Document:

Exhibit
10.3

AGREEMENT
RE: CHANGE IN CONTROL

This AGREEMENT RE:
CHANGE IN CONTROL (this “Agreement”) is dated as of June 25, 2007 and is
entered into by and between Scot McLeod (“Executive”) and Quidel Corporation, a
Delaware corporation (the “Company”).

Background

The Company
believes that because of its position in the industry, financial resources and
historical operating results there is a possibility that the Company may become
the subject of a Change in Control (as defined below), either now or at some
time in the future.

The Company
believes that it is in the best interest of the Company and its stockholders to
foster Executive’s objectivity in making decisions with respect to any pending
or threatened Change in Control of the Company and to assure that the Company
will have the continued dedication and availability of Executive,
notwithstanding the possibility, threat or occurrence of a Change in Control.
The Company believes that these goals can best be accomplished by alleviating
certain of the risks and uncertainties with regard to Executive’s financial and
professional security that would be created by a pending or threatened Change
in Control and that inevitably would distract Executive and could impair his
ability to objectively perform his duties for and on behalf of the Company.
Accordingly, the Company believes that it is appropriate and in the best
interest of the Company and its stockholders to provide to Executive
compensation arrangements upon a Change in Control that lessen Executive’s financial
risks and uncertainties and that are reasonably competitive with those of other
corporations.

With these and
other considerations in mind, the Compensation Committee of the Company has
authorized the Company to enter into this Agreement with the Executive to
provide the protections set forth herein for Executive’s financial security
following a Change in Control.

NOW, THEREFORE, in
consideration of the foregoing, and for other good and valuable consideration
the receipt of which is hereby acknowledged, it is hereby agreed as follows:

Agreement

1.             Term of Agreement.  This Agreement shall be effective as of July
2, 2007 and, subject to the provisions of Section 4, shall extend to (and
thereupon automatically terminate) one (1) day after Executive’s termination of
employment with the Company for any reason. No termination of this Agreement
shall limit, alter or otherwise affect Executive’s rights hereunder with
respect to a Change in Control which has occurred prior to such termination,
including without limitation Executive’s right to receive the various benefits
hereunder.

2.             Purpose of
Agreement.  The purpose of this
Agreement is to provide that, in the event of a “Change in Control,” Executive
may become entitled to receive certain additional benefits, as described
herein, in the event of his termination under specified circumstances.

3.             Change in Control.  As used in this Agreement, the phrase “Change
in Control” shall mean:

(i)            Except as provided by
subparagraph (iii) hereof, the acquisition (other than from the Company) by any
person, entity or “group”, within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
(excluding, for this purpose, the Company or its subsidiaries, or any executive
benefit plan of the Company or its subsidiaries which acquires beneficial
ownership of voting securities of the Company), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of forty percent
(40%) or more of either the then outstanding shares of common stock or the 

combined voting power of
the Company’s then outstanding voting securities entitled to vote generally in
the election of directors; or

(ii)           Individuals who, as of
the date hereof, constitute the Board of Directors of the Company (as of the
date hereof the “Incumbent Board”) cease for any reason to constitute at least
a majority of the Board of Directors of the Company, provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company’s stockholders, is or was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the Directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for
purposes of this Agreement, considered as though such person were a member of
the Incumbent Board; or

(iii)          Approval by the
stockholders of the Company of a reorganization, merger or consolidation with
any other person, entity or corporation, other than

(1)           a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of another
entity) more than fifty percent (50%) of the combined voting power of the
voting securities of the Company or such other entity outstanding immediately
after such merger or consolidation, or

(2)           a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires forty percent (40%) or more of
the combined voting power of the Company’s then outstanding voting securities;
or

(iv)          Approval by the
stockholders of the Company of a plan of complete liquidation of the Company or
an agreement for the sale or other disposition by the Company of all or
substantially all of the Company’s assets.

4.             Effect of a Change
in Control.  In the event of a Change
in Control, Sections 6 through 13 of this Agreement shall become applicable to
Executive. These Sections shall continue to remain applicable until the third
anniversary of the date upon which the Change in Control occurs.  On such third anniversary date, and provided
that the employment of Executive has not been terminated on account of a
Qualifying Termination (as defined in Section 5 below), this Agreement shall
terminate and be of no further force or effect.

5.             Qualifying
Termination.  If following, or within
thirty (30) days prior to, a Change in Control Executive’s employment with the
Company and its affiliated companies is terminated, such termination shall be
conclusively considered a “Qualifying Termination” unless:

(a)           Executive
voluntarily terminates his employment with the Company and its affiliated
companies. Executive, however, shall not be considered to have
voluntarily terminated his employment with the Company and its affiliated
companies if, following, or within thirty (30) days prior to, the Change in
Control, Executive’s overall compensation is reduced or adversely modified in
any material respect or Executive’s authority or duties are materially changed,
and subsequent to such reduction, modification or change Executive elects to
terminate his employment with the Company and its affiliated companies. For
such purposes, Executive’s authority or duties shall conclusively be considered
to have been “materially changed” if, without Executive’s express and voluntary
written consent, there is any substantial diminution or adverse modification in
Executive’s title, status, overall position, responsibilities, reporting
relationship, general working environment (including without limitation
secretarial and staff support, offices, 

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and frequency and mode of travel), or if, without Executive’s express
and voluntary written consent, Executive’s job location is transferred to a
site more than twenty-five (25) miles away from his place of employment thirty
(30) days prior to the Change in Control. In this regard as well, Executive’s
authority and duties shall conclusively be considered to have been “materially
changed” if, without Executive’s express and voluntary written consent,
Executive no longer holds the same title or no longer has the same authority
and responsibilities or no longer has the same reporting responsibilities, in
each case with respect and as to a publicly held parent company which is not
controlled by another entity or person.

(b)           The
termination is on account of Executive’s death or Disability. For such
purposes, “Disability” shall mean a physical or mental incapacity as a result
of which Executive becomes unable to continue the performance of his
responsibilities for the Company and its affiliated companies and which, at
least three (3) months after its commencement, is determined to be total and
permanent by a physician agreed to by the Company and Executive, or in the
event of Executive’s inability to designate a physician, Executive’s legal
representative. In the absence of agreement between the Company and Executive,
each party shall nominate a qualified physician and the two physicians so
nominated shall select a third physician who shall make the determination as to
Disability.

(c)           Executive
is involuntarily terminated for “Cause.” For this purpose, “Cause” shall be
limited to only three types of events:

(1)           the willful and
deliberate refusal of Executive to comply with a lawful, written instruction of
the Board of Directors, which refusal is not remedied by Executive within a
reasonable period of time after his receipt of written notice from the Company
identifying the refusal, so long as the instruction is consistent with the
scope and responsibilities of Executive’s position prior to the Change in
Control;

(2)           an act or acts of
personal dishonesty by Executive which were intended to result in substantial
personal enrichment of Executive at the expense of the Company; or

(3)           Executive’s conviction
of any felony involving an act of moral turpitude.

6.             Severance Payment.  If Executive’s employment is terminated as a
result of a Qualifying Termination, the Company shall pay Executive within
thirty (30) days after the Qualifying Termination a cash lump sum equal to two
(2) times the Executive’s Compensation (the “Severance Payment”).

(a)           For
purposes of this Agreement, Executive’s “Compensation” shall equal the sum of
(i) Executive’s highest annual salary rate with the Company within the three
year period ending on the date of Executive’s Qualifying Termination, plus (ii)
a “Bonus Increment.” The Bonus Increment shall equal the annualized average of
all bonuses and incentive compensation payments paid to Executive during the
two (2) year period immediately before the date of Executive’s Qualifying
Termination under all of the Company’s bonus and incentive compensation plans
or arrangements.

(b)           In
lieu of a cash lump sum, Executive may, in his sole discretion, elect to
receive the Severance Payment provided by this Section in equal annual
installments over three (3) years. Such installments shall be paid to Executive
on each anniversary of the date of Executive’s Qualifying Termination,
beginning with the first such anniversary and continuing on each such
anniversary thereafter until fully paid. Such election to receive the Severance
Payment in installments may be made and/or revoked by Executive at any time
prior to the occurrence of a Change in Control by written notice to 

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the Board of
Directors of the Company. Upon the occurrence of a Change in Control, any such
election to receive the Severance Payment in installments that has been made
and not revoked prior to the Change in Control shall be irrevocable and binding
on both the Company and Executive. In the event that at the time of a Change in
Control there is not in effect an election by Executive to receive the
Severance Payment in installments, such Severance Payment shall be paid to
Executive in a single cash lump sum as provided in subparagraph (a) above.

(c)           The
Severance Payment hereunder is in lieu of any severance payment that Executive
might otherwise be entitled to from the Company in the event of a Change in
Control under the Company’s applicable severance pay policies, if any, or under
any other oral or written agreement; provided, however, that
Executive shall continue to be entitled to receive the severance pay benefits
under the Company’s applicable policies, if any, or under another written
agreement if and to the extent Executive’s termination is not a Qualifying
Termination after, or within thirty (30) days prior to, a Change in Control.

7.             Additional
Benefits.

(a)           In
the event of a Qualifying Termination, any and all unvested stock options of
Executive shall immediately become fully vested and exercisable and any and all
restrictions on Executive’s restricted stock shall immediately and
automatically lapse (except as otherwise expressly agreed to, in writing, by both
parties, including whether prior to or after the execution of this Agreement).

(b)           In
the event of a Qualifying Termination, Executive shall be entitled to continue
to participate in the following executive benefit programs which had been made
available to Executive (including his family) before the Qualifying
Termination: group medical insurance, group dental insurance, and group vision
insurance. These programs shall be continued at no cost to Executive, except to
the extent that tax rules require the inclusion of the value of such benefits
in Executive’s income. The programs shall be continued in the same way and at
the same level as immediately prior to the Qualifying Termination.  The programs shall continue for Executive’s
benefit for two (2) years after the date of the Qualifying Termination; provided,
however, that Executive’s participation in each of such programs shall
be earlier terminated or reduced, as applicable, if and to the extent Executive
receives benefits as a result of concurrent coverage through another program.

(c)           In
the event of a Qualifying Termination, Executive shall be entitled to receive
from the Company, upon such Termination, the sum of $25,000 to help defray
legal fees, tax and accounting fees, executive outplacement services, and other
costs associated with transitional matters.

8.             Limitation on
Payments.  Notwithstanding anything
to the contrary herein, in the event that the sum aggregate present value of
(i) the Severance Payment payable under Section 6 hereof, (ii) any and all
additional amount or benefits which may be paid or conferred to or on behalf of
Executive in accordance with Section 7 hereof, and (iii) any and all other
amounts or benefits paid or conferred to or on behalf of Executive would
constitute a “parachute payment” (“parachute payment” as used in this Agreement
shall be defined in accordance with Section 280G(b)(2), or any successor
thereto, of the Internal Revenue Code of 1986, as amended), the payments under
this Agreement shall be reduced (by the minimum possible amounts) until no
amount payable to Executive under this Agreement constitutes a parachute
payment; provided, however, that no such reduction under this
Section 8 shall be made if the net after-tax payment (after taking into
account, Federal, state, local or other income and excise taxes) to which
Executive would otherwise be entitled without such reduction would be greater
than the net after-tax payment (after taking into account Federal, state, local
or other income and excise taxes) to Executive resulting from the receipt of
such payments with such reduction. If, as a result of 

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subsequent events or
conditions (including a subsequent payment or absence of a subsequent payment
under this Agreement), it is determined that payments hereunder have been
reduced by more than the minimum amount required under this Section 8, then an
additional payment shall be promptly made to Executive in an amount equal to
the excess reduction. All determinations required to be made under this Section
8, including whether a payment would result in a parachute payment and the
assumptions to be utilized in arriving at such determination, shall be made and
approved within fifteen (15) days after the Qualifying Termination by both (1)
accountants selected by the Company and (2) Executive’s designated financial
advisor.

9.             Nonsolicitation
Covenant. In consideration of the payments to be made to Executive
hereunder, Executive hereby covenants, for a period of two (2) years following
the Qualifying Termination, that he will not, directly or indirectly (whether
as an officer, director, employee, individual proprietor, control shareholder,
consultant, partner or otherwise) (i) solicit, recruit or hire-away any
employee of the Company or successor of the Company or (ii) solicit, influence
or attempt to influence any person or entity to terminate such person’s or
entity’s contractual and/or business relationship with the Company or successor
of the Company. With regard to this Section 9, Executive acknowledges that the
provisions herein are reasonable in both scope and duration and necessary to
protect the business of the Company or its successor.

10.           Rights and
Obligations Prior to a Change in Control. Prior to the date which is thirty
(30) days before a Change in Control, the rights and obligations of Executive
with respect to his employment by the Company shall be determined in accordance
with the policies and procedures adopted from time to time by the Company and
the provisions of any written employment contract in effect between the Company
and Executive from time to time. This Agreement deals only with certain rights
and obligations of Executive subsequent, or within thirty (30) days prior to, a
Change in Control, and the existence of this Agreement shall not be treated as raising
any inference with respect to what rights and obligations exist prior to the
date which is thirty (30) days before a Change in Control. Unless otherwise
expressly set forth in a separate written employment agreement between
Executive and the Company, the employment of Executive is expressly at-will,
and Executive or the Company may terminate Executive’s employment with the
Company at any time and for any reason, with or without cause, provided that if
such termination occurs within thirty (30) days prior to or three (3) years
after a Change in Control and constitutes a Qualifying Termination (as defined
in Section 5 above) the provisions of this Agreement shall govern the payment
of the Severance Payment and certain other benefits as provided herein.

11.           Non-Exclusivity of
Rights. Subject to Section 6(c) hereof, nothing in this Agreement shall
prevent or limit Executive’s continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company or any of its
affiliated companies and for which Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as Executive may have under any
stock option or other agreements with the Company or any of its affiliated
companies. Except as otherwise provided in Section 6(c) hereof, amounts which
are vested benefits or which Executive is otherwise entitled to receive under
any plan or program of the Company or any of its affiliated companies at or
subsequent to the date of any Qualified Termination shall be payable in
accordance with such plan or program.

12.           Full Settlement.  The Company’s obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counter-claim, recoupment,
defense or other claim, right, or action which the Company may have against
Executive or others. In no event shall Executive be obligated to seek other
employment or to take any other action by way of mitigation of the amounts
payable to Executive under any of the provisions of this Agreement. The Company
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which Executive may reasonably incur as a result of Executive’s successful
collection efforts to receive amounts payable hereunder, or as a result of any
contest (regardless of the outcome thereof) by the Company or others of the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of 

 5
 

performance thereof
(including as a result of any contest by Executive about the amount of any
payment pursuant to this Section).

13.           Successors.

(a)           This
Agreement is personal to Executive, and without the prior written consent of
the Company shall not be assignable by Executive other than by will or the laws
of descent and distribution. This Agreement shall inure to the benefit of and
be enforceable by Executive’s legal representatives.

(b)           The
rights and obligations of the Company under this Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of the Company.

14.           Governing Law.     This Agreement is made and
entered into in the State of California, and the internal laws of California
shall govern its validity and interpretation in the performance by the parties
hereto of their respective duties and obligations hereunder.

15.           Modifications.  This Agreement may be amended or modified
only by an instrument in writing executed by all of the parties hereto.

16.           Dispute Resolution.

(a)           Any
controversy or dispute between the parties involving the construction,
interpretation, application or performance of the terms, covenants, or
conditions of this Agreement or in any way arising under this Agreement (a “Covered
Dispute”) shall, on demand by either of the parties by written notice served on
the other party in the manner prescribed in Section 17 hereof, be referenced
pursuant to the procedures described in California Code of Civil Procedure (“CCP”)
Sections 638, et  seq., as they may be amended from time to time
(the “Reference Procedures”), to a retired Judge from the Superior Court for
the County of San Diego or the County of Orange for a decision.

(b)           The
Reference Procedures shall be commenced by either party by the filing in the
Superior Court of the State of California for the County of San Diego or the
County of Orange of a petition pursuant to CCP Section 638(a) (a “Petition”).
Said Petition shall designate as a referee a Judge from the list of retired San
Diego County and Orange County Superior Court Judges who have made themselves
available for trial or settlement of civil litigation under said Reference
Procedures. If the parties hereto are unable to agree on the designation of a
particular retired San Diego County or Orange County Superior Court Judge or
the designated Judge is unavailable or unable to serve in such capacity,
request shall be made in said Petition that the Presiding or Assistant
Presiding Judge of the San Diego County Superior Court or the Orange County
Superior Court, as relevant, appoint as referee a retired San Diego County or
Orange County Superior Court Judge from the aforementioned list.

(c)           Except
as hereafter agreed by the parties, the referee shall apply the internal law of
California in deciding the issues submitted hereunder. Unless formal pleadings
are waived by agreement among the parties and the referee, the moving party
shall file and serve its complaint within 15 days from the date a referee is
designated as provided herein, and the other party shall have 15 days thereafter
in which to plead to said complaint. Each of the parties reserves its
respective rights to allege and assert in such pleadings all claims, causes of
action, contentions and defenses which it may have arising out of or relating
to the general subject matter of the Covered Dispute that is being determined
pursuant to the Reference Procedures. Reasonable notice of any motions before
the referee shall be given, and all matters shall be set at the convenience of
the referee. Discovery shall be conducted as the parties agree or as allowed by
the referee. 

 6
 

Unless waived by each of the parties, a reporter shall be present at
all proceedings before the referee.

(d)           It
is the parties’ intention by this Section 16 that all issues of fact and law
and all matters of a legal and equitable nature related to any Covered Dispute
will be submitted for determination by a referee designated as provided herein.
Accordingly, the parties hereby stipulate that a referee designated as provided
herein shall have all powers of a Judge of the Superior Court including,
without limitation, the power to grant equitable and interlocutory and
permanent injunctive relief.

(e)           Each
of the parties specifically (i) consents to the exercise of jurisdiction over
his person by a referee designated as provided herein with respect to any and
all Covered Disputes; and (ii) consents to the personal jurisdiction of the
California courts with respect to any appeal or review of the decision of any
such referee.

(f)            Each
of the parties acknowledges that the decision by a referee designated as
provided herein shall be a basis for a judgment as provided in CCP Section 644
and shall be subject to exception and review as provided in CCP Section 645.

17.           Notices.  Any notice or communications required or
permitted to be given to the parties hereto shall be delivered personally or be
sent by United States registered or certified mail, postage prepaid and return
receipt requested, and addressed or delivered as follows, or at such other
addresses the party addressed may have substituted by notice pursuant to this
Section:

	
  

  	
  Quidel
  Corporation

  	
   

  	
  Scot McLeod

  
	
   

  	
  10165 McKellar
  Court

  	
   

  	
  P.O. Box 500147

  
	
   

  	
  San Diego, CA
  92121

  	
   

  	
  San Diego, CA 92150

  
	
   

  	
  Attn: President

  	
   

  	
   

  

 

18.           Captions.  The captions of this Agreement are inserted
for convenience and do not constitute a part hereof.

19.           Severability.  In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein and there shall be deemed substituted
for such invalid, illegal or unenforceable provision such other provision as
will most nearly accomplish the intent of the parties to the extent permitted
by the applicable law. In case this Agreement, or any one or more the
provisions hereof, shall be held to be invalid, illegal or unenforceable within
any governmental jurisdiction or subdivision thereof, this Agreement or any
such provision thereof shall not as a consequence thereof be deemed to be
invalid, illegal or unenforceable in any other governmental jurisdiction or
subdivision thereof.

20.           Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one in the same Agreement.

[Remainder of page
left blank intentionally, signatures on following page]

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IN WITNESS HEREOF,
the parties hereto have caused this Agreement to be duly executed and delivered
as of the day and year first written above in San Diego, California.

	
  

  	
  Quidel
  Corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Caren Mason

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President and
  Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Scot McLeod

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Scot McLeod

  	
   

  
									

 

 8Exhibit 10.1

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

	
  FRANCIS D. JOHN

  	
  §

  	
   

  
	
   

  	
  §

  	
   

  	
  C.A. No. H-06-cv-1716

  
	
  v.

  	
  §

  	
   

  
	
   

  	
  §

  	
   

  
	
  KEY ENERGY SERVICES, INC.

  	
  §

  	
   

  

 

Settlement Agreement

Effective June 20, 2007, Francis D. John (“John”) and Key Energy
Services, Inc. (“Key”) have agreed to settle all disputes between them as
follows.

1.                                       Key will pay John $23 million on or before 10
business days after the date on which John signs this Settlement
Agreement.  This is the total amount of
money (and other things of value) that Key will pay in connection with this
Settlement Agreement. Key will wire the $23 million to the following account:

Gibbs
& Bruns, L.L.P. IOLTA Account

Beneficiary
Bank:  JPMorgan Chase

ABA
#:  021000021

Beneficiary
Account # 1824138364

John agrees and understands that he is fully
responsible for all tax obligations, if any, on any consideration or payment
made pursuant to this Settlement Agreement and that he exclusively shall be
liable for the payment of any and all federal, state and local taxes which may
be determined to be due as a result of any consideration or payment made
pursuant to this Settlement Agreement. 
John further agrees and hereby represents that he shall pay such taxes,
if any, at the time and in the amount required of him.  John further agrees to fully indemnify and
hold harmless Key from payment of any and all taxes, interest or penalties
that may be required of Key by any government agency or taxing authority at any
time that may be assessed against Key in connection with any payment to John or
consideration received by John pursuant to this Settlement Agreement.  This indemnity shall not apply to any
additional taxes, interest, or penalty assessed against Key as a direct result
of Key’s mischaracterization of the payments on Key’s tax returns.  John further acknowledges that
neither Key, nor any of its representatives or attorneys, have made any
promise, representation or warranty, express or implied, regarding the tax consequences
of any consideration or payment made to John pursuant to this Settlement
Agreement.

2.                                       On June 21, 2007, Key and John jointly will
notify the Court that the parties have signed a settlement agreement.  Within 3 business days of the day on which Key
pays John, Key and John will dismiss with prejudice all of their claims against
each other and will submit a joint proposed order to the Court dismissing with
prejudice all claims in the above-captioned lawsuit.

3.                                       There currently is no employment or consulting
relationship or agreement, any agreement regarding stock options, or any other
kind of agreement between Key and John. 
Any such relationship or agreement, whether written or oral, has been
terminated.

4.                                       Key is entitled to disclose and comment on
this settlement through a press release, a Form 8-K or other SEC filing, and
through other normal means.  John and
John’s counsel are entitled to tell their friends, family and professional
advisors about this settlement, but may not issue a press release, make
internet postings, or otherwise make any widespread public disclosure or
comment about this settlement, except to the extent necessary to correct
factual inaccuracies in the aforementioned disclosures (if any) by Key.

5.                                       Each party will bear its own attorneys’ fees,
expenses, and costs of any kind related to this litigation.

6.                                       John (individually and on behalf of John’s
spouse, heirs, beneficiaries, agents, estates, executors, administrators,
personal representatives, successors and assigns, and anyone else who claims
rights against Key through or as a result of any relationship with John)
forever and irrevocably unconditionally releases, discharges, acquits, and
covenants not to sue Key (including Key and all its subsidiaries, affiliates,
divisions, partners, coventurers, agents, members, principals, auditors,
insurers, lenders, and any past or present officer, director, shareholder,
employee, predecessor, successor, assignee, representative or attorney of any
company, entity or person covered by this release) for, from and of any and all
claims, demands, suits, whether known or unknown, asserted or unasserted,
suspected or unsuspected, regardless of the legal theory, existing now or
arising in the future out of events that exist now, and related to the events
and transactions which are the subject matter of this case, but only with
respect to or by reason of any event, known or unknown, which occurred prior to
the date that John executes this Agreement. 
Notwithstanding any suggestion to the contrary in the list of releasing
parties above, John states that he has no authority to, and does not purport
to, release any claims on behalf of Jane John (or Jane Guggenheim).

This release includes but is
not limited to a release and discharge of Key (as defined above) of and from
any and all debts, obligations, claims, demands, judgments or causes of action
of any kind whatsoever, known or unknown, in tort, contract, by statute
(including but not limited to any state’s wage payment collection laws), or on 

 2
 

any other basis, for
equitable relief, compensatory, punitive or other damages, expenses (including
attorneys’ fees), reimbursements of costs of any kind, including but not
limited to, any and all claims, demands, rights and/or causes of action,
including breach of contract, breach of fiduciary duty, mismanagement, gross
mismanagement, corporate waste, abuse of control, unjust enrichment, breach of
the duty of confidentiality, tortious interference with contract, negligence,
misrepresentation, fraud, defamation, libel, civil conspiracy, false light,
invasion of privacy, actions which might arise out of allegations relating to
the December 2003 Third Amended and Restated Employment Agreement, the 2003
Long-Term Share Incentive Plan (also sometimes referred to as the 2003
Restricted Stock Plan), the 1997 Incentive Plan (or any other Incentive Plan),
any written or oral employment agreement, any written or oral consulting
agreement, any written or oral agreement relating to stock options or other
incentive compensation, any written or oral incentive plan, any written or oral
option plan, or any other aspect of John’s employment or consulting
relationship with Key including matters relating to purported employment
discrimination or civil rights violations or compensation or violations of the
OWBPA, which John might have or assert against Key, but only with respect to or
by reason of any event, known or unknown, which occurred prior to the date that
John executes this Agreement.

This broad release includes
but is not limited to a release of all claims of any kind relating in any way
to John’s assertion that Key owes him compensation of any kind, whether cash,
securities, stock, restricted stock, stock options, benefits, expense
reimbursement, or any other kind of payment or compensation.

7.                                       Key (on its own behalf and on behalf of its
subsidiaries, affiliates, divisions, partners, agents, principals, officers,
directors, shareholders, employees, predecessors, successors, and
assignees)  forever and irrevocably
unconditionally releases, discharges, acquits, and covenants not to sue John
(and his heirs, executors, administrators, representatives, attorneys, and
permitted assigns), for, from and of any and all claims, demands, suits,
whether known or unknown, asserted or unasserted, suspected or unsuspected,
regardless of the legal theory, existing now or arising in the future out of
events that exist now, and related to the events and transactions which are the
subject matter of this case, but only with respect to or by reason of any
event, known or unknown, which occurred prior to the date that Key executes
this Agreement.  This release includes
but is not limited to a release and discharge of John (as defined above) of and
from any and all debts, obligations (including but not limited to those related
to a “Retention Incentive Bonus” as defined in paragraph 2(d) of the Third
Amended and Restated Employment Agreement), claims, demands, judgments or
causes of action of any kind whatsoever, known or unknown, in tort, contract,
by statute (including but not limited to any state’s wage payment collection
laws), or on any other basis, for equitable relief, compensatory, punitive or
other damages, expenses (including attorneys’ fees), reimbursements of costs of
any kind, including but not limited to, any and all claims, demands, rights
and/or causes of action, including breach of contract, breach of fiduciary
duty, mismanagement, gross 

 3
 

mismanagement, corporate
waste, abuse of control, unjust enrichment, breach of the duty of confidentiality,
tortious interference with contract, negligence, misrepresentation, fraud,
defamation, libel, civil conspiracy, false light, invasion of privacy, actions
which might arise out of allegations relating to the December 2003 Third
Amended and Restated Employment Agreement (or any other written or oral
employment agreement), the 2003 Long-Term Share Incentive Plan (also sometimes
referred to as the 2003 Restricted Stock Plan), the 1997 Incentive Plan (or any
other Incentive Plan), any written or oral employment agreement, any written or
oral consulting agreement, any written or oral agreement relating to stock
options or other incentive compensation, any written or oral incentive plan,
any written or oral option plan, or any other aspect of John’s employment or
consulting relationship with Key including matters relating to purported
employment discrimination or civil rights violations or compensation, which Key
might have or assert against John, but only with respect to or by reason of any
event, known or unknown, which occurred prior to the date that Key executes
this Agreement.

8.                                       Notwithstanding the broad mutual releases in
paragraphs 6 and 7 above, the parties agree as follows:

(a)  The releases in this Settlement Agreement do
not alter in any way the existing status of John’s rights against Key (if any)
for indemnity, contribution, or rights to insurance coverage in connection with
the pending consolidated securities class action lawsuits, the pending
shareholder derivative actions, or any other existing or future lawsuits
brought by any third-party plaintiff against John in his official capacity as
an officer or director of Key, except for the “Jane John” lawsuit which is
addressed more specifically in the following subparagraph.

(b)  With respect to the lawsuit styled Jane John v. Francis D. John and Key Energy Services, Inc., No.
06-9580-24-1, In the Court of Common Pleas of Bucks County, Pennsylvania, the
parties agree that:

(1)  Each party shall bear its own attorney’s fees
and other expenses of litigation without indemnity from the other party.

(2)  Key shall indemnify John with respect to
damages (but not with respect to attorney’s fees and other expenses of
litigation) attributable to any alleged breach of Jane John’s stock option
agreements.

(3)  John shall indemnify Key with respect to
damages (but not with respect to attorney’s fees and other expenses of
litigation) attributable to any and all other aspects of Jane John’s current
and future claims, including any and all current and future claims relating to
any marital property issues..

(4)  Without compromising their respective
positions, the parties will attempt to cooperate with each other in the defense
and resolution of the Jane John litigation.

 4
 

9.             John agrees to the
following:

(a)  John shall not, without the express written
consent of Key’s Chief Executive Officer, directly or indirectly communicate or
divulge to, or make available to, or use of his own benefit or for the benefit
of, any competitor or any other person or entity, any of Key’s trade secrets,
proprietary data or other confidential information (hereafter collectively
referred to as “confidential information”), which confidential information was
communicated to or otherwise learned or acquired by John during his employment
relationship with Key or through the above-captioned litigation, except that
John may disclose confidential information only to the extent that disclosure
is required (i) at Key’s direction or (ii) by a court or other governmental
agency of competent jurisdiction. As long as such matters remain confidential
information, John shall not use such confidential information in any way or in
any capacity other than as expressly consented to in writing by Key’s Chief
Executive Officer.  Such “confidential
information” includes, but is not limited to, personnel information, ideas,
discoveries, designs, inventions, improvements, trade secrets, know-how,
manufacturing processes, design specifications, writings and other works of
authorship, computer programs, financial information, accounting information,
marketing plans, customer lists and data, business plans or methods and the
like, that relate in any manner to the actual or anticipated business of Key.

(b) Except as otherwise
addressed by paragraph 16 of this Settlement Agreement, John agrees that all
records, drawings, data, samples, models, correspondence, manuals, notes,
reports, notebooks, proposals, and any other documents concerning Key’s
customers or products or services or other technical or business information used
by Key and any other tangible materials or copies or extracts of tangible
materials regarding Key’s operations or business, received by John during his
employment with Key are, and shall be, the property of Key exclusively.  John agrees to immediately return to Key or
destroy (and provide a letter to Key certifying the destruction within 30 days
of the date on which John signs this Settlement Agreement) all of the material
mentioned above, including writing notes, memoranda or notes taken by John and
all tangible materials, including, without limitation, correspondence,
drawings, blueprints, letters, notebooks, reports, flow-charts, computer
programs and data proposals.  No copies
will be made by John (or, if copies already have been made or originals already
are possessed, then no such copies or originals may be retained by John or his
attorneys or other representatives) of any such confidential information,
whether or not developed by John. (c) John agrees that all work product
conceived, created or developed by John either solely or jointly with others in
the course or as a result of his employment with Key is proprietary to Key and
constitutes confidential information subject to this Agreement.  John further agrees that Key is the sole
owner of all such work product.

(d) John agrees that, for a
period of two years from the date he signs this Settlement Agreement, he will
not, directly or indirectly, without Key’s prior written consent, participate
or engage in, whether as a director, officer, employee, advisor, consultant,

 5
 

investor, lender,
stockholder, partner, joint venturer, owner or in any other capacity, any
business which was being conducted by Key or any of its affiliated companies,
as of  the date of the Settlement
Agreement, (“Competitive Business”) in any state of the United States of
America, Latin America or other geographic market area in which Key or any of
its affiliated companies conducts business (the “Competitive Market Area”);
provided, however, that John shall not be deemed to be participating or
engaging in any Competitive 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.

(e)  John agrees that, for a period of two years
from the date he signs this Settlement Agreement, he will not, without Key’s
prior written consent, (i) solicit the service of or employ any employee (other
than any person who acted as a personal assistant to John) of Key or its
subsidiaries for his benefit or for the benefit of any person or entity other
than Key, (ii) induce any such employee to leave employment with Key or its
subsidiary, or (iii) employ or cause any other person or entity other than Key
to employ any such former employee of Key whose termination of employment with
Key or its subsidiary occurred less than six (6) months prior to such
employment by John or such other person or entity.

(f)  John agrees
that, for a period of two years from the date he signs this Settlement
Agreement, he will not, without Key’s prior written consent, (i) induce or
attempt to induce any customer, supplier or contractor of Key or its subsidiary
to terminate or breach any agreement or arrangement with Key or otherwise to
cease doing business with Key, or (ii) induce or attempt to induce any
customer, supplier or contractor of Key or its subsidiary not to enter into any
agreement or arrangement with, or not to do business with, Key or its
subsidiary.

10.                                       John
further agrees and acknowledges that a portion of the consideration to be paid
by Key to him pursuant to this Agreement is in consideration of the covenants
under  paragraph 9 and that such
consideration is fair and adequate, and John agrees that any breach or
anticipatory breach by him of any of the provisions of paragraph 9 would cause
Key or its subsidiary irreparable injury not compensable by monetary damages
alone.  John agrees that in any such
event, Key or its subsidiary 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 without the posting of
any bond, by a court of competent jurisdiction (and such an injunction suit is
an exception to the dispute resolution mechanism in paragraph 12 below).

11.                                       Each
signatory to this Settlement Agreement has the authority to bind the party for
whom that signatory acts.

12.                                       If
one or more disputes arise with regard to the interpretation or performance of
any part of this Settlement Agreement, any such dispute will be resolved
exclusively by 

 6
 

arbitration in Houston, Texas before a single
arbitrator who is a licensed attorney in Texas. 
The parties will share the arbitrator’s fees and costs equally.  The parties consent to this process and waive
any rights they may have to raise any such dispute in court.

13.                                 The
parties acknowledge and agree that neither party has admitted or shall be
construed as having admitted any liability to the other or any violation of
rights, law statute, duty or contract. 
The parties deny any such admission, liability or violation.

14.                                 The
words written in this Settlement Agreement comprise the entire agreement of the
parties.  This Settlement Agreement sets
forth the entire fully integrated agreement between the parties and fully
supersedes any and all prior written or oral agreements, understandings,
promises, or representations between the parties.

15.                                 The
parties acknowledge and agree that they have not relied on any representation
or statement made by the other party (or any agent, attorney, or representative
of the other party) relating in any way to the subject matter, basis,
reasonableness, or effect of this Settlement Agreement or any part of this
Settlement Agreement.  The parties have
entered into this Settlement Agreement freely and without duress and have done
so after full opportunity to consult with the counsel and other professionals
of their choice.  The parties and their
counsel carefully have reviewed this Settlement Agreement prior to its
execution.

16.                                 Consistent
with paragraph 10 of the October 11, 2006 Order Re Protection and Exchange of
Discovery Materials, within ten  business
days of the date on which John signs this Settlement Agreement, John will
return to Key all Discovery Material, as defined in the October 11, 2006
Order.  Key will store the Discovery
Material that John returns in a segregated place until such time as John no
longer is subject to a pending formal request for production in another
proceeding or forum (as set forth in paragraph 11 of the October 11, 2006
Order), and Key will provide John’s counsel with a letter confirming that Key
will store such Discovery Material unaltered in a segregated place and that
John has the legal right to access such Discovery Material to the extent
necessary to comply with any order by a court of competent jurisdiction to
produce such documents to a third party.

17.                                 Key will not attempt to exercise any control
over or interfere with John’s roll-over of his personal 401K Retirement
account.

18.                                 The
parties jointly drafted this Settlement Agreement and it shall not be construed
against either party.

19.                                 This
Settlement Agreement was negotiated in Texas, with the involvement of Texas
counsel, and with the involvement of a Texas mediator.  This Settlement Agreement shall be governed
by and interpreted in accordance with Texas law.  If any lawsuit is brought to enforce any
rights under this Agreement (no such suit should be brought 

 7
 

in light of the dispute mechanism above), then any
such lawsuit must be brought in a state or federal court located in Houston,
Texas, and may not be brought anywhere else.

20.                                 This Settlement Agreement may be signed in
counterparts, and the signature pages may be exchanged via pdf/email.

ACCEPTED AND AGREED IN ALL RESPECTS:

	
  /s/ Newton W. Wilson, III

  	
   

  	
   

  	
  Signed on June 20, 2007

  	
   

  
	
  Newton W. Wilson, III

  	
   

  	
   

  
	
  Senior Vice President and General Counsel

  	
   

  	
   

  
	
  Key Energy Services, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Francis D. John

  	
   

  	
   

  	
  Signed on June 20, 2007

  	
   

  
	
  Francis D. John

  	
   

  	
   

  

 

 8

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