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Exhibit 10.3  

 
 

JAMES J. BYERLOTZER 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 31st day of
December, 2003, by and between JAMES J. BYERLOTZER, residing at                        , Midland, Texas 79705 (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 Executive has been employed by the Company as its Executive Vice President and Chief Operating Officer pursuant to a prior written employment agreement; 

        WHEREAS,
in view of the Executive's pending retirement, the Company has employed a new President and Chief Operating Officer; 

        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 obtaining a
commitment from the Executive to continue to serve the Company with the title of "Vice Chairman" until December 31, 2004 is essential to achieving a smooth transition to the new President and
Chief Operating Officer and 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 1, 2004 (the "Commencement Date"); and 

        WHEREAS,
the Executive is willing to serve the Company's as its Vice Chairman 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
Vice Chairman, and the Executive shall hold such position and continue employment with the Company hereunder until the close of business on December 31, 2004, unless sooner terminated in
accordance with Section 5 hereof (the "Employment Period"). It is understood that the Executive will not be a member of the Board. 

        (b)   The
Executive shall assist the Company's new President and Chief Operating Officer in all aspects of the transition of the Executive's duties as the former Chief
Operating Officer, and shall have such other responsibilities, duties, functions and authority as the President of the Company (the "President") or the Chief Executive Officer shall from time to time
designate. The Executive will report only to the President, 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; 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 substantial managerial efforts which materially 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 executive offices, as set forth above. 

 

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 Forty Thousand Dollars ($340,000) 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. 

        (b)   For
each six-month or other applicable period commencing on January 1, 2004 and thereafter, 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 of the Board (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. 

        (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. 

3.    Equity-Based Incentives.    

        (a)   The
Executive shall be granted, pursuant to the Company's 2003 Long-Term Share Incentive Plan (the "2003 Plan"), subject to the approval of the 2003 Plan by
the stockholders of the Company, a "Deferred Stock Grant" (as such term is defined in the 2003 Plan; a "Deferred Stock Grant") with respect to 50,000 shares of the Company's common stock. Such grant
shall vest as specified in the resolutions of the Compensation Committee making such grant, and shall otherwise be on the terms and conditions generally applicable to Deferred Stock Grants granted to
executive officers of the Company 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, including without limitation group medical and dental, life, executive life, accident and disability insurance and
retirement plans and supplemental and excess retirement 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 

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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). The Executive shall also be entitled to all paid
holidays and personal days given by the Company to its executives. 

        (c)   The
Company will pay the reasonable fees for personal: (i) financial advisory, counseling, accounting and related services; (ii) legal advisory or
attorneys' fees and related expenses; and (iii) income tax return preparation and tax audit services as reasonably requested by the Executive, provided by certified public accountants and tax
attorneys acceptable to him; provided, however, that the maximum aggregate amount paid by the Company pursuant to this Section 4(d) shall not exceed $15,000 in any fiscal year of the Company. 

        (d)   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. 

        (e)   The
Company shall pay the initiation fee and any other initial membership fee for the Executive to become and remain a member of one private country club, golf club,
tennis club or similar club or association for business use selected by the Executive and approved by the Chief Executive Officer, which approval shall not be unreasonably withheld or delayed. In
addition, the Company shall pay all annual or other periodic fees, dues and costs, for the Executive's membership in such club or association. 

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 only upon at
least sixty (60) days prior written notice to him. In the event the Company terminates the Executive's employment hereunder for any reason other than for Disability or Cause, then for the
purpose of effecting a transition during the sixty (60) 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. 

        As
used in this Agreement, the term "Cause" shall mean (i) the willful and continued failure by the Executive to substantially
perform his duties hereunder (other than (A) any such willful or continued 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 willful engaging by the
Executive in misconduct which is materially injurious to the Company, monetarily or otherwise; or (iii) the conviction of the Executive of a felony by a court of competent jurisdiction; 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.
For purposes of this paragraph, no act, or failure to act on the part of the Executive shall be considered "willful" unless done or omitted 

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to
be done by him in bad faith and without reasonable belief that his action or omission was in the best interest of the Company. 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 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 said ninety (90) day period (whether or not consisting of consecutive
days), said 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 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. 

        (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 by notice of at least ninety (90) days; or (ii) at any
time for Good Reason, effective upon giving notice of such. In the event of a termination by the 

4

 

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
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 

        (2)   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 16 hereof unless
payment or provision for payment and provision for continuation of benefits under this Agreement have been made as required by Section 16 hereof; or 

        (3)   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; or 

        (4)   At
the Executive's election at any time on or prior to December 31, 2004 but only following a Change in Control (as defined below), effective upon giving such
notice. 

        As
used herein, the term "Change in Control" shall have the meaning ascribed to such term in Exhibit B hereto. 

        (d)    Severance Compensation.    

        (i)    Termination for Good Reason, Other than for Cause, on December 31, 2004 or for Disability.    In the
event the Executive's employment hereunder is terminated (A) by the Executive for Good Reason, (B) by the Company other than for Cause or (C) because the Employment Period has
ended on December 31, 2004 or because of 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 three (3) times his Base Salary at the rate in effect on the termination date, payable in one lump sum on the termination date. If (x) the Executive's
employment is terminated in anticipation of or following a Change in Control, in each case on or prior to December 31, 2004, and (y) the Executive is entitled to severance compensation
pursuant to the immediately preceding sentence as a result of such termination, the severance compensation payable to the Executive pursuant to such sentence shall be
increased by an amount equal to three (3) times the average annual total cash bonuses paid by the Company to the Executive during the three-year period (or such shorter period as
the Executive may have been employed by the Company) preceding the date on which the notice of termination is given. If the Executive's employment is terminated for Disability, the severance
compensation payable to the Executive pursuant to the first sentence of this Section 5(d)(i) shall be reduced by a good faith estimate of the aggregate amount of any disability insurance
proceeds which will be actually paid to the Executive or for his benefit during the three-year period following the effective date of such termination (but only those proceeds from
disability insurance provided by the Company to the Executive pursuant to Section 4(a) hereof). 

        (ii)    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. 

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        (e)    Effect of Termination or Change in Control upon Equity-Based Incentives.    In all cases subject to the
provisions of Section 5(e)(v) hereof: 

          (i)  In
the event the Executive's employment hereunder is terminated by the Company for any reason other than for Cause, or in the event the Executive should terminate his
employment for Good Reason, or if the Executive's employment hereunder is terminated because the Employment Period has ended on December 31, 2004 or because of Disability or the death of the
Executive, then, unless the provisions of Section 5(e)(iii) hereof shall apply, any Equity-Based Incentives held by the Executive which have not vested prior to the effective date of
such termination or death shall immediately vest and shall remain exercisable until the earlier to occur of (x) the third anniversary of the effective date of such termination or death 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 or death and (x) which constitute Extended Equity Incentives (as defined below) shall remain exercisable until the earlier to occur of (1) the
third anniversary of the effective date of such termination or death and (2) the final stated expiration date of the Equity-Based Incentive and (y) which do not constitute Extended
Equity Incentives shall remain exercisable in accordance with the terms and provisions of the plan and/or agreement under which they were awarded. As used herein, the term  "Extended Equity Incentives"
shall mean Equity-Based Incentives held by the Executive entitling the Executive to retain or purchase securities of the
Company which either (A) have been granted (or, under generally accepted accounting principles as in effect from time to time and as applied in the financial statements of the Company, have
been renewed, extended or otherwise modified such that they are accounted for as if they had been granted, including without limitation by virtue of accelerated vesting upon termination of the
Executive's employment hereunder) on or after December 31, 2001 or (B) are not described in the immediately preceding clause (A) and have a purchase or exercise price equal to at
least $7.00 per share as of December 31, 2001. 

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

        (iii)  In
the event of a Change in Control while the Executive is employed by the Company, then as of the date immediately prior to the date such Change in Control shall
occur, any Equity-Based Incentives held by the Executive which have not vested prior to such date shall immediately vest and all Equity-Based Incentives held by the Executive shall remain exercisable
in accordance with the terms and provisions governing such Equity-Based Incentives. In the event that the Executive's employment is terminated for any reason on or prior to December 30, 2004
and following a Change in Control, all Equity-Based Incentives held by the Executive shall continue to remain exercisable until their respective final stated expiration dates. In the event that the
Executive's employment is terminated by the Company other than for Cause or Disability in anticipation of a Change in Control, then as of the date immediately prior to the date on which notice of such
termination is given, any Equity-Based Incentives held by the Executive which have not vested prior to such date shall immediately vest and all Equity-Based Incentives held by the Executive shall
remain exercisable until their respective final stated expiration dates. 

        (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 

6

 

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 (including, without limitation, a grant of
restricted stock or a Deferred Stock Grant) 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). 

         (v)  Notwithstanding
the preceding terms and provisions of this Section 5(e), in the event of a conflict between such preceding terms and provisions and any other
terms and provisions governing any Equity-Based Incentives granted under the 2003 Plan held (now or in the future) by the Executive (including, without limitation, the terms and provisions contained
in the 2003 Plan and/or agreements and/or resolutions relating to such Equity-Based Incentives), such other terms and provisions shall control. 

        (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 and not as a
result of the death of the Executive, or if the Executive's employment hereunder is terminated because the Employment Period has ended on December 31, 2004, the Executive shall continue to be
entitled to receive coverage at the Company's expense under the Company's group medical and dental plans at least equivalent to the coverage the Executive was receiving as of the date immediately
preceding such termination until he reaches the age of 62, and the Executive's spouse shall also be entitled to receive such coverage until she reaches the age of 62; provided, however, that if the
Medicare eligibility rules change such that the age of eligibility increases to an age greater than 62, then each shall continue to be entitled to receive such coverage until he or she reaches such
greater age; and provided, further, that in no event shall the Executive or his spouse be entitled to receive such coverage after he or she has reached the age of 65. 

         (ii)  In
the event the Executive's employment hereunder is terminated by the Company on or prior to December 30, 2004 and following 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 expenses that the Company would incur if it were to provide such benefits for the
periods therein specified (assuming the Executive and his wife would live to the end of each such period), 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 shall be entitled to the continued coverage specified in
Section 5(f)(i) above. 

        (iv)  Except
as specifically provided in this Section 5(f), neither the Executive nor his spouse shall be entitled to any benefits following the termination of the
Executive's employment hereunder. 

        (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, (iv) provided that the
Executive's employment was not terminated by the Company for Cause or was terminated by the Executive Good Reason, a pro-rata portion (based upon the number of days of employment during
the fiscal year) of any bonus for the current fiscal year, so long as (A) the performance goals required to be achieved in order to earn such bonus had been established and (B) it is
reasonably likely that such goals would have been 

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achieved
had the Executive remained employed with the Company for the remainder of the fiscal year, (v) 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), 4(c) and 4(d) hereof, and (vi) 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)    Resignation.    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)  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, 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. 

         (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 Ropes & Gray
LLP or other tax counsel selected by Ropes & Gray LLP and reasonably acceptable to the Executive or in the event Ropes & Gray LLP is unable or unwilling to make such selection, by other
tax counsel selected by the Company 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 selected by Ropes & Gray LLP and reasonably acceptable to the Executive, or in the event that Ropes & Gray LLP is unable or unwilling to make such selection, such
selection shall be made by such other certified public accountant or appraisal company of recognized national standing as is selected by the Company and is reasonably acceptable to the Executive, in
accordance with the principles of Code section 280G(d)(3) and (4). 

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        (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 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 

9

 

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 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. 

         (v)  As
used herein, any reference to "Ropes & Gray LLP" shall include any successor firm thereto. 

6.    Limitation on Competition.    

        During
the Employment Period, and (A) 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, for a period of twelve months following the end of the Employment Period or (B) in all other events, for a period of three (3) years following the end of 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 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;

	(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 management 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 management 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 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 

10

 

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. 

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. 

11

 

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 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. 

14.    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. 

15.    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 

12

 

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. 

16.    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 16, 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. 

17.    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. 

18.    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. 

19.    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. 

13

 

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

	 	 	KEY ENERGY SERVICES, INC.
	

 	
 	

By:	
 	

/s/  FRANCIS D. JOHN      
 Francis D. John

Chief Executive Officer
	

/s/  JAMES J. BYERLOTZER      
 JAMES J. BYERLOTZER	
 	

 	
 	

 

14

 
 
 

EXHIBIT A    
    

Company Paid Coverages  

        1.     Life
Insurance. $2,000,000 payable to beneficiary designated by the Executive. 

        2.     Long
Term Disability Insurance. Salary continuation benefit for total disability. Benefit commences with ninetieth day of disability and continues to a maximum of age
sixty-five. Annual maximum benefit shall be 60% of the Base Salary. 

        3.     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. 

        4.     Director
and Officer Liability Insurance. 

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

15

 
 
 

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 twenty-five percent (25%) 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 twenty-five percent (25%) 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 twenty-five percent (25%) 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 of Directors of the Company (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 of the Company (a "Subsidiary") at least eighty percent (80%) 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; or 

        (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. 

        Notwithstanding
the occurrence of any of the events described in the immediately preceding clauses (a) and (b) which would otherwise result in a Change in Control pursuant
to said clause (a) or (b), the Board may determine in its discretion, if it deems it to be in the best interest of the Company, that an event or events otherwise constituting a Change in
Control pursuant to said clause (a) or (b) but which would not constitute such a Change in Control if the phrase "fifty percent (50%)" were to be substituted for the phrase
"twenty-five percent (25%)" each place it appears therein shall not be considered such a Change in Control; provided, however, that such determination shall not affect any accelerated
vesting of any stock options or restricted stock purchase rights or any extensions of the term of exercisability of such options or rights which would otherwise have occurred by virtue of such 

16

 

events;
and provided, further, that such determination shall not be effective hereunder unless the Company shall have at least one other executive officer who has a provision similar to this paragraph
in such executive officer's employment agreement with the Company and the Board shall make such determination with respect to all executive officers of the Company who have a provision similar to this
paragraph in such executive officers' employment agreements with the Company. Such determination shall be effective only if it is made by the Board prior to the occurrence of an event that otherwise
would be or probably would lead to such a Change in Control; or within thirty (30) days after such event if made by the Board a majority of which is composed of directors who were members of
the Board immediately prior to the event that otherwise would be or probably would lead to such a Change in Control. 

17

QuickLinks

JAMES J. BYERLOTZER EMPLOYMENT AGREEMENT

EXHIBIT A

EXHIBIT BQuickLinks
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Exhibit 10.4  

 
 

THIRD AMENDED AND RESTATED
  EMPLOYMENT AGREEMENT    
    

        THIS THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT (as from time to time amended in accordance with the provisions hereof, this
"Agreement"), is entered into as of this 31st day of December, 2003 by and between FRANCIS D. JOHN, residing
at                        , Solebury, Pennsylvania
18963 (the "Executive"), and KEY ENERGY SERVICES, INC., a Maryland corporation (the "Company")
with executive offices at 400 South River Road, New Hope, Pennsylvania 18938 (the "Current Executive Office Location"). 

 
 

RECITALS    
    

        A.    The
Company and the Executive previously entered into the Second Amended and Restated Employment Agreement dated as of October 16, 2001, as amended through the
date hereof (the "2001 Employment Agreement"), pursuant to which the Executive serves as Chairman of the Board, President and Chief Executive Officer of
the Company. 

        B.    The
Company has informed the Executive that the Company wishes to hire a new Chief Operating Officer and to give such person the additional title of "President." 

        C.    If
the Company were to remove the Executive as President of the Company, such removal would give the Executive the grounds to terminate his employment under the 2001
Employment Agreement for "Good Reason" (as defined therein). 

        D.    In
recognition of the fact that the members of the Compensation Committee (the "Compensation Committee") of the Board of
Directors of the Company (the "Board") are of the view that obtaining a commitment from the Executive to continue to serve in his capacities as Chairman
of the Board and Chief Executive Officer of the Company until December 31, 2006 is essential to the continued growth and success of the Company and is in the best interests of the Company and
its shareholders, the Company desires to amend and restate the 2001 Employment Agreement and continue to retain the services of the Executive as Chairman of the Board and Chief Executive Officer of
the Company pursuant to the terms and conditions hereinafter set forth effective as of January 1, 2004 (the "Commencement Date"). 

        E.    The
Executive is willing to amend and restate the 2001 Employment Agreement and to continue to serve in such capacities pursuant to the terms and conditions hereinafter
set forth effective as of the Commencement Date. 

 
 

AGREEMENT    
    

        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 2001 Employment Agreement shall be terminated and shall be of no further force or effect except for the Company's obligations
(i) to make any payments to the Executive under Section 2 thereof for services rendered and expenses incurred prior to the Commencement Date, including, without limitation, in respect of
bonuses due for periods ending on or prior to December 31, 2003, (ii) to make any payments to the Executive under benefit plans for expenses incurred prior to the Commencement Date and
(iii) pertaining to any options or other equity incentives previously granted to the Executive. The Company hereby agrees to employ the 

1

 

Executive,
and the Executive hereby accepts employment by the Company, as the Company's Chairman of the Board and Chief Executive Officer, such employment to commence as of the Commencement Date, and
to continue until the close of business on December 31, 2006, subject to extension as provided in this Section 1(a), unless sooner terminated in accordance with Section 5(b)
hereof (the "Initial Employment Period"). On each December 31, commencing with December 31, 2006, the term of the Executive's employment
hereunder shall be automatically extended for an additional twelve (12) months unless either (x) the Company shall have given written notice to the Executive that such automatic
extension shall not occur (a "Company Nonrenewal Notice"), which notice shall have been given no later than the September 15 immediately
preceding the relevant December 31 or (y) the Executive shall have given written notice to the Company that such automatic extension shall not occur (an
"Executive Nonrenewal Notice"), which notice shall have been given no later than the October 1 immediately preceding the relevant
December 31. The Initial Employment Period, together with any such extensions, until terminated in accordance with the terms hereof, is referred to herein as the
"Employment Period." 

        (b)   The
Executive currently serves as a director on the Board, and as a director, the President or a Vice President of each material domestic Subsidiary (as defined in
Section 16 hereof), and the Executive hereby agrees to continue in such positions. 

        (c)   The
Executive shall have the responsibilities, duties and authority commensurate with his positions as the Chairman of the Board and Chief Executive Officer of the
Company, including, without limitation, the general supervision and control over, and responsibility for, the general management and operation of the Company and its Subsidiaries, subject, however, to
the supervision of the Board insofar as such supervision is required by the Maryland General Corporation Law, and the Company's Articles of Incorporation and By-Laws. Such
responsibilities, duties and authority shall not be expanded or contracted without the express consent of the Executive. The Executive will report only to the Board. 

        (d)   The
Executive will devote his full time and his reasonable 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 substantial managerial efforts which materially interfere with his fulfillment of his duties hereunder; or (iii) to continue to serve on boards of directors on which he currently serves
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, delayed or conditioned. 

        (e)   The
Executive may perform his duties at the Current Executive Office Location (the Current Executive Office Location and any substitute therefor specified by the Board
being referred to elsewhere herein as the "Executive Office Location") or at such other locations as the Executive may from time to time in his sole
discretion determine. Subject to Section 5(b)(vi) hereof and the other provisions hereof related thereto, the Executive Office Location may be changed by the Board, in which event (if
the Executive does not terminate his employment hereunder pursuant to said Section 5(b)(vi)) the Company will pay moving, temporary living and other expenses in connection with the Executive's
relocation from his present primary residence to a location in proximity to such new Executive Office Location, including, without limitation, the following, 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 all fees and expenses incurred in connection with such sale (other than such fees and expenses described in clause (ii) of this sentence),
(ii) all realtor fees and closing costs incurred in connection with the sale of the Executive's primary residence, (iii) closing costs incurred in connection with the purchase of the
Executive's new primary residence in the vicinity of the new Executive Office 

2

 

Location,
(iv) costs incurred to pack, transport, unpack, and insure the Executive's household furnishings and effects to his new primary residence, (v) fees for connecting utilities in
his new primary residence, (vi) costs for trips to look for a new residence as well as up to six (6) months of temporary housing, and (vii) a cash bonus calculated to pay all of
the federal, state and local income and payroll taxes which the Executive will incur, if any, as a result of (A) the Company's reimbursement of the preceding expenses and (B) the amount
of such bonus (that is, a "gross-up" bonus). 

2.    Salary; Bonuses; Expenses.    

        (a)   During
the Employment Period, the Company will pay a salary to the Executive, payable in substantially equal installments in accordance with the Company's existing
payroll practices, but no less frequently than biweekly, at the annual rate of Eight Hundred Seventy-Five Thousand Dollars ($875,000) per year (the "Base
Salary"). The Company will review the Base Salary on a yearly basis promptly following the end of each Fiscal Year of the Company (a "Fiscal
Year" of the Company being the twelve-month period beginning each January 1) to determine if an increase is advisable, and the Base Salary may be increased but not
decreased at the discretion of the Board or the Compensation Committee, taking into account, among other factors, the Executive's performance and the performance of the Company. 

        (b)   For
each six-month or other applicable period commencing on January 1, 2004 and thereafter, 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 Executive, payable in accordance with the provisions thereof. The performance goals for the Performance Cash Compensation Plan will be based on objective criteria specified in good faith in
advance by the Compensation Committee after consultation with the Executive, and, if such criteria are achieved, the minimum annual cash bonus to which the Executive shall be entitled pursuant to this
Section 2(b) shall be equal to 100% of the Base Salary (for example, if the bonus is earned with respect to a six-month period, the bonus will be 50% of the Base Salary). Each bonus
determined in accordance with this Section 2(b) is referred to herein as a "Specified Bonus." 

        (c)   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 in its discretion determines are appropriate to recognize extraordinary performance by the Executive or the Company or extraordinary actions by the Company, which shall include, without
limitation: (i) the acquisition of the stock or assets, or the merger or consolidation with or into, another company or other entity; (ii) the acquisition or sale of a division or
divisions of the Company; (iii) the acquisition or sale of a Subsidiary or Subsidiaries, or the acquisition or sale of the Company; (iv) financings or refinancings, debt or equity,
relating to the Company or any of its Subsidiaries; (v) restructurings, recapitalizations, reorganizations or other similar events relating to the Company or any of its Subsidiaries; or
(vi) any other event relating to the Company or any of its Subsidiaries that is outside of the ordinary course of business and material to the Company or any of its Subsidiaries. Any bonus paid
to the Executive pursuant to this Section 2(c) is referred to herein as a "Special Bonus". 

        (d)   In
2001, pursuant to the 2001 Employment Agreement and in connection with the conversion of a previously earned performance-based incentive loan program, the Company
paid to the Executive an extraordinary bonus (the "Retention Incentive Bonus") in the amount of $13,079,662, the proceeds of which were used solely to
repay the principal of, and all accrued and unpaid interest on, certain loans made by the Company to the Executive in prior years and to pay all taxes due on the payment of the Retention Incentive
Bonus. In the event that, prior to June 30, 2011, the Executive's employment is terminated pursuant to Section 5(b)(i), Section 5(b)(ix) or
Section 5(b)(x) hereof (it being understood that an Executive Nonrenewal Notice or notice of an Executive Voluntary Termination that is intended 

3

 

to
be effective on or after June 30, 2011 is not such a termination), then the Executive shall, on or before the date which is sixty (60) days after the effective date of such
termination, pay to the Company an amount equal to the percentage of the Retention Incentive Bonus specified in the table below with respect to such effective date: 

	Effective Date

of Termination
	 	Percentage of

Retention Incentive Bonus

to be Returned to the Company

	Prior to June 30, 2004	 	80%
	

On and after June 30, 2004

and prior to June 30, 2005	
 	

70%
	

On and after June 30, 2005

and prior to June 30, 2006	
 	

60%
	

On and after June 30, 2006

and prior to June 30, 2007	
 	

50%
	

On and after June 30, 2007

and prior to June 30, 2008	
 	

40%
	

On and after June 30, 2008

and prior to June 30, 2009	
 	

30%
	

On and after June 30, 2009

and prior to June 30, 2010	
 	

20%
	

On and after June 30, 2010

and prior to June 30, 2011	
 	

10%
	

On and after June 30, 2011	
 	

0%;

provided, however, that, for purposes of this Section 2(d), the Executive shall not be deemed to have been terminated pursuant to
Section 5(b)(i) hereof unless and until a court of competent jurisdiction has found, in a final and nonappealable decision, that there was, in fact, clear and convincing evidence that
the Cause specified by the Board in connection with such termination actually existed. 

3.    Equity Incentives.    

        (a)   The
Company acknowledges that the Executive has previously been awarded, or may in the future be awarded, stock options, restricted stock grants, deferred stock or other
equity-based incentives (collectively, "Equity-Based Incentives") that are either fully vested or not fully vested, as the case may be, and the Company
reaffirms herein its contractual commitments in the agreements awarding such Equity-Based Incentives. Except as otherwise modified by the terms of this Agreement, the terms of the agreements
pertaining to such outstanding Equity-Based Incentives shall continue to apply and be construed so as not to change or modify any rights of the Executive set forth therein. 

        (b)   For
each Fiscal Year beginning on or after January 1, 2004, the Executive shall be eligible to participate in grants of Equity-Based Incentives made to the
Company's executives. The amount and terms of such grants will be specified in good faith by the Compensation Committee after consultation with the Executive. The Equity-Based Incentives granted to
the Executive during each Fiscal Year are referred to herein as the "Annual Equity Incentive Grant." 

        (c)   The
Company agrees, so long as the Company shall be subject to the reporting requirements of Section 13 or 15(d) (or any successor provision) of the 1934 Act, it
shall use its reasonable best efforts to cause to become effective a registration statement on Form S-3 or S-8 (or a successor form), and to maintain the effectiveness
of such registration statement, such that any issuance of stock by the 

4

 

Company
to the Executive (or his permitted assignee) pursuant to any Annual Equity Incentive Grant or otherwise shall be registered under the Securities Act of 1933, as amended (or any successor
provision). 

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(g) hereof) to the following additional benefits: 

        (a)   At
the Company's expense, the Executive shall be entitled to such fringe benefits, including, without limitation, group medical and dental, life, executive life,
accident and disability insurance and retirement plans and supplemental and excess retirement benefits, as the Company may provide from time to time for its senior management, but, in any case, at
least the benefits described on Schedule 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 in any event no less than thirty (30) business days in any Fiscal Year (prorated in any Fiscal Year during which he is employed hereunder for less than the entire Fiscal
Year in accordance with the number of days in such Fiscal Year in which he is so employed), provided that such 30 business day period shall be increased
by a number of days equal to the excess, if any, of 30 business days over the number of business days taken by the Executive as vacation during the immediately preceding Fiscal Year. The Executive
shall also be entitled to all paid holidays and personal days given by the Company to its executives. 

        (c)   The
Company acknowledges that a substantial amount of the business travel undertaken by the Executive is done by means of his driving himself or being driven in an
automobile. The Company shall lease or purchase one automobile for the Executive substantially similar to the automobile currently leased for the Executive and shall pay all expenses, including but
not limited to insurance, repair and maintenance, incurred by the Executive in connection with the use of the automobile during the Employment Period. In addition, if the Executive, in his sole
discretion, deems it necessary or desirable for security, safety, efficiency or other reasons, the Executive shall have the authority to contract for the services of a car and driver, the cost of
which shall be paid or reimbursed by the Company. 

        (d)   The
Company will pay the reasonable fees for personal (i) financial advisory, counseling, accounting and related services, (ii) legal advisory or
attorneys' fees and related expenses and (iii) income tax return preparation and tax audit services, all as reasonably requested by the Executive, provided by certified public accountants and
tax attorneys acceptable to him. 

        (e)   The
Executive is authorized to incur and shall be reimbursed by the Company for all expenses, including, but not limited to travel, lodging, meal and other expenses, in
each case as chosen and determined by him in his sole discretion, incurred by him in carrying out his duties hereunder, including, without limitation, in connection with his travel to and from, and
the performance of services by him at, the Company's offices. The Company shall pay or reimburse the expenses for the Executive to be able to perform his duties hereunder from his home or any other
location from time to time chosen by the Executive, including, without limitation, the expenses of administrative assistants. In addition, if the Executive, in his sole discretion, deems it necessary
or desirable for security, safety, efficiency or other reasons, the Executive shall have the authority to contract for the services of a private aircraft for travel related, directly or indirectly, to
the Executive's carrying out his duties hereunder, the cost of which shall be paid or reimbursed by the Company. 

        (f)    The
Executive shall be entitled to participate in all other Company benefit plans, as well as any supplemental benefit or perquisite plans, as the Company may provide
from time to time for its senior executives, on a basis commensurate with his position. The Executive, to the extent he is 

5

 

otherwise
eligible, shall also be entitled to participate 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. 

        (g)   The
Company shall pay all membership and usage costs, including, without limitation, all initiation and membership fees and expenses and all other expenses, fees, dues,
assessments and other costs (including any bond requirement), for the Executive to become, remain a member of and use any one private country club or golf club and one wellness facility, all as may
from time to time be specified by the Executive. 

        (h)   The
Executive shall, after taking into account any taxes on reimbursements or other benefits, be kept whole with respect to each reimbursement or other benefit referred
to in this Section 4 (other than those referred to in Sections 4(b) hereof). Accordingly, to the extent the Executive is taxed on any such reimbursements or benefits, the Company shall pay the
Executive, in connection therewith, an amount which, after all taxes incurred by the Executive on payments pursuant to this Section 4(h), shall equal the amount of the taxes on the
reimbursement or benefit being provided. 

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

        (a)   As
used herein: 

          (i)  The
term "Cause" shall mean any of the of the following: 

	(A)
	the
willful and continued (after a reasonable period following such demand) failure by the Executive to substantially perform his duties hereunder (other than
(I) any such willful or continued failure resulting from his incapacity due to physical or mental illness or physical injury or (II) any such actual or anticipated failure after the
issuance of a notice of termination by the Executive pursuant to Section 5(b)(vi), (vii) or (viii)), after 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;

	(B)
	the
willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise; or

	(C)
	the
conviction of the Executive of a felony by a court of competent jurisdiction in a judgment which has become final and nonappealable if such conviction would render
it impossible for the Executive to perform his obligations hereunder or if the reputation of the Company would be materially damaged by the continuance of the Executive's employment hereunder. 

For
purposes of this definition, no act, or failure to act, on the part of the Executive shall be considered "willful" unless done or omitted to be done by him in bad faith and without reasonable
belief that his action or omission was in the best interest of the Company. 

         (ii)  The
term "Change in Control" shall have the meaning ascribed to such term in Schedule B hereto. 

        (iii)  The
term "Executive's Death" shall mean the death of the Executive. 

        (iv)  The
term "Executive's Disability" shall mean the Executive's becoming 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 (A) for a period of ninety (90) consecutive
days, or (B) for an aggregate of one hundred fifty (150) days (whether or not consecutive) during any period of twelve (12) consecutive months. 

6

 

         (v)  The
term "Final Average Compensation" means the sum of 

	(A)
	the
Base Salary in effect immediately prior to the date of termination, plus

	(B)
	the
greater of (x) the Base Salary in effect immediately prior to the date of termination or (y) the average of aggregate of all Specified Bonuses awarded
to the Executive pursuant to Section 2(b) hereof during each of the three Fiscal Years preceding the date of termination, plus

	(C)
	the
greater of (x) $250,000 or (y) the average of the aggregate of all Special Bonuses awarded to the Executive pursuant to Section 2(c) of this
Agreement during each the three Fiscal Years preceding the date of termination; 

provided, however, that in no event shall the Retention Incentive Bonus be included in the computation of Final Average Compensation. 

        (vi)  The
term "Good Reason" shall mean any of the following: 

	(A)
	failure
by the Board to nominate the Executive for election to the Board at any time such nominations are made, or failure of the stockholders of the Company to elect
the Executive to the Board, or failure of the Board to elect the Executive as Chairman of the Board and Chief Executive Officer of the Company, or failure by the Board of Directors or stockholders of
any Subsidiary to elect the Executive to such Board of Directors or other executive office as may be requested by the Executive from time to time, or removal of the Executive from the Board, the Board
of Directors of a Subsidiary or any such office of the Company or of a Subsidiary, provided that such failure or removal is not in connection with a
termination of the Executive's employment hereunder for Cause in accordance with Section 5(b)(i) 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;

	(B)
	material
change by the Company in the Executive's authority, functions, duties or responsibilities as Chairman of the Board and Chief Executive Officer 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 less responsibility, importance, scope or
dignity than his position as of the Commencement Date, provided that (I) such material change is not in connection with a termination of
Executive's employment hereunder for Cause in accordance with Section 5(b)(i) hereof, (II) such material change is not made in accordance with
Section 5(c)(ii) hereof following a termination of Executive's employment pursuant to Section 5(b)(iv) or (x) hereof, (III) such material change is not made
in accordance with Section 5(b)(ii) hereof pertaining to disability, including without limitation the time period restrictions applicable thereunder, and (IV) any notice of
termination hereunder shall be given by the Executive within ninety (90) days of when the Executive becomes aware of such change;

	(C)
	failure
by the Company to comply with any provision of Section 1, 2, 3, 4 or 8 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 that no such opportunity for cure need be given if there has been
a previous failure described in this clause (C) in the twelve months immediately preceding such failure, and provided, further, that 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 such failure (as applicable); 

7

 

	(D)
	failure
by the Company to obtain an assumption of this Agreement by a successor in accordance with Section 14 hereof unless payment or provision for continuation
of benefits under this Agreement have been made in a manner permitted by this Section 5;

	(E)
	any
change by the Company of the Executive Office Location from the Current Executive Office Location to another location more than ten (10) miles from the
Current Executive Office Location, provided that any notice of termination hereunder shall be given by the Executive within ninety (90) days of
such change; or

	(F)
	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 nonconformance has been given by the Executive to the Company, provided that no such
opportunity for cure need be given if there has been a previous purported termination described in this clause (F) in the twelve months immediately preceding such purported termination, and  provided,
further any notice of termination hereunder shall be given by the Executive within thirty (30) days of receipt of notice of such
purported termination. 

        (b)   The
Executive's employment under this Agreement may be terminated as follows and in no other way: 

          (i)  The
Company may terminate the Executive's employment under this Agreement at any time for Cause; provided, however, that
the Executive's employment shall not be deemed to have been terminated for Cause pursuant to this Section 5(b)(i) unless (x) notice shall have been given to him setting forth in
reasonable detail the reasons for the Company's intention to terminate for Cause; (y) an opportunity shall have been provided for the Executive, together with his counsel, to be heard before
the Board; and (z) 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) he was guilty of conduct constituting "Cause" and specifying the particulars thereof in detail. 

         (ii)  The
Company may terminate the Executive's employment under this Agreement at any time for the Executive's Disability; provided,
however, that Board must give notice of such termination within sixty (60) days after the expiration of applicable period for determining the Executive's Disability,
said termination to be effective ten (10) days after written notice to the Executive. During any period that the Executive's Disability has not yet been determined and 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 that if the Executive shall
again be able to perform his obligations hereunder, all such duties shall again be the Executive's duties. The cost
of any examination by such physician shall be borne by the Company. Any such reassignment shall not be a termination of employment and in no event shall such reassignment reduce the Company's
obligations to make salary, bonus and other payments to the Executive and to provide other benefits to him under this Agreement during his employment. 

        (iii)  The
Company may terminate the Executive's employment under this Agreement by giving a Company Nonrenewal Notice in accordance with Section 1(a) hereof. 

        (iv)  The
Company may terminate the Executive's employment under this Agreement at any time other than pursuant to Sections 5(b)(i), (ii) or (iii) hereof;  provided, however, that if the Company desires
to terminate the Executive's employment pursuant to this Section 5(b)(iv) (a
 

8

 

"Company Voluntary Termination"), it shall give the Executive not less than ninety (90) days' prior written notice of such termination. 

         (v)  The
Executive's employment under this Agreement shall be automatically terminated upon the Executive's Death. 

        (vi)  The
Executive may terminate his employment under this Agreement at any time for Good Reason effective upon his giving notice to the Company of such termination setting
forth in reasonable detail the reasons for the Executive's intention to terminate for Good Reason. 

       (vii)  The
Executive may terminate his employment under this Agreement at any time following but prior to the date which is one year after the occurrence of a Change in
Control, effective upon his giving notice to the Company of such termination. 

      (viii)  The
Executive may terminate his employment under this Agreement at any time, effective upon his giving notice to the Company of such termination, if it becomes
probable that Executive Disability will occur, provided that he has obtained a written statement from a qualified doctor to such effect. 

        (ix)  The
Executive may terminate his employment under this Agreement by giving an Executive Nonrenewal Notice in accordance with Section 1(a) hereof. 

         (x)  The
Executive may terminate his employment under this Agreement at any time other than pursuant to Sections 5(b)(vi), (vii), (viii) or (ix) hereof;  provided, however, that if the Executive desires
to terminate his employment pursuant to this Section 5(b)(x) (an
"Executive Voluntary Termination"), he shall give the Company not less than ninety (90) days' prior written notice of such termination. 

In
the event that the Executive's employment hereunder terminates: (x) for any reason within one year of a Change in Control, then such termination shall be conclusively deemed to have been
occurred pursuant to Section 5(b)(vii) hereof for all purposes of this Agreement; (y) for any reason after the Company has given a notice pursuant to
Section 5(b)(iii) or (iv) hereof or the Executive has or could have given a notice pursuant to Section 5(b)(vi) hereof, then such termination shall be conclusively
deemed to have occurred pursuant to such Section 5(b)(iii), (iv) or (vi) hereof, as applicable, for all purposes of this Agreement 

        (c)    Effect of Termination.    

          (i)  Upon
termination of the Executive's employment hereunder pursuant to Section 5(b) hereof, then, effective upon the date such termination is effective, he will be
deemed automatically to have resigned from all positions as an officer and Director of the Company and of any of its Subsidiaries, except as the parties (or with respect to positions with a
Subsidiary, the Executive and the Subsidiary) may otherwise agree. 

         (ii)  In
the event that either the Company gives the Executive notice of a Company Voluntary Termination or the Executive gives the Company notice of an Executive Voluntary
Termination, then for the purpose of effecting a transition during the ninety (90) day notice period of the management of the Company 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, including without limitation the use of his office and secretarial services during the
remainder of his employment. 

        (d)   In
the event of any termination of the Executive's employment under this Agreement for any reason, the Executive (or his estate) shall be paid such portion of his Base
Salary and bonuses as he 

9

 

has
accrued (including without limitation as provided below) by virtue of his employment during the period prior to termination and has not yet been paid, together with 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. Such amounts shall be paid within ten
(10) days of the date his employment hereunder terminates. The amount due to the Executive (or his estate) under this Section 5(d) in payment of any bonus, including without limitation
any Specified Bonus and/or Annual Equity Incentive Grant, shall be a proportionate amount of the bonus or award of Equity-Based Incentives (as applicable) that would next be payable or awardable to
him and would otherwise have been due to the Executive if such termination had not occurred and such bonus or Equity-Based Incentives (as applicable) had been fully earned, and which proportion shall
be based on the number of elapsed days in the applicable bonus period prior to the termination date and in which the termination date occurs. If and to the extent the Executive has any accrued
vacation days that he has not then taken as vacation, he shall be compensated for such unused vacation days in an amount equal to the number of such days multiplied
by Base Salary then in effect divided by 255. 

        (e)   In
addition to all other amounts payable to the Executive hereunder: 

          (i)  In
the event the Executive's employment hereunder is terminated pursuant to Section 5(b)(iii), (iv), (vi) or (vii) hereof, the Executive shall be
entitled to severance compensation in an aggregate amount equal to three times the Final Average Compensation, payable in a lump sum on the date such termination occurs. 

         (ii)  In
the event the Executive's employment hereunder is terminated pursuant to Section 5(b)(ii) or (viii) hereof, the Executive shall be entitled to
severance compensation in an aggregate amount equal to three times the Final Average Compensation, reduced by a good faith estimate of the aggregate amount of any Company-paid disability
insurance proceeds which will be actually paid to the Executive or for his benefit during the three years immediately following such termination, payable in a lump sum on the date such termination
occurs. 

        (iii)  In
the event the Executive's employment hereunder is terminated to Section 5(b)(i), (v), (ix) or (x) hereof, the Executive shall not be entitled
to any additional severance compensation pursuant to this Section 5(e). 

        (f)    Effect of Termination or Change in Control upon Equity Compensation.    Subject in all cases to
Section 5(f)(iv) hereof: 

          (i)  In
the event the Executive's employment hereunder is terminated pursuant to Section 5(b)(ii), (iii), (iv), (v), (vi), (vii) or (viii) hereof, then,
effective upon the date such termination is effective, all Equity-Based Incentives held by the Executive (or his assignee) entitling the Executive (or his assignee) to purchase securities of the
Company shall, notwithstanding any contrary provision in the agreement or plan pursuant to which such Equity-Based Incentives were granted, become fully vested and all such Equity-Based Incentives
shall become exercisable as of such date and shall remain exercisable until the final stated expiration date of such Equity-Based Incentives. 

10

  

         (ii)  In
the event the Executive's employment hereunder is terminated pursuant to Section 5(b)(i), (ix) or (x) hereof, then, effective upon the date such
termination is effective, all Equity-Based Incentives not previously vested shall be forfeited, unless there shall be a contrary provision in the agreement or plan pursuant to which such Equity-Based
Incentives were granted. 

        (iii)  In
the event of a Change in Control while the Executive is employed, and whether or not the Executive's employment hereunder is subsequently terminated, then, as of
the date immediately prior to the date such Change in Control shall occur, all Equity-Based Incentives held by the Executive (or his assignee) shall, notwithstanding any contrary provision in the
agreement or plan pursuant to which such Equity-Based Incentives were granted, become fully vested and all such Equity-Based Incentives shall become exercisable as of such date and shall remain
exercisable until the final stated expiration date of such Equity-Based Incentives as set forth in the pertinent agreement. 

        (iv)  Notwithstanding
the preceding terms and provisions of this Section 5(f), (A) in the event of a conflict between such preceding terms and provisions and
any other terms and provisions governing any Equity-Based Incentives granted under the 2003 Plan held (now or in the future) by the Executive (including, without limitation, the terms and provisions
contained in the 2003 Plan and/or agreements and/or resolutions relating to such Equity-Based Incentives), such other terms and provisions shall control, and (B) if an Equity-Based Incentive
(including, without limitation, a grant of restricted stock or deferred stock) 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(f). 

        (g)   Continuation of Benefits, etc.

          (i)  Subject
to the provisions of Section 5(g)(ii) hereof, in the event the Executive's employment hereunder is terminated pursuant to Section 5(b)(ii),
(iii), (iv), (vi), (vii) or (viii) hereof: 

	(A)
	The
Executive (or his family, as applicable) shall continue to be entitled to the benefits that the Executive was receiving or to which the Executive was entitled, as of the date
immediately preceding the applicable termination date, pursuant to Section 4 hereof (except for the benefits described in Section 4(b) hereof, the last sentence of Section 4(c)
hereof and Sections 4(e) and 4(h) hereof) at the Company's expense for a period of time following the termination date ending on the first to occur of (I) the third anniversary of the date such
employment terminated or (II) the date on which the Executive commences full-time employment by another employer, but only if and to the extent the Executive is eligible to receive
through such other employer benefits which are at least equivalent on an aggregate basis to those benefits the Executive was receiving or to which the Executive was entitled under Section 4
hereof as of the date immediately preceding such date of termination. If, because of limitations required by third parties or imposed by law, the Executive cannot be provided such benefits through the
Company's plans, then the Company will provide the Executive (or his family, as applicable) with substantially equivalent benefits, on an aggregate basis, at the Company's expense. For purposes of the
determination of any benefits which require a particular period of employment by the Company and/or the attainment of a particular age while employed by the Company in order to be payable, the
Executive shall be treated as having continued in the employment of the Company during such period of time as the Executive (or his family, as applicable) is entitled to receive benefits under this
Section 5(g). At such time as the Company is no longer required to provide the Executive with life insurance, the Executive shall be entitled at the Company's expense to obtain ownership of
such life insurance, 

11

 

except
and to the extent such transfer of ownership is not available from the provider of such insurance. 

	(B)
	The
Executive shall be entitled, at the Company's expense for a period of time following the termination date ending on the first to occur of (A) the third anniversary of the
termination date or (B) the date on which a Executive commences full-time employment by another employer, to office space at such location as the Executive may from time to time
specify and secretarial services, in each case substantially commensurate with the office space and secretarial services furnished by the Company to the Executive prior to the termination date, and to
be furnished executive job search and employment services by an executive employment firm of national reputation selected by the Executive and approved by the Board, which approval shall not be
unreasonably withheld or delayed. 

         (ii)  In
the event the Executive's employment is terminated pursuant to Section 5(b)(vii) hereof or is terminated by the Company in anticipation of a Change in
Control for any reason other than pursuant to Section 5(b)(i) hereof, the Company shall pay to the Executive, in lieu of providing the benefits contemplated by
Section 5(g)(i) hereof, an amount in cash equal to the aggregate reasonable 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 third anniversary of the termination date, which amount shall be paid in one lump sum within ten (10) days after the date of such termination. 

        (iii)  With
respect to any termination of the Executive's employment pursuant to Section 5(b)(v) hereof, the Executive's family shall be entitled to receive
continued participation in medical and dental insurance coverage until the death of the Executive's spouse; provided that (A) if the Executive's
family is precluded from continuing its participation in any such coverage, they shall be provided with the after-tax economic equivalent of the benefits provided under the plan or program
in which they are to participate for the period specified above, (B) the economic equivalent of any benefit forgone shall be deemed to be the lowest cost that would be incurred by the
Executive's family in obtaining such benefit themselves on an individual or family (as applicable) basis, and (C) payment of such after-tax economic equivalent shall be made
quarterly in advance. 

        (h)    Certain Tax Consequences.    

          (i)  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 (a "Statutory Change in Control"), as defined in
section 280G of the Internal Revenue Code of 1986, as from time to time in effect (the "Code"), 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, 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(h)(i) (the "Excise Tax
Payment"). 

         (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 

12

 

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, in the opinion of Ropes & Gray LLP or other tax counsel selected by Ropes & Gray LLP and reasonably acceptable to the Executive or in the event
Ropes & Gray LLP is unable or unwilling to make such selection, by other tax counsel selected by the Company and reasonably acceptable to the Executive, 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 selected by Ropes & Gray LLP and
reasonably acceptable to the Executive, or in the event that Ropes & Gray LLP is unable or unwilling to make such selection, such selection shall be made by such other certified public
accountant as is selected by the Company and is 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
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 reasonably request in order to obtain such
refunds and reductions, including, without limitation, by taking reasonable 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 reasonably 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(h)(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 

13

 

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)  As
used herein, any reference to "Ropes & Gray LLP" shall include any successor firm thereto. 

         (v)  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 the 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 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.    Confidential Information; Non-Solicitation; Non-Competition.    

        (a)   The
Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any
of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and
that shall not have been or now or hereafter have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the
Employment Period and for a period of five years thereafter, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process or as may
be reasonably determined by the Executive to the extent necessary to enforce his rights hereunder or otherwise against the Company, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. 

        (b)   The
Executive shall not, at any time during the Employment Period and for a period of three years thereafter, (i) engage or become economically interested as an
owner (other than as an owner of less than 5% of the stock of a publicly owned company), stockholder, lender, provider (directly or 

14

 

indirectly,
including, without limitation, by a gift of funds) of financing, partner, director, officer, employee, consultant or otherwise in any Competitive Business (as defined below) conducted in
any Competitive Market Area (as defined below) or (ii) recruit, solicit for employment, hire or engage any employee of the Company or any person who was an employee of the Company within two
(2) years prior to the date of termination (provided that this clause (ii) shall not apply to any person who acted as a personal assistant
to Executive). 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 acknowledges that these provisions (I) have been specifically bargained for by the Company
and are supported by separate and specific consideration provided to him by the Company and (II) are necessary for the Company's protection and are not unreasonable, since he would be able to
obtain employment with companies whose businesses are not competitive with those of the Company and its affiliated companies and would be able to recruit and hire personnel other than employees of the
Company. The duration and the scope of these restrictions on the Executive's activities are divisible, so that if any provision of this paragraph is held or deemed to be invalid, that provision shall
be automatically modified to the extent necessary to make it valid. 

        (c)   The
Executive and the Company agree that the covenants set forth in Section 6(b) hereof are reasonable covenants under the circumstances, and further agree that
if in the opinion of any court of competent jurisdiction such restraint is not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provision or
provisions of this covenant as to the court shall appear not reasonable and to enforce the remainder of the covenant as so amended. The Executive agrees that any breach of the covenants contained in
this Section 6 would irreparably injure the Company. Accordingly, the Executive agrees that the Company may, in addition to pursuing any other remedies it may have in law or in equity, withhold
payment of any amounts due hereunder and obtain an injunction against Executive from any court having jurisdiction over the matter restraining any further violation of this Agreement by the Executive. 

7.    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. 

8.    Legal Expenses.    The Company shall pay the Executive's reasonable fees for legal and tax advice and other related expenses
associated with the negotiation and completion of this Agreement. The Company shall also pay the Executive's reasonable fees for legal and other related expenses associated with any disputes arising
hereunder or under the agreements relating to Equity-Based Incentives referred to herein if a court of competent jurisdiction shall render a final judgement in favor of the 

15

 

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 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. 

9.    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 the address referred to above, or at such other place as the Executive may from time to time designate in
writing, or by personal delivery, 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, and to counsel for the Company as may be requested in writing by the Company. A notice will be deemed given upon the
mailing thereof or delivery to an overnight courier for delivery the next business day, except for a notice of a change of address, which will not be effective until receipt. 

10.    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. 

11.    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. 

12.    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. 

13.    Agreement Complete; Amendments.    This Agreement, together with the instruments, agreements, plans, resolutions and other
documents pursuant to which 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. 

14.    Benefit and Binding Nature/Nonassignability.    This Agreement shall be binding upon and inure to the 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 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 14, the Company shall not be required to take all actions necessary to insure that a transferee or transferees of the
Company's assets are bound by the provisions of this Agreement and such transferee or transferees of the Company's shall not be bound by the 

16

 

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. 

15.    Governing Law.    This Agreement will be governed and construed in accordance with the law of Pennsylvania applicable to
agreements made and to be performed entirely within such state, without giving effect to the conflicts of laws principles thereof. 

16.    Subsidiaries.    As used herein, the term "Subsidiaries" shall mean all corporations a majority of the capital stock of which
entitling the holder thereof to vote is owned by the Company or a Subsidiary. 

17.    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. 

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

	 	 	KEY ENERGY SERVICES, INC.
	

 	
 	

By	
 	

 
	 	 	 	 	/s/  DAVID J. BREAZZANO      

	 	 	Title: Chairman, Compensation Committee
	

 	
 	

/s/  FRANCIS D. JOHN      
 FRANCIS D. JOHN

17

  

 
 

SCHEDULE A    
    

Company
Paid Coverages 

	1.	 	Life Insurance
	 	 	 	$20,000,000 of term insurance payable to beneficiaries designated by the Executive
	

2.	
 	

Business Travel Accident Insurance
	 	 	 	Death and dismemberment benefits up to $10,000,000 with twenty-four hour business and pleasure travel coverage.
	

3.	
 	

Medical and Dental Coverage
	 	 	 	Comprehensive medical and dental coverage, including an annual physical, pursuant to which all medical and dental expenses incurred by the Executive, his spouse and his children will be reimbursed by Company-provided
insurance, or in the absence of insurance coverage, directly by the Company.
	

4.	
 	

Director and Officer Liability Insurance
	 	 	 	Minimum coverage of at least $50 million.

A-1

  

 
 

SCHEDULE 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 twenty-five percent (25%) 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 twenty-five percent (25%) 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 twenty-five percent (25%) 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 of Directors of the Company (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 of the Company (a "Subsidiary") at least eighty percent (80%) 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; or 

        (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. 

B-1

QuickLinks

THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT

RECITALS

AGREEMENT

SCHEDULE A

SCHEDULE B

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