Exhibit 10.1

 

NEWTON W. WILSON III EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (as from time to time amended in accordance with the
provisions hereof, this “Agreement”), is entered into as of the 24th day of
January, 2005, by and between NEWTON W. WILSON III, whose address is 401
Connolly Circle, Lockhart, Texas 78644 (the “Executive”), and KEY ENERGY
SERVICES, INC., a Maryland corporation with executive offices at 6 Desta Drive,
Suite 4400, Midland, Texas 79705 (the “Company”).

 

WHEREAS, the Chief Executive Officer of the Company (the “Chief Executive
Officer”) and the Board of Directors of the Company (the “Board”) are each of
the view that employing Executive to serve as Senior Vice President and General
Counsel is essential to the continued growth and success of the Company and is
in the best interests of the Company and its shareholders;

 

WHEREAS, the Company desires to enter into this written Employment Agreement
with the Executive, effective as of January 24, 2005 (the “Commencement Date”);
and

 

WHEREAS, the Executive is willing to serve as the Company’s Senior Vice
President and General Counsel pursuant to the terms and conditions set forth
herein, effective as of the Commencement Date.

 

NOW THEREFORE, in consideration of the covenants and agreements herein
contained, the Company and the Executive hereby agree as follows:

 

1.             Employment; Term.

 

(a)           Effective as of the Commencement Date, the Company hereby agrees
to employ the Executive, and the Executive hereby accepts employment by the
Company, as the Company’s Senior Vice President and General Counsel, and the
Executive shall hold such position and continue employment with the Company
hereunder until the close of business on January 24, 2008, unless sooner
terminated in accordance with Section 5 hereof (the “Initial Employment
Period”). The above notwithstanding, at the close of business on each
anniversary of the conclusion of the Initial Employment Period (an “Anniversary
Date”), commencing with January 24, 2008, the term of the Executive’s employment
hereunder shall be automatically extended for twelve (12) months (unless sooner
terminated in accordance with Section 5 hereof) unless either the Executive or
the Company shall have given written notice (in each case, a “Non-Renewal
Notice”) to the other that such automatic extension shall not occur, which
Non-Renewal Notice shall have been given no later than the October 26 (ninety
(90) days) next preceding the relevant Anniversary Date (the Initial Employment
Period, together with any extensions, until termination in accordance herewith,
is referred to hereby as the “Employment Period”).

 

--------------------------------------------------------------------------------

 

(b)           The Executive shall have the responsibilities, duties and
authority commensurate with his positions as the Senior Vice President and
General Counsel of the Company, including without limitation the general
supervision and control over, and responsibility for, the overall legal
compliance activities of the Company and its subsidiaries, and such other
responsibilities, duties, functions and authority as the Chief Executive Officer
or, in certain circumstances, the Board shall from time to time designate that
do not effect a material decrease in the responsibilities, importance, scope or
dignity of the Executive’s position with the Company compared with those of such
position as of the Commencement Date, subject, however, to the supervision of
the Chief Executive Officer or, in certain circumstances, the Board. The
Executive will report to the Chief Executive Officer or, in certain
circumstances, the Board.

 

(c)           The Executive will devote his full time and his best efforts to
the business and affairs of the Company and its Subsidiaries; provided, however,
that nothing contained in this Section 1 shall be deemed to prevent or limit the
Executive’s right to: (i) make investments in the securities of any
publicly-owned corporation; or (ii) make any other investments with respect to
which he is not obligated or required to, and to which he does not in fact,
devote managerial efforts that interfere with his fulfillment of his duties
hereunder; or (iii) to serve on boards of directors and to serve in such other
positions with non-profit and for-profit organizations as to which the Board may
from time to time consent, which consent shall not be unreasonably withheld or
delayed. Reference is made to Section 6 hereof, which contains limitations on
some of the above activities.

 

(d)           The principal location at which the Executive will substantially
perform his duties will be the Company’s Houston, Texas offices, or as otherwise
designated by the Board, and the Executive agrees to relocate his principal
residence to the Houston area by July 1, 2005.  The Executive acknowledges that
the Chief Executive Officer or, in certain circumstances, the Board may decide
that the Executive should render his services hereunder at a location other than
at such offices. The Executive agrees to accept any such change in location, and
the Company will pay to the Executive, and reimburse the Executive for, the
following expenses and costs incurred in connection with his initial relocation
from his present residence to Houston, Texas and in connection with any further
required relocations and will pay to the Executive the bonus specified in clause
(vii) below: (i) the excess, if any, of (A) the Executive’s aggregate tax basis
in his primary residence at the time of its sale over (B) the proceeds realized
by the Executive from such sale net of ordinary and reasonable fees and expenses
incurred in connection with such sale (other than such fees and expenses
described in clause (ii) of this sentence), (ii) ordinary and reasonable realtor
fees and closing costs incurred in connection with the sale of the Executive’s
primary residence, (iii) ordinary and reasonable closing costs incurred in
connection with the purchase of the Executive’s new primary residence in the
vicinity of the new location at which the Executive is to render his services
hereunder, (iv) ordinary and reasonable costs incurred to pack, transport,
unpack, and insure the Executive’s household furnishings and effects to his new
primary residence, (v) ordinary and reasonable fees for connecting utilities in
his new primary residence, (vi) ordinary and reasonable costs for trips to look
for a new residence as well as up to thirty (30) days of temporary housing, and
(vii) a cash bonus calculated to pay all of the federal, state and local income
and payroll taxes which the Executive will incur, if any, as a result of (A) the
Company’s reimbursement of the preceding expenses and (B) the amount of such
bonus (that is, a “gross-up” bonus).

 

2

--------------------------------------------------------------------------------

 

In addition, in connection with Executive’s initial relocation to Houston, the
Company will pay him $171,000 in cash, on or around his completion of such
relocation, assuming he then remains employed by the Company.

 

If, prior to the first anniversary of the Executive’s employment, the
Executive’s employment is terminated by the Company for Cause or is terminated
by the Executive other than for Good Reason, then the Executive shall, on the
effective date of such termination, repay to the Company the amount it expended
on his relocation to Houston.

 

2.             Salary; Bonuses; Expenses.

 

(a)           During the Employment Period, the Company will pay base
compensation to the Executive at the annual rate of Three Hundred Fifty Thousand
Dollars ($350,000) per year (the “Base Salary”), payable in substantially equal
installments in accordance with the Company’s existing payroll practices, but no
less frequently than monthly. The Company will review the Base Salary on a
yearly basis promptly following the end of each fiscal year of the Company to
determine if an increase is advisable, and the Base Salary may be increased (but
not decreased) at the discretion of the Chief Executive Officer and the
Compensation Committee (the “Compensation Committee”) of the Board, taking into
account, among other factors, the Executive’s performance and the performance of
the Company.

 

(b)           The Executive shall be eligible to participate in all of the
Company’s cash performance compensation plans (collectively, the “Performance
Cash Compensation Plans”) for the Company’s executives providing for the payment
of cash bonuses or other cash incentives payable upon the achievement of goals
set forth in the Company’s strategic plan as developed by the Compensation
Committee after consultation with the Chief Executive Officer and the Executive,
payable in accordance with the provisions thereof.  The performance goals for
the Performance Cash Compensation Plans will be based on objective criteria
specified in good faith in advance by the Compensation Committee after
consultation with the Chief Executive Officer and the Executive. The Executive
shall also receive such bonuses other than pursuant to the Performance Cash
Compensation Plans in such amounts and at such times as the Compensation
Committee, after consultation with the Chief Executive Officer, in its
discretion determines are appropriate to recognize extraordinary performance by
the Executive.  The Executive’s target bonus for each fiscal year will be one
hundred percent (100%) of Base Salary, prorated for the portion of the 2005
fiscal year following the Commencement Date.

 

(c)           The Executive shall be reimbursed by the Company for reasonable
travel, lodging, meal, entertainment and other expenses incurred by him in
connection with performing his services hereunder in accordance with the
Company’s reimbursement policies from time to time in effect.

 

(d)           On each date set forth in the table below, the Executive shall be
paid the bonus set beside such date in such table if the Executive is employed
by the Company on such date:

 

3

--------------------------------------------------------------------------------

 

Date

 

Bonus

 

 

 

 

 

January 24, 2006

 

$

100,000

 

 

 

 

 

January 24, 2007

 

$

100,000

 

 

 

 

 

January 24, 2007

 

$

100,000

 

 

Executive acknowledges and agrees that the Company may revise the timing of
payments described above and other payments in this Agreement to the extent
necessary to comply with Section 409A of the Internal Revenue Code (the “Code”)
(although the parties agree that the provisions of this Agreement are not
intended to be deferred compensation subject to such section).

 

3.                                       Equity-Based Incentives.

 

(a)           On the Effective Date, the Compensation Committee has granted the
Executive, pursuant to the Key Energy Group, Inc. 1997 Incentive Plan (the “1997
Plan”), nonqualified stock options for 125,000 shares of Company’s common stock,
with the exercise price set as provided under that plan based on the date of
grant and with vesting over three years, assuming continued employment.  Such
grant shall otherwise be on the terms and conditions generally applicable to
options as reasonably determined by the Compensation Committee.

 

(b)           The Executive shall be eligible to participate in awards of stock
options, restricted stock, deferred stock and other equity-based incentives
(collectively, “Equity-Based Incentives”), at the discretion of the Board or the
Compensation Committee. The performance goals for the grant of such Equity-Based
Incentives will be based on objective criteria mutually negotiated and agreed
upon in good faith in advance by the Board or the Compensation Committee after
consultation with the Executive and the Chief Executive Officer.

 

4.             Benefit Plans; Vacations.

 

In connection with the Executive’s employment hereunder, he shall be entitled
during the Employment Period (and thereafter to the extent provided in Section
5(f) hereof) to the following additional benefits:

 

(a)           At the Company’s expense, such fringe benefits as the Company may
provide from time to time for its senior management, but in any case, at least
the benefits described on EXHIBIT A hereto.

 

(b)           The Executive shall be entitled to no less than the number of
vacation days in each fiscal year determined in accordance with the Company’s
vacation policy as in effect from time to time, but not less than twenty (20)
business days in any fiscal year (prorated in any fiscal year during which he is
employed hereunder for less than the entire year in accordance with the number
of days in such fiscal year in which he is so employed) and subject to the
Company’s policies on carryovers and cashouts. The Executive shall also be
entitled to all paid holidays and personal days given by the Company to its
senior management.

 

4

--------------------------------------------------------------------------------

 

(c)           Nothing herein contained shall preclude the Executive, to the
extent he is otherwise eligible, from participation in all group insurance
programs or other fringe benefit plans which the Company may from time to time
in its sole and absolute discretion make available generally to its personnel,
or for personnel similarly situated, but the Company shall not be required to
establish or maintain any such program or plan except as may be otherwise
expressly provided herein.

 

5.             Termination, Change in Control and Reassignment of Duties.

 

(a)           Termination by the Company. The Company shall have the right to
terminate the Executive’s employment under this Agreement and the Employment
Period for Cause (as defined below) at any time without obligation to make any
further payments to the Executive hereunder except the compensation described in
Section 5(g) hereof. Except as otherwise provided in Section 5(b) hereof, which
Section shall apply in the event the Executive becomes unable to perform his
obligations hereunder by reason of Disability (as defined below), the Company
shall have the right to terminate the Executive’s employment hereunder and the
Employment Period for any reason other than for Cause (including, without
limitation, by giving the Executive a Non-Renewal Notice pursuant to Section
1(a) hereof) only upon at least ninety (90) days prior written notice to him
(provided that, in the event the Company gives the Executive a Non-Renewal
Notice pursuant to Section 1(a) hereof, only the 90-day notice period therein
provided shall be required). In the event the Company terminates the Executive’s
employment hereunder for any reason other than for Disability or Cause
(including, without limitation, by giving the Executive a Non-Renewal Notice
pursuant to Section 1(a) hereof), then for the purpose of effecting a transition
during the ninety (90) day notice period of the Executive’s management functions
from the Executive to another person or persons, during such period the Company
may reassign the Executive’s duties hereunder to another person or other
persons. Such reassignment shall not reduce the Company’s obligations hereunder
to make salary, bonus and other payments to the Executive and to provide other
benefits to him during the remainder of his employment and, if applicable,
following the termination of employment.  Notwithstanding a notice of
termination that does not, when made, specify Cause, the Company may, during the
90 day notice period (the “Cause Review Period”), convert the termination to a
Cause termination, subject to the procedural safeguards specified in the next
paragraph.

 

As used in this Agreement, the term “Cause” shall mean (i) the failure by the
Executive to substantially perform the major functions of his position in a
satisfactory manner (other than (A) any such failure resulting from his
incapacity due to physical or mental illness or physical injury or (B) any such
actual or anticipated failure after the issuance of a notice of termination by
the Executive for Good Reason (as defined below)), after a written demand for
substantial performance is delivered by the Company to the Executive that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his duties; or (ii) the engaging by the
Executive in misconduct that is, or is reasonably likely to be, materially
injurious to the Company, monetarily or otherwise; or (iii) the Executive’s
conviction or plea of guilty or no contest to a felony (or to a felony charge
reduced to misdemeanor), or, with respect to his employment, to any misdemeanor
(other than a traffic violation) or, with respect to his employment, knowing
violation of any federal or state securities or tax laws; or (iv) willful
violation of the Key Energy Services, Inc. Amended and Restated Policy Regarding
Acquisition, Ownership and Disposition of Company Securities, as amended from
time to time.

 

5

--------------------------------------------------------------------------------

 

Notwithstanding the foregoing, the Executive’s employment shall not be deemed to
have been terminated for Cause unless (A) reasonable notice shall have been
given to him setting forth in detail the reasons for the Company’s intention to
terminate for Cause, and if such termination is pursuant to clause (i) or (ii)
above and any damage to the Company is curable, only if Executive has been
provided a period of ten (10) business days from receipt of such notice to cease
the actions or inactions and otherwise cure such damage, and he has not done so
(provided that only one such period needs to be provided in any period of three
(3) consecutive months); (B) an opportunity shall have been provided for the
Executive to be heard before the Board; and (C) if such termination is pursuant
to clause (i) or (ii) above, delivery shall have been made to the Executive of a
notice of termination from the Board finding that in the good faith opinion of a
majority of the Board (excluding the Executive, if applicable) he was guilty of
conduct set forth in clause (i) or (ii) above.

 

(b)           Termination upon Disability and Temporary Reassignment of Duties
Due to Disability; Termination upon Death

 

(i)            If the Executive becomes totally and permanently disabled during
the Employment Period so that he is unable to perform his obligations hereunder
by reasons involving physical or mental illness or physical injury for an
aggregate of ninety (90) days (whether or not consecutive) during any period of
twelve (12) consecutive months during the Employment Period (“Disability”), then
the Executive’s employment hereunder and the Employment Period may be terminated
by the Company within sixty (60) days after the expiration of such ninety (90)
day period (whether or not consisting of consecutive days), such termination to
be effective ten (10) days after written notice to the Executive. In the event
the Company shall give a notice of termination under this Section 5(b)(i), then
the Company may reassign the Executive’s duties hereunder to another person or
other persons. Such reassignment shall not reduce the Company’s obligations
hereunder to make salary, bonus and other payments to the Executive and to
provide other benefits to him, during the remainder of his employment and, if
applicable, following the termination of employment.

 

(ii)           During any period that the Executive is totally disabled such
that he is unable to perform his obligations hereunder by reason involving
physical or mental illness or physical injury, as determined by a physician
chosen by the Company and reasonably acceptable to the Executive (or his legal
representative), the Company may reassign the Executive’s duties hereunder to
another person or other persons, provided if the Executive shall again be able
to perform his obligations hereunder prior to the Company’s termination of the
Executive’s employment hereunder and the Employment Period in accordance with
the terms of this Agreement, all such duties shall again be the Executive’s
duties. The cost of any examination by such physician shall be borne by the
Company. Notwithstanding the foregoing, if the Executive has been unable to
perform his obligations hereunder by reasons involving physical or mental
illness or physical injury for an aggregate of ninety (90) days (whether or not
consecutive) during any period of twelve (12) consecutive months during the
Employment Period, then a determination by a physician of disability will not be
required prior to any such reassignment. Any such reassignment shall not be a
termination of employment and in no event shall such reassignment reduce the
Company’s obligation to make salary, bonus and other payments to the Executive
and to provide other benefits to him under this Agreement during his employment
or, if applicable, following a termination of employment.

 

6

--------------------------------------------------------------------------------

 

(iii)          The Executive’s employment hereunder and the Employment Period
shall automatically terminate immediately upon the death of the Executive.

 

(c)           Termination by Executive. The Executive’s employment hereunder and
the Employment Period may be terminated by the Executive by giving written
notice to the Company as follows: (i) at any time for any reason other than Good
Reason (including, without limitation, by giving the Company a Non-Renewal
Notice pursuant to Section 1(a) hereof) by notice of at least ninety (90) days
(provided that, in the event the Executive gives the Company a Non-Renewal
Notice pursuant to Section 1(a) hereof, only the 90-day notice period therein
provided shall be required); or (ii) at any time for Good Reason, effective upon
the 16th business day after Executive’s giving written notice in reasonable
detail of such (unless the Company corrects the condition Executive asserts
gives him Good Reason within fifteen (15) business days after such notice);
provided that the Executive can only give a notice of resignation for Good
Reason in connection with a “Change in Control” (as defined in Exhibit B)
beginning on the ninetieth (90th) day after the closing of the Change in
Control.  In the event of a termination by the Executive of his employment, the
Company may reassign the Executive’s duties hereunder to another person or other
persons.

 

As used herein, a “Good Reason” shall mean any of the following:

 

(1)           Failure of the Board to elect the Executive as Senior Vice
President and General Counsel of the Company, or removal from the office of
Senior Vice President and General Counsel of the Company provided that such
failure or removal is not in connection with a termination of the Executive’s
employment hereunder by the Company for Cause (in accordance with Section 5(a)
hereof), for Disability (in accordance with Section 5(b) hereof) or other than
for Cause or Disability (in accordance with Section 5(a) hereof and including,
without limitation, by giving the Executive a Non-Renewal Notice pursuant to
Section 1(a) hereof), and provided further that any notice of termination
hereunder shall be given by the Executive within ninety (90) days of such
failure or removal; or

 

(2)           Material change by the Company in the Executive’s title,
authority, functions, duties or responsibilities as Senior Vice President and
General Counsel of the Company (including without limitation material changes in
the control or structure of the Company) which would cause his position with the
Company to become of materially less responsibility, importance, scope or
dignity than his position as of the Commencement Date, provided that such
material change is not in connection with a termination of Executive’s
employment hereunder by the Company for Cause (in accordance with Section 5(a)
hereof), for Disability (in accordance with Section 5(b) hereof) or other than
for Cause or Disability (in accordance with Section 5(a) hereof) (including,
without limitation, by giving the Executive a Non-Renewal Notice pursuant to
Section 1(a) hereof); and provided, further, that any notice of termination
hereunder shall be given by the Executive within ninety (90) days of when he
becomes aware of such change; or

 

(3)           Failure by the Company to comply with any provision of Section
1(d), 2 or 4 of this Agreement, which has not been cured within fifteen (15)
days after notice of such noncompliance has been given by the Executive to the
Company, provided any notice of termination hereunder shall be given by the
Executive within ninety (90) days after the end of such fifteen (15) day period;
or

 

7

--------------------------------------------------------------------------------

 

(4)           Failure by the Company to obtain an assumption of this Agreement
(by operation of law or in writing) by a successor in accordance with Section 17
hereof unless payment or provision for payment and provision for continuation of
benefits under this Agreement have been made as required by Section 17 hereof;
or

 

(5)           Any purported termination by the Company of the Executive’s
employment which is not effected in accordance with the terms of this Agreement,
including without limitation pursuant to a notice of termination not satisfying
the requirements set forth herein (and for purposes of this Agreement no such
purported termination by the Company shall be effective), which has not been
cured within ten (10) days after notice of such non-conformance has been given
by the Executive to the Company, provided any notice of termination hereunder
shall be given by the Executive within thirty (30) days of receipt of notice of
such purported termination.

 

(d)           Severance Compensation.

 

(i)            Termination for Good Reason or Other than for Cause. In the event
the Executive’s employment hereunder is terminated (A) by the Executive for Good
Reason or (B) by the Company other than for Cause or Disability, the Executive
shall be entitled, in addition to the other compensation and benefits herein
provided for, to severance compensation in an aggregate amount equal to two (2)
times his Base Salary at the rate in effect on the termination date, payable in
twenty-four (24) substantially equal monthly installments commencing at the end
of the calendar month in which the termination date occurs.  The preceding
amounts shall be reduced to one (1) times his Base Salary if the termination is
a result of or after a Non-Renewal Notice by the Company.

 

(ii)           Termination following Disability. In the event the Executive’s
employment should be terminated by the Company as a result of Disability in
accordance with Section 5(b) hereof, then the Executive shall be entitled, in
addition to the other compensation and benefits herein provided for, to
severance compensation in an aggregate amount equal to one (1) times his Base
Salary at the rate in effect on the termination date, payable in twelve (12)
substantially equal monthly installments commencing at the end of the calendar
month in which the termination date occurs, reduced by the amount of any
employer-provided disability insurance proceeds actually paid to the Executive
or for his benefit during such time period.

 

(iii)          Change in Control. If the Executive’s employment is terminated in
anticipation of, or within one (1) year following, a Change in Control and the
Executive is entitled to severance compensation pursuant to Section 5(d)(i) or
5(d)(ii) hereof as a result of such termination, the severance compensation
otherwise payable to the Executive (A) shall be increased to an amount equal to
three (3) times the Base Salary then in effect and (B) shall be payable in one
lump sum on the effective date of such termination.  In the event there is a
Change in Control after Executive’s employment is terminated while Executive is
entitled to severance compensation pursuant to Section 5(d)(i) or 5(d)(ii)
hereof, any severance compensation which remains unpaid as of the Change in
Control shall be paid in one lump sum as of the Change in Control. In the event
severance compensation becomes payable in a lump sum pursuant to this Section
5(d)(iii), if the Executive’s employment is or has been terminated for
Disability, such lump sum shall be reduced by a good faith estimate of the
aggregate amount

 

8

--------------------------------------------------------------------------------

 

of any disability insurance proceeds which will be actually paid to the
Executive or for his benefit from employer-provided disability insurance during
the remaining period over which such severance would otherwise have been paid.

 

(iv)          Termination for Death. In the event of the Executive’s death
during the Employment Period, the Executive’s estate shall not be entitled to
any severance compensation.

 

(v)           Termination by Executive other than for Good Reason or by Company
for Cause. In the event of the Executive’s termination by resignation under
Section 5(c)(i) (i.e., other than for Good Reason) or by the Company for Cause,
the Executive shall not be entitled to any severance under Section 5(d) or
otherwise, any continued benefits under Section 5(f) (other than as required by
statute), or any accrued compensation under (x) Section 5(g)(ii) (for unpaid
vacation, except as otherwise required by law), or (y) Section 5(g)(iii) (for
prior year bonuses, to the extent specified in that clause).  Under the
foregoing situations, the treatment of equity incentives shall be as specified
in Section 5(e)(ii), and the Executive shall receive the accrued compensation
described in Section 5(g)(i), (v), and (vi).

 

(vi)          Release.  Executive agrees that all payments under Subsections
(d), (e), (f), and (g)(ii) of this Section 5 are conditioned on the Executive’s
prior execution and non-revocation of a full release of the Company and its
officers, employees, affiliates and agreements for all claims relating to his
employment, compensation, and termination and such other matters as the Company
reasonably requests on termination; provided, however, that any Release
previously executed under this Section 5(d)(vi) will be null and void if the
Company reaches a determination of Cause within the Cause Review Period.

 

(e)           Effect of Termination or Change in Control upon Equity-Based
Incentives.

 

(i)            In the event the Executive’s employment hereunder is terminated
by the Company for any reason other than for Cause or Disability (including,
without limitation, by giving the Executive a Non-Renewal Notice pursuant to
Section 1(a) hereof), or in the event the Executive should terminate his
employment for Good Reason, then any Equity-Based Incentives held by the
Executive which have not vested prior to the effective date of such termination
shall immediately vest and shall remain exercisable until the earlier to occur
of (x) the first anniversary of the effective date of such termination and (y)
the final stated expiration date of the Equity-Based Incentive. In addition, in
the event of such a termination, any Equity-Based Incentives held by the
Executive which have vested prior to the effective date of such termination
shall remain exercisable until the earlier to occur of (x) the first anniversary
of the effective date of such termination and (y) the final stated expiration
date of the Equity-Based Incentive.

 

(ii)           In the event the Executive’s employment hereunder is terminated
by the Company for Cause or is terminated by the Executive other than for Good
Reason (including, without limitation, by giving the Company a Non-Renewal
Notice pursuant to Section 1(a) hereof), then effective upon the date such
termination is effective, any Equity-Based Incentives which have not vested
prior to the effective date of such termination shall be forfeited. Any
Equity-Based Incentives held by the Executive entitling the Executive to retain
or purchase securities of the Company which have vested prior to the effective
date of such termination shall

 

9

--------------------------------------------------------------------------------

 

remain subject to the terms and provisions of the plan and/or the agreement
under which they were awarded.

 

(iii)          In the event of the Executive’s death while employed by the
Company or in the event that the Executive’s employment should terminate as a
result of Disability, then, unless the provisions of Section 5(e)(iv) hereof
regarding Change in Control shall apply, any Equity-Based Incentives held by the
Executive which have not vested prior to the effective date of such termination
shall immediately vest and shall also remain exercisable until the earlier to
occur of (x) the first anniversary of the death of the Executive or the
effective date of such termination and (y) the final stated expiration date of
the Equity-Based Incentives. In addition, in the event of such death or such a
termination, any Equity-Based Incentives held by the Executive which have vested
prior to the effective date of such death or termination shall remain
exercisable until the earlier to occur of (x) the first anniversary of the
effective date of such death or termination and (y) the final stated expiration
date of the Equity-Based Incentives.

 

(iv)          In the event of a conflict between the preceding terms and
provisions of this Section 5(e) and any other terms and provisions governing any
Equity-Based Incentives held (now or in the future) by the Executive (including
without limitation the terms and provisions contained in the agreements and/or
plans pursuant to which such Equity-Based Incentives were (or will in the future
be) granted), the preceding terms and provisions of this Section 5(e) shall
control; provided, however, that, if an Equity-Based Incentive does not by its
terms require any exercise, no requirement of exercise shall be implied from the
preceding terms and provisions of this Section 5(e).

 

(f)            Continuation of Benefits.

 

(i)            Subject to Section 5(f)(ii) hereof, in the event that Executive’s
employment hereunder is terminated by the Executive for Good Reason or by the
Company for Disability or other than for Cause (including, without limitation,
by giving the Executive a Non-Renewal Notice pursuant to Section 1(a) hereof)
and not as a result of the death of the Executive, the Executive shall continue
to be entitled, at the Company’s expense, to the post-employment benefits under
Section 4(a), if any, that such benefits provide under their terms for a period
of time following the termination date ending on the first to occur of (I) the
second anniversary of the termination date, (II) the last date of eligibility
under the applicable benefits or (III) the date on which the Executive commences
full-time employment with another employer.  The Company will pay the premiums
for COBRA health coverage for Executive and his covered family members for the
period COBRA provides. At such time as the Company is no longer required to
provide the Executive with life and/or disability insurance, as the case may be,
the Executive shall be entitled, at the Executive’s expense, to convert such
life and disability insurance, as the case may be, into individually owned
policies, except if and to the extent such conversion is not available from the
provider of such insurance.

 

(ii)           In the event the Executive’s employment hereunder is terminated
by the Company within one (1) year of a Change in Control (other than a
termination because of the Executive’s death) or is terminated by the Company
other than for Cause in anticipation of a Change in Control, the Company shall
pay to the Executive, in lieu of providing the benefits contemplated by Section
5(f)(i) above, an amount in cash equal to the aggregate reasonable

 

10

--------------------------------------------------------------------------------

 

expenses that the Company would incur if it were to provide such benefits for a
period of time following the termination date ending on the second anniversary
of the termination date, which amount shall be paid in one lump sum on the date
of such termination.

 

(iii)          In the event the Executive’s employment hereunder is terminated
by reason of death, the Executive’s spouse and her dependents shall be entitled
at the Company’s expense to continued health coverage under COBRA under the
Company’s group medical and dental plans applicable to executives (with the
Company’s payment of premiums lasting for a period of twenty-four months or such
shorter period as COBRA provides because of replacement coverage).

 

(g)           Accrued Compensation. In the event of any termination of the
Executive’s employment for any reason, the Executive (or his estate) shall be
paid (i) any unpaid portion of his Base Salary through the effective termination
date, (ii) for any accrued but unused vacation (payable in an amount equal to
the Base Salary divided by 255 and multiplied by the number of accrued but
unused vacation days), (iii) any prior fiscal year bonus earned, but not paid
(other than on a resignation by Executive without Good Reason or termination for
Cause), (iv) any amounts for expense reimbursement and similar items which have
been properly incurred in accordance with the provisions hereof prior to
termination and have not yet been paid, including without limitation any sums
due under Sections 2(c), 2(d), and 4(c) hereof, and (v) any Gross-Up Payment
which may become due under the terms of Section 5(i) hereof. Such amounts shall
be paid within ten (10) days of the termination date.

 

(h)           Director/Officer Resignations. If the Executive’s employment
hereunder shall be terminated by him or by the Company in accordance with the
terms set forth herein, then effective upon the date such termination is
effective, he will be deemed to have resigned from all positions as an officer
and director of the Company and of any of its Subsidiaries, except as the
parties may otherwise agree.

 

(i)            Certain Tax Consequences.

 

(i)            (A)  Whether or not the Executive becomes entitled to the
payments and benefits described in this Section 5, if any of the payments or
benefits received or to be received by the Executive in connection with a change
in ownership or control of the Company, as defined in section 280G of the Code
(a “Statutory Change in Control”), or the Executive’s termination of employment
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, any person whose actions result in a Statutory
Change in Control or any person affiliated with the Company or such person)
(collectively, the “Severance Benefits ”) will be subject to any excise tax (the
“Excise Tax”) imposed under section 4999 of the Code after giving effect to
Section 5(i)(i)(B), the Company shall pay to the Executive an additional amount
equal to the Excise Tax, plus any amount necessary to “gross up” the Executive
for additional taxes resulting from the payments to the Executive by the Company
under this Section 5(i)(i) (the “Excise Tax Payment”). Each Excise Tax Payment
shall be made not less than five (5) business days prior to the due date for
payment of the Excise Tax.

 

(B)  Notwithstanding the foregoing, if it shall be determined that the Executive
would be entitled to an Excise Tax Payment, but that if the Severance Benefits
could

 

11

--------------------------------------------------------------------------------

 

be reduced by an amount necessary such that the receipt of the Company Payments
would not give rise to any Excise Tax (the “Reduced Benefits”) and the Reduced
Benefits would not be less than ninety percent (90%) of the Severance Benefits
before such reduction, then no Excise Tax Payment shall be made to the Executive
and the Severance Benefits, in the aggregate, shall be reduced to the Reduced
Benefits.  To determine the Reduced Benefits, payments shall be reduced in the
following order (1) acceleration of vesting of any stock options for which the
exercise price exceeds the then fair market value, (2) any cash severance based
on a multiple of Base Salary or Bonus, (3) any other cash amounts payable to the
Executive, (4) any benefits valued as parachute payments; and (5) acceleration
of vesting of any equity not covered by (1) above, unless the Executive elects
another method of reduction by written notice to the Company prior to the change
of ownership or effective control.

 

(ii)           For purposes of determining whether any of the Severance Benefits
will be subject to the Excise Tax and the amount of such Excise Tax:

 

(A)  all of the Severance Benefits shall be treated as “parachute payments”
within the meaning of Code section 280G(b)(2) if the aggregate present value
(determined as provided in Code Section 280G(d)(4)) of such Severance Benefits
equals or exceeds three times the Executive’s “Base Amount” (within the meaning
of Code Section 280G(b)(3)), and all “excess parachute payments” within the
meaning of Code section 280G(b)(1) shall be treated as subject to the Excise
Tax, unless the Executive receives a written opinion from a nationally
recognized law or accounting firm (“280G Advisers”) selected by the Compensation
Committee or the Board, and reasonably acceptable to the Executive, that such
other payments or benefits (in whole or in part) do not constitute parachute
payments, including by reason of Code section 280G(b)(4)(A), or such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered, within the meaning of Code section 280G(b)(4)(B), in
excess of the “Base Amount” as defined in Code section 280G(b)(3) allocable to
such reasonable compensation, or are otherwise not subject to the Excise Tax;
and

 

(B)   the value of any non-cash benefits or any deferred payment or benefit
shall be determined by a certified public accountant or appraisal company of
recognized national standing forming part of or selected by 280G Adviser and
reasonably acceptable to the Executive, in accordance with the principles of
Code section 280G(d)(3) and (4).

 

(iii)          In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder, the Executive shall repay to
the Company, at the time that the amount of such reduction in Excise Tax is
finally determined (the “Reduced Excise Tax”), an amount (the “Gross-Up
Repayment”) equal to the sum of (A) the difference of the Excise Tax Payment and
the Reduced Excise Tax plus (B) an amount representing the difference between
(1) the amount paid by the Company to the Executive to “gross up” the Executive
for taxes on payments made by the Company to the Executive in respect of the
Excise Tax and (2) the amount which should have been paid to the Executive by
the Company to “gross up” the Executive for taxes on payments made by the
Company to the Executive in respect of the Reduced Excise Tax; provided,
however, that in no event shall the Gross-Up Repayment exceed the actual
aggregate cash refunds of, or cash reductions in, taxes paid by the Executive by
virtue of paying the Gross-Up Repayment; and provided, further, that if such
refunds or reductions are realized from time to time, the Executive shall make a
repayment to the Company at the time of

 

12

--------------------------------------------------------------------------------

 

each such realization equal to the excess of the Gross-Up Repayment due after
giving effect to such realization over the Gross-Up Repayment due immediately
prior to giving effect to such realization. The Executive shall (1) take such
actions with respect to taxes and tax returns as the Company may from time to
time request in order to obtain such refunds and reductions, including, without
limitation, by taking positions on tax returns and filing amended tax returns,
(2) provide the Company with copies of all tax returns filed by the Executive
which reflect such refunds or reductions or are otherwise requested by the
Company in order to determine the Executive’s compliance with the immediately
preceding clause (1), (3) permit the Company to participate in any proceedings
relating to such refunds and reductions and (4) take all such other actions as
may be reasonably requested by the Company from time to time in connection with
the realization of such refunds or reductions, including, without limitation,
borrowing money from the Company (on terms and conditions reasonably
satisfactory to the Executive and the Company, including, without limitation,
having the Company make the Executive whole, on an after-tax basis, for any
interest costs) so that the payments made from time to time by the Executive to
the Company hereunder maximize (to the extent reasonably possible) such refunds
and reductions, the aggregate amount of such payments by the Executive not to
exceed the Gross-Up Repayment (computed without regard to the provisos to the
first sentence of this Section 5(i)(iii)); provided, however, that the Company
shall bear and directly pay, or shall promptly reimburse the Executive for, all
costs and expenses (including any additional penalties and interest) incurred by
the Executive in connection with any actions taken or omitted by the Executive
in accordance with instructions from the Company pursuant to this sentence, and
shall indemnify and hold the Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including any additional penalties and interest)
imposed as a result of the Company’s payment of such costs and expenses. In the
event that the Excise Tax is subsequently determined to exceed the amount taken
into account hereunder (including by reason of any payment the existence or
amount of which could not be determined at the time of the Excise Tax Payment),
the Company shall make an additional Excise Tax Payment in respect of such
excess (together with any interest or penalties payable by the Executive with
respect to such excess) at the time that the amount of such excess if finally
determined, plus any additional taxes resulting from the payment to the
Executive by the Company for such excess and the interest and penalties thereon.
The Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Severance
Benefits.

 

(iv)          The Executive shall give the Company written notice of any
determination by the Executive, or any claim by any taxing authority, that he
owes Excise Tax on any Severance Benefit. Such notice shall be given as soon as
practicable but no later than ten (10) business days after the Executive makes
such determination or is informed of such claim, and shall, to the extent
Executive has or may reasonably obtain such information, apprise the Company of
the amount of such Excise Tax and the date on which it is required to be paid.
If the Company gives the Executive written notice at least thirty (30) days
prior to the due date for payment of such Excise Tax, or within ten (10)
business days of having received the foregoing notice from the Executive
(whichever is later), that it disagrees with or wishes to contest the amount of
the Excise Tax, the Company and the Executive shall consult with each other and
their respective tax advisors regarding the amount and payment of any Excise
Tax. In the event there is a contest with any taxing authority regarding the
amount of the Excise Tax, the Company

 

13

--------------------------------------------------------------------------------

 

shall bear and pay directly all costs and expenses (including additional
interest, penalties and legal fees) incurred in connection with any such
contest, and shall indemnify and hold the Executive harmless, on an after-tax
basis, to the extent not otherwise paid hereunder, on (x) the Excise Tax Payment
(including any interest and penalties with respect thereto) and (y) the
Company’s payment of the Executive’s costs and expenses hereunder.

 

6.             Limitation on Competition.

 

The Executive acknowledges that he will have continuing access to the financial
and other confidential information of the Company.  As an agreement ancillary to
the receipt of such information and the other undertakings in this Agreement,
the Executive covenants as follows:

 

During the Employment Period, and for such period thereafter (A) as the
Executive is entitled to receive severance compensation under this Agreement, or
(B) in the event payment of the Executive’s severance compensation is
accelerated due to a Change in Control, for a period of three (3) years
following the end of the Employment Period, or (C) in the event the Executive’s
employment is terminated by the Company for Cause or the Executive terminates
his employment for any reason other than Good Reason (including, without
limitation, by giving the Company a Non-Renewal Notice pursuant to Section 1(a)
hereof), for a period of twelve months following the Employment Period:

 

(a)           the Executive shall not, directly or indirectly, without the
Company’s prior written consent, participate or engage in, whether as a
director, officer, employee, advisor, consultant, investor, lender, stockholder,
partner, joint venturer, owner or in any other capacity, any Competitive
Business (as defined below) conducted in any Competitive Market Area (as defined
below); provided, however, that the Executive shall not be deemed to be
participating or engaging in any such business solely by virtue of (i) 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 or (ii) his engaging in the practice of law,
either at a law firm or with another entity (so long as he satisfies his
professional obligations to keep and not use the confidences and Confidential
Information of the Company and so long as his employment does not include
non-legal duties that are likely to assist a Competitive Business in competing
with the Company);

 

(b)           the Executive shall not, without the Company’s prior written
consent, (i) solicit (other than by way of generalized employment advertising
undertaken in the ordinary course of business) the service of or employ any
employee of the Company for the Executive’s own benefit or for the benefit of
any person or entity other than the Company, (ii) induce any such employee to
leave employment with the Company, or (iii) employ or cause any other person or
entity other than the Company to employ any former employee of the Company whose
termination of employment with the Company occurred less than six (6) months
prior to such employment by the Executive or such other person or entity; and

 

(c)           the Executive shall not, without the Company’s prior written
consent, (i) induce or attempt to induce any customer, supplier or contractor of
the Company to terminate or breach any agreement or arrangement with the Company
or otherwise to cease doing business

 

14

--------------------------------------------------------------------------------

 

with the Company, or (ii) induce or attempt to induce any customer, supplier or
contractor of the Company (including any prospective customer, supplier or
contractor which the Company is actively pursuing prior to the Executive’s
termination of employment), not to enter into any agreement or arrangement with
the Company or not to do business with the Company.

 

As used herein, the term “Competitive Business” shall mean any business: (1)
that is competitive with any business (A) which was conducted by the Company or
any of its affiliated companies during the Employment Period or on the date of
termination of Executive’s employment hereunder or (B) which, on the date of
such termination or during the twelve months immediately preceding such
termination, the Company or any of its affiliated companies was actively
investigating with a view to conducting or was actively pursuing a plan to
conduct; and (2) from which the Company and such affiliated companies derive (or
reasonably expect to derive) annual revenues of not less than $1,000,000. As
used herein, the term “Competitive Market Area” shall mean any geographic market
area (1) if the Company or any of its affiliated companies conducted business in
such geographic market area during the Employment Period or on the date of
termination of Executive’s employment hereunder, or (2) if, on the date of such
termination or during the twelve months immediately preceding such termination,
the Company or any of its affiliated companies was actively investigating with a
view to conducting business in such geographic market area or was actively
pursuing a plan to conduct business in such geographic market area.

 

The Executive agrees and acknowledges that a portion of the consideration to be
paid by the Company to the Executive pursuant to this Agreement is in
consideration of the covenants under this Section 6 and that such consideration
is fair and adequate, even though the Executive will not receive any severance
compensation in the event he terminates his employment with the Company other
than for Good Reason or the Company terminates his employment for Cause. The
Executive acknowledges and agrees that any breach or anticipatory breach by him
of any of the provisions of this Section 6 would cause the Company irreparable
injury not compensable by monetary damages alone and that, accordingly, in any
such event, the Company 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 the Executive hereby consents
to the issuance thereof without bond by a court of competent jurisdiction).

 

7.             Confidential Information.

 

The Executive acknowledges that during the course of his employment with the
Company he will have access to trade secrets, confidential and proprietary
information and know-how of the Company (“Confidential Information”). Except in
the ordinary course of properly performing his duties for the Company, the
Executive shall not at any time, without the Company’s prior written consent
while employed or after termination of his employment, disclose, communicate or
divulge, or use for the benefit of himself or of any third party, any of the
Confidential Information of the Company. In the event the Executive learns
during his employment with the Company any trade secrets, confidential or
proprietary information or know-how of any customer, supplier or contractor of
the Company, the Executive shall maintain the confidence of such information.

 

15

--------------------------------------------------------------------------------

 

8.             Return of Materials.

 

Upon termination of the Executive’s employment for any reason, the Executive
shall promptly deliver to the Company or, with the Company’s consent, destroy
all documents and other materials in the Executive’s possession or custody
(whether prepared by the Executive or others) that the Executive obtained from
the Company or a customer, supplier or contractor of the Company during the
Employment Period and which relate to the past, present or anticipated business
and affairs of the Company, including without limitation, any Confidential
Information.

 

9.             Enforceability.

 

If any provision of this Agreement shall be deemed invalid or unenforceable as
written, this Agreement shall be construed, to the greatest extent possible, or
modified, to the extent allowable by law, in a manner which shall render it
valid and enforceable and any limitation on the scope or duration of any such
provision necessary to make it valid and enforceable shall be deemed to be a
part thereof. No invalidity or unenforceability of any provision contained
herein shall affect any other portion of this Agreement unless the provision
deemed to be so invalid or unenforceable is a material element of this
Agreement, taken as a whole.

 

10.           Legal Expenses.

 

The Company shall pay the Executive’s reasonable fees for legal and other
related expenses associated with any disputes arising hereunder or under any
other agreements, arrangements or understandings regarding Executive’s
employment with the Company (including, without limitation, all agreements,
arrangements and understandings regarding bonuses, Equity-Based Incentives,
employee benefits or other compensation issues) if either a court of competent
jurisdiction or an arbitrator shall render a final judgement or an arbitrator’s
final decision in favor of the Executive on the issues in such dispute, from
which there is no further right of appeal. If it shall be determined in such
judicial adjudication or arbitration that the Executive is successful on some of
the issues in such dispute, but not all, then the Executive shall be entitled to
receive a portion of such legal fees and other expenses as shall be
appropriately prorated.

 

11.           Notices.

 

All notices which the Company is required or permitted to give to the Executive
shall be given by registered or certified mail or overnight courier, with a
receipt obtained, addressed to the Executive at his primary residence, or at
such other place as the Executive may from time to time designate in writing, or
by personal delivery to the Executive, or by facsimile to the Executive with
oral confirmation of his receipt and with a copy immediately sent to the
Executive by first class U.S. Mail, and to counsel for the Executive as may be
requested in writing by the Executive from time to time. All notices which the
Executive is required or permitted to give to the Company shall be given by
registered or certified mail or overnight courier, with a receipt obtained,
addressed to the Company at the address set forth above, or at such other
address as the Company may from time to time designate in writing, or by
personal delivery to the Chief Executive Officer of the Company, or by facsimile
to the Chief Executive Officer with oral confirmation of his receipt and with a
copy immediately sent to the Chief

 

16

--------------------------------------------------------------------------------

 

Executive Officer by first class U.S. Mail, and to counsel for the Company as
may be requested in writing by the Company. A notice will be deemed given upon
personal delivery, the mailing thereof or delivery to an overnight courier for
delivery the next business day, or the oral confirmation of receipt by
facsimile, except for a notice of change of address, which will not be effective
until receipt, and except as otherwise provided in Section 5(a) hereof.

 

12.           Waivers.

 

No waiver by either party of any breach or nonperformance of any provision or
obligation of this Agreement shall be deemed to be a waiver of any preceding or
succeeding breach of the same or any other provision of this Agreement. Any
waiver of any provision of this Agreement must be in writing and signed by the
party granting the waiver.

 

13.           Headings; Other Language.

 

The headings contained in this Agreement are for reference purposes only and
shall in no way affect the meaning or interpretation of this Agreement. In this
Agreement, as the context may require, the singular includes the plural and the
singular, the masculine gender includes both male and female reference, the word
“or” is used in the inclusive sense and the words “including,” “includes,” and
“included” shall not be limiting.  As used herein, the term “Subsidiary” shall
mean any corporation or other entity the voting equity of which the Company or
another Subsidiary holds at least fifty percent.

 

14.           Withholding and Timing of Payments.

 

The Executive acknowledges and agrees that any or all payments under this
Agreement may be subject to reduction for tax and other required withholdings. 
In addition, he acknowledges and agrees that the timing of any payments due to
him may be revised as necessary for compliance with Section 409A of the Code,
including, if applicable, the six month delay required between separation from
service and payment of amounts covered by Section 409A.

 

15.           Counterparts.

 

This Agreement may be executed in duplicate counterparts, each of which shall be
deemed to be an original and all of which, taken together, shall constitute one
agreement.

 

16.           Agreement Complete; Amendments.

 

Effective as of the Commencement Date, this Agreement, together with the
Exhibits hereto, the agreements referred to herein, and the instruments,
agreements, plans, resolutions and other documents pursuant to which any
Equity-Based Incentives are held (now or in the future) by the Executive,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior agreements, written or oral, with respect
thereto. This Agreement may not be amended, supplemented, canceled or discharged
except by a written instrument executed by both of the parties hereto, provided,
however, that the immediately foregoing provision shall not prohibit the
termination of rights and obligations under this Agreement which termination is
made in accordance with the terms of this Agreement.

 

17

--------------------------------------------------------------------------------

 

17.           Benefit of the Successors and Permitted Assigns of the Respective
Parties Hereto.

 

This Agreement and the rights and obligations hereunder are personal to the
Company and the Executive and are not assignable or transferable to any other
person, firm or corporation without the consent of the other party, except as
contemplated hereby; provided, however, in the event of the sale, merger or
consolidation of the Company, whether or not the Company is the surviving or
resulting corporation, the transfer of all or substantially all of the assets of
the Company, or the voluntary or involuntary dissolution of the Company, then
the surviving or resulting corporation or the transferee or transferees of the
Company’s assets shall be bound by this Agreement and the Company shall take all
actions necessary to insure that such corporation, transferee or transferees are
bound by the provisions of this Agreement; and provided, further, this Agreement
shall inure to the benefit of the Executive’s estate, heirs, executors,
administrators, personal and legal representatives, distributees, devisees, and
legatees. Notwithstanding the foregoing provisions of this Section 17, the
Company shall not be required to take all actions necessary to insure that a
buyer, survivor, transferee or transferees of the Company’s assets
(“Transferee”) are bound by the provisions of this Agreement and such Transferee
shall not be bound by the obligations of the Company under this Agreement if the
Company shall have (a) paid to the Executive or made provision satisfactory to
the Executive for payment to him of all amounts which are or may become payable
to him hereunder in accordance with the terms hereof and (b) made provision
satisfactory to the Executive for the continuance of all benefits required to be
provided to him in accordance with the terms hereof, in each case as if the
Executive had been terminated without Cause in anticipation of a Change in
Control.

 

18.           Governing Law.

 

This Agreement will be governed and construed in accordance with the laws of
Texas applicable to agreements made and to be performed entirely within such
state, without giving effect to any choice or conflicts of laws principles which
would cause the application of the domestic substantive laws of any other
jurisdiction.

 

19.           Survival.

 

The covenants, agreements, representations, warranties and provisions contained
in this Agreement that are intended to survive the termination of the
Executive’s employment hereunder and the termination of the Employment Period
shall so survive such termination.

 

20.           Interpretation.

 

The Company and the Executive each acknowledge and agree that this Agreement has
been reviewed and negotiated by such party and its or his counsel, who have
contributed to its revision, and the normal rule of construction, to the effect
that any ambiguities are resolved against the drafting party, shall not be
employed in the interpretation of it.

 

18

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.

 

 

KEY ENERGY SERVICES, INC.

 

 

 

 

 

By:

 

 

 

 

Richard J. Alario

 

 

Chairman, President, and Chief Executive
Officer

 

 

 

 

 

 

Newton W. Wilson III

 

 

 

19

--------------------------------------------------------------------------------

 

EXHIBIT A

 

Company Paid Coverages

 

1.             Medical and Dental Plan. Comprehensive medical and dental plans
available to the Company’s senior management, pursuant to which all medical and
dental expenses incurred by the Executive, his spouse and his children will be
reimbursed by the Company, through insurance or, in the absence of insurance,
directly by the Company, so that the Executive has no out-of-pocket cost with
respect to such expenses.

 

2.             Director and Officer Liability Insurance.

 

3.             Voluntary annual physicals at the Executive’s option while
employed, with a report by the examining physician to the Board regarding the
Executive’s ability to perform job related functions.

 

20

--------------------------------------------------------------------------------

 

EXHIBIT B

 

Definition of “Change in Control”

 

The occurrence of any of the following shall constitute a “Change in Control” of
the Company:

 

(a)           If any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as from time to time in effect (the “Exchange Act”), or
any successor provision), other than the Company, becomes the beneficial owner
directly or indirectly of more than fifty percent  (50%) of the outstanding
Common Stock of the Company, determined in accordance with Rule 13d-3 under the
Exchange Act (or any successor provision), or otherwise becomes entitled to vote
more than fifty percent (50%) of the voting power entitled to be cast at
elections for directors (“Voting Power”) of the Company;

 

(b)           If the Company is subject to the reporting requirements of Section
13 or 15(d) (or any successor provision) of the Exchange Act, and any person (as
defined in Section 3(a)(9) of the Exchange Act, or any successor provision),
other than the Company, purchases shares pursuant to a tender offer or exchange
offer to acquire Common Stock of the Company (or securities convertible into or
exchangeable for or exercisable for Common Stock) for cash, securities or any
other consideration, if after consummation of the offer, the person in question
is the beneficial owner, directly or indirectly, of more than fifty percent
(50%) of the outstanding Common Stock of the Company,  determined in accordance
with Rule 13d-3 under the Exchange Act (or any successor provision);

 

(c)           If the stockholders or the Board approve any consolidation or
merger of the Company (i) in which the Company is not the continuing or
surviving corporation unless such merger is with a Subsidiary at least fifty
percent (50%) of the Voting Power of which is held by the Company or  (ii)
pursuant to which the holders of the Company’s shares of Common Stock
immediately prior to such merger or consolidation would not be the holders
immediately after such merger or consolidation of at least a majority of the
Voting Power of the Company;

 

(d)           The stockholders or the Board shall have approved any sale, lease,
exchange or other transfer (in one transaction or a series of transactions) of
all or substantially all of the assets of the Company;

 

(e)           Upon the election of one or more new directors of the Company, a
majority of the directors holding office, including the newly elected directors,
were not nominated as candidates by a majority of the directors in office
immediately before such election

 

As used in this definition of “Change in Control,” “Common Stock” means the
Common Stock, or if changed, the capital stock of the Company as it shall be
constituted from time to time entitling the holders thereof to share generally
in the distribution of all assets available for distribution to the Company’s
stockholders after the distribution to any holders of capital stock with
preferential rights.

 

21

--------------------------------------------------------------------------------