Document:

Exhibit 10.1

 

Agreement Among the Attorney General of the State of New
York, the Superintendent of Insurance of the State of New York, the Attorney
General of the State of Connecticut, the Illinois Attorney General, the
Director of the Division of Insurance, Illinois Department of Financial and
Professional Regulation, and Aon Corporation and its subsidiaries and affiliates
(collectively “Aon”) dated March 4, 2005

WHEREAS,
the New York Attorney General (the “New York Attorney General”) commenced an
action against Aon Corporation pursuant to Executive Law § 63 (12), the Martin Act
(Gen. Bus. Law § 352-c) and the common law of the State of New York dated March
4, 2005 (the “New York Complaint”), and has conducted an investigation related
thereto (the “Attorney General’s Investigation”);

WHEREAS,
the Superintendent of Insurance of the State of New York (the “Superintendent”)
issued a Citation to Aon and certain of its subsidiaries dated March 4, 2005 (the
“Citation”) pursuant to § 2110 of the Insurance Law, and has conducted an
investigation related thereto (the “Superintendent’s Investigation”);

WHEREAS,
the New York Attorney General and the Superintendent have alleged that Aon
unlawfully deceived its clients by a) steering clients’ insurance business to
favored insurers, b) promising increased retail business to insurers in return
for their commitments to use Aon’s reinsurance services, c) suggesting that an
insurer raise its quotes for two of Aon’s clients, d) entering into undisclosed
“producer funding agreements” whereby insurers directly funded the hiring of
Aon brokers, e) entering into secret “pay-to-play” arrangements with insurers
whereby Aon obtained undisclosed compensation, f) agreeing with preferred
insurers to “freeze out” a competing insurer, g) withholding a lower quote and
placing a client with a higher bidding insurer, and h) providing preferred
insurers with first looks, last looks and exclusive looks on

 

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preferred business;

WHEREAS,
the Connecticut Attorney General commenced an action against Aon Corporation,
pursuant to the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. (§§
42-110a et  seq.) and the Connecticut Unfair Insurance Practices
Act Conn. Gen. Stat. (§§ 38a-815 et  seq.), dated March 4, 2005
(the “Connecticut Complaint”) and has conducted an investigation related
thereto (the “Connecticut Attorney General’s Investigation”);

WHEREAS,
the Connecticut Attorney General has alleged that Aon unlawfully deceived its
clients by a) steering clients’ insurance business to favored insurers; and b)
entering into undisclosed “pay-to-play” arrangement with insurers whereby
insurers paid undisclosed compensation to Aon;

WHEREAS,
the Illinois Attorney General commenced an action against Aon pursuant to the
Illinois Consumer Fraud and Deceptive Practices Act (815 ILCS 505/1 et  seq.),
dated March 4, 2005 (the “Illinois Complaint”) and has conducted an
investigation related thereto (the “Illinois Attorney General’s Investigation”);

WHEREAS,
on November 5, 2004, the Acting Director of the Division of Insurance, Illinois
Department of Financial and Professional Regulation (the “Director”) commenced
an investigation (the “Director’s Investigation”) of Aon pursuant to sections
401, 402 and 403 of the Illinois Insurance Code (215 ILCS 5/401, 5/402 and
5/403);

WHEREAS,
Aon is cooperating with the investigations being conducted by the New York
Attorney General, Connecticut Attorney General, Illinois Attorney General (collectively
the “Attorneys General”), Superintendent and Director;

 

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WHEREAS,
under this Agreement (the “Agreement”) Aon has agreed to adopt a number of
business reforms that will govern the conduct of Aon’s employees;

WHEREAS,
the Attorneys General, the Superintendent, the Director and Aon wish to enter
into this Agreement to resolve all issues related to Aon raised to date in the Attorney
General’s Investigation, the Superintendent’s Investigation, the Connecticut
Attorney General’s Investigation, the Illinois Attorney General’s Investigation
and the Director’s Investigation (collectively, the “Investigations”);

WHEREAS,
the Attorneys General, the Superintendent and the Director find the relief and
agreements contained in this Agreement appropriate and in the public interest;

WHEREAS,
this Agreement is entered into solely for the purpose of resolving the Complaints
and Citation, and is not intended to be used for any other purpose;

WHEREAS,
without admitting or denying any claim in the Complaints or the assertions in
the Citation, Aon is entering into this Agreement prior to any court making any
findings of fact or conclusions of law pursuant to any allegations by the
Attorneys General or the Superintendent;

WHEREAS,
neither this Agreement, nor any acts performed nor documents executed in
furtherance of this Agreement, may be used as an admission of the allegations
and claims contained in the Complaints and the Citation;

NOW
THEREFORE, Aon, the Attorneys General, the Superintendent and the Director hereby
enter into this Agreement, with the Statement of Patrick G. Ryan attached as Exhibit
1, and agree as follows:

 

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MONETARY RELIEF

1.                             Aon shall pay $190,000,000 into a fund
(the “Fund”) over the next thirty months in three payments to be paid to Aon’s
policyholder clients who retained Aon to place, renew, consult on or service
insurance where such placement resulted in contingent commissions or overrides.
All of the money paid into the Fund and any interest earned thereon shall be
paid to such policyholder clients pursuant to this Agreement. No portion of the
Fund shall be considered a fine or a penalty. This sum is in full satisfaction
of Aon’s obligations hereunder, and neither the Attorneys General, the
Superintendent nor the Director shall seek to impose on Aon any other financial
obligation or liability related to the Complaints or the Citation.

2.                             On or before June 30, 2005, Aon shall A)
calculate, in accordance with a formula approved by the Attorneys General, the
Superintendent and the Director, the amount of money each of the U.S.
policyholder clients who retained Aon to place, renew, consult on or service insurance
with inception or renewal dates between January 1, 2001 through December 31,
2004 (the “Relevant Period”) where such placement, renewal, consultation or
servicing resulted in contingent commissions or overrides recorded by Aon
during the Relevant Period (the “Eligible Policyholders”) is eligible to
receive; B) file a report with the Attorneys General, the Superintendent and
the Director, certified by an officer of Aon, setting forth: i) each Eligible Policyholder’s
name and address; ii) the Eligible Policyholder’s insurer(s), product line(s)
and policy(ies) purchased and policy number(s); iii) the amount the Eligible
Policyholder paid in premiums or consulting fees for each such policy; iv) for
each such policy, the amount of contingent commission or override revenue
recorded by Aon during the Relevant Period

 

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attributable to that policy,
in accordance with a calculation approved by the Attorneys General, the
Superintendent and the Director; and v) the amount of contingent commission or
override revenue each Eligible Policyholder is eligible to receive for each
such policy and in the aggregate for all such policies pursuant to this
Agreement; and C) send a statement, subject to the approval of the Attorneys
General, the Superintendent and the Director, to each Eligible Policyholder, setting
forth items ii) through v), above, and stating that the amount paid may
increase if there is less than full participation by Eligible Policyholders in
the Fund. For the purposes of this paragraph, “U.S. policyholder clients” means
U.S.-domiciled policyholder clients and policyholder clients who retained Aon’s
U.S. offices to place, renew, consult on or service insurance.

3.                             Eligible Policyholders shall have until
October 30, 2005 to request a distribution from the Fund. Eligible
Policyholders who voluntarily elect to receive a cash distribution (the “Participating
Policyholders”) shall tender a release in the form attached hereto as Exhibit
2. In the event that any Eligible Policyholder elects not to participate or
otherwise does not respond (the “Non-Participating Policyholders”), that
Eligible Policyholder’s allocated share may be used by Aon to satisfy any
pending or other claims asserted by policyholders relating to these matters. In
no event shall a distribution be made from the Fund to any other policyholder
until all Participating Policyholders have been paid the full aggregate amount
due as calculated pursuant to ¶ 2 above; nor shall the total payments from the
Fund to any Non-Participating Policyholder exceed 80% of that Non-Participating
Policyholder’s original

 

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allocated share. If any
funds remain in the Fund as of October 1, 2007, any such funds shall be distributed
on a pro rata basis to the Participating Policyholders by November 1, 2007.

4.                             In no event shall any of the funds in
the Fund be used to pay attorney fees.

5.                             Aon shall pay $76,000,000 into the Fund
on or before September 1, 2005. Aon shall pay $76,000,000 into the Fund on or
before September 1, 2006. Aon shall pay $38,000,000 into the Fund on or before
September 1, 2007.

6.                             On November 30, 2005, September 30,
2006, and September 30, 2007, Aon shall pay proportionally to each
Participating Policyholder as much of that Participating Policyholder’s aggregate
share of the Fund as possible with the monies then available in the Fund
pursuant to a calculation approved by the Attorneys General, the Superintendent
and the Director. Within forty-five (45) days of each payment from the Fund,
Aon shall file a report with the Attorneys General, the Superintendent and the
Director, certified by an officer of Aon, listing all amounts paid from the
Fund.

BUSINESS REFORMS

7.                             Within sixty (60) days of the effective
date of this Agreement, Aon shall undertake the following business reforms.

A.  Permissible Forms
of Compensation

8.                             In connection with its insurance
brokerage, agency, producing, consulting and other services in placing,
renewing, consulting on or servicing any insurance policy, Aon shall accept
only: a specific fee to be paid by the client; a specific percentage
commission on premium to be paid by the insurer set at the time
of purchase, renewal, placement or servicing of the insurance policy; or

 

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a combination of both. Aon
shall accept no such commissions unless, before the binding of any such policy:
(a) Aon in plain, unambiguous written language fully discloses such
commissions, in either dollars or percentage amounts; and (b) the client
consents in writing. Nothing in this paragraph relieves Aon of complying with
additional requirements imposed by law, including the requirements for written
documentation relating to fees paid directly by clients. Aon may not retain
interest earned on premiums collected on behalf of insurers without prior
notification to the client, and only when such retention is consistent with the
requirements of, and is permitted by, applicable law.

9.                             Aon shall not hereafter, except
as set forth in ¶8, above, directly or indirectly accept or request any thing
of material value from an insurer including, but not limited to, money,
credits, loans, forgiveness of principal or interest, vacations, prizes, gifts
or the payment of employee salaries or expenses (hereinafter collectively “Compensation”).

B.  Prohibition of
Contingent Compensation

10.                           In placing, renewing, consulting on or
servicing any insurance policy after the date of this Agreement, Aon shall not
directly or indirectly accept from or request of any insurer any Contingent
Compensation. For purposes of this Agreement, Contingent Compensation is any Compensation
contingent upon Aon’s: a) placing a particular number of policies or dollar
value of premium with the insurer, b) achieving a particular level of growth in
the number of policies placed or dollar value of premium with the insurer, c)
meeting a particular rate of retention or renewal of policies in force with the
insurer, d) placing or keeping sufficient insurance business with the insurer to
achieve a particular loss ratio or any other measure of profitability, e)
providing preferential treatment in the placement process, including but not
limited to the giving of last looks, first looks,

 

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rights of first refusal, or
limiting the number of quotes sought from insurers for insurance placements, or
f) obtaining anything else of material value for the insurer.

C.  Prohibition of “Pay-To-Play”
Arrangements

11.                           In placing, renewing, consulting on or
servicing any insurance policy, Aon shall not directly or indirectly accept
from or request of any insurer any Compensation in connection with Aon’s
selection of insurers from which to solicit bids for its clients.

D.  Prohibition of “Bid-Rigging”
Arrangements

12.                           In placing, renewing, consulting on or
servicing any insurance policy, Aon shall not directly or indirectly knowingly
accept from or request of any insurer any false, fictitious, inflated, artificial,
“B” or “throw away” quote or indication, or any other quote or indication
except for a quote or indication that represents the insurer’s best evaluation
at the time when the quote or indication is given of the minimum premium the
insurer would require to bind the insurance coverage desired by Aon’s client.
Nothing herein shall preclude Aon from accepting or requesting any bona fide
quote or indication.

E.  Prohibition of
Reinsurance Brokerage “Leveraging”

13.                           In placing, renewing, consulting on or
servicing any insurance policy, Aon shall not directly or indirectly accept
from or request of any insurer any promise or commitment to use any of Aon’s
brokerage, agency, producing or consulting services, including reinsurance
brokerage, agency or producing services, contingent upon any of the factors
listed in ¶ 10 a) - f), above.

 

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F.  Prohibition of
Inappropriate Use of Wholesalers

14.                           In placing, renewing, consulting on or
servicing any insurance policy, Aon shall not directly or indirectly knowingly
place, renew, consult on or service its clients’ insurance business through a wholesale
broker unless agreed to by the client after full disclosure of a) the
Compensation received or to be received by Aon, b) any Aon interest in or
contractual agreement with the wholesaler, and c) any alternatives to using a
wholesaler.

G.  Mandated Disclosures
to Clients

15.                           Aon in placing, renewing, consulting on or
servicing any insurance policy shall in writing: a) prior to binding, disclose
to each client all quotes and indications sought and all quotes and indications
received by Aon in connection with the coverage of the client’s risk with all
terms, including but not limited to any Aon interest in or contractual
agreements with any of the prospective insurers, and all Compensation to be
received by Aon for each quote, in dollars if known at that time or as a
percent of premium if the dollar amount is not known at that time, from any
insurer or third party in connection with the placement, renewal, consultation
on or servicing of insurance for that client; b) provide disclosure to each
client and obtain written consent in accordance with ¶ 8 of this Agreement for
each client, and c) disclose to each client at the end of each year all
Compensation received during the preceding year or contemplated to be received
from any insurer or third party in connection with the placement, renewal,
consultation on or servicing of that client’s policy.

H.  Standards of
Conduct and Training

16.                           Aon shall implement company-wide written
standards of conduct regarding Compensation from insurers, consistent with the
terms of this Agreement, subject to approval of

 

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the Superintendent, which
implementation shall include, inter  alia, appropriate training of
relevant employees, including but not limited to training in business ethics,
professional obligations, conflicts of interest, anti-trust and trade practices
compliance, and record keeping.

17.                           Aon shall not place its own financial
interest ahead of its clients’ interests in determining the best available
insurance product or service for its clients. Aon shall communicate with its
clients in sufficient detail to enable them to make informed choices on insurance
products or services, and shall provide complete and accurate information to prospective
and current clients on all proposals and bids received from insurers, including
the amount of Compensation or other things of value that were or will be paid
to Aon by each insurer.

I.  Prohibition Against
Violating New York Law

18.                           Aon shall not directly or indirectly
engage in or attempt to engage in violations of Executive Law § 63 (12), the
Martin Act (Gen. Bus. Law § 352-c) and the New York Insurance Law, including
without limitation, Article 24, Unfair Methods of Competition and Unfair and Deceptive
Acts and Practices (N.Y. Insurance Law §§ 2401 et  seq.).

J.  Prohibition Against
Violating Connecticut Law

19.                           Aon shall not directly or indirectly
engage in or attempt to engage in violations of the Connecticut Unfair Trade
Practices Act, Conn. Gen. Stat. (§§ 42-110a et  seq.) and the Connecticut
Unfair Insurance Practices Act  Conn.
Gen. Stat. (§§ 38a-815 et  seq.).

K.  Prohibition Against
Violating Illinois Law

20.                           Aon shall not directly or indirectly
engage in or attempt to engage in violations of

 

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Illinois Consumer Fraud and
Deceptive Practices Act (815 ILCS 505/1 et  seq.), and the
Illinois Insurance Code, including without limitation Article XXXI of the
Illinois Insurance Code.

L.  Limitation on
Extraterritorial Effect

21.                           The provisions of paragraphs 7 through 17
shall apply only to those Aon entities that (1) service clients domiciled in
the United States; (2) place, renew, consult on or provide services for
policies covering risks in the United States; or (3) are, themselves, domiciled
in the United States.

MONITORING COMPLIANCE AND REPORTING

22.                           Aon shall establish a Compliance Committee
of the Board of Directors of Aon which shall monitor Aon’s compliance with the
standards of conduct regarding Compensation from insurers and shall report on a
quarterly basis to the Board of Directors the results of its monitoring activities
for a period of five (5) years from the effective date of this Agreement.

23.                           Aon shall maintain a record of all
complaints received concerning any Compensation from an insurer which shall be
provided to the Compliance Committee of the Board of Directors with the
Compliance Committee’s quarterly report and to the Superintendent, the
Connecticut Department of Insurance and the Director and annually commencing
from the effective date of this Agreement.

24.                           The Board of Directors of Aon shall file
annual reports with the Superintendent, the Connecticut Department of Insurance
and the Director on compliance with the standards of conduct regarding
Compensation arrangements for five (5) years commencing in December 2005, which
shall

 

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also include the amount of
each form of Compensation received by Aon from each insurer with which it
placed insurance during the preceding year.

COOPERATION WITH THE SUPERINTENDENT AND DIRECTOR

25.                           Aon shall be subject to annual examination
by the Superintendent and by the Director in accordance with Illinois law for
five (5) years at Aon’s expense beginning in 2005. Aon shall fully cooperate
with the Superintendent and the Director in such examinations. Aon shall
additionally provide private, secure office space, photocopying equipment and
any other administrative or clerical resources necessary to assist in any
examination, as well as all relevant data, provided upon request by the
Superintendent or the Director in electronic or computerized format. The
Superintendent and the Director may coordinate such examinations with other
states.

COOPERATION WITH THE ATTORNEYS GENERAL

26.                           Aon shall fully and promptly cooperate
with the Attorneys General with regard to the Investigations, and related
proceedings and actions, of any other person, corporation or entity, including
but not limited to Aon’s current and former employees, concerning the insurance
industry. Aon shall use its best efforts to ensure that all its officers,
directors, employees, and agents also fully and promptly cooperate with the
Attorneys General in their Investigations and related proceedings and actions.
Cooperation shall include without limitation: (1) production voluntarily and
without service of subpoena of any information and all documents or other
tangible evidence reasonably requested by the Attorneys General, and any
compilations or summaries of information or data that the Attorneys General
reasonably requests be prepared; (2) without the necessity of a subpoena,
having Aon’s officers, directors, employees and agents

 

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attend any proceedings at
which the presence of any such persons is requested by the Attorneys General
and having such persons answer any and all inquiries that may be put by the
Attorneys General (or any of the Attorneys General’s deputies, assistants or
agents) to any of them at any proceedings or otherwise (“proceedings” include
but are not limited to any meetings, interviews, depositions, hearings, grand
jury hearing, trial or other proceedings); (3) fully, fairly and truthfully
disclosing all information and producing all records and other evidence in its possession
relevant to all inquiries reasonably made by the Attorneys General concerning
any fraudulent or criminal conduct whatsoever about which it has any knowledge
or information; (4) in the event any document is withheld or redacted on grounds
of privilege, work-product or other legal doctrine, a statement shall be
submitted in writing by Aon indicating: a) the type of document; b) the date of
the document; c) the author and recipient of the document; d) the general
subject matter of the document; e) the reason for withholding the document; and
f) the Bates number or range of the withheld document. The Attorneys General
may challenge such claim in any forum of their choice and may, without
limitation, rely on all documents or communications theretofore produced or the
contents of which have been described by Aon, its officers, directors,
employees, or agents; and (5) Aon shall not jeopardize the safety of any investigator
or the confidentiality of any aspect of the Investigations, including sharing
or disclosing evidence, documents, or other information with others during the
course of the investigation, without the consent of the Attorneys General.
Nothing herein shall prevent Aon from providing such evidence to other
regulators, or as otherwise required by law.

 

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27.                           Aon shall comply fully with the terms of
this Agreement. If Aon violates the terms of ¶ 26 in any material respect, as
determined solely by any one of the Attorneys General: (1) the Attorneys
General may pursue any action, criminal or civil, against any entity for any crime
it has committed, as authorized by law, without limitation; (2) as to any
criminal prosecution brought by the New York Attorney General for violation of
law committed within six years prior to the date of this Agreement or for any
violation committed on or after the date of this Agreement, Aon shall waive any
claim that such prosecution is time barred on grounds of speedy trial or speedy
arraignment or the statute of limitations.

OTHER PROVISIONS

28.                           The Superintendent and the Director may
take regulatory action to enforce this Agreement. The Superintendent and the
Director may investigate or take regulatory action against any current or
former Aon employee who is licensed by the Superintendent or the Director.

29.                           Aon shall not seek or accept, directly or
indirectly, indemnification pursuant to any insurance policy or other
reimbursement, with regard to any or all of the amounts payable pursuant to
this Agreement.

30.                           The New York Attorney General will
promptly file a Notice Discontinuing Action with Prejudice, in the form
attached hereto as Exhibit 3, voluntarily dismissing the New York Complaint
with prejudice, and will not initiate a new case against Aon related to the
matters set forth in the New York Complaint or uncovered to date by the New
York Attorney General’s Investigation.

 

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31.                           The Superintendent will promptly
discontinue the administrative proceeding commenced by the Citation with
prejudice, pursuant to a Stipulation to be executed contemporaneously herewith
in the form attached hereto as Exhibit 4, and will not initiate a new administrative
proceeding against Aon related to the matters set forth in the Citation or uncovered
to date by the Superintendent’s Investigation.

32.                           The Connecticut Attorney General will
promptly file a Withdrawal with prejudice, in the form attached hereto as
Exhibit 5, voluntarily dismissing the Connecticut Complaint with prejudice, and
will not initiate a new case against Aon related to the matters set forth in
the Connecticut Complaint or uncovered to date by the Connecticut Attorney
General’s Investigation.

33.                           The Illinois Attorney General will
promptly file a Consent Order in the form attached hereto as Exhibit 6,
voluntarily dismissing the Illinois Complaint with prejudice, and will not
initiate a new case against Aon related to the matters set forth in the
Illinois Complaint or uncovered to date by the Illinois Attorney General’s
Investigation.

34.                           The Director shall close the Director’s
Investigation and will not initiate a new administrative proceeding against Aon
related to the matters set forth in the Illinois Complaint or uncovered to date
by the Director’s Investigation. Such closure shall not prevent the Director from
enforcing this Agreement or exercising the Director’s duties under law.

35.                           This Agreement is not intended to
disqualify Aon, or any current employees of Aon, from engaging in any business
in New York, Connecticut, Illinois or in any other jurisdiction. Nothing in
this Agreement shall relieve Aon’s obligations imposed by any

 

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applicable state insurance
law or regulations or other applicable law.

36.                           This Agreement shall not confer any rights
upon any persons or entities besides the Attorneys General, the Superintendent,
the Director and Aon.

37.                           Aon shall maintain custody of, or make
arrangements to have maintained, all documents and records of Aon related to
this matter for a period of not less than six (6) years.

38.                           The Attorneys General may make such
application as appropriate to enforce or interpret the provisions of this
Agreement, or in the alternative, maintain any action, either civil or
criminal, for such other and further relief as the Attorneys General may
determine is proper and necessary for the enforcement of this Agreement. If
compliance with any aspect of this Agreement proves impracticable, Aon reserves
the right to request that the parties modify the Agreement accordingly.

39.                           In any application or in any such action,
facsimile transmission of a copy of any papers to current counsel for Aon shall
be good and sufficient service on Aon unless Aon designates, in a writing to
the Attorneys General, another person to receive service by facsimile transmission.

40.                           Facsimile transmission of a copy of this
Agreement to counsel for defendant shall be good and sufficient service on Aon.

41.                           This Agreement shall be governed by the
laws of the State of New York without regard to conflict of laws principles,
except that with respect to enforcement actions taken by the Connecticut
Attorney General, the actions will be governed by the laws of the State of Connecticut
without regard to conflict of laws principles and except that with respect to

 

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enforcement actions taken by
the Illinois Attorney General, the actions will be governed by the laws of the
State of Illinois without regard to conflict of laws principles.

42.                           Any disputes arising out of or related to
this Agreement with respect to either the New York Attorney General or the
Superintendent shall be subject to the exclusive jurisdiction of the Supreme
Court of the State of New York, County of New York, or to the extent federal
jurisdiction exists, the United States District Court for the Southern District
of New York. Any disputes arising out of or related to this Agreement with
respect to the Connecticut Attorney General shall be subject to the exclusive
jurisdiction of the superior court for the judicial district of Hartford. Any
disputes arising out of or related to this Agreement with respect to either the
Illinois Attorney General or the Director shall be subject to the exclusive jurisdiction
of the Circuit Court of Cook County.

 

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43.                           This Agreement may be executed in
counterparts.

WHEREFORE,
the following signatures are affixed hereto on this 4th day of March, 2005.

	
  ELIOT SPITZER

  	
   

  	
  HOWARD MILLS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Attorney General of the

  	
   

  	
  Acting Superintendent of Insurance

  
	
  State of New York

  	
   

  	
  New York State Insurance Department

  
	
  120 Broadway, 25th Floor

  	
   

  	
  25 Beaver Street

  
	
  New York, NY 10271

  	
   

  	
  New York, NY 10004

  
	
   

  	
   

  	
   

  
	
  RICHARD BLUMENTHAL

  	
   

  	
  PEOPLE OF THE STATE OF ILLINOIS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Attorney General of the

  	
   

  	
  by:  Lisa Madigan

  
	
  State of Connecticut

  	
   

  	
          Attorney General of the

  
	
  55 Elm Street

  	
   

  	
          State of Illinois

  
	
  Hartford, CT 06171-0120

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DEPARTMENT OF FINANCIAL AND

  	
   

  	
   

  
	
  PROFESSIONAL REGULATION OF

  	
   

  	
   

  
	
  THE STATE OF ILLINOIS;

  	
   

  	
   

  
	
  FERNANDO E.GRILLO SECRETARY

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DIVISION OF INSURANCE

  	
   

  	
  AON CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Deirdre K. Manna

  	
   

  	
  by:  D. Cameron Findlay

  
	
  Acting Director of Insurance

  	
   

  	
          Executive Vice President and

  
	
   

  	
   

  	
          General Counsel

  

 

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EXHIBIT
1

STATEMENT
OF PATRICK G. RYAN

 

As these investigations have
revealed, Aon and other insurance brokers and consultants entered into
contingent commission agreements and other arrangements that created conflicts
of interest. I deeply regret that we took advantage of those conflicts. This
conduct violated the longstanding principle embodied in our Code of Conduct and
Aon’s Values Statement that our clients must always come first. Such conduct
was improper and I apologize for it.

Aon believes that these
investigations have done the industry a great service. Aon looks forward to
working with regulators, insureds, insurance companies, and other stakeholders
to put in place new business practices for the entire industry that eliminate
the improper practices exposed by these investigations.

 

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EXHIBIT 2

GENERAL
RELEASE

This RELEASE (the “Release”)
is executed this      day of     , 2005
by RELEASOR(defined below) in favor of RELEASEE (defined below).

DEFINITIONS

“RELEASOR” refers to [fill
in name] and any of its affiliates, subsidiaries, associates, general or
limited partners or partnerships, predecessors, successors, or assigns, including,
without limitation, any of their respective present or former officers,
directors, trustees, employees, agents, attorneys, representatives and
shareholders, affiliates, associates, general or limited partners or
partnerships, heirs, executors, administrators, predecessors, successors,
assigns or insurers acting on behalf of RELEASOR.

“RELEASEE” refers to Aon
Corporation and any of its subsidiaries, affiliates, associates, general or
limited partners or partnerships, predecessors, successors, or assigns, including,
without limitation, any of their respective present or former officers,
directors, trustees, employees, agents, attorneys, representatives and
shareholders, affiliates, associates, general or limited partners or
partnerships, heirs, executors, administrators, predecessors, successors,
assigns or insurers (collectively, “Aon”).

“AGREEMENT” refers to a
certain agreement between Aon and the Attorney General of the State of New York
(“NYAG”), the Superintendent of Insurance of the State of New York (“NYSI”),
the Attorney General of the State of Connecticut (“CTAG”), the Illinois Attorney
General (“ILAG”), and the Director of the Division of Insurance, Illinois
Department of Financial and Professional Regulation (the “Director”) dated
March 4, 2005, relating to an action commenced against Aon by NYAG dated March
4, 2005 captioned The People of the State of New York against Aon Corporation,
and an investigation by NYAG relating to same (collectively, the “New York
Complaint”); a Citation captioned In the Matter of Aon Corporation et al.,
issued to Aon by NYSI on March 4, 2005, and an investigation by NYSI relating
to same (collectively, the “Citation”); an action commenced against Aon by CTAG
dated March 4, 2005 captioned Richard Blumenthal, Attorney General of the State
of Connecticut against Aon Corporation and Aon Consulting, Inc., and an
investigation by CTAG relating to same (collectively, the “Connecticut
Complaint”); an action commenced against Aon by ILAG dated March 4, 2005
captioned The People of the State of Illinois against Aon Corporation, and an investigation
by ILAG relating to same (collectively, the “Illinois Complaint”); and an investigation
by the Director (the “Director’s Investigation”).

 

RELEASE

1.                                       In
consideration for the total payment of $          
in accordance with the terms of the Agreement, RELEASOR does hereby fully
release, waive and forever discharge RELEASEE from any and all claims, demands,
debts, rights, causes of

 

20

 

action
or liabilities whatsoever, including known and unknown claims, now existing or
hereafter arising, in law, equity or otherwise, whether under state, federal or
foreign statutory or common law, and whether possessed or asserted directly,
indirectly, derivatively, representatively or in any other capacity (collectively,
“claims”), to the extent any such claims are based upon, arise out of or relate
to, in whole or in part, any of the allegations, acts, omissions, transactions,
events, types of conduct or matters that are the subject of the New York
Complaint, the Citation, the Connecticut Complaint, the Illinois Complaint, and
the Director’s Investigation, except for claims which are based upon, arise out
of or relate to the purchase or sale of Aon securities. Provided, however, that
this General Release shall not be construed to prevent a member of the class certified
in Daniel et al. v. Aon Corporation et al., No. 99-CH-11893 (Cook County
Circuit Court, Illinois) from participating in any recovery made available in
that action, which recovery relates to the period prior to January 1, 2001.

2.                                       In the event
that the total payment referred to in paragraph 1 is not made for any reason,
then this RELEASE shall be deemed null and void, provided that any payments
received by RELEASOR shall be credited to Aon in connection with any claims
that RELEASOR may assert against Aon, or that are asserted on behalf of
RELEASOR or by a class of which RELEASOR is a member, against Aon.

3.                                       This RELEASE
may not be changed orally and shall be governed by and interpreted in accordance
with the internal laws of the State of Illinois, without giving effect to
choice of law principles, except to the extent that federal law requires that
federal law governs. Any disputes arising out of or related to this RELEASE
shall be subject to the exclusive jurisdiction of the Circuit Court of Cook
County, Illinois or, to the extent federal jurisdiction exists, the United
States District Court for the Northern District of Illinois.

4.                                       RELEASOR
represents and warrants that the claims have not been sold, assigned or
hypothecated in whole or in part.

	
  Dated:

  	
   

  
	
  RELEASOR:

  	
   

  
	
  By:

  	
   

  
	
  Print Name:

  	
   

  
	
  Title:

  	
   

  
						

 

21

 

EXHIBIT
3

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

	
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  x

  	
   

  
	
   

  	
  :

  	
   

  
	
  THE PEOPLE OF THE STATE OF
  NEW YORK

  	
  :

  	
   

  
	
  by ELIOT SPITZER, Attorney
  General of

  	
  :

  	
   

  
	
  the State of New York,

  	
  :

  	
   

  
	
   

  	
  :

  	
   

  
	
  Plaintiff,

  	
  :

  	
  Index No.

  
	
   

  	
  :

  	
   

  
	
  -
  against -

  	
  :

  	
  NOTICE

  
	
   

  	
  :

  	
  DISCONTINUING

  
	
   

  	
  :

  	
  ACTION WITH PREJUDICE

  
	
  AON CORPORATION,

  	
  :

  	
   

  
	
   

  	
  :

  	
   

  
	
  Defendant.

  	
  :

  	
   

  
	
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  - - - - - - - - - - - - - - - - - 

  	
  x

  	
   

  

 

PLEASE TAKE NOTICE that,
pursuant to CPLR § 3217(a) and the agreement annexed hereto, plaintiff hereby
discontinues this action with prejudice as of this date without costs to either
party against the other.

Dated:    New York, New York

March 4, 2005

	
  ELIOT SPITZER,

  
	
  Attorney General of the State of New York

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  
	
   

  	
  David D. Brown, IV

  
	
   

  	
  Assistant Attorney General

  
	
   

  	
  120 Broadway

  
	
   

  	
  New York, NY 10271

  
	
   

  	
  (212) 416-8198

  
	
   

  	
   

  
	
  Attorney for Plaintiff

  

 

22

 

To:          Aon Corporation

WHEREFORE, the following
signatures are affixed hereto this 4th day of March, 2005.

	
  Aon Corporation

  
	
   

  	
   

  
	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Eliot Spitzer, Attorney General

  
	
  of the State of New York

  
	
   

  
	
   

  
	
   

  	
   

  
	
  By:

  	
   

  

 

23

 

EXHIBIT 4

 

 

STATE OF NEW YORK

INSURANCE DEPARTMENT

25 BEAVER STREET

NEW
YORK, NEW YORK 10004

	
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  - - - - - - - - - - - - - - - - - 

  	
  X

  	
  STIPULATION

  No. 2005-0001-C

  
	
  In the Matter of

  	
   

  
	
   

  	
   

  
	
  AON CORPORATION, AFFINITY INSURANCE SERVICES, INC., AON
  CONSULTING, INC., AON BENEFIT SERVICES INC., AON FINANCIAL SERVICES GROUP OF
  NEW YORK INC., AON RE, INC., AIS INSURANCE AGENCY INC.,AON/ALBERT G. RUBEN
  INSURANCE AGENCY, AON/ALBERT G. RUBEN COMPANY (NEW YORK), INC., AON
  CONSULTING OF FLORIDA, AON CONSULTING OF NEW JERSEY (dba of AON CONSULTING, INC.
  , AON HAMOND & REGINE, INC., AON PRIVATE RISK MANAGEMENT INSURANCE AGENCY,
  INC., AON RISK SERVICES, INC. OF ARKANSAS, AON RISK SERVICES, INC. OF
  COLORADO, AON RISK SERVICES, INC. OF CONNECTICUT, AON RISK SERVICES, INC. OF
  FLORIDA, AON RISK SERVICES, INC. OF GEORGIA, AON RISK SERVICES, INC. OF
  ILLINOIS, AON RISK SERVICES, INC. OF INDIANA, AON RISK SERVICES, INC. OF
  KANSAS, AON RISK SERVICES, INC. OF MARYLAND, AON RISK SERVICES, INC. OF MASSACHUSETTS,
  AON RISK SERVICES, INC. OF MICHIGAN, AON RISK SERVICES, INC. OF MINNESOTA,
  AON RISK SERVICES, INC. OF NEBRASKA, AON RISK SERVICES, INC. OF NEW JERSEY,
  AON RISK SERVICES, INC. OF NEW YORK, AON RISK SERVICES, INC. OF OHIO, AON
  RISK SERVICES, INC. OF OKLAHOMA, AON RISK SERVICES, INC. OF OREGON, AON RISK
  SERVICES, INC. OF PENNSYLVANIA, AON RISK SERVICES, INC. OF RHODE ISLAND, AON
  RISK SERVICES, INC. OF VIRGINIA, AON RISK SERVICES, INC. OF WASHINGTON, AON
  RISK SERVICES, INC. OF WASHINGTON D.C., AON RISK SERVICES OF CENTRAL
  CALIFORNIA INSURANCE AGENCY SERVICES, AON RISK SERVICES OF MISSOURI, INC.,
  AON RISK SERVICES. OF NORTHERN CALIFORNIA INSURANCE AGENCY, AON RISK
  SERVICES, OF SOUTHERN CALIFORNIA

  	
   

  

 

24

 

 

	
  INSURANCE AGENCY SERVICES, AON RISK SERVICES OF TEXAS,
  INC., AON SPECIALTY RE, INC., ARM INTERNATIONAL CORP., ARMRISK CORP.,
  FINANCIAL & PROFESSIONAL RISK SOLUTIONS, INC.,HUNTINGTON T. BLOCK
  INSURANCE AGENCY, INC., JOHNSON ROONEY WELCH, INC., K & K INSURANCE
  AGENCY, MUIRFIELD AGENCY., SPECIAL RISK RESOURCES INSURANCE AGENCY OF NEW
  YORK, INC., SWETT & CRAWFORD CORP; SWETT & CRAWFORD OF ILLINOIS,
  INC., SWETT & CRAWFORD OF MAINE, INC., SWETT & CRAWFORD OF OHIO,
  INC., SWETT & CRAWFORD OF PENNSYLVANIA, INC., and UMS, 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Respondents.

  	
   

  	
   

  
	
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  - - - - - - - - - - - - - - - - - 

  	
  X

  	
   

  

 

WHEREAS, Affinity
Insurance Services, Inc. is licensed as a broker under Section 2104 of the Insurance
Law and as an agent under Sections 2103(a) and 2103(b) of the Insurance Law;
Aon Consulting, Inc. is licensed as an agent under Sections 2103(a) and 2103(b)
of the Insurance Law; Aon Benefit Services, Inc. is licensed as an agent under
Section 2103(a) of the Insurance Law; Aon Financial Services Group of New York,
Inc. is licensed as a broker under Section 2104 of the Insurance Law and as an
excess line broker under Section 2105 of the Insurance Law; Aon Re, Inc. is
licensed as a reinsurance intermediary under Section 2106 of the Insurance Law;
AIS Insurance Agency, Inc. is licensed as an agent under Sections 2103(a) and
2103(b) of the Insurance Law; Aon/Albert G. Ruben Insurance Agency is licensed
as a broker under Section 2104 of the Insurance Law; Aon/Albert G. Ruben
Company (New York), Inc. is licensed as a broker under Section 2104 of the
Insurance Law, as an excess line broker under Section 2105 of the Insurance Law
and as an agent under Sections 2103(a) and 2103(b) of the Insurance Law; Aon
Consulting, Inc. of Florida is licensed as an agent under Section 2103(a) of
the Insurance Law; Aon Consulting of New Jersey (dba of Aon Consulting, Inc. is
licensed as an agent under Section 2103(a) of the Insurance Law; Aon Hamond
& Regine Inc. is licensed as a broker under Section 2104 of the Insurance
Law and as an excess line broker under Section 2105 of the Insurance Law; ; Aon
Private Risk Management Insurance Agency, Inc. is licensed as an agent under
Sections 2103(a) and 2103(b) of the Insurance Law; Aon Risk Services, Inc. of
Arkansas is licensed as an agent under Sections 2103(a) and 2103(b) of the
Insurance Law; Aon Risk Services, Inc. of Colorado is licensed as a broker
under Section 2104 of the Insurance Law; Aon Risk Services, Inc. of Connecticut
is licensed as a broker under Section 2104 of the Insurance Law; Aon Risk Services,
Inc. of Florida is licensed as a broker under Section 2104 of the Insurance Law
and as an agent under Section 2103(b) of the Insurance Law; Aon Risk Services,
Inc. of Georgia is licensed as an agent under Section 2103(b) of the Insurance
Law; Aon Risk Services, Inc. of Illinois is licensed as a broker under Section 2104
of the Insurance Law and as an agent under Sections 2103(a) and 2103(b) of the
Insurance Law; Aon Risk Services, Inc. of Indiana is licensed as an agent under
Section 2103(b) of the Insurance Law; Aon Risk Services, Inc. of Kansas is
licensed as an agent under Section 2103(b) of the Insurance Law; Aon Risk Services,
Inc. of Maryland is licensed as a broker under Section 2104 of the Insurance
Law; Aon Risk Services, Inc. of Massachusetts is licensed as a broker under
Section 2104 of the Insurance Law; Aon Risk Services, Inc. of Michigan is
licensed as a broker under Section 2104 of the Insurance Law; Aon Risk Services,
Inc. of Minnesota is licensed as a broker under Section 2104 of the Insurance
Law; Aon Risk Services, Inc. of Nebraska is licensed as an agent under Section
2103(b) of the Insurance Law; Aon Risk Services, Inc. of New Jersey is licensed
as a broker under Section 2104 of the Insurance Law; Aon Risk Services, Inc. of
New York is licensed as a broker under Section 2104 of the Insurance Law, as an
excess line broker under Section 2105 of the Insurance Law, as an agent under
Sections 2103(a) and 2103(b) of the Insurance Law and as a reinsurance
intermediary under Section 2106 of the Insurance Law; Aon Risk Services, Inc.
of Ohio is licensed as a broker under Section 2104 of the Insurance Law; Aon
Risk Services,

 

25

 

Inc. of Oklahoma is licensed
as an agent under Section 2103(b) of the Insurance Law; Aon Risk Services, Inc.
of Oregon is licensed as an agent under Section 2103(b) of the Insurance Law;
Aon Risk Services, Inc. of Pennsylvania is licensed as an agent under Section
2103(b) of the Insurance Law; Aon Risk Services, Inc. of Rhode Island is
licensed as a broker under Section 2104 of the Insurance Law; Aon Risk
Services, Inc. of Virginia is licensed as a broker under Section 2104 of the
Insurance Law; Aon Risk Services, Inc. of Washington is licensed as a broker
under Section 2104 of the Insurance Law; Aon Risk Services, Inc. of Washington
D.C. is licensed as an agent under Section 2103(b) of the Insurance Law; Aon
Risk Services of Central California Insurance Agency Services is licensed as a
broker under Section 2104 of the Insurance Law; Aon Risk Services of Missouri,
Inc. is licensed as a broker under Section 2104 of the Insurance Law; Aon Risk
Services of Northern California Insurance Agency is licensed as a broker under
Section 2104 of the Insurance Law; Aon Risk Services of Southern California
Insurance Agency Services is licensed as a broker under Section 2104 of the
Insurance Law; Aon Risk Services of Texas, Inc. is licensed as an agent under Section
2103(b) of the Insurance Law; Aon Specialty Re, Inc. is licensed as a
reinsurance intermediary under Section 2106 of the Insurance Law; ARM
International Corp. is licensed as a broker under Section 2104 of the Insurance
Law and as an agent under Sections 2103(a) and 2103(b) of the Insurance Law;
ARMRISK Corp. is licensed as a reinsurance intermediary under Section 2106 of
the Insurance Law; Financial & Professional Risk Solutions, Inc .is
licensed as an agent under Section 2103(b) of the Insurance Law and is licensed
as a broker under Section 2104 of the Insurance Law and as an excess line
broker under Section 2105 of the Insurance Law; Huntington T. Block Insurance
Agency, Inc. is licensed as an agent under Section 2103(b) of the Insurance Law
; Johnson Rooney Welch, Inc. is licensed as an agent under Section 2103(b) of
the Insurance Law; K & K Insurance Agency is licensed as an agent under
Section 2103(b) of the Insurance Law and is licensed as a broker under Section
2104 of the Insurance Law and as an excess line broker under Section 2105 of
the Insurance Law; Muirfield Agency. is licensed as an agent under Section 2103(b)
of the Insurance Law; Special Risk Resources Insurance Agency of New York, Inc.
is licensed as a broker under Section 2104 of the Insurance Law and as an agent
under Section 2103(b) of the Insurance Law; Swett & Crawford Corp. is
licensed as an agent under Section 2103(b) of the Insurance Law and is licensed
as a broker under Section 2104 of the Insurance Law and as an excess line
broker under Section 2105 of the Insurance Law; Swett & Crawford of
Illinois, Inc. is licensed as a broker under Section 2104 of the Insurance Law
and as an excess line broker under Section 2105 of the Insurance Law; Swett
& Crawford of Maine, Inc. is licensed as an agent under Section 2103(b) of
the Insurance Law and is licensed as a broker under Section 2104 of the
Insurance Law; Swett & Crawford of Ohio ,Inc. is licensed as an agent under
Section 2103(b) of the Insurance Law and is licensed as a broker under Section
2104 of the Insurance Law and as an excess line broker under Section 2105 of
the Insurance Law; Swett & Crawford of Pennsylvania, Inc. is licensed as an
agent under Section 2103(b) of the Insurance Law and is licensed as a broker
under Section 2104 of the Insurance Law and as an excess line broker under
Section 2105 of the Insurance Law; and UMS is licensed as a broker under
Section 2104 of the Insurance Law; and

WHEREAS, all of the
foregoing Respondents are wholly owned subsidiaries of Respondent Aon Corporation,
which is a Delaware corporation with its principal place of business in
Chicago, Illinois; and

WHEREAS, on or about
March 4, 2005, the Attorney General of the State of New York commenced a civil
action in the Supreme Court of the State of New York, County of New York, The People of the State of New York v. Aon
Corporation (the “Civil Action”), charging Respondent Aon Corporation
with deceptive practices in connection with the brokering of insurance business
in violation of the New York Executive Law, the General Business Law and common
law; and

WHEREAS, the Civil
Action has been resolved pursuant to an Agreement Among the Attorney General of
the State of New York, the Superintendent of Insurance of the State of New York
(“Superintendent”), the Attorney General of the State of Connecticut, the
Illinois Attorney General, the Director of the Division of Insurance, Illinois
Financial and Professional Regulation, and Aon Corporation, dated March 4, 2005
(“Settlement Agreement”), a copy of which is annexed hereto; and

 

26

 

WHEREAS, the attached
Citation, dated March 4, 2005, charging the Respondents with having used
deceptive and dishonest practices, having demonstrated untrustworthiness, and
having engaged in determined violations of the Insurance Law, was duly served
on the Respondents; and

WHEREAS, Respondents
have been advised and are aware of their statutory right to notice and a hearing
on said charges; and

WHEREAS, Respondents
desire to resolve said charges by entering into a Stipulation on the terms and
conditions hereinafter set forth in lieu of proceeding with a hearing in this
matter; NOW THEREFORE,

IT IS HEREBY
STIPULATED AND AGREED by and between the Respondents and the New
York State Insurance Department (“Department”), subject to the approval of the
Superintendent, as follows:

1.             Respondents waive their right to further notice and
hearing in this matter, and agree to fully comply with all of the terms and
conditions of the Settlement Agreement.

2.             Respondents agree to cooperate fully in all Department
examinations of Respondents and in all Department investigations of current or
former employees of Respondents or licensees of the Department.

3.             Respondents acknowledge that this Stipulation may be
used against them in any future Department proceeding if there is reason to
believe the terms of the Settlement Agreement or this Stipulation have been
violated by Respondents, or if the Department institutes disciplinary action
against any Respondent for any reason other than the acts considered herein.

4.             The proceeding initiated by the attached Citation is
hereby resolved and discontinued by the Department.

Dated:    New York, NY

                March        ,
2005

 

	
   

  	
   

  	
  NEW YORK STATE INSURANCE
  DEPARTMENT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Jon
  G. Rothblatt

  	
   

  
	
   

  	
   

  	
   

  	
  Principal
  Attorney

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  AON CORPORATION, AFFINITY
  INSURANCE SERVICES, INC., AON CONSULTING, INC., AON BENEFIT SERVICES INC.,
  AON FINANCIAL SERVICES GROUP OF NEW YORK INC., AON RE, INC., AIS INSURANCE
  AGENCY INC., AON/ALBERT G. RUBEN INSURANCE AGENCY, AON/ALBERT G. RUBEN COMPANY
  (NEW YORK), INC., AON CONSULTING OF FLORIDA, AON CONSULTING OF NEW JERSEY
  (dba of AON CONSULTING, INC. , AON HAMOND & REGINE, INC., AON PRIVATE
  RISK MANAGEMENT INSURANCE AGENCY, INC., AON RISK SERVICES, INC. OF ARKANSAS,
  AON RISK SERVICES, INC. OF COLORADO, AON RISK SERVICES, INC. OF 

  

 

27

 

	
   

  	
   

  	
  CONNECTICUT, AON RISK
  SERVICES, INC. OF FLORIDA, AON RISK  SERVICES, INC. OF GEORGIA, AON RISK SERVICES, INC.
  OF ILLINOIS, AON RISK SERVICES, INC. OF INDIANA, AON RISK SERVICES, INC. OF
  KANSAS, AON RISK SERVICES, INC. OF MARYLAND, AON RISK SERVICES, INC. OF MASSACHUSETTS,
  AON RISK SERVICES, INC. OF MICHIGAN, AON RISK SERVICES, INC. OF MINNESOTA,
  AON RISK SERVICES, INC. OF NEBRASKA, AON RISK SERVICES, INC. OF NEW JERSEY,
  AON RISK SERVICES, INC. OF NEW YORK, AON RISK SERVICES, INC. OF OHIO, AON
  RISK SERVICES, INC. OF OKLAHOMA, AON RISK SERVICES, INC. OF OREGON, AON RISK SERVICES,
  INC. OF PENNSYLVANIA, AON RISK SERVICES, INC. OF RHODE ISLAND, AON RISK
  SERVICES, INC. OF VIRGINIA, AON RISK SERVICES, INC. OF WASHINGTON, AON RISK
  SERVICES, INC. OF WASHINGTON D.C., AON RISK SERVICES. OF CENTRAL CALIFORNIA
  INSURANCE AGENCY SERVICES, AON RISK SERVICES OF MISSOURI, INC., AON RISK SERVICES.
  OF NORTHERN CALIFORNIA INSURANCE AGENCY, AON RISK SERVICES, OF SOUTHERN
  CALIFORNIA INSURANCE AGENCY SERVICES, AON RISK SERVICES OF TEXAS, INC., AON
  SPECIALTY RE, INC., ARM INTERNATIONAL CORP., ARMRISK CORP. FINANCIAL &
  PROFESSIONAL RISK SOLUTIONS, INC., HUNTINGTON T. BLOCK INSURANCE AGENCY,
  INC., JOHNSON ROONEY WELCH, INC., K & K INSURANCE AGENCY, MUIRFIELD
  AGENCY., SPECIAL RISK RESOURCES INSURANCE AGENCY OF NEW YORK, INC., SWETT
  & CRAWFORD CORP;SWETT & CRAWFORD OF ILLINOIS, INC., SWETT & CRAWFORD
  OF MAINE, INC., SWETT & CRAWFORD OF OHIO, INC., SWETT & CRAWFORD OF
  PENNSYLVANIA, INC., and UMS 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  STATE OF

  	
   

  	
   

  	
  )

  	
   

  
	
   

  	
   

  	
   

  	
  )ss.:

  	
   

  
	
  COUNTY OF

  	
   

  	
   

  	
  )

  	
   

  

 

On this                 
day of March, 2005, before me personally came
                                      
, to me known, who, being by me duly sworn, did depose and say that he/she
resides at
                                      
; that he/she is the
                                      
of Aon Corporation., the corporation described in and which executed the above
instrument on behalf of each of the entities listed above; and that he/she
signed his/her name thereto by order of the board of directors of said
corporation.

 

	
   

  
	
  Notary Public

  

 

28

 

THE
FOREGOING STIPULATION IS HEREBY APPROVED.

Dated:    New York, NY

                March        ,
2005

 

 

	
   

  	
  HOWARD MILLS

  
	
   

  	
  Acting Superintendent of
  Insurance

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  
	
   

  	
  Audrey Samers

  
	
   

  	
  Deputy Superintendent &
  General Counsel

  

 

29

EXHIBIT 5

 

	
  WITHDRAWAL

  	
  STATE
  OF CONNECTICUT

  	
  DOCKET NO.

  
	
  JD-CV-41 Rev. 10-01 

  	
  SUPERIOR COURT

  	
   

  
	
   

  	
  www.jud.state.ct.us 

  	
  RETURN DATE 

  
	
  COMPLETE ALL
  SECTIONS BELOW

  	
   

  
	
   

  	
   

  

 

	
  NAME OF CASE (FIRST-NAMED PLAINTIFF
  VS. FIRST- NAMED DEFENDANT)

  Richard Blumenthal, Attorney
  General St. of CT v. Aon Consulting, Inc. et. al.

  
	
  ý

  	
  Judicial District

  	
  o

  	
  Housing Session

  	
  o

  	
  G.A. No.

  	
   

  	
   

  	
   

  	
  ADDRESS OF COURT (No., street, town and zip code)

  95
  Wshington Street, Hartford, CT 06106

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  I (check only one box) THIS WITHDRAWAL IS BEING FILED
  BECAUSE THE DISPUTE HAS BEEN RESOLVED BY:

  
	
  I. COURT-ANNEXED ADR

  	
  II. COURT INTERVENTION

  	
   

  
	
  411088

  	
  o Early Intervention

  	
  411098

  	
  o Pretrial Conference

  	
   

  
	
  411089

  	
  o Early Neutral Evaluation

  	
  411099

  	
  o Trial
  Management Conference

  
	
  411090

  	
  o Attorney Trial Referee

  	
  411100

  	
  o Commencement of Trial

  	
  (court trial - first witness sworn;

  
	
  411091

  	
  o Fact-Finding

  	
   

  	
   

  	
  jury trial -
  trial jurors sworn)

  
	
  411093

  	
  o Arbitration

  	
  III. PRIVATE ADR

  	
   

  
	
  411094

  	
  o Mediation

  	
  411102

  	
  o Provider Name:

  	
   

  	
   

  
	
  411095

  	
  o Special Masters

  	
   

  	
   

  	
   

  
	
  411096

  	
  o Summary Jury Trial

  	
  IV. OTHER

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  411103

  	
  ý
  Discussion of Parties on Their Own

  
	
   

  	
   

  	
   

  	
   

  	
  415602

  	
  o
  Unilateral Action of Party(ies)

  
	
  SECTION
  II

  	
  WITHDRAWAL

  	
   

  
	
  (Do not check the following two boxes if any
  intervening complaints, cross complaints, counterclaims, or third party
  complaints remain pending in this case. See below for partial withdrawal of
  action.)

  
																				

	
  - - - - - - - - - - - -
  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
  - - - - - - - - - - - - -  - - - - - -
  - - - - - - - - - - - - - - - - - - - - - - -   DISPOSITIVE   - - - - - - - - - - - - - - - - - - - - -
  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
  -  - - - - - - - - - - - - - - - - - -
  - - - - - - - - - - - - - - 

  

	
  (WDACT)

  	
  ý The Plaintiff’s action is WITHDRAWN AS
  TO ALL DEFENDANTS without costs to any party.

  	
  

  
	
  (WOARD)

  	
  o A judgment has been rendered against
  Defendant(s):

  	
  

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  and the
  Plaintiff’s action is WITHDRAWN AS TO ALL REMAINING DEFENDANTS without costs.
  

  
				

	
  - - - - - - - - - - - -
  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
  - - - - - - - - - - - - -  - - - - - -
  - - - - - - - - - - - - - - - - - - - - - - -   PARTIAL   - - - - - - - - - - - - - - - - - - - - -
  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
  -  - - - - - - - - - - - - - - - - - -
  - - - - - - - - - - - - - - 

  

	
   

  	
  The

  	
   

  	
   

  
	
  (WDCOMP)

  	
  o Complaint

  	
   

  	
   

  
	
  (WDCOUNT)

  	
  o Counts of the complaint:

  	
   

  	
   

  	
   

  
	
  (WDINTCO)

  	
  o Intervening Complaint

  	
   

  	
   

  
	
  (WDTHPC)

  	
  o Third Party Complaint

  	
   

  	
   

  
	
  (WAPPCOM)

  	
  o Apportionment Complaint

  	
   

  	
   

  
	
  (WDCC)

  	
  o Cross Complaint (cross claim)

  	
   

  	
   

  
	
  (WOC)

  	
  o Counterclaim

  	
   

  	
   

  
	
  (WOAAP)

  	
  o Plaintiff(s):

  	
   

  	
   

  	
   

  	
   

  
	
  (WOAAD)

  	
  o Complaint against defendant(s):

  	
   

  	
   

  	
  only w/o costs

  
	
   

  	
   

  o Other:

  	
   

  
	
   

  	
  in the above entitled action is withdrawn.

  	
   

  	
   

  
													

 

	
  SIGNATURE
  REQUIRED

  

 

	
  Plaintiff

  	
  Richard Blumenthal, AG St. of CT

  	
  ;

  	
  By

  	
   

  	
  Attorney

  
	
  Plaintiff

  	
   

  	
  ;

  	
  By

  	
   

  	
  Attorney

  
	
  Defendant 

  	
   

  	
  ;

  	
  By

  	
   

  	
  Attorney

  
	
  Defendant 

  	
   

  	
  ;

  	
  By

  	
   

  	
  Attorney

  
	
  NAME & ADDRESS

  	
  Robert Snook, Assistant Attorney General

  
	
  OF
  SIGNER:

  	
  55 Elm Street,
  P.O. Box 120, Hartford, CT 06106

  
	
   

  	
   

  
	
  SECTION
  III

  	
  CERTIFICATION

  	
   

  
	
  I hereby certify that a copy was mailed/delivered to
  all counsel and pro se parties of record on:

  	
  DATE

  	
  SIGNED (Individual attorney or pro se party)

  X

  	
  PHONE NO. (Area code first)

  860-808-5040

  
	
  NAME OF EACH PARTY SERVED *

  Kirkland & Ellis LLP

  	
  ADDRESS AT WHICH SERVICE WAS MADE*

  655 Fifteenth Street, NW

  Washington, DC 20005

  
	
   

  
												

* If
necessary, attach additional sheet with names of each party served and the address
at which service was made.

 

30

 

EXHIBIT
6

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS

COUNTY
DEPARTMENT — CHANCERY DIVISION

	
  THE PEOPLE OF THE STATE OF
  ILLINOIS

  	
  )

  	
   

  
	
  ex rel. LISA MADIGAN,

  	
  )

  	
   

  
	
  Attorney General of the
  State of Illinois,

  	
  )

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  )

  	
   

  
	
  Plaintiff,

  	
   

  	
   

  
	
   

  	
  )

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  )

  	
  Case
  No.

  
	
  v.

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  
	
  THE AON CORPORATION,

  	
   

  	
  )

  
	
   

  	
  )

  	
   

  
	
  Defendant.

  	
  )

  	
   

  

 

CONSENT
ORDER

This Consent Order memorializes a Settlement Agreement
made by and between (a) LISA MADIGAN, Attorney General of the State of Illinois
(hereinafter “Plaintiff” or the “Attorney General”), and (b) The Aon
Corporation (“Defendant”).

THE COURT FINDS THE FOLLOWING:

A.            That
this Court has jurisdiction over the subject matter and over the parties
herein, namely Defendants THE AON CORPORATION and Plaintiff THE PEOPLE OF THE
STATE OF ILLINOIS, ex rel. LISA MADIGAN, Attorney General of the State of
Illinois.

B.            That
the Attorney General of the State of Illinois, acting on behalf of the People
of the State of Illinois was and is the proper party to commence these
proceedings pursuant to the authority granted to the Attorney General under the
Illinois Consumer Fraud And Deceptive

 

31

 

Business Practices Act (815 ILCS §§ 505/1 et seq.) and the Illinois Insurance Code
(215 ILCS 5/500-70(a)(8)).

C.            That the Attorney General and the Defendant have reached
an agreement as to the terms on which they desire to settle the claims asserted
by the Attorney General in this action, without requiring the extensive time
and financial costs associated with further litigation.

D.            That in furtherance of that end, the parties acknowledge
that this Consent Order has been entered as a result of the desire to resolve
these actions as expeditiously as possible between and amongst the parties, and
to avoid further litigation.

NOW THEREFORE, IT IS HEREBY ORDERED
THAT:

1.             Entry Of Judgment:
Judgment is hereby entered on the terms set forth in Exhibit A to this Order,
which is incorporated by reference

2.             Judgment Recorded:
This Consent Order will be recorded immediately upon entry.

3.             Dismissal With
Prejudice: Plaintiff will voluntarily dismiss this action with prejudice
pursuant to 735 ILCS 5/2-1009. Notwithstanding the dismissal of this Action
with prejudice, the parties hereby agree that this Court shall retain
jurisdiction over this matter for the purposes of enforcing the terms of this
Consent Order.

4.             Binding Agreement:
This Consent Order shall be binding upon, and its benefits shall inure to, Defendant
and its respective heirs, representatives, successors and assigns, as well as Plaintiff’s
respective representatives, successors and assigns.

5.             Entire Agreement:
This Consent Order represents the entire agreement between Plaintiff and
Defendant. All agreements, covenants, representations and warranties, express
or

 

32

 

implied, oral or written,
of the parties hereto concerning the subject matters hereof are contained herein.
All prior and contemporaneous negotiations, possible and alleged agreements, representations,
covenants and warranties, between the parties, concerning the subject matter
hereof are merged herein.

6.             Severability:
If any portion, clause, phrase or term of this Consent Order is later determined
by a court of law to be invalid or unenforceable, for whatever reason, the
remaining provisions of this Consent Order will remain valid and in effect as
to the parties, and will be unaffected by said determination.

7.             Binding Authority:
The signatories below acknowledge that they have the lawful authority to bind
the parties for whom they are signing to the terms of this Consent Order as
herein represented.

	
  AGREED TO:

  	
   

  
	
   

  	
   

  
	
  THE PEOPLE OF
  THE STATE

  	
   

  
	
  OF ILLINOIS, ex
  rel.,

  	
   

  
	
  LISA MADIGAN

  	
   

  
	
  Attorney General
  of Illinois

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Assistant
  Attorney General

  	
   

  
	
   

  	
   

  
	
  AON CORPORATION

  	
   

  	
  Enter:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  lts:

  	
   

  	
  Date:

  

 

 

33Exhibit 10.1

 

EXECUTION COPY

 

WILLIAM M. AUSTIN 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 1st day of March, 2005, by and between WILLIAM M.
AUSTIN (the “Executive”),
and KEY ENERGY SERVICES, INC., a Maryland corporation with executive offices at
6 Desta Drive, Suite 4400, Midland, Texas 79705 (the “Company”).

 

WHEREAS, the Chief
Executive Officer of the Company (the “Chief Executive Officer”) and the Board of
Directors of the Company (the “Board”) are each of the view that employing Executive to
serve as Senior Vice President and Chief Financial Officer 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 March 1, 2005 (the “Commencement Date”); and

 

WHEREAS, the Executive is willing to serve as the Company’s
Senior Vice President and Chief Financial 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
Senior Vice President and Chief Financial Officer, and the Executive shall hold
such position and continue employment with the Company hereunder until the
close of business on March 1, 2008, unless sooner terminated in accordance with
Section 5 hereof (the “Initial
Employment Period”). The above notwithstanding, at the close of
business on each anniversary of the conclusion of the Initial Employment Period
(an “Anniversary Date”),
commencing with March 1, 2008, the term of the Executive’s employment hereunder
shall be automatically extended for twelve (12) months (unless sooner
terminated in accordance with Section 5 hereof) unless either the Executive or
the Company shall have given written notice (in each case, a “Non-Renewal Notice”)
to the other that such automatic extension shall not occur, which Non-Renewal
Notice shall have been given no later than the December 1 next preceding the
relevant Anniversary Date (the Initial Employment Period, together with any
extensions, until termination in accordance herewith, is referred to hereby as
the “Employment Period”).

 

 

(b)           The
Executive shall have the responsibilities, duties and authority commensurate
with his positions as the Senior Vice President and Chief Financial Officer of
the Company, including without limitation the general supervision and control
over, and responsibility for, the overall financial 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 that do not effect a material
decrease in the responsibilities, importance, scope or dignity of the Executive’s
position with the Company compared with those of such position as of the
Commencement Date, subject, however, to the supervision of the Chief Executive
Officer or, in certain circumstances, the Board. The Executive will report to
the Chief Executive Officer or, in certain circumstances, the Board.

 

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

 

(d)           The
principal location at which the Executive will substantially perform his duties
will be the Company’s Houston, Texas offices.

 

2.             Salary; Bonuses; Expenses.

 

(a)           During
the Employment Period, the Company will pay base compensation to the Executive
at the annual rate of Four Hundred Thousand Dollars ($400,000) per year (the “Base Salary”),
payable in substantially equal installments in accordance with the Company’s
existing payroll practices, but no less frequently than monthly. The Company
will review the Base Salary on a yearly basis promptly following the end of
each fiscal year of the Company to determine if an increase is advisable, and
the Base Salary may be increased (but not decreased) at the discretion of the
Chief Executive Officer and the Compensation Committee (the “Compensation Committee”)
of the Board, taking into account, among other factors, the Executive’s
performance and the performance of the Company.

 

(b)           The
Executive shall be eligible to participate in all of the Company’s cash
performance compensation plans (collectively, the “Performance Cash Compensation Plans”) for the Company’s
executives providing for the payment of cash bonuses or other cash incentives
payable upon the achievement of goals set forth in the Company’s strategic plan
as developed by the Compensation Committee after consultation with the Chief
Executive Officer and the Executive, payable in accordance with the provisions
thereof.  The performance goals for the
Performance Cash Compensation Plans will be based on objective criteria
specified in good faith in advance by the Compensation Committee after
consultation with the Chief Executive Officer and the Executive. The Executive
shall also receive such bonuses other than pursuant to the

 

2

 

Performance Cash Compensation Plans in such amounts and at such times
as the Compensation Committee, after consultation with the Chief Executive
Officer, in its discretion determines are appropriate to recognize
extraordinary performance by the Executive. 
The Executive’s target bonus for each fiscal year will be one hundred
percent (100%) of Base Salary, prorated for the portion of the 2005 fiscal year
following the Commencement Date.

 

(c)           Notwithstanding
any contrary terms in the Performance Cash Compensation Plans, the Executive
shall receive a bonus under such plans of the greater of the amount provided
under such plans with respect to January through July 2005 or Two Hundred
Thousand Dollars ($200,000), assuming continued employment until the end of
that period (except as otherwise provided under Section 5(g)(iv)).

 

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

 

3.             Equity-Based Incentives.

 

(a)           The
Company will ask the Compensation Committee to grant the Executive, pursuant to
the Key Energy Group, Inc. 1997 Incentive Plan (the “1997 Plan”),
nonqualified stock options for 100,000 shares of Company’s common stock, with
the exercise price set as provided under that plan based on the date of grant and
with vesting over three years, assuming continued employment.  Such grant shall otherwise be on the terms
and conditions generally applicable to options as reasonably determined by the
Compensation Committee.

 

(b)           The
Executive shall be eligible to participate in awards of stock options,
restricted stock, deferred stock and other equity-based incentives
(collectively, “Equity-Based
Incentives”), at the discretion of the Board or the Compensation
Committee. The performance goals for the grant of such Equity-Based Incentives
will be based on objective criteria mutually negotiated and agreed upon in good
faith in advance by the Board or the Compensation Committee after consultation
with the Executive and the Chief Executive Officer.

 

(c)           The
Compensation Committee has indicated that it intends to grant shares of
restricted stock (or unit equivalents) equal to a target of 100,000 shares to
the Executive upon the future approval by the stockholders of a restricted
stock program for the Company and the satisfaction of performance goals under
such program.  The program will track the
requirements of the 2003 Long-Term Share Incentive Plan, adjusted as the
Compensation Committee may consider appropriate so long as the Executive is
treated in a manner consistent with that generally applicable to other senior
vice presidents.  Nothing in this
Agreement shall give the Executive any rights to receive such shares or share
equivalents if his employment ends for any reason before they are granted.

 

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:

 

3

 

(a)           At
the Company’s expense, such fringe benefits as the Company may provide from
time to time for its senior management, but in any case, at least the benefits
described on EXHIBIT A hereto.

 

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

 

(c)           Nothing
herein contained shall preclude the Executive, to the extent he is otherwise
eligible, from participation in all group insurance programs or other fringe
benefit plans which the Company may from time to time in its sole and absolute
discretion make available generally to its personnel, or for personnel
similarly situated, but the Company shall not be required to establish or
maintain any such program or plan except as may be otherwise expressly provided
herein.

 

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

 

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

 

As used in this Agreement, the term “Cause” shall
mean (i) the failure by the Executive to substantially perform the major
functions of his position in a satisfactory manner (other than

 

4

 

(A) any such failure resulting from his incapacity due to physical or
mental illness or physical injury or (B) any such actual or anticipated failure
after the issuance of a notice of termination by the Executive for Good Reason
(as defined below)), after a written demand for substantial performance is
delivered by the Company to the Executive that specifically identifies the manner
in which the Company believes the Executive has not substantially performed his
duties; or (ii) the engaging by the Executive in misconduct that is, or is
reasonably likely to be, materially injurious to the Company, monetarily or
otherwise; or (iii) the Executive’s conviction or plea of guilty or no contest
to a felony (or to a felony charge reduced to misdemeanor), or, with respect to
his employment, to any misdemeanor (other than a traffic violation) or, with
respect to his employment, knowing violation of any federal or state securities
or tax laws; or (iv) willful violation of the Key Energy Services, Inc. Amended
and Restated Policy Regarding Acquisition, Ownership and Disposition of Company
Securities, as amended from time to time. 
Notwithstanding the foregoing, the Executive’s employment shall not be
deemed to have been terminated for Cause unless (A) reasonable notice shall
have been given to him setting forth in detail the reasons for the Company’s
intention to terminate for Cause, and if such termination is pursuant to clause
(i) or (ii) above and any damage to the Company is curable, only if Executive
has been provided a period of ten (10) business days from receipt of such
notice to cease the actions or inactions and otherwise cure such damage, and he
has not done so (provided that only one such period needs to be provided in any
period of three (3) consecutive months); (B) an opportunity shall have been
provided for the Executive to be heard before the Board; and (C) if such
termination is pursuant to clause (i) or (ii) above, delivery shall have been
made to the Executive of a notice of termination from the Board finding that in
the good faith opinion of a majority of the Board (excluding the Executive, if
applicable) he was guilty of conduct set forth in clause (i) or (ii) above.

 

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

 

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

 

(ii)           During
any period that the Executive is totally disabled such that he is unable to
perform his obligations hereunder by reason involving physical or mental
illness or physical injury, as determined by a physician chosen by the Company
and reasonably acceptable to the Executive (or his legal representative), the
Company may reassign the Executive’s duties hereunder to another person or
other persons, provided if the Executive shall again be able to

 

5

 

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); provided that
the Executive can only give a notice of resignation for Good Reason in
connection with a “Change
in Control” (as defined in Exhibit B) beginning on the ninetieth
(90th) day after the closing of the Change in Control.  In the event of a termination by the
Executive of his employment, the Company may reassign the Executive’s duties
hereunder to another person or other persons.

 

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

 

(1)           Failure
of the Board to elect the Executive as Senior Vice President and Chief
Financial Officer of the Company, or removal from the office of Senior Vice
President and Chief Financial 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 title, authority, functions, duties or
responsibilities as Senior 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,

 

6

 

importance, scope or dignity than his position as of the Commencement
Date, provided that such material change is not in connection with a
termination of Executive’s employment hereunder by the Company for Cause (in
accordance with Section 5(a) hereof), for Disability (in accordance with
Section 5(b) hereof) or other than for Cause or Disability (in accordance with
Section 5(a) hereof) (including, without limitation, by giving the Executive a
Non-Renewal Notice pursuant to Section 1(a) hereof); and provided, further,
that any notice of termination hereunder shall be given by the Executive within
ninety (90) days of when he becomes aware of such change; or

 

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

 

(4)           Failure
by the Company to obtain an assumption of this Agreement (by operation of law
or in writing) by a successor in accordance with Section 17 hereof unless
payment or provision for payment and provision for continuation of benefits
under this Agreement have been made as required by Section 17 hereof; or

 

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

 

(d)           Severance
Compensation.

 

(i)            Termination
for Good Reason or Other than for Cause. In the event the Executive’s
employment hereunder is terminated (A) by the Executive for Good Reason or
(B) by the Company other than for Cause or Disability, the Executive shall
be entitled, in addition to the other compensation and benefits herein provided
for, to severance compensation in an aggregate amount equal to two (2) times
his Base Salary at the rate in effect on the termination date, payable in
twenty-four (24) substantially equal monthly installments commencing at the end
of the calendar month in which the termination date occurs.  The preceding amounts shall be reduced to one
(1) times his Base Salary if the termination is a result of or after a
Non-Renewal Notice by the Company.

 

(ii)           Termination
following Disability. In the event the Executive’s employment should be
terminated by the Company as a result of Disability in accordance with Section
5(b) hereof, then the Executive shall be entitled, in addition to the other
compensation and benefits herein provided for, to severance compensation in an
aggregate amount equal to one (1) times his Base Salary at the rate in effect
on the termination date, payable in twelve (12) substantially equal monthly
installments commencing at the end of the calendar month in which

 

7

 

the termination date occurs, reduced by the amount of any
employer-provided disability insurance proceeds actually paid to the Executive
or for his benefit during such time period.

 

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

 

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

 

(v)           Termination
by Executive other than for Good Reason or by Company for Cause. In the
event of the Executive’s termination by resignation under Section 5(c)(i)
(i.e., other than for Good Reason) or by the Company for Cause, the Executive
shall not be entitled to any severance under Section 5(d) or otherwise, any
continued benefits under Section 5(f) (other than as required by statute), or
any accrued compensation under (x) Section 5(g)(ii) (for unpaid vacation,
except as otherwise required by law), (y) Section 5(g)(iii) (for prior year
bonuses, to the extent specified in that clause), or the minimum bonus provided
in Section 2(c).  Under the foregoing situations,
the treatment of equity incentives shall be as specified in Section 5(e)(ii),
and the Executive shall receive the accrued compensation described in Section
5(g)(i), (v), and (vi).

 

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

 

(e)           Effect
of Termination or Change in Control upon Equity-Based Incentives.

 

(i)            In
the event the Executive’s employment hereunder is terminated by the Company for
any reason other than for Cause or Disability (including, without limitation,
by giving the Executive a Non-Renewal Notice pursuant to Section 1(a) hereof),
or in the event the Executive should terminate his employment for Good Reason,
then any Equity-Based Incentives

 

8

 

held by the Executive which have not vested prior to the effective date
of such termination shall immediately vest and shall remain exercisable until
the earlier to occur of (x) the first anniversary of the effective date of such
termination and (y) the final stated expiration date of the Equity-Based
Incentive. In addition, in the event of such a termination, any Equity-Based
Incentives held by the Executive which have vested prior to the effective date
of such termination shall remain exercisable until the earlier to occur of (x)
the first anniversary of the effective date of such termination and (y) the
final stated expiration date of the Equity-Based Incentive.

 

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

 

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

 

(iv)          In
the event of a conflict between the preceding terms and provisions of this
Section 5(e) and any other terms and provisions governing any Equity-Based
Incentives held (now or in the future) by the Executive (including without
limitation the terms and provisions contained in the agreements and/or plans
pursuant to which such Equity-Based Incentives were (or will in the future be)
granted), the preceding terms and provisions of this Section 5(e) shall
control; provided, however, that, if an Equity-Based Incentive
does not by its terms require any exercise, no requirement of exercise shall be
implied from the preceding terms and provisions of this Section 5(e).

 

(f)            Continuation
of Benefits.

 

(i)            Subject
to Section 5(f)(ii) hereof, in the event that Executive’s employment hereunder
is terminated by the Executive for Good Reason or by the Company for Disability
or other than for Cause (including, without limitation, by giving the Executive
a Non-Renewal Notice pursuant to Section 1(a) hereof) and not as a result of
the death of the Executive, the Executive shall continue to be entitled, at the
Company’s expense, to the post-employment

 

9

 

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

 

(ii)           In
the event the Executive’s employment hereunder is terminated by the Company
within one (1) year of a Change in Control (other than a termination because of
the Executive’s death) or is terminated by the Company other than for Cause in
anticipation of a Change in Control, the Company shall pay to the Executive, in
lieu of providing the benefits contemplated by Section 5(f)(i) above, an amount
in cash equal to the aggregate reasonable expenses that the Company would incur
if it were to provide such benefits for a period of time following the
termination date ending on the second anniversary of the termination date,
which amount shall be paid in one lump sum on the date of such termination.

 

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

 

(g)           Accrued
Compensation. In the event of any termination of the Executive’s employment
for any reason, the Executive (or his estate) shall be paid (i) any unpaid
portion of his Base Salary through the effective termination date, (ii) for any
accrued but unused vacation (payable in an amount equal to the Base Salary
divided by 255 and multiplied by the number of accrued but unused vacation
days), (iii) any prior fiscal year bonus earned, but not paid (other than on a
resignation by Executive without Good Reason or termination for Cause), (iv)
any amounts for expense reimbursement and similar items which have been
properly incurred in accordance with the provisions hereof prior to termination
and have not yet been paid, including without limitation any sums due under
Sections 2(c), 2(d), and 4(c) hereof, and (v) any Gross-Up Payment which may
become due under the terms of Section 5(i) hereof. Such amounts shall be paid
within ten (10) days of the termination date.

 

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

 

10

 

(i)            Certain
Tax Consequences.

 

(i)            (A)  Whether or not the Executive becomes entitled
to the payments and benefits described in this Section 5, if any of the
payments or benefits received or to be received by the Executive in connection
with a change in ownership or control of the Company, as defined in section
280G of the Internal Revenue Code of 1986 (the “Code”) (a “Statutory Change in Control”), or the
Executive’s termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a Statutory Change in Control or any person
affiliated with the Company or such person) (collectively, the “Severance Benefits “)
will be subject to any excise tax (the “Excise Tax”) imposed under section 4999 of
the Code after giving effect to Section 5(i)(i)(B), the Company shall pay to
the Executive an additional amount equal to the Excise Tax, plus any amount
necessary to “gross up” the Executive for additional taxes resulting from the
payments to the Executive by the Company under this Section 5(i)(i) (the “Excise Tax Payment”).
Each Excise Tax Payment shall be made not less than five (5) business days
prior to the due date for payment of the Excise Tax.

 

(B)  Notwithstanding the foregoing, if it shall be
determined that the Executive would be entitled to an Excise Tax Payment, but
that if the Severance Benefits could be reduced by an amount necessary such
that the receipt of the Company Payments would not give rise to any Excise Tax
(the “Reduced Benefits”)
and the Reduced Benefits would
not be less than ninety percent (90%) of the Severance Benefits before such
reduction, then no Excise Tax Payment shall be made to the Executive and the
Severance Benefits, in the aggregate, shall be reduced to the Reduced
Benefits.  To determine the Reduced
Benefits, payments shall be reduced in the following order (1) acceleration of
vesting of any stock options for which the exercise price exceeds the then fair
market value, (2) any cash severance based on a multiple of Base Salary or
Bonus, (3) any other cash amounts payable to the Executive, (4) any benefits
valued as parachute payments; and (5) acceleration of vesting of any equity not
covered by (1) above, unless the Executive elects another method of reduction
by written notice to the Company prior to the change of ownership or effective
control.

 

(ii)           For
purposes of determining whether any of the Severance Benefits will be subject
to the Excise Tax and the amount of such Excise Tax:

 

(A)  all of the Severance Benefits shall be
treated as “parachute payments” within the meaning of Code section 280G(b)(2)
if the aggregate present value (determined as provided in Code Section
280G(d)(4)) of such Severance Benefits equals or exceeds three times the
Executive’s “Base Amount”
(within the meaning of Code Section 280G(b)(3)), and all “excess parachute
payments” within the meaning of Code section 280G(b)(1) shall be treated as
subject to the Excise Tax, unless the Executive receives a written opinion from
a nationally recognized law or accounting firm (“280G Advisers”) selected by the
Compensation Committee or the Board, and reasonably acceptable to the
Executive, that such other payments or benefits (in whole or in part) do not
constitute parachute payments, including by reason of Code section
280G(b)(4)(A), or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered, within the
meaning of Code section 280G(b)(4)(B), in excess of the “Base Amount” as
defined in Code section 280G(b)(3) allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax; and

 

11

 

(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
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

 

12

 

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.

 

6.             Limitation on Competition.

 

The Executive acknowledges that he will have
continuing access to the financial and other confidential information of the
Company.  As an agreement ancillary to
the receipt of such information and the other undertakings in this Agreement,
the Executive covenants as follows:

 

During the Employment Period, and for such period
thereafter (A) as the Executive is entitled to receive severance compensation
under this Agreement, or (B) in the event payment of the Executive’s severance
compensation is accelerated due to a Change in Control, for a period of three
(3) years following the end of the Employment Period, or (C) in the event the
Executive’s employment is terminated by the Company for Cause or the Executive
terminates his employment for any reason other than Good Reason (including,
without limitation, by giving the Company a Non-Renewal Notice pursuant to
Section 1(a) hereof), for a period of twelve months following the Employment
Period:

 

(a)           the
Executive shall not, directly or indirectly, without the Company’s prior
written consent, participate or engage in, whether as a director, officer,
employee, advisor, consultant, investor, lender, stockholder, partner, joint
venturer, owner or in any other capacity, any Competitive Business (as defined
below) conducted in any Competitive Market Area (as defined below); provided,
however, that the Executive shall not be deemed to be participating or engaging
in any such business solely by virtue of his ownership of not more than five
percent of

 

13

 

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
irreparable injury

 

14

 

(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.

 

15

 

11.           Notices.

 

All notices which the Company is required or permitted
to give to the Executive shall be given by registered or certified mail or
overnight courier, with a receipt obtained, addressed to the Executive at his
primary residence, or at such other place as the Executive may from time to
time designate in writing, or by personal delivery to the Executive, or by
facsimile to the Executive with oral confirmation of his receipt and with a
copy immediately sent to the Executive by first class U.S. Mail, and to counsel
for the Executive as may be requested in writing by the Executive from time to
time. All notices which the Executive is required or permitted to give to the
Company shall be given by registered or certified mail or overnight courier,
with a receipt obtained, addressed to the Company at the address set forth
above, or at such other address as the Company may from time to time designate
in writing, or by personal delivery to the Chief Executive Officer of the
Company, or by facsimile to the Chief Executive Officer with oral confirmation
of his receipt and with a copy immediately sent to the Chief Executive Officer
by first class U.S. Mail, and to counsel for the Company as may be requested in
writing by the Company. A notice will be deemed given upon personal delivery,
the mailing thereof or delivery to an overnight courier for delivery the next
business day, or the oral confirmation of receipt by facsimile, except for a
notice of change of address, which will not be effective until receipt, and
except as otherwise provided in Section 5(a) hereof.

 

12.           Waivers.

 

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

 

13.           Headings; Other Language.

 

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

 

14.           Withholding and Timing of Payments.

 

The Executive acknowledges and agrees that any or all
payments under this Agreement may be subject to reduction for tax and other
required withholdings.  In addition, he
acknowledges and agrees that the timing of any payments due to him may be
revised as necessary for compliance with Section 409A of the Code, including,
if applicable, the six month delay required between separation from service and
payment of amounts covered by Section 409A.

 

16

 

15.           Counterparts.

 

This Agreement may be executed in duplicate
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute one agreement.

 

16.           Agreement Complete; Amendments.

 

Effective as of the Commencement Date, this Agreement,
together with the Exhibits hereto, the agreements referred to herein, and the
instruments, agreements, plans, resolutions and other documents pursuant to
which any Equity-Based Incentives are held (now or in the future) by the
Executive, constitutes the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, written or oral,
with respect thereto. This Agreement may not be amended, supplemented, canceled
or discharged except by a written instrument executed by both of the parties
hereto, provided, however, that the immediately foregoing provision shall not
prohibit the termination of rights and obligations under this Agreement which
termination is made in accordance with the terms of this Agreement.

 

17.           Benefit of the Successors and Permitted Assigns of
the Respective Parties Hereto.

 

This Agreement and the rights and obligations
hereunder are personal to the Company and the Executive and are not assignable
or transferable to any other person, firm or corporation without the consent of
the other party, except as contemplated hereby; provided, however, in the event
of the sale, merger or consolidation of the Company, whether or not the Company
is the surviving or resulting corporation, the transfer of all or substantially
all of the assets of the Company, or the voluntary or involuntary dissolution
of the Company, then the surviving or resulting corporation or the transferee
or transferees of the Company’s assets shall be bound by this Agreement and the
Company shall take all actions necessary to insure that such corporation,
transferee or transferees are bound by the provisions of this Agreement; and
provided, further, this Agreement shall inure to the benefit of the Executive’s
estate, heirs, executors, administrators, personal and legal representatives,
distributees, devisees, and legatees. Notwithstanding the foregoing provisions
of this Section 17, the Company shall not be required to take all actions
necessary to insure that a buyer, survivor, transferee or transferees of the
Company’s assets (“Transferee”)
are bound by the provisions of this Agreement and such Transferee shall not be
bound by the obligations of the Company under this Agreement if the Company
shall have (a) paid to the Executive or made provision satisfactory to the
Executive for payment to him of all amounts which are or may become payable to
him hereunder in accordance with the terms hereof and (b) made provision
satisfactory to the Executive for the continuance of all benefits required to
be provided to him in accordance with the terms hereof, in each case as if the
Executive had been terminated without Cause in anticipation of a Change in
Control.

 

18.           Governing Law.

 

This Agreement will be governed and construed in
accordance with the laws of Texas applicable to agreements made and to be
performed entirely within such state, without giving effect to any choice or
conflicts of laws principles which would cause the application of the domestic
substantive laws of any other jurisdiction.

 

17

 

19.           Survival.

 

The covenants, agreements, representations, warranties
and provisions contained in this Agreement that are intended to survive the
termination of the Executive’s employment hereunder and the termination of the
Employment Period shall so survive such termination.

 

20.           Interpretation.

 

The Company and the Executive each acknowledge and
agree that this Agreement has been reviewed and negotiated by such party and
its or his counsel, who have contributed to its revision, and the normal rule
of construction, to the effect that any ambiguities are resolved against the
drafting party, shall not be employed in the interpretation of it.

 

 

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

 

	
   

  	
  KEY ENERGY
  SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  Richard J. Alario

  	
   

  
	
   

  	
   

  	
  Richard J.
  Alario

  
	
   

  	
   

  	
  Chairman,
  President, and Chief Executive

  Officer

  
	
  /s/ William M.
  Austin

  	
   

  
	
  William M. Austin

  	
   

  
						

 

18

 

EXHIBIT A

 

Company Paid Coverages

 

1.             Medical
and Dental Plan. Comprehensive medical and dental plans available to the
Company’s senior management, pursuant to which all medical and dental expenses
incurred by the Executive, his spouse and his children will be reimbursed by
the Company, through insurance or, in the absence of insurance, directly by the
Company, so that the Executive has no out-of-pocket cost with respect to such
expenses.

 

2.             Director
and Officer Liability Insurance.

 

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

 

19

 

EXHIBIT B

 

Definition
of “Change in Control”

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

20

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