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).


 


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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:


 


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  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.


 


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(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.


 


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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.


 


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(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


 


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(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


 


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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


 


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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