Exhibit 10.1

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

FRANCIS D. JOHN

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C.A. No. H-06-cv-1716

v.

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KEY ENERGY SERVICES, INC.

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Settlement Agreement

Effective June 20, 2007, Francis D. John (“John”) and Key Energy Services, Inc.
(“Key”) have agreed to settle all disputes between them as follows.

1.                                       Key will pay John $23 million on or
before 10 business days after the date on which John signs this Settlement
Agreement.  This is the total amount of money (and other things of value) that
Key will pay in connection with this Settlement Agreement. Key will wire the $23
million to the following account:

Gibbs & Bruns, L.L.P. IOLTA Account

Beneficiary Bank:  JPMorgan Chase

ABA #:  021000021

Beneficiary Account # 1824138364

John agrees and understands that he is fully responsible for all tax
obligations, if any, on any consideration or payment made pursuant to this
Settlement Agreement and that he exclusively shall be liable for the payment of
any and all federal, state and local taxes which may be determined to be due as
a result of any consideration or payment made pursuant to this Settlement
Agreement.  John further agrees and hereby represents that he shall pay such
taxes, if any, at the time and in the amount required of him.  John further
agrees to fully indemnify and hold harmless Key from payment of any and all
taxes, interest or penalties that may be required of Key by any government
agency or taxing authority at any time that may be assessed against Key in
connection with any payment to John or consideration received by John pursuant
to this Settlement Agreement.  This indemnity shall not apply to any additional
taxes, interest, or penalty assessed against Key as a direct result of Key’s
mischaracterization of the payments on Key’s tax returns.  John further
acknowledges that neither Key, nor any of its representatives or attorneys, have
made any promise, representation or warranty, express or implied, regarding the
tax consequences of any consideration or payment made to John pursuant to this
Settlement Agreement.

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2.                                       On June 21, 2007, Key and John jointly
will notify the Court that the parties have signed a settlement agreement. 
Within 3 business days of the day on which Key pays John, Key and John will
dismiss with prejudice all of their claims against each other and will submit a
joint proposed order to the Court dismissing with prejudice all claims in the
above-captioned lawsuit.

3.                                       There currently is no employment or
consulting relationship or agreement, any agreement regarding stock options, or
any other kind of agreement between Key and John.  Any such relationship or
agreement, whether written or oral, has been terminated.

4.                                       Key is entitled to disclose and comment
on this settlement through a press release, a Form 8-K or other SEC filing, and
through other normal means.  John and John’s counsel are entitled to tell their
friends, family and professional advisors about this settlement, but may not
issue a press release, make internet postings, or otherwise make any widespread
public disclosure or comment about this settlement, except to the extent
necessary to correct factual inaccuracies in the aforementioned disclosures (if
any) by Key.

5.                                       Each party will bear its own attorneys’
fees, expenses, and costs of any kind related to this litigation.

6.                                       John (individually and on behalf of
John’s spouse, heirs, beneficiaries, agents, estates, executors, administrators,
personal representatives, successors and assigns, and anyone else who claims
rights against Key through or as a result of any relationship with John) forever
and irrevocably unconditionally releases, discharges, acquits, and covenants not
to sue Key (including Key and all its subsidiaries, affiliates, divisions,
partners, coventurers, agents, members, principals, auditors, insurers, lenders,
and any past or present officer, director, shareholder, employee, predecessor,
successor, assignee, representative or attorney of any company, entity or person
covered by this release) for, from and of any and all claims, demands, suits,
whether known or unknown, asserted or unasserted, suspected or unsuspected,
regardless of the legal theory, existing now or arising in the future out of
events that exist now, and related to the events and transactions which are the
subject matter of this case, but only with respect to or by reason of any event,
known or unknown, which occurred prior to the date that John executes this
Agreement.  Notwithstanding any suggestion to the contrary in the list of
releasing parties above, John states that he has no authority to, and does not
purport to, release any claims on behalf of Jane John (or Jane Guggenheim).

This release includes but is not limited to a release and discharge of Key (as
defined above) of and from any and all debts, obligations, claims, demands,
judgments or causes of action of any kind whatsoever, known or unknown, in tort,
contract, by statute (including but not limited to any state’s wage payment
collection laws), or on

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any other basis, for equitable relief, compensatory, punitive or other damages,
expenses (including attorneys’ fees), reimbursements of costs of any kind,
including but not limited to, any and all claims, demands, rights and/or causes
of action, including breach of contract, breach of fiduciary duty,
mismanagement, gross mismanagement, corporate waste, abuse of control, unjust
enrichment, breach of the duty of confidentiality, tortious interference with
contract, negligence, misrepresentation, fraud, defamation, libel, civil
conspiracy, false light, invasion of privacy, actions which might arise out of
allegations relating to the December 2003 Third Amended and Restated Employment
Agreement, the 2003 Long-Term Share Incentive Plan (also sometimes referred to
as the 2003 Restricted Stock Plan), the 1997 Incentive Plan (or any other
Incentive Plan), any written or oral employment agreement, any written or oral
consulting agreement, any written or oral agreement relating to stock options or
other incentive compensation, any written or oral incentive plan, any written or
oral option plan, or any other aspect of John’s employment or consulting
relationship with Key including matters relating to purported employment
discrimination or civil rights violations or compensation or violations of the
OWBPA, which John might have or assert against Key, but only with respect to or
by reason of any event, known or unknown, which occurred prior to the date that
John executes this Agreement.

This broad release includes but is not limited to a release of all claims of any
kind relating in any way to John’s assertion that Key owes him compensation of
any kind, whether cash, securities, stock, restricted stock, stock options,
benefits, expense reimbursement, or any other kind of payment or compensation.

7.                                       Key (on its own behalf and on behalf of
its subsidiaries, affiliates, divisions, partners, agents, principals, officers,
directors, shareholders, employees, predecessors, successors, and assignees) 
forever and irrevocably unconditionally releases, discharges, acquits, and
covenants not to sue John (and his heirs, executors, administrators,
representatives, attorneys, and permitted assigns), for, from and of any and all
claims, demands, suits, whether known or unknown, asserted or unasserted,
suspected or unsuspected, regardless of the legal theory, existing now or
arising in the future out of events that exist now, and related to the events
and transactions which are the subject matter of this case, but only with
respect to or by reason of any event, known or unknown, which occurred prior to
the date that Key executes this Agreement.  This release includes but is not
limited to a release and discharge of John (as defined above) of and from any
and all debts, obligations (including but not limited to those related to a
“Retention Incentive Bonus” as defined in paragraph 2(d) of the Third Amended
and Restated Employment Agreement), claims, demands, judgments or causes of
action of any kind whatsoever, known or unknown, in tort, contract, by statute
(including but not limited to any state’s wage payment collection laws), or on
any other basis, for equitable relief, compensatory, punitive or other damages,
expenses (including attorneys’ fees), reimbursements of costs of any kind,
including but not limited to, any and all claims, demands, rights and/or causes
of action, including breach of contract, breach of fiduciary duty,
mismanagement, gross

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mismanagement, corporate waste, abuse of control, unjust enrichment, breach of
the duty of confidentiality, tortious interference with contract, negligence,
misrepresentation, fraud, defamation, libel, civil conspiracy, false light,
invasion of privacy, actions which might arise out of allegations relating to
the December 2003 Third Amended and Restated Employment Agreement (or any other
written or oral employment agreement), the 2003 Long-Term Share Incentive Plan
(also sometimes referred to as the 2003 Restricted Stock Plan), the 1997
Incentive Plan (or any other Incentive Plan), any written or oral employment
agreement, any written or oral consulting agreement, any written or oral
agreement relating to stock options or other incentive compensation, any written
or oral incentive plan, any written or oral option plan, or any other aspect of
John’s employment or consulting relationship with Key including matters relating
to purported employment discrimination or civil rights violations or
compensation, which Key might have or assert against John, but only with respect
to or by reason of any event, known or unknown, which occurred prior to the date
that Key executes this Agreement.

8.                                       Notwithstanding the broad mutual
releases in paragraphs 6 and 7 above, the parties agree as follows:

(a)  The releases in this Settlement Agreement do not alter in any way the
existing status of John’s rights against Key (if any) for indemnity,
contribution, or rights to insurance coverage in connection with the pending
consolidated securities class action lawsuits, the pending shareholder
derivative actions, or any other existing or future lawsuits brought by any
third-party plaintiff against John in his official capacity as an officer or
director of Key, except for the “Jane John” lawsuit which is addressed more
specifically in the following subparagraph.

(b)  With respect to the lawsuit styled Jane John v. Francis D. John and Key
Energy Services, Inc., No. 06-9580-24-1, In the Court of Common Pleas of Bucks
County, Pennsylvania, the parties agree that:

(1)  Each party shall bear its own attorney’s fees and other expenses of
litigation without indemnity from the other party.

(2)  Key shall indemnify John with respect to damages (but not with respect to
attorney’s fees and other expenses of litigation) attributable to any alleged
breach of Jane John’s stock option agreements.

(3)  John shall indemnify Key with respect to damages (but not with respect to
attorney’s fees and other expenses of litigation) attributable to any and all
other aspects of Jane John’s current and future claims, including any and all
current and future claims relating to any marital property issues..

(4)  Without compromising their respective positions, the parties will attempt
to cooperate with each other in the defense and resolution of the Jane John
litigation.

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9.             John agrees to the following:

(a)  John shall not, without the express written consent of Key’s Chief
Executive Officer, directly or indirectly communicate or divulge to, or make
available to, or use of his own benefit or for the benefit of, any competitor or
any other person or entity, any of Key’s trade secrets, proprietary data or
other confidential information (hereafter collectively referred to as
“confidential information”), which confidential information was communicated to
or otherwise learned or acquired by John during his employment relationship with
Key or through the above-captioned litigation, except that John may disclose
confidential information only to the extent that disclosure is required (i) at
Key’s direction or (ii) by a court or other governmental agency of competent
jurisdiction. As long as such matters remain confidential information, John
shall not use such confidential information in any way or in any capacity other
than as expressly consented to in writing by Key’s Chief Executive Officer. 
Such “confidential information” includes, but is not limited to, personnel
information, ideas, discoveries, designs, inventions, improvements, trade
secrets, know-how, manufacturing processes, design specifications, writings and
other works of authorship, computer programs, financial information, accounting
information, marketing plans, customer lists and data, business plans or methods
and the like, that relate in any manner to the actual or anticipated business of
Key.

(b) Except as otherwise addressed by paragraph 16 of this Settlement Agreement,
John agrees that all records, drawings, data, samples, models, correspondence,
manuals, notes, reports, notebooks, proposals, and any other documents
concerning Key’s customers or products or services or other technical or
business information used by Key and any other tangible materials or copies or
extracts of tangible materials regarding Key’s operations or business, received
by John during his employment with Key are, and shall be, the property of Key
exclusively.  John agrees to immediately return to Key or destroy (and provide a
letter to Key certifying the destruction within 30 days of the date on which
John signs this Settlement Agreement) all of the material mentioned above,
including writing notes, memoranda or notes taken by John and all tangible
materials, including, without limitation, correspondence, drawings, blueprints,
letters, notebooks, reports, flow-charts, computer programs and data proposals. 
No copies will be made by John (or, if copies already have been made or
originals already are possessed, then no such copies or originals may be
retained by John or his attorneys or other representatives) of any such
confidential information, whether or not developed by John. (c) John agrees that
all work product conceived, created or developed by John either solely or
jointly with others in the course or as a result of his employment with Key is
proprietary to Key and constitutes confidential information subject to this
Agreement.  John further agrees that Key is the sole owner of all such work
product.

(d) John agrees that, for a period of two years from the date he signs this
Settlement Agreement, he will not, directly or indirectly, without Key’s prior
written consent, participate or engage in, whether as a director, officer,
employee, advisor, consultant,

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investor, lender, stockholder, partner, joint venturer, owner or in any other
capacity, any business which was being conducted by Key or any of its affiliated
companies, as of  the date of the Settlement Agreement, (“Competitive Business”)
in any state of the United States of America, Latin America or other geographic
market area in which Key or any of its affiliated companies conducts business
(the “Competitive Market Area”); provided, however, that John shall not be
deemed to be participating or engaging in any Competitive Business solely by
virtue of his ownership of not more than five percent of any class of stock or
other securities which is publicly traded on a national securities exchange or
in a recognized over-the-counter market.

(e)  John agrees that, for a period of two years from the date he signs this
Settlement Agreement, he will not, without Key’s prior written consent, (i)
solicit the service of or employ any employee (other than any person who acted
as a personal assistant to John) of Key or its subsidiaries for his benefit or
for the benefit of any person or entity other than Key, (ii) induce any such
employee to leave employment with Key or its subsidiary, or (iii) employ or
cause any other person or entity other than Key to employ any such former
employee of Key whose termination of employment with Key or its subsidiary
occurred less than six (6) months prior to such employment by John or such other
person or entity.

(f)  John agrees that, for a period of two years from the date he signs this
Settlement Agreement, he will not, without Key’s prior written consent, (i)
induce or attempt to induce any customer, supplier or contractor of Key or its
subsidiary to terminate or breach any agreement or arrangement with Key or
otherwise to cease doing business with Key, or (ii) induce or attempt to induce
any customer, supplier or contractor of Key or its subsidiary not to enter into
any agreement or arrangement with, or not to do business with, Key or its
subsidiary.

10.                                       John further agrees and acknowledges
that a portion of the consideration to be paid by Key to him pursuant to this
Agreement is in consideration of the covenants under  paragraph 9 and that such
consideration is fair and adequate, and John agrees that any breach or
anticipatory breach by him of any of the provisions of paragraph 9 would cause
Key or its subsidiary irreparable injury not compensable by monetary damages
alone.  John agrees that in any such event, Key or its subsidiary shall be
entitled to injunctions, both preliminary and permanent, enjoining or
restraining such breach or anticipatory breach, without the necessity of showing
irreparable injury, and without the posting of any bond, by a court of competent
jurisdiction (and such an injunction suit is an exception to the dispute
resolution mechanism in paragraph 12 below).

11.                                       Each signatory to this Settlement
Agreement has the authority to bind the party for whom that signatory acts.

12.                                       If one or more disputes arise with
regard to the interpretation or performance of any part of this Settlement
Agreement, any such dispute will be resolved exclusively by

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arbitration in Houston, Texas before a single arbitrator who is a licensed
attorney in Texas.  The parties will share the arbitrator’s fees and costs
equally.  The parties consent to this process and waive any rights they may have
to raise any such dispute in court.

13.                                 The parties acknowledge and agree that
neither party has admitted or shall be construed as having admitted any
liability to the other or any violation of rights, law statute, duty or
contract.  The parties deny any such admission, liability or violation.

14.                                 The words written in this Settlement
Agreement comprise the entire agreement of the parties.  This Settlement
Agreement sets forth the entire fully integrated agreement between the parties
and fully supersedes any and all prior written or oral agreements,
understandings, promises, or representations between the parties.

15.                                 The parties acknowledge and agree that they
have not relied on any representation or statement made by the other party (or
any agent, attorney, or representative of the other party) relating in any way
to the subject matter, basis, reasonableness, or effect of this Settlement
Agreement or any part of this Settlement Agreement.  The parties have entered
into this Settlement Agreement freely and without duress and have done so after
full opportunity to consult with the counsel and other professionals of their
choice.  The parties and their counsel carefully have reviewed this Settlement
Agreement prior to its execution.

16.                                 Consistent with paragraph 10 of the October
11, 2006 Order Re Protection and Exchange of Discovery Materials, within ten 
business days of the date on which John signs this Settlement Agreement, John
will return to Key all Discovery Material, as defined in the October 11, 2006
Order.  Key will store the Discovery Material that John returns in a segregated
place until such time as John no longer is subject to a pending formal request
for production in another proceeding or forum (as set forth in paragraph 11 of
the October 11, 2006 Order), and Key will provide John’s counsel with a letter
confirming that Key will store such Discovery Material unaltered in a segregated
place and that John has the legal right to access such Discovery Material to the
extent necessary to comply with any order by a court of competent jurisdiction
to produce such documents to a third party.

17.                                 Key will not attempt to exercise any control
over or interfere with John’s roll-over of his personal 401K Retirement account.

18.                                 The parties jointly drafted this Settlement
Agreement and it shall not be construed against either party.

19.                                 This Settlement Agreement was negotiated in
Texas, with the involvement of Texas counsel, and with the involvement of a
Texas mediator.  This Settlement Agreement shall be governed by and interpreted
in accordance with Texas law.  If any lawsuit is brought to enforce any rights
under this Agreement (no such suit should be brought

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in light of the dispute mechanism above), then any such lawsuit must be brought
in a state or federal court located in Houston, Texas, and may not be brought
anywhere else.

20.                                 This Settlement Agreement may be signed in
counterparts, and the signature pages may be exchanged via pdf/email.

ACCEPTED AND AGREED IN ALL RESPECTS:

/s/ Newton W. Wilson, III

 

 

Signed on June 20, 2007

 

Newton W. Wilson, III

 

 

Senior Vice President and General Counsel

 

 

Key Energy Services, Inc.

 

 

 

 

 

 

 

 

/s/ Francis D. John

 

 

Signed on June 20, 2007

 

Francis D. John

 

 

 

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