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Exhibit 10.1  

 
 

RICHARD J. ALARIO 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 RICHARD J. ALARIO, residing at                        , Lafayette, Louisiana 70503 (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 is not now employed by the Company; 

        WHEREAS,
the Chief Executive Officer of the Company (the "Chief Executive Officer") and the Board of Directors of the Company (the "Board") are each of the view that obtaining a
commitment from the Executive to serve in the capacities as President and Chief Operating 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; 

        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 as the Company's President and Chief Operating Officer 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
President and Chief Operating Officer, and the Executive shall hold such position and continue employment with the Company hereunder until the close of business on December 31, 2006, unless
sooner terminated in accordance with Section 5 hereof (the "Initial Employment Period"). The above notwithstanding, at the close of business on each December 31, commencing with
December 31, 2006, the term of the Executive's employment hereunder shall be automatically extended for twelve (12) months (unless sooner terminated in accordance with Section 5
hereof) unless either the Executive or the Company shall have given written notice (in each case, a "Non-Renewal Notice") to the other that such automatic extension shall not occur, which
Non-Renewal Notice shall have been given no later than ninety (90) days prior to the relevant December 31 (the Initial Employment Period, together with any extensions, until
termination in accordance herewith, is referred to hereby as the "Employment Period"). 

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

        (c)   The
Executive will devote his full time and his best efforts to the business and affairs of the Company; 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. The Company acknowledges
that the Executive will relocate from Lafayette, Louisiana to Midland, Texas as promptly as practicable, and the Company will therefore pay to the Executive, and reimburse the Executive for, the
following expenses and costs incurred in connection with such relocation and will pay to the Executive the bonus specified in clause (vii) below: (i) the excess, if any, of
(A) the Executive's aggregate tax basis in his primary residence at the time of its sale over (B) the proceeds realized by the Executive from such sale net of ordinary and reasonable
fees and expenses incurred in connection with such sale (other than such fees and expenses described in clause (ii) of this sentence), (ii) ordinary and reasonable realtor fees and
closing costs incurred in connection with the sale of the Executive's primary residence, (iii) ordinary and reasonable closing costs incurred in connection with the purchase of the Executive's
new primary residence in the vicinity of such executive offices, (iv) ordinary and reasonable costs incurred to pack, transport, unpack, and insure the Executive's household furnishings and
effects to his new primary residence, (v) ordinary and reasonable fees for connecting utilities in his new primary residence, (vi) ordinary and reasonable costs for trips to look for a
new residence as well as up to thirty (30) days of temporary housing, and (vii) a cash bonus calculated to pay all of the federal, state and local income and payroll taxes which the
Executive will incur, if any, as a result of (A) the Company's reimbursement of the preceding expenses and (B) the amount of such bonus (that is, a "gross-up" bonus). The
Executive acknowledges that the Chief Executive Officer or, in certain circumstances, the Board may decide that the Executive should render his services hereunder at a location other than at such
executive offices. The Executive agrees to accept any such change in location, and the Company will pay to the Executive, and reimburse the Executive for, all expenses and costs, and will pay the
Executive the bonus, specified in the second sentence of this Section 1(d) incurred in connection with the Executive's relocation to such new location. 

        (e)   The
Executive represents and warrants to the Company that: 

          (i)  any
agreement relating to the Executive's employment by any past employer has terminated, and any agreement relating to his employment currently in effect is terminable
by the Executive at will, in each case without any penalty, restriction or limitation on his actions subsequent to such termination, except with respect to the use of confidential or proprietary
materials, documents, information or other property of such employer; and 

         (ii)  the
termination of any such prior employment agreement and the entering into and performance of this Agreement by the Executive, and the consummation of the
transactions contemplated hereby, the employment of the Executive by the Company pursuant hereto and the performance of the Executive's services to the Company will not, breach or be in conflict with
any other agreement (whether written or oral) to which he is a party or by which he is bound, including, without limitation, any agreement not to compete, or create any claims against the Company at
law or in equity, including, without limitation, tortious interference claims, whether by any current or former employer or any other person or entity, and that he is not now and will not become
subject to any covenants against competition or similar covenants or agreements which would affect the performance of his obligations hereunder. 

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The
Executive covenants that he will not disclose or use confidential or proprietary materials, documents, information or other property of a third party (including, without limitation, any present or
former employer) in any way which could create a claim against the Company or the Executive or which would violate any agreement, written or oral, relating to such materials, documents, information or
other property. 

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 Thousand Dollars ($300,000) per year (the "Base
Salary"), payable in substantially equal installments in accordance with the Company's existing payroll practices, but no less frequently than monthly. The Company will review the Base Salary on a
yearly basis promptly following the end of each fiscal year of the Company to determine if an increase is advisable, and the Base Salary may be increased (but not decreased) at the discretion of the
Chief Executive Officer and the Board, 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 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. 

        (d)   On
each date set forth in the table below, the Executive shall be paid the bonus set beside such date in such table if (subject to Section 5(d) hereof) the
Executive is employed by the Company on such date: 

	Date
	 	Bonus

	January 1, 2004	 	$	100,000
	January 1, 2005	 	$	100,000
	January 1, 2006	 	$	200,000
	December 31, 2006	 	$	232,190

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 125,000 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. 

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        (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 fifteen (15) business days in any fiscal year (prorated in any fiscal year during which he is employed hereunder for less than the entire year in accordance
with the number of days in such fiscal year in which he is so employed). The Executive shall also be entitled to all paid holidays and personal days given by the Company to its executives. 

        (c)   The
Executive shall be entitled to receive an allowance of $1,100 per month, plus reimbursement for reasonable insurance and maintenance expenses, to cover costs
incurred by the Executive in connection with the use of his automobile during the Employment Period. 

        (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 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. 

        (e)   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. 

        (f)    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 

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perform
his obligations hereunder by reason of Disability (as defined below), the Company shall have the right to terminate the Executive's employment hereunder and the Employment Period for any
reason other than for Cause (including, without limitation, by giving the Executive a Non-Renewal Notice pursuant to Section 1(a) hereof) only upon at least ninety (90) days
prior written notice to him (provided that, in the event the Company gives the Executive a Non-Renewal Notice pursuant to Section 1(a) hereof, only the 90-day notice
period therein provided shall be required). In the event the Company terminates the Executive's employment hereunder for any reason other than for Disability or Cause (including, without limitation,
by giving the Executive a Non-Renewal Notice pursuant to Section 1(a) hereof), then for the purpose of effecting a transition during the ninety (90) day notice period of the
Executive's management functions from the Executive to another person or persons, during such period the Company may reassign the Executive's duties hereunder to another person or other persons. Such
reassignment shall not reduce the Company's obligations hereunder to make salary, bonus and other payments to the Executive and to provide other benefits to him during the remainder of his employment
and, if applicable, following the termination of employment. 

        As
used in this Agreement, the term "Cause" shall mean (i) any breach of any representation, warranty or covenant of the Executive
contained in Section 1(e) hereof; (ii) 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; (iii) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily
or otherwise; (iv) the conviction of the Executive of a felony by a court of competent jurisdiction; or (v) 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 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 (ii) or (iii) above and any damage to the Company is curable, only if Executive has been
provided a period of ten (10) business days from receipt of such notice to cease the actions or inactions and otherwise cure such damage, and he has not done so (provided that only one such
period needs to be provided in any period of three (3) consecutive months); (B) an opportunity shall have been provided for the Executive to be heard before the Board; and (C) if
such termination is pursuant to
clause (i) or (ii) above, delivery shall have been made to the Executive of a notice of termination from the Board finding that in the good faith opinion of a majority of the Board
(excluding the Executive, if applicable) he was guilty of conduct set forth in clause (i) or (ii) above. 

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

          (i)  If
the Executive becomes totally and permanently disabled during the Employment Period so that he is unable to perform his obligations hereunder by reasons involving
physical or mental illness or physical injury for an aggregate of ninety (90) days (whether or not consecutive) during any period of twelve (12) consecutive months during the Employment
Period ("Disability"), then the Executive's employment hereunder and the Employment Period may be terminated by the Company within sixty (60) days after the expiration of said ninety
(90) day period (whether or not consisting of consecutive days), said termination to be effective ten (10) days after written notice to 

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the
Executive. In the event the Company shall give a notice of termination under this Section 5(b)(i), then the Company may reassign the Executive's duties hereunder to another person or other
persons. Such reassignment shall not reduce the Company's obligations hereunder to make salary, bonus and other payments to the Executive and to provide other benefits to him, during the remainder of
his employment and, if applicable, following the termination of employment. 

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

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

        (c)    Termination by Executive.    The Executive's employment hereunder and the Employment Period may be terminated
by the Executive by giving written notice to the Company as follows: (i) at any time for any reason other than Good Reason (including, without limitation, by giving the Company a
Non-Renewal Notice pursuant to Section 1(a) hereof) by notice of at least ninety (90) days (provided that, in the event the Executive gives the Company a
Non-Renewal Notice pursuant to Section 1(a) hereof, only the 90-day notice period therein provided shall be required); or (ii) at any time for Good Reason,
effective upon giving notice of such. In the event of a termination by the Executive of his employment, the Company may reassign the Executive's duties hereunder to another person or other persons. 

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

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

        (2)   Material
change by the Company in the Executive's authority, functions, duties or responsibilities as Executive Vice President and Chief Financial 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 materially less responsibility, importance,
scope or dignity than his position as of the Commencement Date, provided that such material change is not in 

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connection
with a termination of Executive's employment hereunder by the Company for Cause (in accordance with Section 5(a) hereof), for Disability (in accordance with Section 5(b)
hereof) or other than for Cause or Disability (in accordance with Section 5(a) hereof) (including, without limitation, by giving the Executive a Non-Renewal Notice pursuant to
Section 1(a) hereof), or is otherwise permitted by Section 5(b)(ii) hereof; and provided, further, that any notice of termination hereunder shall be given by the Executive within
ninety (90) days of when he becomes aware of such change; or 

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

        (4)   Failure
by the Company to obtain an assumption of this Agreement (by operation of law or in writing) by a successor in accordance with Section 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 

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

        (6)   At
the Executive's election at any time following, but prior to the first anniversary of, 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 or Other than for Cause.    In the event the Executive's employment hereunder is
terminated (A) by the Executive for Good Reason or (B) by the Company other than for Cause or Disability (including, without limitation, by giving the Executive a Non-Renewal
Notice pursuant to Section 1(a) hereof), the Executive shall be entitled, in addition to the other compensation and benefits herein provided for, to (A) 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 thirty-six (36) substantially equal monthly installments
commencing at the end of the calendar month in which the termination date occurs and (B) payment, on the dates specified therefor, of the bonuses set forth in Section 2(d) hereof. 

        (ii)    Termination following Disability.    In the event the Executive's employment should be terminated by the
Company as a result of Disability in accordance with Section 5(b) hereof, then the Executive shall be entitled, in addition to the other compensation and benefits herein provided for, to
(A) 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 thirty-six
(36) substantially equal monthly installments commencing at the end of the calendar month in which the termination date occurs, reduced by the amount of any disability insurance proceeds
actually paid to the Executive or for his benefit during the said time period (but only those proceeds from disability insurance provided by the Company to the Executive pursuant to
Section 4(a) hereof), and (B) payment, on the dates specified therefor, of the bonuses set forth in Section 2(d) hereof. 

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        (iii)    Change in Control.    If the Executive's employment is terminated in anticipation of, or within one
(1) year following, a Change in Control and the Executive is entitled to severance compensation pursuant to Section 5(d)(i) or 5(d)(ii) hereof as a result of such
termination, the severance compensation otherwise payable to the Executive (A) shall be increased by an amount equal to three (3) times the average annual total cash bonuses (excluding
the bonuses set forth in Section 2(d) hereof) 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 and (B) shall be payable in one lump sum on the effective date of such termination. In the event there is a Change in
Control after Executive's employment is terminated while Executive is entitled to severance compensation pursuant to Section 5(d)(i) or 5(d)(ii) hereof, any severance compensation
which remains unpaid as of the Change in Control shall be paid in one lump sum as of the Change in Control. In the event severance compensation becomes payable in a lump sum pursuant to this
Section 5(d)(iii), if the Executive's employment is or has been terminated for Disability, such lump sum shall be reduced by a good faith estimate of the aggregate amount of any disability
insurance proceeds which will be actually paid to the Executive or for his benefit (but only those proceeds from disability insurance provided by the Company to the Executive pursuant to
Section 4(a) hereof) during the remaining period over which such severance would otherwise have been paid. 

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

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

          (i)  In
the event the Executive's employment hereunder is terminated by the Company for any reason other than for Cause or Disability (including, without limitation, by
giving the Executive a Non-Renewal Notice pursuant to Section 1(a) hereof), or in the event the Executive should terminate his employment for Good Reason, then, unless the
provisions of Section 5(e)(iv) hereof shall apply, any Equity-Based Incentives held by the Executive which have not vested prior to the effective date of such termination shall
immediately vest and shall remain exercisable until the earlier
to occur of (x) the third anniversary of the effective date of such termination and (y) the final stated expiration date of the Equity-Based Incentive. In addition, in the event of such
a termination, any Equity-Based Incentives held by the Executive which have vested prior to the effective date of such termination shall remain exercisable until the earlier to occur of (x) the
third anniversary of the effective date of such termination and (y) the final stated expiration date of the Equity-Based Incentive. 

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

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

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        (iv)  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 within one (1) year 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 (including, without limitation, by giving the Executive a Non-Renewal Notice pursuant to Section 1(a)
hereof) 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. 

         (v)  In
the event of a conflict between the preceding terms and provisions of this Section 5(e) and any other terms and provisions governing any Equity-Based
Incentives held (now or in the future) by the Executive (including without limitation the terms and provisions contained in the agreements and/or plans pursuant to which such Equity-Based Incentives
were (or will in the future be) granted), the preceding terms and provisions of this Section 5(e) shall control; provided, however, that, if an Equity-Based Incentive (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). 

        (vi)  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 (including, without limitation, by giving the Executive a Non-Renewal Notice pursuant to Section 1(a) hereof) and not as a result of the death
of the Executive, the Executive shall continue to be entitled 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 (other than the benefits provided under Section 4(b) 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 termination date or (II) the date on which the Executive commences full-time employment with
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 day immediately preceding the applicable termination date. 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 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 is entitled to
receive benefits under this Section 5(f). 

9

 

At
such time as the Company is no longer required to provide the Executive with life and/or disability insurance, as the case may be, the Executive shall be entitled, at the Executive's expense, to
convert such life and disability insurance, as the case may be, into individually owned policies, except if and to the extent such conversion is not available from the provider of such insurance. 

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

        (iii)  In
the event the Executive's employment hereunder is terminated by reason of death, the Executive's spouse and her dependents shall be entitled for a period of
thirty-six months 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
day immediately preceding his death. 

        (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 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), 2(d),
4(c), 4(d) and 4(e) 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 

10

 

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). 

        (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 

11

 

such
refunds or reductions, including, without limitation, borrowing money from the Company (on terms and conditions reasonably satisfactory to the Executive and the Company, including, without
limitation, having the Company make the Executive whole, on an after-tax basis, for any interest costs) so that the payments made from time to time by the Executive to the Company
hereunder maximize (to the extent reasonably possible) such refunds and reductions, the aggregate amount of such payments by the Executive not to exceed the Gross-Up Repayment (computed
without regard to the provisos to the first sentence of this Section 5(i)(iii)); provided, however, that the Company shall bear and directly pay, or shall promptly reimburse the Executive for,
all costs and expenses (including any additional penalties and interest) incurred by the Executive in connection with any actions taken or omitted by the Executive in accordance with instructions from
the Company pursuant to this sentence, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including any additional penalties and
interest) imposed as a result of the Company's payment of such costs and expenses. In the event that the Excise Tax is subsequently determined to exceed the amount taken into account hereunder
(including by reason of any payment the existence or amount of which could not be determined at the time of the Excise Tax Payment), the Company shall make an additional Excise Tax Payment in respect
of such excess (together with any interest or penalties payable by the Executive with respect to such excess) at the time that the amount of such excess if finally determined, plus any additional
taxes resulting from the payment to the Executive by the Company for such excess and the interest and penalties thereon. The Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits. 

        (iv)  The
Executive shall give the Company written notice of any determination by the Executive, or any claim by any taxing authority, that he owes Excise Tax on any
Severance Benefit. Such notice shall be given as soon as practicable but no later than ten (10) business days after the Executive makes such determination or is informed of such claim, and
shall, to the extent Executive has or may reasonably obtain such information, apprise the Company of the amount of such Excise Tax and the date on which it is required to be paid. If the Company gives
the Executive written notice at least thirty (30) days prior to the due date for payment of such Excise Tax, or within ten (10) business days of having received the foregoing notice from
the Executive (whichever is later), that it disagrees with or wishes to contest the amount of the Excise Tax, the Company and the Executive shall consult with each other and their respective tax
advisors regarding the amount and payment of any Excise Tax. In the event there is a contest with any taxing authority regarding the amount of the Excise Tax, the Company 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 for such period thereafter (A) as the Executive is entitled to receive severance compensation under this Agreement, or (B) in the event
payment of the Executive's severance compensation is accelerated due to a Change in Control, for a period of three (3) years following the end of the Employment Period, or (C) in the
event the Executive's employment is terminated by the Company for Cause or the Executive terminates his employment for any reason 

12

 

other
than Good Reason (including, without limitation, by giving the Company a Non-Renewal Notice pursuant to Section 1(a) hereof), for a period of twelve months following the
Employment Period: 

	(a)
	the
Executive shall not, directly or indirectly, without the Company's prior written consent, participate or engage in, whether as a director, officer, employee, advisor, consultant,
investor, lender, stockholder, partner, joint venturer, owner or in any other capacity, any Competitive Business (as defined below) conducted in any Competitive Market Area (as defined below);
provided, however, that the Executive shall not be deemed to be participating or engaging in any such business solely by virtue of 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 employee of the Company for the Executive's own benefit or for the benefit of any person or entity other than the Company, (ii) induce any such employee
to leave employment with the Company, or (iii) employ or cause any other person or entity other than the Company to employ any former employee of the Company whose termination of employment
with the Company occurred less than six (6) months prior to such employment by the Executive or such other person or entity; and

	(c)
	the
Executive shall not, without the Company's prior written consent, (i) induce or attempt to induce any customer, supplier or contractor of the Company to terminate or breach
any agreement or arrangement with the Company or otherwise to cease doing business with the Company, or (ii) induce or attempt to induce any customer, supplier or contractor of the Company
(including any prospective customer, supplier or contractor which the Company is actively pursuing prior to the Executive's termination of employment), not to enter into any agreement or arrangement
with the Company or not to do business with the Company. 

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

        The
Executive agrees and acknowledges that a portion of the consideration to be paid by the Company to the Executive pursuant to this Agreement is in consideration of the covenants under
this Section 6 and that such consideration is fair and adequate, even though the Executive will not receive any severance compensation in the event he terminates his employment with the Company
other than for Good Reason or the Company terminates his employment for Cause. The Executive acknowledges and agrees that any breach or anticipatory breach by him of any of the provisions of this
Section 6 would cause the Company irreparable injury not compensable by monetary damages alone and that, accordingly, in any such event, the Company shall be entitled to injunctions, both
preliminary and permanent, enjoining or restraining such breach or anticipatory breach without the necessity of showing 

13

 

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. 

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 

14

 

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
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 

15

 

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. 

        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/  RICHARD J. ALARIO      
 RICHARD J. ALARIO	
 	

 	
 	

 

16

 
 
 

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. 

17

 
 
 

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 

18

 

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. 

19

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RICHARD J. ALARIO EMPLOYMENT AGREEMENT

EXHIBIT A

EXHIBIT BQuickLinks
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Exhibit 10.2  

EXECUTION COPY  

 
  RICHARD J. ALARIO 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 10th day of June, 2004, by and between RICHARD J. ALARIO, residing at Lafayette, Louisiana (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 Board of Directors of the Company (the "Board") is of the view that obtaining a commitment from the Executive to serve in the
capacities as Chief Executive Officer and President of the Company until December 31, 2007 is essential to the continued growth and success of the Company and is in the best interests of the
Company and its shareholders; 

        WHEREAS,
the Company desires to enter into this written Employment Agreement with the Executive, effective as of May 1, 2004 (the "Commencement
Date"); and 

        WHEREAS,
the Executive is willing to serve as the Company's Chief Executive Officer and President pursuant to the terms and conditions set forth herein, effective as of the Commencement
Date, and to replace his employment agreement with the Company as President and Chief Operating Officer (the "2003 Agreement") with this 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 2003 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, (ii) to make any payments to the
Executive under benefit plans for expenses incurred prior to the Commencement Date, or (iii) except as otherwise specifically noted herein. Effective as of the Commencement Date, the Company
hereby agrees to continue to employ the Executive, and the Executive hereby accepts employment and promotion by the Company, as the Company's Chief Executive Officer and President, and the Executive
shall hold such positions and continue employment with the Company hereunder until the close of business on December 31, 2007, unless sooner terminated in accordance with Section 5
hereof (the "Initial Employment Period"). The above notwithstanding, at the close of business on each December 31, commencing with
December 31, 2007, the term of the Executive's employment hereunder shall be automatically extended for twelve (12) months (unless sooner terminated in accordance with Section 5
hereof) unless either the Executive or the Company shall have given written notice (in each case, a "Non-Renewal Notice") to the other that
such automatic extension shall not occur, which Non-Renewal Notice shall have been given no later than ninety (90) days prior to the relevant December 31 (the Initial
Employment Period, together with any extensions, until termination in accordance herewith, is referred to hereby as the "Employment Period"). 

        (b)   The
Executive shall have the responsibilities, duties and authority commensurate with his positions as the Chief Executive Officer and President 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; provided, however, that Executive agrees that the
Company may select or employ one or more other officers to serve 

 

as
President and/or Chief Operating Officer so long as the Executive continues to be the most senior officer. The Executive will report only to the Board. 

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

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

        (e)   The
Executive represents and warrants to the Company that the representations and warrants he made in Section 1(e) of the 2003 Agreement remain correct and that
he is not now and will not become subject to any covenants against competition or similar covenants or agreements that would affect the performance of his obligations hereunder. 

        The
Executive covenants that he will not disclose or use confidential or proprietary materials, documents, information or other property of a third party (including, without limitation,
any present or former employer) in any way which could create a claim against the Company or the Executive or which would violate any agreement, written or oral, relating to such materials, documents,
information or other property. 

2.     Salary; Bonuses; Expenses.  

        (a)   During
the Employment Period beginning with the Commencement Date, the Company will pay base compensation to the Executive at the annual rate of Seven Hundred Thousand
Dollars ($700,000) per year (the "Base Salary"), payable in substantially equal installments in 

2

 

accordance
with the Company's existing payroll practices, but no less frequently than monthly. The Company will review the Base Salary on a yearly basis promptly following the end of each fiscal year
of the Company to determine if an increase is advisable, and the Base Salary may be increased (but not decreased) at the discretion of the Compensation Committee of the Board (the
"Compensation Committee") or the Board, 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 Plans will be based on objective criteria specified in good faith in
advance by the Compensation Committee after consultation with 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 in its discretion determines are appropriate to recognize extraordinary performance by the Executive. Exhibit A provides additional
details regarding bonus arrangements. 

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

        (d)   On
each date set forth in the table below, the Executive shall be paid the bonus set beside such date in such table if (subject to Section 5(d) hereof) the
Executive is employed by the Company on such date: 

	Date
 
	 	Bonus

	January 1, 2005	 	$	100,000
	January 1, 2006	 	$	200,000
	December 31, 2006	 	$	232,190

3.     Equity-Based Incentives.  

        (a)   The
Executive has been 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 125,000 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. The Compensation Committee will grant an additional Deferred Stock Grant with respect to 125,000 shares of the Company's common stock,
subject to objective goals to be developed by the Compensation Committee in consultation with the Executive (which goals will normalize out the out of pocket expenses of the financial restatement
under consideration at the Commencement Date), with the grant to be made as soon as such goals are set and with the performance period to run from July 1, 2004 through December 31, 2005.
The Compensation Committee will also grant the Executive nonqualified stock options under the Key Energy Group, Inc. 1997 Incentive Plan (the "1997
Plan") for 250,000 shares of Company's common stock, with the exercise price set as provided under that plan based on the date of grant and with cliff vesting as of the first
anniversary of the date of grant, assuming Executive remains employed by the Company until such first anniversary (or as otherwise provided under Section 5(e) hereof). 

3

 

        (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. 

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 B
hereto. 

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

        (c)   The
Executive shall be entitled to receive an allowance of $1,100 per month, plus reimbursement for reasonable insurance and maintenance expenses, to cover costs
incurred by the Executive in connection with the use of his automobile during the Employment Period. 

        (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 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. 

        (e)   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. 

        (f)    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 Compensation Committee, 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. Fees and expenses under this Section 4(f) are
subject to an annual budget to be prepared by the Executive and approved by the Compensation Committee, which budget will take into account the heightened expenses applicable to an initial membership
year. 

4

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

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

        As
used in this Agreement, the term "Cause" shall mean (i) any breach of any representation, warranty or covenant of the Executive
contained in Section 1(e) hereof; (ii) 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; (iii) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily
or otherwise; (iv) the conviction of the Executive of a felony by a court of competent jurisdiction; or (v) 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 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 (ii) or (iii) 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 

5

 

majority
of the Board (excluding the Executive, if applicable) he was guilty of conduct set forth in clause (i) or (ii) above. 

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

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

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

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

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

6

 

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

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

        (2)   Material
change by the Company in the Executive's title, authority, functions, duties or responsibilities as 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 materially less responsibility, importance, scope or dignity than
his position as of the Commencement Date (other than as provided in Section 1(b) with respect to any future appointment of a President and/or Chief Operating Officer), provided that such
material change is not in connection with a termination of Executive's employment hereunder by the Company for Cause (in accordance with Section 5(a) hereof), for Disability (in accordance with
Section 5(b) hereof) or other than for Cause or Disability (in accordance with Section 5(a) hereof) (including, without limitation, by giving the Executive a Non-Renewal
Notice pursuant to Section 1(a) hereof), or is otherwise permitted by Section 5(b)(ii) hereof; and provided, further, that any notice of termination hereunder shall be given by
the Executive within ninety (90) days of when he becomes aware of such change; or 

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

        (4)   Failure
by the Company to obtain an assumption of this Agreement (by operation of law or in writing) by a successor in accordance with Section 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 

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

        (6)   At
the Executive's election following, but prior to the first anniversary of, a Change in Control (as defined below), effective upon giving such notice;  provided, however, that the Executive can only give such notice beginning ninety (90) days after
the closing of the Change in Control. 

7

 

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

        (d)    Severance Compensation.    

        (i)    Termination for Good Reason or Other than for Cause.    In the event the Executive's employment hereunder is
terminated (A) by the Executive for Good Reason or (B) by the Company other than (x) for Cause, (y) Disability, or (z) by giving the Executive a
Non-Renewal Notice pursuant to Section 1(a) hereof, the Executive shall be entitled, in addition to the other compensation and benefits herein provided for, to (A) 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 thirty-six (36) substantially equal
monthly installments commencing at the end of the calendar month in which the termination date occurs and (B) payment, on the dates specified therefor, of the bonuses set forth in
Section 2(d) hereof. If Executive's employment is terminated by the Company's giving Executive a Non-Renewal Notice pursuant to Section 1(f) hereof, the Executive shall be
entitled, in addition to the other compensation and benefits herein provided for, and in lieu of the compensation under clause (A) in the preceding sentence, severance compensation in an
aggregate amount equal to the greater of (i) one (1) times his Base Salary at the rate in effect on the termination date, payable in twelve (12) substantially equal monthly
installments commencing at the end of the calendar month in which the termination date occurs or (ii) the highest multiple of Base Salary in effect for nonrenewal under any other executive
officer's contract in effect at the time of non-renewal under this Agreement, payable in comparable installments; provided that clause (ii) will only apply to increase the severance
beyond one year's salary if the other executive's contract was also either in effect on the Commencement Date or approved by the Compensation Committee after the Commencement Date. 

        (ii)    Termination following Disability.    In the event the Executive's employment should be terminated by the
Company as a result of Disability in accordance with Section 5(b) hereof, then the Executive shall be entitled, in addition to the other compensation and benefits herein provided for, to
(A) 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 thirty-six
(36) substantially equal monthly installments commencing at the end of the calendar month in which the termination date occurs, reduced by the amount of any disability insurance proceeds
actually paid to the Executive or for his benefit during such time period (but only those proceeds from disability insurance provided by the Company to the Executive pursuant to Section 4(a)
hereof), and (B) payment, on the dates specified therefor, of the bonuses set forth in Section 2(d) hereof. 

        (iii)    Change in Control.    If the Executive's employment is terminated in anticipation of, or within one
(1) year following, a Change in Control and the Executive is entitled to severance compensation pursuant to Section 5(d)(i) or 5(d)(ii) hereof as a result of such
termination, the severance compensation otherwise payable to the Executive (A) shall be increased to an amount equal to three (3) times the Executive's average W-2 income
from the Company (less (x) the bonuses set forth in Section 2(d) hereof (including any paid under the 2003 Agreement) and (y) any income realized by the Executive from exercising
stock options) 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
and (B) shall be payable in one lump sum on the effective date of such termination. In the event there is a Change in Control after Executive's employment is terminated while Executive is
entitled to severance compensation pursuant to Section 5(d)(i) or 5(d)(ii) hereof, any severance compensation which remains unpaid as of the Change in Control shall be paid in one
lump sum as of the Change in Control. In the event severance compensation becomes 

8

 

payable
in a lump sum pursuant to this Section 5(d)(iii), if the Executive's employment is or has been terminated for Disability, such lump sum shall be reduced by a good faith estimate of the
aggregate amount of any disability insurance proceeds which will be actually paid to the Executive or for his benefit (but only those proceeds from disability insurance provided by the Company to the
Executive pursuant to Section 4(a) hereof) during the remaining period over which such severance would otherwise have been paid. 

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

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

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

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

        (i)    In
the event the Executive's employment hereunder is terminated by the Company for any reason other than for Cause or Disability (including, without limitation, by
giving the Executive a Non-Renewal Notice pursuant to Section 1(a) hereof), or in the event the Executive should terminate his employment for Good Reason, then, unless the
provisions of Section 5(e)(iv) hereof shall apply, any Equity-Based Incentives held by the Executive which have not vested prior to the effective date of such termination shall
immediately vest and shall remain exercisable until the earlier to occur of (x) the third anniversary of the effective date of such termination and (y) the final stated expiration date
of the Equity-Based Incentive. In addition, in the event of such a termination, any Equity-Based Incentives held by the Executive which have vested prior to the effective date of such termination
shall remain exercisable until the earlier to occur of (x) the third anniversary of the effective date of such termination and (y) the final stated expiration date of the Equity-Based
Incentive. 

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

9

 

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

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

        (iv)  In
the event of a 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 within one (1) year 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 (including, without limitation, by giving the Executive a Non-Renewal Notice pursuant to Section 1(a) hereof) 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. 

        (v)   In
the event of a conflict between the preceding terms and provisions of this Section 5(e) and any other terms and provisions governing any Equity-Based
Incentives held (now or in the future) by the Executive (including without limitation the terms and provisions contained in the agreements and/or plans pursuant to which such Equity-Based Incentives
were (or will in the future be) granted but excluding matters covered by Section 5(e)(vi)), 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). 

        (vi)  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 (including, without limitation, by giving the Executive a Non-Renewal Notice pursuant to Section 1(a) hereof) and not as a result of the death of
the Executive, the 

10

 

Executive
shall continue to be entitled, at the Company's expense, to the post-employment benefits under Section 4(a), if any, that such benefits provide under their terms for a
period of time following the termination date ending on the first to occur of (I) the third anniversary of the termination date, (II) the last date of eligibility under the applicable
benefits or (III) the date on which the Executive commences full-time employment with another employer. The Company will pay the premiums for COBRA health coverage for Executive and
his covered family members for the period COBRA provides. At such time as the Company is no longer required to provide the Executive with life and/or disability insurance, as the case may be, the
Executive shall be entitled, at the Executive's expense, to convert such life and disability insurance, as the case may be, into individually owned policies, except if and to the extent such
conversion is not available from the provider of such insurance. 

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

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

        (g)    Accrued Compensation.    In the event of any termination of the Executive's employment for any reason, the
Executive (or his estate) shall be paid (i) any unpaid portion of his Base Salary through the effective termination date, (ii) for any accrued but unused vacation (payable in an amount
equal to the Base Salary divided by 255 and multiplied by the number of accrued but unused vacation days), (iii) any prior fiscal year bonus earned, but not paid (other than on a resignation by
Executive without Good Reason or termination for Cause that occurs less than 90 days after the end of the period for which the bonus is to be paid), (iv) provided that the Executive's
employment was not terminated by the Company for Cause or was terminated by the Executive for 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) those goals were on
or above target at the date of termination, (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), 2(d), 4(c), 4(d) and 4(f) 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, except that the amount provided under
clause (iv) above shall be paid no later than ten (10) days after the Company is reasonably able to determine that the performance goals were on or above target at the date of
termination for a performance period that concludes after the termination date. 

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

11

  

        (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 a nationally recognized law or accounting firm ("280G Advisers") selected by the Compensation Committee or the Board,
and reasonably acceptable to the Executive, that such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Code section 280G(b)(4)(A),
or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Code section 280G(b)(4)(B), in excess of the
"Base Amount" as defined in Code section 280G(b)(3) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax;
and 

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

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

12

 

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

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

13

 

on
(x) the Excise Tax Payment (including any interest and penalties with respect thereto) and (y) the Company's payment of the Executive's costs and expenses hereunder. 

6.     Limitation on Competition.  

        The Executive acknowledges his prior and continuing access to the financial and other confidential information of the Company. As an agreement ancillary to the
receipt of such information and the other undertakings in this Agreement, the Executive covenants as follows: During the Employment Period, and for such period thereafter (A) as the Executive
is entitled to receive severance compensation under this Agreement, or (B) in the event payment of the Executive's severance compensation is accelerated due to a Change in Control, for a period
of three (3) years following the end of the Employment Period, or (C) in the event the Executive's employment is terminated by the Company for Cause or the Executive terminates his
employment for any reason other than Good Reason (including, without limitation, by giving the Company a Non-Renewal Notice pursuant to Section 1(a) hereof), for a period of twelve
months following the Employment Period: 

	(a)
	the
Executive shall not, directly or indirectly, without the Company's prior written consent, participate or engage in, whether as a director, officer, employee, advisor, consultant,
investor, lender, stockholder, partner, joint venturer, owner or in any other capacity, any Competitive Business (as defined below) conducted in any Competitive Market Area (as defined below);
provided, however, that the Executive shall not be deemed to be participating or engaging in any such business solely by virtue of 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 employee of the Company for the Executive's own benefit or for the benefit of any person or entity other than the Company, (ii) induce any such employee
to leave employment with the Company, or (iii) employ or cause any other person or entity other than the Company to employ any former employee of the Company whose termination of employment
with the Company occurred less than six (6) months prior to such employment by the Executive or such other person or entity; and

	(c)
	the
Executive shall not, without the Company's prior written consent, (i) induce or attempt to induce any customer, supplier or contractor of the Company to terminate or breach
any agreement or arrangement with the Company or otherwise to cease doing business with the Company, or (ii) induce or attempt to induce any customer, supplier or contractor of the Company
(including any prospective customer, supplier or contractor which the Company is actively pursuing prior to the Executive's termination of employment), not to enter into any agreement or arrangement
with the Company or not to do business with the Company. 

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

14

 

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. 

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 

15

 

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. The Company shall also pay the
Executive's reasonable fees for legal expenses related to the negotiation and documentation of this Agreement, to a maximum of $7,500. 

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

12.   Waivers.  

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

13.   Headings; Other Language.  

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

14.   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 documents pursuant to which any Equity-Based Incentives are held (now or in the future) by the 

16

 

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. 

17

 

        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 BREAZZANO      
	 	 	 	
 David Breazzano

Chair, Compensation Committee
	

/s/  RICHARD J. ALARIO      	
 	

 	

 
	
 RICHARD J. ALARIO	 	 	 

18

   EXHIBIT A  

 Performance Bonuses  

	•
	Eligible
for cash incentives under Performance Cash Incentive Plans—target of 100% of Base Salary and potential for up to another 100% of Base Salary as provided
below:

	•
	Goals
for January 1, 2004 through June 30, 2004 to remain the same as those in effect before the Commencement Date, other than to adjust out the direct costs
and expenses of the restatement process, the Audit Committee investigation, and any Securities and Exchange Commission investigation (primarily adviser fees). Bonus for that period calculated based on
four months of Base Salary at $300,000 and two months at $700,000.

	•
	No
bonus under this program until at least 80% of goals, as set and later certified by the Compensation Committee, are achieved.

	•
	Between
80% and 100% achievement, the bonus will be 80% to 100% of Base Salary, proportionate to achievement in the Committee's sole determination.

	•
	Above
100% achievement to 200% achievement, in the Committee's sole determination, proportionate additional bonus of up to an additional 100% of Base Salary.

	•
	An
additional compensation incentive for the first year of employment as Chief Executive Officer of up to 100% of Base Salary payable based on the Compensation Committee's
assessment (and approval by the full Board) of Executive's performance in addressing current management issues at the Company, including rebuilding a cohesive management team, managing the process for
timely completion of the audit and restatements and filing of the 10-K, maintaining and restoring confidence of investors, creditors and other corporate constituencies (including
employees), enhancing the disclosure and internal control environment, and other factors. This assessment would be made based on the results achieved in the first year after his promotion.

	•
	Payment
requires continued employment through 90 days after the completion of the period with respect to which to each bonus is determined, except as the employment
agreement otherwise specifies for certain circumstances of employment termination. 

19

 

EXHIBIT B  

 Company Paid Coverages  

	1.
	Term
Life Insurance. $2,000,000 payable to beneficiary designated by the Executive. Provided only while employed and during any following period during which the Executive is subject
to a noncompetition obligation under Section 6, except as provided in Section 5(d)(v) (for terminations for Cause or terminations by Executive without Good Reason).

	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. Coverage offered only while employed.

	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 while employed, with a report by the examining physician to the Board regarding the Executive's ability to perform job related
functions. 

20

 
EXHIBIT C  

 Definition of "Change in Control"  

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

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

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

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

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

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

        (f)    upon
a change in the majority of the members of the Board in connection with a transaction that would have been described in (a) above if the number "fifty
percent (50%)" were "twenty-five percent (25%);" or 

        (g)   upon
a "Change in Control" as defined under any other executive officer's contract in effect at the time of a purported Change in Control; provided that this
(g) will apply only if such other executive's contract was also either in effect on the Commencement Date or approved by the Compensation Committee after the Commencement Date. 

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

21

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RICHARD J. ALARIO EMPLOYMENT AGREEMENT

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