Exhibit
10.1


KEY ENERGY SERVICES, INC.


2006 PHANTOM
SHARE PLAN


1.                                      Purpose;
Eligibility.


1.1                                 General
Purpose.  The name of this plan is
the Key Energy Services, Inc. 2006 Phantom Share Plan (the “Plan”).  The purpose of the Plan is to enable Key
Energy Services, Inc., a Maryland corporation (the “Company”),
and any affiliate to obtain and retain the services of the types of Employees, who
will contribute to the long range success of the Company and its affiliates and
to provide incentives that are linked directly to increases in share value
which will inure to the benefit of all stockholders of the Company.


1.2                                 Eligible
Award Recipients.  The persons
eligible to receive Awards are Employees and any such parties who are
reasonably expected to become Employees after the receipt of Awards.


1.3                                 Available
Awards.  Phantom Share Awards are
available under the Plan.


2.                                      Definitions.


2.1                                 “Administrator” means the Board or
the Committee appointed by the Board in accordance with Section 3.5.


2.2                                 “Award” means an award of Phantom
Shares.


2.3                                 “Award Agreement” means a written
agreement between the Company and a holder of an Award evidencing the terms and
conditions of an individual Award grant. 
Each Award Agreement shall be subject to the terms and conditions of the
Plan.


2.4                                 “Beneficial Owner” has the meaning
assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that in calculating the beneficial ownership of any particular “person”
(as that term is used in Section 13(d)(3) of the Exchange Act), such “person”
shall be deemed to have beneficial ownership of all securities that such “person”
has the right to acquire by conversion or exercise of other securities, whether
such right is currently exercisable or is exercisable only after the passage of
time.  The terms “Beneficially Owns” and “Beneficially
Owned” have a corresponding meaning.


2.5                                 “Board” means the Board of Directors
of the Company.


2.6                                 “Cause” means (1) conviction of, or
plea of guilty or no contest to, a misdemeanor involving moral turpitude or a
felony, (2) engaging in an act of fraud against the Company or any of its affiliates,
(3) engaging in theft, embezzlement or other misappropriation of any funds or
property of the Company or any of its affiliates, including conduct which is
materially injurious (monetarily or otherwise) to the Company or any of its affiliates
(e.g., misuse of the Company’s or an affiliate’s funds or other property), (4)
willfully and continually failing to perform the material duties assigned to
such Participant, (5) knowingly engaging in any direct, material conflict of
interest with the Company or its affiliates without compliance with the
existing conflict of interest policy, if any, (6) knowingly engaging, without
the written approval












of the Board, in any activity which competes
with the business of the Company or its affiliates or which would result in a
material injury to the business, reputation or goodwill of the Company or an affiliate,
(7) without authorization, disclosure of trade secrets or proprietary
information of the Company, its affiliates, or a third party who has entrusted
such information to the Company or any of its affiliates, (8) knowingly and
intentionally engaging in any activity which would constitute a material
violation of the provisions of the Company’s policies and procedures, then in
effect; or (9) engaging in any act defined as “cause” in a Participant’s
employment agreement.


2.7                                 “Change in Control” means:


(1)
a merger of the Company with another entity, a consolidation involving the
Company, or the sale of all or substantially all of the assets of the Company
to another entity if, in any such case, the holders of equity securities of the
Company immediately prior to such transaction or event do not beneficially own
immediately after such transaction or event equity securities of the resulting
entity entitled to 50% or more of the votes then eligible to be cast in the
election of directors generally (or comparable governing body) of the resulting
entity in substantially the same proportions that they owned the equity
securities of the Company immediately prior to such transaction or event; (2)
the dissolution or liquidation of the Company; (3) when any person or entity,
including a “group” as contemplated by Section 13(d)(3) of the Exchange Act,
acquires or gains ownership or control (including, without limitation, power to
vote) of more than 50% of the combined voting power of the outstanding
securities of the Company; or (4) as a result of or in connection with a
contested election of directors, the persons who were members of the Board
immediately before such election shall cease to constitute a majority of the
Board.  For purposes of the preceding
sentence, (i) “resulting entity” in the context of a transaction or event that
is a merger, consolidation or sale of all or substantially all assets shall
mean the surviving entity (or acquiring entity in the case of an asset sale) unless
the surviving entity (or acquiring entity in the case of an asset sale) is a
subsidiary of another entity and the holders of common stock of the Company
receive capital stock of such other entity in such transaction or event, in
which event the resulting entity shall be such other entity, and (ii)
subsequent to the consummation of a merger or consolidation that does not
constitute a Change in Control, the term “Company” shall refer to the resulting
entity and the term “Board” shall refer to the board of directors (or
comparable governing body) of the resulting entity.



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2.8                                 “Code” means the Internal Revenue Code
of 1986, as it may be amended from time to time, and any guidance and/or
regulations promulgated thereunder.


2.9                                 “Committee” means a committee of one
or more members of the Board appointed by the Board to administer the Plan in
accordance with Section 3.5.


2.10                           “Common Stock” means the common
stock, $0.10 par value per share, of the Company.


2.11                           “Company” means Key Energy Services,
Inc. a Maryland corporation.


2.12                           “Continuous Service” means that the
Participant’s service with the Company its applicable predecessors and its
affiliates, is not interrupted for a period of more than 90 days or
terminated.  The Administrator or its
delegate, in its sole discretion, may determine whether Continuous Service
shall be considered interrupted in the case of any leave of absence approved by
that party, including sick leave, military leave or any other personal or
family leave of absence.


2.13                           “Date of Grant” means the date on
which the Administrator adopts a resolution, or takes other appropriate action,
expressly granting an Award to a Participant that specifies the key terms and
conditions of the Award and from which the Participant begins to benefit from
or be adversely affected by subsequent changes in the Fair Market Value of the
Common Stock or, if a later date is set forth in such resolution, then such
date as is set forth in such resolution.


2.14                           “Director” means a member of the
Board.


2.15                           “Disability” means a Participant’s inability to
engage in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can
be expected to last for a continuous period of not less than twelve (12)
months; or (ii) results from a medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months, and causes such
Participant to receive income replacement benefits for a period of not less
than three (3) months under an accident and health plan covering the Company’s
employees.


2.16                           “Effective Date” shall mean the date of Committee adoption of the
Plan.


2.17                           “Employee” means any person employed
by the Company or an affiliate.  Mere
service as a Director or payment of a director’s fee by the Company or an affiliate
shall not be sufficient to constitute “employment” by the Company or an affiliate.



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2.18                           “Exchange Act” means the Securities
Exchange Act of 1934, as amended.


2.19                           “Fair Market Value” means, as of any
date, the value of the Common Stock as determined below.  The Fair Market Value on any date on which the
Company’s shares of Common Stock are registered under Section 12 of the
Exchange Act and listed on the New York Stock Exchange shall be the closing
price of a share of Common Stock on the New York Stock Exchange on such date,
and thereafter (a) if the Common Stock is admitted to quotation on the over the
counter market or any interdealer quotation system, the Fair Market Value on
any given date shall not be less than the average of the highest bid and lowest
asked prices of the Common Stock reported for such date or, if no bid and asked
prices were reported for such date, for the last day preceding such date for
which such prices were reported, or (b) in the absence of an established market
for the Common Stock, the Fair Market Value determined in good faith by the
Administrator and such determination shall be conclusive and binding on all
persons.


2.20                           “Incumbent Directors” means
individuals who, on the Effective Date, constitute the Board, provided that any
individual becoming a Director subsequent to the Effective Date whose election
or nomination for election to the Board was approved by a vote of at least
two-thirds of the Incumbent Directors then on the Board (either by a specific
vote or by approval of the proxy statement of the Company in which such person
is named as a nominee for Director without objection to such nomination) shall
be an Incumbent Director.  No individual
initially elected or nominated as a Director as a result of an actual or
threatened election contest with respect to Directors or as a result of any
other actual or threatened solicitation of proxies by or on behalf of any
person other than the Board shall be an Incumbent Director.


2.21                           “Non-Employee Director” means a
Director who is a “non-employee director” within the meaning of Rule 16b-3.


2.22                           “Officer” means a person who is an
officer of the Company within the meaning of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.


2.23                           “Participant” means a person to whom
an Award is granted pursuant to the Plan or, if applicable, such other person
who holds an outstanding Award.


2.24                           “Plan” means this Key Energy
Services, Inc. 2006 Phantom Shares Plan.


2.25                           “Restricted Period” has
the meaning set forth in Section 7.1(a).


2.26                           “Phantom Share” means
a notational unit with the value of one share of Common Stock on any given date
and any other securities into which such share is changed or for which such
share is exchanged (“Share”).


2.27                           “Rule
16b-3” means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.



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3.                                      Administration.


3.1                                 Administration
by Board.  The Plan shall be
administered by the Board unless and until the Board delegates administration
to a Committee, as provided in Section 3.5.


3.2                                 Powers
of Administrator.  The Administrator
shall have the power and authority to select and grant to Participants Awards
pursuant to the terms of the Plan.


3.3                                 Specific
Powers.  In particular, the
Administrator shall have the authority: (a) to construe and interpret the Plan
and apply its provisions; (b) to promulgate, amend, and rescind rules and
regulations relating to the administration of the Plan; (c) to authorize any
person to execute, on behalf of the Company, any instrument required to carry
out the purposes of the Plan; (d) to delegate its authority to one or more
Officers of the Company with respect to awards that do not involve “insiders”
within the meaning of Section 16 of the Exchange Act; (e) to determine
when Awards are to be granted under the Plan and the applicable Date of Grant;
(f) from time to time to select, subject to the limitations set forth in
this Plan, those Participants to whom Awards shall be granted; (g) to determine
the number of Phantom Shares to be covered by each Award; (i) to prescribe the
terms and conditions of each Award; (j) to amend any outstanding Awards; provided,
however, that if any such amendment impairs a Participant’s
rights or increases a Participant’s obligations under his or her Award or
creates or increases a Participant’s federal income tax liability with respect
to an Award, such amendment shall also be subject to the Participant’s consent;
(k) to determine the duration and purpose of leaves of absences which may be
granted to a Participant without constituting termination of his or her employment
for purposes of the Plan, which periods shall be no shorter than the periods
generally applicable to Employees under the Company’s employment policies; (l)
to make decisions with respect to outstanding Awards that may become necessary
upon a change in corporate control or an event that triggers anti-dilution
adjustments; and (m) to exercise discretion to make any and all other
determinations which it determines to be necessary or advisable for
administration of the Plan.


3.4                                 Decisions
Final.  All decisions made by the
Administrator pursuant to the provisions of the Plan shall be final and binding
on the Company and the Participants, unless such decisions are determined by a
court having jurisdiction to be arbitrary and capricious.


3.5                                 The
Committee.


(a)                                  General.  The Board may delegate administration of the
Plan to a Committee or Committees of one or more members of the Board, and the
term “Committee” shall
apply to any person or persons to whom such authority has been delegated.  If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee any of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board or the
Administrator shall thereafter be to the Committee or subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board.  The Board may abolish the Committee at any
time and revest in the Board the administration of the Plan.  The members of the Committee shall be
appointed by and serve at the pleasure of the Board.  From



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time to time, the Board may increase or
decrease the size of the Committee, add additional members to, remove members
(with or without cause) from, appoint new members in substitution therefor, and
fill vacancies, however caused, in the Committee.  The Committee shall act pursuant to a vote of
the majority of its members or, in the case of a committee composed of only two
members, the unanimous consent of its members, whether present or not, or by
the written consent of the majority of its members and minutes shall be kept of
all of its meetings and copies thereof shall be provided to the Board.  Subject to the limitations prescribed by the
Plan and the Board, the Committee may establish and follow such rules and
regulations for the conduct of its business as it may determine to be
advisable.


(b)                                 Committee
Composition when Common Stock is Registered.  At any such time as the Common Stock is
required to be registered under Section 12 of the Exchange Act, the Board shall
have discretion to determine whether or not it intends to comply with the
exemption requirements of Rule 16b-3. 
However, if the Board intends to satisfy such exemption requirements,
with respect to any insider subject to Section 16 of the Exchange Act, the
Committee shall be a compensation committee of the Board that at all times
consists solely of two or more Non-Employee Directors.  Within the scope of such authority, the Board
or the Committee may delegate to a committee of one or more members of the
Board who are not Non-Employee Directors the authority to grant Awards to
eligible persons who are not then subject to Section 16 of the Exchange Act.


3.6                                 Indemnification.  In addition to such other rights of
indemnification as they may have as Directors or members of the Committee, and
to the extent allowed by applicable law, the Administrator shall be indemnified
by the Company against the reasonable expenses, including attorney’s fees,
actually incurred in connection with any action, suit or proceeding or in
connection with any appeal therein, to which the Administrator may be party by
reason of any action taken or failure to act under or in connection with the
Plan or any option granted under the Plan, and against all amounts paid by the
Administrator in settlement thereof (provided, however, that
the settlement has been approved by the Company, which approval shall not be
unreasonably withheld) or paid by the Administrator in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Administrator did not act in good faith and in a manner which such person
reasonably believed to be in the best interests of the Company, and in the case
of a criminal proceeding, had no reason to believe that the conduct complained
of was unlawful; provided, however,
that within 60 days after institution of any such action, suit or proceeding,
such Administrator shall, in writing, offer the Company the opportunity at its
own expense to handle and defend such action, suit or proceeding.


4.                                      Shares
Subject to the Plan.


Subject
to adjustment in accordance with Section 8, the total number of Phantom
Shares that may be granted under the Plan shall not exceed 495,500.



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5.                                      Eligibility.


Awards
may be granted to Employees and those individuals whom the Administrator
determines are reasonably expected to become Employees following the Date of
Grant.


6.                                      Award
Terms


6.1                                 General.  The terms and conditions of a grant of Phantom
Shares shall be reflected in an Award Agreement.  No shares of Common Stock shall be issued at
the time a Phantom Share is granted or vested, and the Company will not be
required to set aside a fund for the payment of any such Award.  Unless otherwise determined at the time of
grant, each Phantom Share (representing one share of Common Stock) may be
credited with cash and the cash value of stock dividends paid by the Company in
respect of one share of Common Stock (“Dividend Equivalents”).  The cash value attributable to Dividend
Equivalent Rights will be converted into Phantom Shares based on the Fair
Market Value of a share of Common Stock on the date such dividend is paid
(provided that no fractional Phantom Shares shall be granted).  The cash value of any cash dividends or
distributions remaining in respect of a fractional Phantom Share shall be added
to any subsequent cash dividends or distributions and converted into additional
Phantom Shares.


6.2                                 Restrictions.  Phantom Shares awarded to any Participant
shall be subject to (A) forfeiture until the Phantom Shares have vested, and to
the extent such Phantom Shares are forfeited, all rights of the Participant to
such Phantom Shares shall terminate without further obligation on the part of
the Company, and (B) such other terms and conditions as may be set forth in the
applicable Award Agreement.  The Administrator
shall have the authority to accelerate some or all of the vesting of the Phantom
Shares whenever it may determine that, by reason of changes in applicable laws
or other changes in circumstances arising after the date of the Phantom Shares
are granted, such action is appropriate.


6.3                                 Vesting
Schedule.  The following conditions
shall apply to all Awards unless otherwise set forth in the applicable Award
Agreement.


(a)                                  Except as set forth in this Section 6.3, and
subject to the Participant’s
Continuous Service, each Award shall vest [25%] a year on each anniversary of
the Date of Grant unless otherwise set forth in this Section 6.3.


(b)                                 If
(I) a Participant terminates his or her Continuous Service for any reason, or
(II) the Company terminates a Participant’s Continuous Service due to Cause,
all unvested Phantom Shares shall be immediately forfeited without any payment
to the Participant.


(c)                                  If
(I) the Company terminates a Participant without Cause, or (II) the
Participant attains age 65 and completes ten years of Continuous Service, or
(III) a Participant’s Continuous Service terminates due to death or Disability,
all nonvested Phantom Shares shall vest immediately.


(d)                                 Upon a Change in
Control, all outstanding unvested Phantom Shares shall vest.



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6.4                                 Settlement of Phantom Shares.  Within
twenty business days of the vesting date of any outstanding Phantom Shares, the
Company shall deliver to the Participant, or his or her beneficiary, without
charge, a payment in cash equal to the value of the vested Phantom Shares.


7.                                      Miscellaneous.


7.1                                 Acceleration
of Exercisability and Vesting.  The
Administrator shall have the power to accelerate the time at which an Award or
any part thereof will vest.


7.2                                 Stockholder
Rights.  No Participant shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares of Common Stock due to his or her receipt or vesting of
an Award under this Plan.


7.3                                 No
Employment or Other Service Rights. 
Nothing in the Plan or any instrument executed or Award granted pursuant
to this Plan shall confer upon any Participant any right to continue to serve
the Company or an affiliate in the capacity in effect at the time the Award was
granted or shall affect the right of the Company or an affiliate to terminate the
employment of an Employee with or without notice and with or without Cause.


7.4                                 Transfer,
Approved Leave of Absence.  For
purposes of the Plan, no termination of Continuous Service by an Employee shall
be deemed to result from either (a) a transfer to the employment of the Company
from an affiliate or from the Company to an affiliate, or from one affiliate to
another; or (b) an approved leave of absence for military service or sickness,
or for any other purpose approved by the Company, if the Employee’s right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.


7.5                                 Withholding
Obligations.  The Company shall be
entitled to withhold and/or deduct any and all amounts required to be withheld
from any payment hereunder to fulfill its withholding obligations.


8.                                      Adjustments
Upon Changes in Stock.


Awards
granted under the Plan and any Award Agreements and the maximum number of Phantom
Shares which may be subject to all Awards will be equitably adjusted or
substituted to the extent necessary to preserve their economic intent in the
event of changes in the outstanding Common Stock or in the capital structure of
the Company by reason of stock or extraordinary cash dividends, stock splits,
reverse stock splits, recapitalization, reorganizations, mergers,
consolidations, combinations, exchanges, or other relevant changes in
capitalization occurring after the Date of Grant of any such Award. The Company
shall give each Participant notice of an adjustment hereunder.


9.                                      Amendment
of the Plan and Awards.


9.1                                 Amendment of Plan.  The Board at any time, and from time to time,
may amend or terminate the Plan.



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9.2                                 Contemplated
Amendments.  It is expressly
contemplated that the Board may amend the Plan in any respect the Board deems
necessary or advisable to provide eligible Employees with the maximum benefits
provided or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to the nonqualified deferred compensation
provisions of Section 409A of the Code and/or to bring the Plan and/or Awards
granted under it into compliance therewith.


9.3                                 No
Impairment of Rights.  Rights under
any Award granted before amendment of the Plan shall not be impaired by any
amendment of the Plan unless (a) the Company requests the consent of the
Participant and (b) the Participant consents in writing.


9.4                                 Amendment
of Awards.  The Administrator at any
time, and from time to time, may amend the terms of any one or more Awards; provided, however, that
the Administrator may not effect any amendment which would otherwise constitute
an impairment of the rights under any Award unless (a) the Company requests the
consent of the Participant and (b) the Participant consents in writing.


10.                               General
Provisions.


10.1                           Other
Compensation Arrangements.  Nothing
contained in this Plan shall prevent the Board from adopting other or
additional compensation arrangements, subject to stockholder approval if such
approval is required; and such arrangements may be either generally applicable
or applicable only in specific cases.   The Plan is intended to constitute an “unfunded”
plan for incentive compensation and nothing contained in the Plan shall give
any Participant any rights that are greater than those of a general unsecured
creditor of the Company.


10.2                           Other
Provisions.  The Award Agreements
authorized under the Plan may contain such other provisions not inconsistent
with this Plan, including, without limitation, restrictions upon the exercise
of the Awards, as the Administrator may deem advisable.


10.3                           Section
16.  It is the intent of the Company
that the Plan satisfy, and be interpreted in a manner that satisfies, the
applicable requirements of Rule 16b-3 as promulgated under Section 16 of the
Exchange Act so that Participants will be entitled to the benefit of Rule 16b-3,
or any other rule promulgated under Section 16 of the Exchange Act, and will
not be subject to short-swing liability under Section 16 of the Exchange
Act.  Accordingly, if the operation of
any provision of the Plan would conflict with the intent expressed in this Section 10.3,
such provision to the extent possible shall be interpreted and/or deemed
amended so as to avoid such conflict.


11.                               Effective
Date of Plan.


The
Plan shall become effective as of the Effective Date.


12.                               Termination
or Suspension of the Plan.


The
Plan shall terminate automatically on the day before the 10th anniversary of
the Effective Date.  No Award shall be
granted pursuant to the Plan after such date, but Awards



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theretofore granted may extend beyond that date.  The Board may suspend or terminate the Plan
at any earlier date.


13.                               Choice
of Law and Forum.


The
validity, performance and construction of this Plan shall be governed by the
laws of the State of Texas.  The parties
hereto consent to the exclusive jurisdiction of the courts of Harris County,
Texas.  Any claim arising out of or
related to this Agreement must be brought no later than six months after it has
accrued.



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