETINGS
During the fiscal year ended June 30, 2001, the Board of Directors held
three meetings. Other than Mr. Fertig, 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 2001 the Audit Committee held one meeting
and is currently composed of Messrs. Wolkowitz, Collins and Marcum. 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.
COMPENSATION COMMITTEE. During fiscal 2001 the Compensation Committee met
once and is currently composed of Messrs. Breazzano and Fertig. 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, Fertig 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, 2001 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 2001 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.
EXECUTIVE OFFICERS
The Company's executive officers serve at the pleasure of the Board of
Directors and are subject to annual appointment by the Board at its first
meeting following the Annual Meeting of Stockholders. All the Company's
executive officers are listed below, with the exception of Mr. John, who is
included in the section "Election of Directors".
Thomas K. Grundman was elected Executive Vice President--M&A and
International, effective January 2002. He served as Executive Vice President and
Chief Financial Officer from July 1999 through December 2001 and Chief
Accounting Officer from November 1999 through December 2001. Mr. Grundman also
served as Treasurer from July 1999 through August 2000. 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
4
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 was elected Executive Vice President and Chief Operating
Officer effective January 2002. He served as Executive Vice President of
Domestic Well Service and Drilling Operations from July 1999 through
December 1999, and Executive Vice President of Domestic Operations from December
1999 through December 2001. 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.
Royce W. Mitchell was elected Executive Vice President, Chief Financal
Officer and Chief Accounting Officer effective January 2002. Before joining the
Company, he was a partner with KPMG LLP from April 1986 through December 2001
specializing in the oil and gas industry. He received a BBA from Texas Tech
University and is a certified public accountant.
5
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
MANAGEMENT
The following table sets forth as of January 3, 2002, the number of shares
of Common Stock beneficially owned by (i) each Director, (ii) each 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.
PERCENTAGE OF
NUMBER OF OUTSTANDING
NAME OF BENEFICIAL OWNER SHARES(1) SHARES(2)
------------------------ --------- -------------
Francis D. John (3)......................................... 2,613,833 2.4%
Kevin P. Collins (4)........................................ 223,405 *
William D. Fertig (5)....................................... 30,000 *
W. Phillip Marcum (6)....................................... 223,405 *
David J. Breazzano (7)...................................... 208,333 *
J. Robinson West (8)........................................ 3,750 *
Morton Wolkowitz (9)........................................ 608,302 *
Royce W. Mitchell (10)...................................... 50,000 *
James J. Byerlotzer (11).................................... 263,667 *
Thomas K. Grundman (12)..................................... 355,000 *
Directors and Executive Officers as a group (10 persons).... 4,525,945 4.2%
------------------------
* 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.
(2) Based on 107,955,279 shares of Common stock outstanding at December 28,
2001, plus, for each beneficial owner, those number of shares underlying
currently exercisable options held by each executive officer or Director.
(3) Includes 2,543,333 shares issuable upon exercise of vested options. Does not
include 1,066,667 shares issuable pursuant to options that have not vested.
(4) Includes 218,333 shares issuable upon the exercise of vested options. Does
not include 66,667 shares issuable pursuant to options that have not vested.
(5) Includes 25,000 shares issuable upon the exercise of vested options. Does
not include 40,000 shares issuable pursuant to options that have not vested.
(6) Includes 218,333 shares issuable upon the exercise of vested options. Does
not include 66,667 shares issuable pursuant to options that have not vested.
(7) Includes 148,333 shares issuable upon the exercise of vested options. Does
not include 66,667 shares issuable pursuant to options that have not vested.
(8) Includes 3,750 shares issuable upon the exercise of vested options. Does not
include 11,250 shares issuable pursuant to options that have not vested.
(9) Includes 118,000 shares issuable upon the exercise of vested options. Does
not include 72,000 shares issuable pursuant to options that have not vested.
6
(10) Includes 50,000 shares issuable upon the exercise of vested options. Does
not include 150,000 shares issuable pursuant to options that have not
vested.
(11) Includes 241,667 shares issuable upon the exercise of vested options. Does
not include 418,333 shares issuable pursuant to options that have not
vested.
(12) Includes 345,000 shares issuable upon the exercise of vested options. Does
not include 540,000 shares issuable pursuant to options that have not
vested.
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of December 28, 2001, 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.
SHARES BENEFICIALLY
OWNED
AT DECEMBER 28, 2001
NAME AND ADDRESS OF BENEFICIAL ---------------------
OWNER, IDENTITY OF GROUP NUMBER PERCENT
------------------------------ ---------- --------
Perkins, Wolf, McDonnell & Co. (1).......................... 11,036,014 10.2%
53 W. Jackson Blvd., Suite 722
Chicago, IL 60604
Berger, L.L.C. (2).......................................... 9,810,240 9.1%
210 University Boulevard
Suite 900 Denver, CO 80206
Mellon Financial Corporation (3)............................ 6,183,414 5.7%
One Mellon Center
Pittsburgh, PA 15258
T. Rowe Price Associates, Inc. (4).......................... 6,735,600 6.2%
100 E. Pratt Street
Baltimore, MD 21202
------------------------
(1) As reported on Schedule 13G filed with the Commission on October 11, 2001.
(2) The Company believes that Perkins, Wolf, McDonell & Co. shares voting power
with respect to 9,810,240 of its shares with Berger, LLC and that,
therefore, the 9,810,240 shares shown as being beneficially owned by Berger,
LLC are the same securities shown as being beneficially owned by Perkins,
Wolf, McDonnell & Co.
(3) As reported on Schedule 13F filed with the Commission on August 14, 2001.
(4) As reported on Schedule 13G filed with the Commission on January 26, 2001.
(5) As reported on Schedule 13G (Amendment No. 1) filed with the Commission on
February 8, 2001.
7
OTHER INFORMATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table reflects the compensation
for services to the Company for the years ended June 30, 2001, 2000 and 1999 for
(i) the Chief Executive Officer of the Company and (ii) the other two executive
officers of the Company other than the Chief Executive Officer who were serving
as executive officers at June 30, 2001 (the "Named Executive Officers").
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION OTHER SHARES
FISCAL ---------------------- ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(1) COMPENSATION($)
--------------------------- -------- --------- -------- --------------- ------------ ---------------
Francis D. John............... 2001 594,885 845,000 71,116(2) 1,460,000 74,998(3)
President, Chief Executive 2000 589,519 307,776 -- 2,000,000 --
Officer and Chief Operating 1999 429,000 -- -- 1,200,000 --
Officer
Thomas K. Grundman............ 2001 274,966(6) 315,000 -- 135,000 78,519(4)
Executive Vice President of 2000 203,845 100,000 -- 500,000 24,975(5)
International Operations, 1999 35,259 -- -- 300,000 --
Chief Financial Officer and
Chief Accounting Officer
James J. Byerlotzer........... 2001 249,324(9) 275,000 -- 115,000 101,000(7)
Executive Vice President of 2000 185,000 89,000 -- 300,000 100,250(8)
Domestic Operations 1999 121,153 -- -- 260,000 75,000(10)
------------------------
(1) Represents the number of shares issuable pursuant to vested and non-vested
stock options granted during the applicable fiscal year.
(2) Represents reimbursement of (i) medical expenses of $12,186,
(ii) professional fees of $48,930, and (iii) other miscellaneous personal
expenses of $10,000.
(3) Represents premium payments by the Company for life and health insurance.
(4) Represents (i) forgiveness of relocation loan indebtedness and interest to
Mr. Grundman of $52,794, (ii) premium payments made by the Company for life
insurance of $24,725 and (iii) contributions by the Company on behalf of
Mr. Grundman to the Key Energy Services, Inc. 401(k) Savings & Retirement
Plan of $1,000.
(5) Represents (i) premium payments by the Company for life insurance of
$24,725 and (ii) contributions by the Company on behalf of Mr. Grundman to
the Key Energy Services, Inc. 401(k) Savings & Retirement Plan of $250.
(6) Mr. Grundman joined the Company as an executive officer in April 1999.
(7) Represents (i) payments to Mr. Byerlotzer pursuant to a non-competition
agreement entered into in connection with the Company's acquisition of
Dawson Production Services, Inc. of $100,000, and (ii) contributions by the
Company on behalf of Mr. Byerlotzer to the Key Energy Services, Inc. 401(k)
Savings & Retirement Plan of $1,000.
(8) Represents (i) payments to Mr. Byerlotzer pursuant to a non-competition
agreement entered into in connection with the Company's acquisition of
Dawson Production Services, Inc. of $100,000, and (ii) contributions by the
Company on behalf of Mr. Byerlotzer to the Key Energy Services, Inc. 401(k)
Savings & Retirement Plan of $250.
(9) Mr. Byerlotzer joined the Company as an executive officer in
September 1998.
(10) Represents payments to Mr. Byerlotzer pursuant to a non-competition
agreement entered into in connection with the Company's acquisition of
Dawson Production Services, Inc.
8
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information relating to options
granted under the Key Energy Group, Inc. 1997 Incentive Plan (the "1997
Incentive Plan") and outside the Plan to the Named Executive Officers during
fiscal 2001. The Company did not grant any stock appreciation rights during
fiscal 2001.
NUMBER OF INDIVIDUAL GRANTS
SECURITIES OF % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE GRANT DATE
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR(1) SHARE DATE VALUE(2)
---- ------------- ----------------- --------- ---------- ----------
Francis D. John.................... 960,000(3) 37.9% $8.25 08/07/10 $4,339,000
500,000(4) 19.7% $8.25 12/11/10 2,260,000
Thomas K. Grundman................. 135,000(5) 5.3% $8.25 12/11/10 620,000
James J. Byerlotzer................ 115,000(6) 4.5% $8.25 12/11/10 520,000
------------------------
(1) Based on options to purchase a total of 2,533,000 of Common Stock granted
during fiscal 2001.
(2) The grant date value of stock options was estimated using the Black-Scholes
option pricing model with the following assumptions: expected
volatility--59%; risk-free interest rate--4.3%; time of exercise--5 years;
and no dividend yield.
(3) These options were granted on August 7, 2000 and vested immediately on date
of grant.
(4) These options were granted on December 11, 2000 and vested immediately on
date of grant.
(5) These options were granted on December 11, 2000 and vest in three equal
annual installments commencing on July 1, 2001 as follows: 45,000 on
July 1, 2001; 45,000 on July 1, 2002; and 45,000 on July 1, 2003.
(6) These options were granted on December 11, 2000 and vest in three equal
annual installments commencing on July 1, 2001 as follows: 38,333 on
July 1, 2001; 38,333 on July 1, 2002; and 38,334 on July 1, 2003.
AGGREGATED OPTION EXERCISES AND VALUES AS OF FISCAL YEAR END
The following table sets forth certain information as of June 30, 2001
relating to the number and value of (i) options exercised by the Named Executive
Officers and (ii) unexercised options held by the Named Executive Officers.
VALUE OF UNEXERCISED IN-THE
SHARES NUMBER OF UNEXERCISED MONEY-OPTIONS AT JUNE 30,
ACQUIRED VALUE OPTIONS AT JUNE 30, 2001 2001(2)
ON REALIZED --------------------------- ----------------------------
NAME EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- ---------- ----------- ------------- ------------ -------------
Francis D. John............... 1,825,000 12,850,875 2,418,333 791,667 $5,148,066 $1,732,709
Thomas K. Grundman............ 200,000 1,934,000 250,000 485,000 $ 585,000 $1,718,650
James J. Byerlotzer........... 165,000 1,595,550 159,167 350,833 $ 391,931 $1,311,469
------------------------
(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 29, 2001 of $10.84.
9
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Effective as of July 1, 2001, the Company entered into an amended and
restated 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, 2001 and continuing until
June 30, 2006, with an automatic one-year renewal on each June 30, commencing on
June 30, 2006, unless terminated by the Company or by Mr. John with proper
notice. Under this employment agreement, Mr. John's annual base salary will
remain at $595,000 per year until January 1, 2003 at which time it will increase
to $695,000 per year, in each case subject to increase after annual reviews by
the Board of Directors. This employment agreement also provides that Mr. John
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 stock option grants made to the Company's executives.
In addition to salary and bonus, Mr. John is entitled to medical, dental,
accident and life insurance, reimbursement of expenses and various other
benefits. To the extent Mr. John is taxed on any such reimbursement or benefit,
the Company will pay Mr. John an amount which, on an after-tax basis, equals the
amount of these taxes.
In the event that Mr. John's employment is terminated by the Company
voluntarily or by nonrenewal, or by Mr. John for "Good Reason," or by either the
Company or Mr. John following a "Change in Control" (in each case as defined in
the employment agreement), Mr. John will be entitled to receive: (i) his accrued
but unpaid salary and bonuses to the date of termination, and a PRO RATA bonus
for the year in which termination occurs; (ii) a severance payment in an amount
equal to five times his average total annual compensation (I.E., salary plus
bonus) for the preceding three years; (iii) 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 terms of the options; (iv) any
other amounts or benefits earned, accruing or owing to him, but not yet paid;
and (v) continued participation in medical, dental and life insurance coverage,
as well as the receipt of other benefits to which he was entitled, until the
first to occur of the third year anniversary of the date his employment was
terminated or the date on which he receives equivalent coverage and benefits
under the plans and programs of a subsequent employer (or, in the event of a
"Change in Control," an amount in cash equal to the reasonable expenses that the
Company would incur if it were to provide these benefits for three years). In
the event that Mr. John's employment is terminated as a result of Mr. John's
disability, Mr. John will be entitled to receive (i) through (v) above, except
that his severance compensation will be an amount equal to three times his
average total annual compensation for the preceding three years, reduced by the
amount of any Company-paid disability insurance proceeds paid to Mr. John. In
the event that Mr. John's employment is terminated by the Company for "Cause,"
as defined in the employment agreement, or by Mr. John voluntarily or by
nonrenewal, he will be entitled to receive only (i) and (v) above and will
forfeit any restricted stock or options not previously vested. In the event
Mr. John's employment is terminated by reason of his death, he will be entitled
to receive (i), (iii), (iv) and (v) above, except that his family will be
entitled to receive the medical and dental insurance coverage provided in
(v) above until the death of Mr. John's spouse. In addition, if any of the above
benefits are subject to the tax imposed by Section 4999 of the Internal Revenue
Code, the Company will reimburse Mr. John for such tax on an after-tax basis.
The employment agreement contains a comprehensive non-compete provision that
prohibits Mr. John from engaging in any activities that are competitive with the
Company for a period of three years after the termination of his employment.
Pursuant to the employment agreement, the Company will pay to Mr. John, on
or prior to December 31, 2001, a one-time retention incentive bonus equal to the
aggregate amount of all principal and interest on loans previously made by the
Company to Mr. John that were originally to be forgiven over a ten-year period
beginning July 1, 2001, as well as the amount, on an after-tax basis, required
to pay the taxes incurred by Mr. John in connection with such payment. The
after-tax proceeds of the bonus will be used to repay such loans. The employment
agreement goes on to provide that if, prior to June 30, 2011,
10
Mr. John is terminated by the Company for Cause, or by Mr. John voluntarily or
by nonrenewal, Mr. John will repay to the Company a percentage of the retention
incentive bonus beginning at 100% during the first year and declining at the
rate of 10% each year to 0% on and after June 30, 2011. The Company paid the
bonus to Mr. John on December 1, 2001 and the after-tax proceeds of the bonus
were used to fully repay all principal and interest on such loans.
Effective as of January 1, 2002 Mr. Grundman began serving as the Company's
Executive Vice President--M&A and International. In connection with assuming his
new role, Mr. Grundman and the Company are negotiating a new employment
agreement which will be effective as of January 1, 2002. The Company expects the
negotiations to be completed shortly and, based on the current status of the
negotiations, expects that the new employment agreement will provide for a two
and one-half year term and thereafter for successive one-year terms unless
terminated 90 days prior to the commencement of an extension term. The Company
anticipates that under his new employment agreement, Mr. Grundman's annual base
compensation will remain at $280,000 until January 1, 2003 at which time it will
increase to $295,000, which can be increased but not decreased, and that
Mr. Grundman will be eligible for additional annual incentive bonuses. If,
during the term of his new 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, the Company anticipates that the new employment
agreement will entitle Mr. Grundman 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 increased by an amount equal to three times the average
annual bonus received by Mr. Grundman over the past three years and 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.
Effective as of January 1, 2002 Mr. Byerlotzer entered into a new employment
agreement with the Company pursuant to which he will serve as the Company's
Executive Vice President and Chief Operating Officer. This agreement is for a
two and one-half year term and thereafter for successive one-year terms unless
terminated 90 days prior to the commencement of an extension term. Under the
agreement, Mr. Byerlotzer's annual base compensation will be $275,000 until
January 1, 2003 at which time it will increase to $325,000, which can be
increased but not decreased, and Mr. Byerlotzer will be eligible for additional
annual incentive bonuses. If during the term of his new 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 36-month period following
termination; PROVIDED, HOWEVER, that if termination results from a change of
control of the Company, severance compensation will be increased by an amount
equal to three times the average annual bonus received by Mr. Byerlotzer over
the past three years and will be payable in a lump sum on the date of
termination. Also, if Mr. Byerlotzer 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.
Effective as of January 1, 2002, Mr. Mitchell entered into an employment
agreement with the Company pursuant to which he will serve as the Company's
Executive Vice President and Chief Financial Officer. This agreement is for a
three-year term and thereafter for successive one-year terms unless terminated
90 days prior to the commencement of an extension term. Under this agreement,
Mr. Mitchell receives an annual base compensation of $295,000, which can be
increased but not decreased, and a one-time signing bonus of $100,000, and
Mr. Mitchell will be eligible for additional annual incentive bonuses. In the
event that, prior to January 1, 2005 Mr Mitchell is terminated by the Company
for cause, or by Mr. Mitchell voluntarily or by nonrenewal, Mr. Mitchell will
repay to the Company a percentage of the bonus
11
beginning at 100% during the first year and declining at the rate of 1/3 each
year to 0% on and after January 1, 2005. If, during the term of his employment
agreement, Mr. Mitchell 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 increased by an amount
equal to three times the average annual bonus received by Mr. Mitchell over the
past three years and will be payable in a lump sum on the date of termination.
Also, if Mr. Mitchell 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.
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, and option grants outside 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 1997 Incentive Plan and the
Performance Compensation Plan, as well as other stock-based incentive plans and
grants, are intended, 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 ("EBITDA"), net
income and earnings per share. The Compensation Committee determined that the
Company significantly exceeded its internal projections and target levels for
each of these criteria for fiscal 2001 while at the same time significantly
strenthening the Company's balance sheet through substantial debt reduction.
The employment agreements with the Company's executive officers allow for
significant bonuses 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 Performance Compensation Plan was approved by the Company's stockholders
at the Annual Meeting of Stockholders held on December 8, 1998. Under the
Performance Compensation Plan, a participating executive officer's bonus is
determined for each fiscal six-month period based upon one or more of the
following criteria, individually or in combination, adjusted in such manner as
the Compensation Committee determines: (a) pre-tax or after-tax return on
equity; (b) earnings per share; (c) pre-tax or after-tax net income; (d) book
value per share; (e) market price per share; (f) relative performance to peer
group companies; (g) expense management; (h) total return to stockholders; and
12
(i) attainment of balance sheet criteria, including, but not limited to
reduction(s) in long-term and short-term indebtedness.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits
deductibility for federal income tax purposes of compensation in excess of
$1 million paid to individual executive officers per taxable year unless certain
exceptions, including compensation based on performance goals, are satisfied.
The Performance Compensation Plan was adopted in an effort to comply with the
performance-based exception to limits on deductibility of executive officer
compensation with respect to compensation paid under this Plan.
Fiscal 2001 compensation for Mr. John as Chief Executive Officer consisted
of a base salary of $595,000, and bonuses totaling $845,000 based on the Company
having significantly exceeded its internal projections and target levels for
fiscal 2001 revenues, EBITDA, net income and earnings per share and
significantly improving its balance sheet through substantial debt reduction.
Mr. John's base salary was set under the terms of his employment agreement. The
Compensation Committee's arrangements with Mr. John have been designed from the
outset to align his compensation to the enhancement of shareholder value. To
that end, during fiscal 2001, the Compensation Committee granted to Mr. John
960,000 and 500,000 stock options, with per share exercise prices of $8.25 for
both grants, representing the market value of an underlying share of the
Company's Common Stock on the date of each grant.
Since the Company's reorganization in December 1992, under Mr. John's
leadership, 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
$477 million at June 30, 2001. In addition to leading the Company through its
critical post-reorganization period, Mr. John has strengthened the Company's
position through the successful integration of over 60 strategic acquisitions,
culminating with the consolidation of the Company with Dawson Production
Services, Inc. in September 1998, thereby establishing the Company as the
largest, most efficient rig-based well service operator in the domestic onshore
U.S. market. In addition, following this consolidation activity, the Company has
reduced its long-term funded debt from a high of approximately $845 million to
approximately $379 million at December 31, 2001, resulting in a long-term funded
debt-to-total capitalization ratio improvement from a high of 87.6% to
approximately 39.5% at December 31, 2001. As a result of its current market
position and improved balance sheet, the Company has been able to attract
high-quality executives and operational managers, upgrade its equipment fleet,
and implement technology enhancements, all of which has allowed the Company to
provide its customers with the highest quality and broadest range of services in
the industry.
In recognition of the Company's superior performance under Mr. John's
leadership and the Company's desire to retain Mr. John for the long-term future
of the Company, on October 16, 2001 the Compensation Committee approved a new
employment agreement, effective as of July 1, 2001, with Mr. John. Pursuant to
this new agreement, Mr. John will serve as Chairman of the Board, President and
Chief Executive Officer of the Company for a five-year term, with an automatic
one-year renewal thereafter unless terminated by either party. Mr. John's annual
base salary is specified to remain at its current level of $595,000 until
January 1, 2003, when it is specified to increase to $695,000. Mr. John will
also be entitled to participate in the Performance Compensation Plan, receive
additional bonuses at the discretion of the Compensation Committee, participate
in stock option grants made to the Company's executives and receive
reimbursement of expenses and various other benefits.
In addition, the employment agreement provides that, on or before
December 31, 2001, Mr. John will receive a one-time retention incentive bonus in
an amount equal to the principal and interest he owes the Company pursuant to
loans previously made by the Company to Mr. John that were originally to be
forgiven over a 10-year period beginning on July 1, 2001. The after-tax proceeds
of the bonus will be automatically applied to payment in full of all amounts
owed by Mr. John to the Company under the loans. The employment agreement
further provides that if, prior to June 30, 2011, Mr. John is terminated by the
Company for Cause (as defined in such agreement), or by Mr. John voluntarily or
by nonrenewal, Mr. John will repay to the Company a percentage of the
extraordinary bonus beginning at 100% during the first year and declining at a
rate of 10% each year to 0% on and after June 30, 2011. The Compensation
Committee
13
believes that the economic incentives of this new arrangement give a greater
incentive to Mr. John not to leave the Company than was provided under the loan
forgiveness program this it replaces. The Company paid the bonus to Mr. John on
December 1, 2001 and the after-tax proceeds of the bonus were used to fully
repay all amounts owed by Mr. John under the loans.
In connection with its consideration of the new employment agreement, the
Compensation Committee retained an expert in executive compensation to review,
and advise the Committee concerning, the compensation policy of the Company, the
various methods for structuring base salary, bonus and stock option compensation
and the compensation structures of the chief executive officers of comparable
companies. In his review, the consultant determined that the Company had been
under-compensating Mr. John relative to the executive officers of comparable
companies and the Company's extraordinary results under Mr. John's leadership.
The consultant further determined that the compensation arrangements proposed in
the new employment agreement were reasonable and competitive. The Compensation
Committee concurred with the consultant's findings and approved the new
employment agreement.
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.
David J. Breazzano, Chairman
William D. Fertig
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is composed of
Messrs. Collins, Marcum and Wolkowitz. Each of the members of the Audit
Committee is independent, in accordance with the existing requirements of the
New York Stock Exchange's listing standards. The activities of the Audit
Committee are governed by the Company's Audit Committee Charter that was adopted
by the Board of Directors on June 12, 2000.
The primary function of Audit Committee is to assist the Board of Directors
in fulfilling its oversight responsibilities by reviewing financial reports and
other financial information provided by the Company to governmental bodies or
the public, the Company's systems of internal controls regarding finance,
accounting, legal compliance and ethics that management and the Board of
Directors have established, and the Company's auditing, accounting and financial
processes generally. The Audit Committee annually recommends to the Board of
Directors the appointment of a firm of independent auditors to audit the
financial statements of the Company and meets with such independent auditors,
the Chief Executive Officer and the principal financial, accounting and legal
personnel of the Company to review the scope and the results of the annual
audit, the amount of audit fees, the Company's internal accounting controls, the
Company's financial statements contained in the Company's Annual Report to
Stockholders and other related matters.
The Audit Committee has reviewed and discussed with management the financial
statements for fiscal 2001 audited by KPMG LLP ("KPMG"), the Company's
independent auditors. The Audit Committee has discussed with KPMG various
matters related to the financial statements, including those matters required to
be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU
380). The Audit Committee has also received the written disclosures and the
letter from KPMG required by Independence Standards Board Standard No. 1
(Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees), and has discussed with KPMG its independence. Based upon such
review and discussion, the Audit Committee recommended to the Board of Directors
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the fiscal year ending June 30, 2001 for filing with the
Securities and Exchange Commission.
With respect to the above matters, the Audit Committee submits this report.
AUDIT COMMITTEE
Kevin P. Collins
W. Phillip Marcum
Morton Wolkowitz
14
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,
1996 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
KEY ENERGY SERVICES, INC. S & P 500 PEER GROUP
Jun-96 100 100 100
Jun-97 215.9090909 134.6990158 165.928639
Jun-98 159.0909091 175.3262396 122.6095057
Jun-99 43.18181818 215.2248412 114.2041509
Jun-00 116.6666667 230.8267742 209.8209564
Jun-01 131.3939394 196.594049 182.7855519
------------------------
(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.
15
COMPARATIVE PERFORMANCE GRAPH SINCE FISCAL 1999 EQUITY OFFERING
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,
1999 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
KEY ENERGY SERVICES, INC. S & P 500 PEER GROUP
Jun-99 100 100 100
Sep-99 138.5964912 93.75617228 110.9989945
Dec-99 145.6280702 107.7065878 125.6347207
Mar-00 324.5754386 110.1770734 166.3736579
Jun-00 270.1754386 107.2491321 182.6837611
Sep-00 275.4526316 106.2106161 220.8640234
Dec-00 292.9964912 97.8995198 235.0846721
Mar-01 300.3508772 86.29338195 217.3681814
Jun-01 304.2807018 91.34356793 159.8208941
------------------------
(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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the negotiation of the terms of a five-year employment
agreement with 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 loan agreement
with Mr. John dated as of August 2, 1999, which as amended through June 30,
2001, provides that $6.5 million in loans previously made by the Company to
Mr. John, together with the accrued interest payable thereon (accruing at a rate
equal to 125 basis points above LIBOR, adjusted monthly) will be forgiven
ratably during the ten year period commencing on July 1, 2001 and ending on
June 30, 2011. The loan 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
loan agreement further provides that the entire remaining principal balance of
these loans, together with accrued interest payable thereon,
16
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 loan agreement stipulates that the remaining
principal balance outstanding on the loans, together with accrued interest
thereon will be forgiven. This loan agreement further provides that with respect
to any forgiveness of the payment of principal and interest on the loans,
Mr. John will be entitled to receive a "gross-up" payment in an amount
sufficient for him to pay any federal, state, or local income taxes that may be
due and payable by him with respect to the forgiveness of such indebtedness
(principal and interest). The loan agreement has been effectively superseded by
Mr. John's new employment agreement that provides for a one-time retention
incentive bonus used to repay all amounts owed under the loan agreement (See
"Other Informaton--Employment Agreements with Executive Officers").
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 and Chief Accounting Officer, 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 further provides that
with respect to any forgiveness of the payment of principal and interest on the
loans, Mr. Grundman will be entitled to receive a "gross-up" payment in an
amount sufficient for him to pay any federal, state, or local income taxes that
may be due and payable by him with respect to the forgiveness of such
indebtedness (principal and interest).
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 2002, 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, 2001.
17
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"; "Other
Information--Comparative Performance Graph"; "Other Information--Comparative
Performance Graph Since Fiscal 1999 Equity Offering".
STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
To be considered for inclusion in next year's proxy materials, stockholder
proposals to be presented at the Company's 2002 Annual Meeting must be in
writing and be received by the Company no later than September 6, 2002 unless
the date of the 2002 Annual Meeting is changed by more than 30 days from January
31, 2003, in which case the deadline is a reasonable time before the Company
begins to print and mail its proxy materials. For the proposal to be included in
the proxy statement, the Stockholder submitting the proposal must meet certain
eligibility standards and comply with certain procedures established by the
Commission, and the proposal must comply with the requirements as to form and
substance established by applicable laws and regulations. The proposal must be
mailed to the Company's principal executive office, at the address stated
herein, and should be directed to the attention of the General Counsel.
Stockholders that intend to present a proposal that will not be included in
the proxy statement for the Company's 2002 Annual Meeting must give written
notice of a stockholder's intent to submit such a proposal on or about
November 19, 2002 unless the date of the 2002 Annual Meeting is changed by more
than 30 days from January 31, 2003, in which case the deadline is a reasonable
time before the Company mails its proxy materials. 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, 2001 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
January 4, 2002
18
[KEY LOGO]
KEY ENERGY SERVICES, INC.
C/O PROXY SERVICES
P.O. BOX 9142
FARMINGDALE, NY 11735.
VOTE BY INTERNET - WWW.PROXYVOTE.COM Use the Internet to transmit your
voting instructions and for electronic delivery of information up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you access the web site. You will be prompted to enter
your 12-digit Control Number which is located below to obtain your records and
to create an electronic voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you call. You will be prompted to enter your 12-digit
Control Number which is located below and then follow the simple instructions
the Vote Voice provides you.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope
we have provided or return it to Key Energy Services, Inc., c/o ADP, 51 Mercedes
Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEYPRX KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
KEY ENERGY SERVICES, INC.
1. ELECTION OF DIRECTORS
NOMINEES: 01) FRANCIS D. JOHN FOR WITHHOLD FOR ALL To withhold authority to vote, mark "For All Except"
02) DAVID J. BREAZZANO ALL ALL EXCEPT and write the nominee's number on the line below.
03) KEVIN P. COLLINS
04) WILLIAM D. FERTIG
05) W. PHILLIP MARCUM [ ] [ ] [ ] ____________________________________________________
06) J. ROBINSON WEST
07) MORTON WOLKOWITZ
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTIONS
TO THE CONTRARY ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL OF THE DIRECTOR NOMINEE NAMES ABOVE.
NOTE: Please sign exactly as your name appears above. Each joint owner should sign. Executors, administrators and 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.
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY.
--------------------------------- ------------ ------------------------ -----------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
KEY ENERGY SERVICES, INC.
JANUARY 31, 2002
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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 JANUARY 31, 2002
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 December 28,
2001 at the Annual Meeting of Stockholders to be held on January 31, 2002 at
11A.M., Eastern Standard Time at The Hilton Hotel, Brunswick Room, Tower Center
Boulevard, East Brunswick, NJ 08816, and at any and all adjournments or
postponements thereof, to vote on the matters set forth on the reverse side.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED
STOCKHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS.
(TO BE SIGNED ON REVERSE SIDE)
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