<Page>
EXECUTION COPY
SEPARATION AND RELEASE AGREEMENT
This SEPARATION AND RELEASE AGREEMENT ("Agreement") is made and entered
into by and between KEY ENERGY SERVICES, INC., a Maryland corporation (the
"Company"), and THOMAS K. GRUNDMAN ("Executive") on this 6th day of May, 2002.
WHEREAS, Executive and the Company are parties to an employment
agreement dated as of February 15, 2002, as in effect on the date hereof (the
"Employment Agreement");
WHEREAS, in addition to other offices held from time to time, Executive
has most recently served as Executive Vice President - M&A and International of
the Company;
WHEREAS, Executive and the Company desire to terminate the employment
relationship between Executive and the Company effective as of the date hereof;
WHEREAS, Executive is indebted to the Company pursuant to a Demand Note
of Executive dated August 3, 1999 (the "Demand Note"), which is subject to the
letter agreement dated July 1, 2000 between the Company and Executive (the "Note
Letter Agreement"), in an aggregate amount of principal and accrued and unpaid
interest equal to $58,359.47 (the "Indebtedness Amount") on April 26, 2002 (with
interest accruing thereafter at a rate of $8.38 per day); and
WHEREAS, it is the desire of the Company and Executive that they enter
into a written agreement in order to confirm and establish their respective
rights, duties, and obligations, to resolve any and all claims and differences
that may exist, and generally for to provide mutual releases to one another from
any and all claims or other matters as set forth herein;
NOW, THEREFORE, for and in consideration of the premises and the
consideration more fully set forth hereinafter, and intending to be legally
bound hereby, the Company and Executive mutually agree as follows:
1. COMPANY REFERENCES. All references used herein to "Company" shall
refer to Key Energy Services, Inc. and its subsidiaries and affiliates, and the
successors of the Company and its subsidiaries and affiliates.
2. TERMINATION DATE. The employment relationship between Executive
and Company shall terminate and cease as of 5:00 p.m. (New York time) on the
date hereof (the "Termination Date"), and neither party shall have any further
rights or obligations with respect to or arising from such employment
relationship except as provided herein and in Section 6 of the Employment
Agreement (together with any other provisions of the Employment Agreement
necessary or desirable to enforce such Section 6). Effective as of the
Termination Date, Executive hereby tenders, and Company accepts, Executive's
resignation from any and all offices and positions that Executive may hold in
the Company.
<Page>
On the Termination Date, Executive shall be paid (i) any unpaid portion
of his base salary (as specified in the Employment Agreement; "Base Salary")
through the Termination Date, and (ii) for any accrued but unused vacation days
in accordance with the policy of the Company (payable in an amount equal to the
Base Salary divided by 255 and multiplied by the number of accrued but unused
vacation days).
3. SEVERANCE BENEFITS.
(a) Provided that Executive does not revoke this Agreement as
provided at the end of this Agreement, then:
(i) on the date which is the eighth day after the
Termination Date (the "Effective Date"), the Company
agrees (A) to pay to Executive Eight Hundred Forty
Thousand Dollars ($840,000), in thirty-six (36)
substantially equal monthly installments payable on
the last day of each calendar month, commencing on
the first such date on or after the Effective Date
and (B) to forgive the remaining $50,000 principal
of, and all accrued and unpaid interest on, the
Demand Note; and
(ii) in addition, the Company shall, in accordance with
the provisions of the Note Letter Agreement (A) pay
to Executive, within thirty (30) days of the actual
filing of Executive's 2002 federal and state income
tax returns, a "gross-up" bonus (the "2002 Note
Letter Bonus") equal to the amount of federal, state
and local income or payroll taxes paid by Executive
by virtue of the forgiveness of the Indebtedness
Amount, which such amount shall be certified by
Executive's accountant in a statement delivered to
the Company within fifteen (15) days of the actual
filing of Executive's 2002 federal and state income
tax returns, and (B) pay to Executive, on or prior to
the later of May 15, 2002 or thirty (30) days after
the actual filing of Executive's 2001 federal and
state income tax returns, a "gross-up" bonus (the
"2001 Note Letter Bonus") equal to $43,348.00, being
the amount of federal, state and local income or
payroll taxes paid by Executive by virtue of the
forgiveness of $55,575.00 principal amount of, and
accrued interest on, the Demand Note that was
forgiven in 2001; PROVIDED, HOWEVER, that (x) the
Company shall prepay to Executive such portion of the
2002 Note Letter Bonus as may be required to satisfy
withholding requirements in respect of the
forgiveness of the Demand Note specified above and
the 2002 Note Letter Bonus and (y) the 2001 Note
Letter Bonus shall be reduced by any prepayments
thereof that the Company has made to Executive.
The Company may make any tax withholding from any payments made
pursuant to this SECTION 3(a) that it deems to be necessary under
applicable tax laws. If there is a Change in Control (as such term is
defined in Exhibit A hereto) after the Termination Date and while
Executive is entitled to any payments pursuant to SECTION 3(a)(i)(A)
hereof, all such payments pursuant to such SECTION 3(a)(i)(A) hereof
which remain unpaid as of the Change in Control shall be paid in one
lump sum as of the date of the Change in Control.
-2-
<Page>
Except as specifically provided in this Agreement, no other amounts
will be payable by the Company to Executive.
(b) The Company has previously granted to Executive options
to purchase shares of the Company's common stock as set forth in
Exhibit B hereto. Provided that Executive does not revoke this
Agreement as provided at the end of this Agreement, then, on the
Effective Date:
(i) all such stock options which have not vested prior to
the Termination Date shall immediately vest; and
(ii) all such options which (x) are marked with an
asterisk on said Exhibit B shall remain exercisable
until the earlier to occur of (1) the third
anniversary of the Termination Date and (2) the final
stated expiration date of the option or restricted
stock and (y) which are not so marked with an
asterisk shall remain exercisable until the earlier
to occur of (1) the date which is 90 days after the
Termination Date and (2) the final stated expiration
date of the option or restricted stock.
All shares of the Company's common stock underlying such options will,
when and if exercised, be issued to Executive pursuant to a
Registration Statement on either Form S-3 or Form S-8 and, as such,
will not be deemed to be "restricted securities" as contemplated by
Rule 144 promulgated under the Securities Act of 1933, as amended.
(c) Provided that Executive does not revoke this Agreement as
provided at the end of this Agreement, then, beginning on the Effective
Date, Executive shall be entitled, at the Company's expense, to the
benefits that Executive was receiving or to which Executive was
entitled as of the Termination Date pursuant to Section 4 of the
Employment Agreement (other than the benefits described in Section 4(b)
of the Employment Agreement) for a period of time following the
Termination Date ending on the first to occur of (i) the third
anniversary of the Termination Date or (ii) the date on which Executive
commences full-time employment with another employer, but only if and
to the extent Executive is eligible to receive through such other
employer benefits which are at least equivalent on an aggregate basis
to those benefits Executive was receiving or to which Executive was
entitled under Section 4 of the Employment Agreement as of the
Termination Date. If because of limitations required by third parties
or imposed by law, Executive cannot be provided such benefits through
the Company's plans, then the Company will provide Executive with
substantially equivalent benefits, on an aggregate basis, at the
Company's expense. For purposes of the determination of any benefits
which require a particular period of employment by the Company and/or
the attainment of a particular age while employed by the Company in
order to be payable, Executive shall be treated as having continued in
the employment of the Company during such period of time as Executive
is entitled to receive benefits under this SECTION 3(c). At such time
as the Company is no longer required to provide Executive with life
and/or disability insurance, as the case may be, Executive shall be
entitled, at 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
-3-
<Page>
from the provider of such insurance. Executive acknowledges and agrees
that his right to continue group health plan coverage for a period of
time after the Termination Date in accordance with the terms and
conditions of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") shall be deemed to be satisfied by Executive's receipt
of coverage as provided herein, to the extent that such benefit equals
or exceeds the time period specified in COBRA. Executive agrees to
execute any elections and forms and take such other action as may be
required by the Company to waive his rights to COBRA coverage
consistent with the foregoing. In the event that Executive's
eligibility for health insurance benefits pursuant to this paragraph
terminates before the expiration of the time period specified in
COBRA, Executive shall maintain the right to continue group health
plan coverage in accordance with the terms and conditions of COBRA for
that period of time remaining under COBRA. Except as specifically
modified herein, all other regular COBRA procedures and rules will
apply. Executive acknowledges that Company may modify its premium
structure, the terms of its plans and the coverage of the plans,
including the termination of all or part of a plan. Executive agrees
to notify Company when Executive is eligible to participate and/or
begins participation in another group health plan.
(d) Provided that Executive does not revoke this Agreement as
provided at the end of this Agreement, then, on the Effective Date,
Executive shall retain possession of the Sony laptop computer and home
facsimile machine currently utilized by him in fulfilling his
employment duties, PROVIDED, HOWEVER, that any confidential information
(as defined in SECTION 11(a) below) and any software on the
aforementioned computer that is licensed only to the Company shall be
returned to the Company.
(e) Provided that Executive does not revoke this Agreement as
provided at the end of this Agreement, then, Executive shall be paid
any amounts for expense reimbursement and similar items which have been
properly incurred in accordance with the provisions of the Employment
Agreement prior to the Termination Date and have not yet been paid,
including without limitation any sums due under Sections 2(c), 4(c),
4(d) and 4(f) thereof and the last sentence of Section 10 thereof,
provided that Executive provides the appropriate documentation of such
expenses within 30 business days of the Termination Date.
(f) Provided that Executive does not revoke this Agreement as
provided at the end of this Agreement, then, within 90 days of the
Effective Date, Executive shall pay to the Company, in repayment of the
advance made by the Company to the Executive for payment of Medicare
taxes payable in connection with certain option exercises, the amount
of $25,243.22, plus interest thereon from April 26, 2002 to the date of
repayment at a daily rate equal to $4.07.
4. WELFARE BENEFIT PLAN CONTRIBUTIONS AND ACCRUALS. After the
Termination Date, except as provided in SECTION 3(c) and SECTION 5 hereof, the
Company shall not be obligated to continue, pay for, or provide Executive's
health, dental, disability, life insurance and any other "welfare benefits" (as
such term is defined under Section 3(1) of the Employment Retirement Income
Security Act of 1974, as amended ("ERISA")) or fringe benefits or perquisites.
-4-
<Page>
5. PENSION PLAN CONTRIBUTIONS AND ACCRUALS. After the Termination
Date, no further contributions, either by Executive or by the Company, shall
be made to, or benefits accrued under, any employee pension benefit plan (as
defined in Section 3(2) of ERISA) or deferred compensation plan or agreement
(collectively, the "Company Plans") on behalf of Executive; PROVIDED, HOWEVER,
Executive shall be entitled to receive any vested benefits due to him under
such Company Plans as determined in accordance with the terms and conditions
of such Company Plans and applicable law.
6. RECIPROCAL RELEASES AND WAIVERS OF CLAIMS.
(a) Except with respect to a claim for any compensation or
benefits under the employee benefit plans in which Executive
participated by virtue of his employment, Executive, as his free and
voluntary act, on behalf of himself and his spouse, dependents, heirs,
executors, administrators, representatives, attorneys, and permitted
assigns, hereby fully releases and discharges the Company, and its
successors and assigns, and the past, present and future owners,
directors, officers, employees, and agents of the Company, personally
and in their official capacities (collectively, the "Releasees"), of
and from any and all debts, obligations, claims, demands, judgments or
causes of action of any kind whatsoever, known or unknown, in tort,
contract, by statute or on any other basis, for equitable relief,
compensatory, punitive or other damages, expenses (including attorneys'
fees), reimbursements of costs of any kind, including but not limited
to, any and all claims, demands, rights and/or causes of action,
including, without limitation, any negligence claims and those which
might arise out of allegations relating to a claimed breach of the
Employment Agreement or any other aspect of Executive's employment
relationship with the Company or stock option agreements, or relating
to purported employment discrimination or civil rights violations, such
as, but not limited to, those arising under Title VII of the Civil
Rights Act of 1964, the Civil Rights Acts of 1866 and 1871, Executive
Order 11246, as amended, the Age Discrimination in Employment Act, the
Employee Retirement Income Security Act of 1974, the Equal Pay Act of
1963, the Rehabilitation Act of 1973, the Civil Rights Act of 1991, the
Americans with Disabilities Act, and the Family and Medical Leave Act,
as each such Act may be amended from time to time, or any other
applicable federal, state or local law, regulation or other
requirement, which Executive might have or assert against any of the
Releasees by reason of (i) any event which occurred on or before the
date that Executive executes this Agreement, in connection with
Executive's employment by the Company, and all circumstances related
thereto, (ii) the termination of his employment (including any rights
of Executive under the Employment Agreement or any other employment
contract), or (iii) any matter, cause or thing whatsoever which may
have occurred prior to the date that Executive executes this Agreement.
(b) Executive acknowledges that Company's agreement to
provide Executive with the payments and other benefits recited in
SECTION 3 hereof is in consideration for Executive's release and waiver
of claims, demands and causes of action as set forth in the immediately
preceding paragraph in addition to Executive's other agreements
contained herein. Executive understands and acknowledges that Executive
would not receive the payments and benefits recited in SECTION 3 hereof
but for his execution of this Agreement.
-5-
<Page>
(c) The Company hereby releases and discharges Executive, and
his heirs, executors, administrators, representatives, attorneys, and
permitted assigns, of and from any and all debts, obligations, claims,
demands, judgments or causes of action of any kind whatsoever, known or
unknown, in tort, contract, by statute or on any other basis, for
equitable relief, compensatory, punitive or other damages, expenses
(including attorneys' fees), reimbursements of costs of any kind,
including but not limited to, any and all claims, demands, rights
and/or causes of action, including breach of fiduciary duty, breach of
the duty of confidentiality, tortious interference with contract,
defamation, libel, civil conspiracy, false light, invasion of privacy,
actions which might arise out of allegations relating to a claimed
breach of the Employment Agreement or any other aspect of Executive's
employment relationship with the Company relating to purported
employment discrimination or civil rights violations, which the Company
might have or assert against Executive, but only with respect to or by
reason of any event which occurred prior to the date that the Company
executes this Agreement.
7. COOPERATION AND INDEMNIFICATION IN THE EVENT OF THIRD-PARTY
LITIGATION.
(a) In the event that any third-party (including, without
limitation, any private party or governmental entity) asserts a claim
or legal cause of action, initiates a governmental review, or initiates
a legal proceeding (civil or criminal), with respect to any events or
matters with which Executive was formerly involved as an employee of
Company, the Company shall indemnify Executive to the same extent, and
subject to the same terms, conditions and limitations, as would be
applicable under the by-laws of the Company to an individual who is an
officer of the Company. To the extent permitted by the Company's
applicable director and officer insurance policy, Executive shall be
entitled to coverage under such policy for actions taken in the scope
of his service as an officer of the Company.
(b) In consideration for such indemnification, Executive
agrees to make himself freely available to cooperate in the defense and
in the preparation of the legal response if any third party (including,
without limitation, any private party or governmental entity) asserts a
claim or legal cause of action, initiates a governmental review, or
initiates a legal proceeding (civil or criminal), with respect to any
events or matters with which Executive was formerly involved as an
employee of Company and, in such a case, the Company shall reimburse
Executive for reasonable travel costs in connection with rendering any
such assistance. Executive agrees to cooperate to the fullest extent of
his abilities with Company and, if requested by Company to do so, with
any attorney, expert or other person Company may designate, in the
investigation, defense and resolution of any threatened or asserted
litigation, claim, potential claim, or investigation initiated by or
involving the Company, including, without limitation, truthfully
testifying on behalf of Company in connection with any such
investigation or proceeding. The Company agrees to use reasonable
efforts to schedule any work or appearances of Executive required
pursuant to this SECTION 7(b) so as to not unreasonably conflict with
Executive's employment with another employer.
(c) In consideration for any such cooperation rendered by
Executive pursuant to this SECTION 7, but only to the extent permitted
by applicable legal or court
-6-
<Page>
requirements the Company shall pay Executive $140 per hour for the
reasonable period of time, including travel time, devoted exclusively
to rendering such assistance. Such hourly fee shall be payable for all
hours actually devoted to such assistance (including hours in transit)
to the extent permitted by applicable legal or court requirements, and
will not be limited to 8 hours per day if the hours of active
assistance (and travel) exceed 8 hours in any given day.
(d) Subject to the scope of the indemnification in paragraph
(a) above, in the event of a civil action commenced by a private party
which implicates Executive in connection with his conduct during his
period of service as an employee of the Company, the Company reserves
the right and discretion to retain counsel to jointly represent the
Company and Executive, unless and until such counsel determines that
the interests of the Company and Executive pose a conflict of interest
for such counsel under the applicable code of professional conduct. In
the event that separate counsel is necessary for Executive, he may
select counsel of his choice subject to the approval of the Company
which shall not be unreasonably withheld. The Company will reimburse
the reasonable attorney's fees and costs of counsel for Executive, and
such reimbursement will be paid as services are rendered, subject to a
right of the Company to recover the amount of such payments from
Executive in the event, and to the extent, that a court or agency finds
that the relevant actions of Executive were either (i) unlawful (unless
the Company was found to have directed the unlawful action) or (ii)
outside the scope of his duties as an employee.
(e) As used in this SECTION 7, the term "reasonable
attorneys' fees" shall not include any attorney time or expense for the
purpose of initiating or maintaining any counterclaim by Executive
against the Company or any private party or governmental entity, unless
the Companythen consents, in its sole discretion and in writing, to
cover Executive's attorneys' fees for any such counterclaim.
(f) The provisions of this SECTION 7 shall expire six (6)
years from the Termination Date; provided that if a claim is made but
final resolution thereof has not been obtained within such six-year
period, the provisions of this SECTION 7 shall continue as to that
claim until final resolution is obtained.
8. RETURN OF PROPERTY; INTELLECTUAL PROPERTY RIGHTS.
(a) Executive agrees that he shall, not later than the date
Executive receives his first severance payment pursuant to SECTION
3(a)(i)(A) hereof, or any earlier date when requested to do so by the
Company, return to the Company all property of the Company, including,
for example, files and records (whether on paper or in tapes, disks, or
other machine-readable form), credit cards, engineering reports,
employee IDs, vehicles and office equipment, and all documents and
other materials in Executive's possession, custody or control (whether
prepared by Executive or others) obtained by Executive from the Company
or a customer, supplier or contractor of the Company and relating to
the past, present or anticipated business, finances or affairs of the
Company, including, without limitation, any confidential information
(as defined in SECTION 11(a) below); PROVIDED, HOWEVER, that Executive
may either return to the Company or destroy
-7-
<Page>
any immaterial personal notes or files that Executive has created. At
the request of Executive, the Company may agree in writing to allow
Executive to retain possession of any property of the Company.
Executive shall at all times cooperate with the Company in executing
and delivering documents requested by the Company that are necessary
to assist the Company in patenting or registering any programs, ideas,
inventions, discoveries, copyright material or trademarks, and to vest
title thereto in the Company.
(b) Executive affirms that he has no claims against the
Company arising out of his employment or any other matter, and that he
has not filed any lawsuits, charges, complaints, petitions, or
accusatory pleading against the Company with any governmental agency or
in any court, based upon or related in any way to any events occurring
on or prior to the date that Executive executes this Agreement.
9. NON-ADMISSION OF LIABILITY. This Agreement shall not constitute or
be construed as an admission by the Company or any other person or entity of any
liability to, or the validity of, any claim by Executive. Executive acknowledges
and agrees that he has been treated in a fair and lawful manner, and it is
agreed between the parties that nothing herein is intended or shall be construed
as an admission of fault or liability by the Company or its directors, officers,
employees, agents, successors and assigns.
10. CONFIDENTIALITY; NON-DISPARAGEMENT.
(a) Except as may be required under compulsion of law,
Executive agrees not to disclose or discuss, other than with his legal
counsel, personal tax or financial adviser, or his spouse, either the
existence of or any details of this Agreement. With respect to any
financial advisor (other than his tax advisor), Executive may disclose
the compensation and benefits which may result as a consequence of this
Agreement, but Executive shall not disclose to any such financial
adviser any other sections or provisions of this Agreement or any
related matter. In the event Executive discusses this Agreement with
any such legal counsel or advisor, or with his spouse, he will instruct
such person not to disclose or discuss the existence or any details of
this Agreement, or any related matter, with any other person, except as
may be required under compulsion of law.
(b) In the event that the disclosure of the terms of this
Agreement is ordered in the context of a court proceeding, Executive
shall promptly notify the Company prior to disclosure so that the
Company may seek a protective order or other appropriate remedy and
Executive shall cooperate with the Company in connection therewith.
(c) Executive agrees that he will not disparage, harm or take
any action that would reasonably be expected to embarrass the Company
or its directors, officers, employees, agents or successors; PROVIDED,
HOWEVER, Executive shall retain the right to discuss information
concerning the duties and responsibilities of his former employment
with prospective employers, excluding any confidential information (as
defined in SECTION 11(a) below); and PROVIDED FURTHER, that Executive
fully retains the right to inform his legal counsel of all matters
concerning his former employment and the termination thereof if said
information is communicated as a matter of confidential attorney-client
privilege. Executive shall not make any statements, whether regarded as
-8-
<Page>
true or not, which would have the effect of causing any existing or
prospective lenders, purchasers, creditors, customers, suppliers,
employees or other persons or entities to question the financial
condition, integrity, reputation, character or quality of the Company,
or its management, employees, and affiliates. Executive shall not at
any time make a statement of any kind, which is calculated to, or which
foreseeably will, damage the business or reputation of the Company or
its affiliates, or the past or present directors, officers or employees
of any of them. The Company agrees that it will not, and that it will
instruct its directors and officers not to, disparage, harm or take any
action that would reasonably be expected to embarrass Executive. The
Company shall issue a press release which includes an announcement
regarding the termination of the employment relationship between the
Company and Executive, and, prior to making such press release, the
Company shall provide Executive with the portion thereof discussing
such termination for comment by Executive. Executive will direct all
requests for recommendations to prospective employers solely to Francis
D. John, and upon receiving such request, the Company will provide a
favorable recommendation.
(d) Except as may be required by law, legal process or the
rules or regulations of any self-regulatory body to which the Company
is subject, the Company shall not disclose the terms of this Agreement,
except to the extent that it is reasonably necessary or desirable in
furtherance of its business purposes to do so in connection with the
conduct of its business or the preparation of its financial or other
reports or filings. Executive acknowledges that the terms and
conditions of this Agreement may have to be described in, and that this
Agreement may have to be filed as an exhibit to, one or more of the
Company's proxy statements or filings under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended, or
other applicable legal or regulatory requirements and agrees that no
such description or filing shall in any way affect Executive's
obligations hereunder, except that Executive shall be released from his
obligations under SECTIONS 10(a) AND 10(b) above, and the Company shall
be released from its obligations under the first sentence of this
SECTION 10(d), solely with respect to the information so disclosed or
filed.
11. CONFIDENTIAL INFORMATION
(a) Executive agrees that he shall not, without the express
written consent of the Chief Executive Officer or General Counsel of
the Company, directly or indirectly communicate or divulge to, or make
available to, or use for his own benefit or for the benefit of, any
competitor or any other person or entity, any of the Company's trade
secrets, engineering and reserve data, proprietary data or other
confidential or proprietary information (hereafter collectively
referred to as "confidential information"), which confidential
information was communicated to or otherwise learned or acquired by
Executive through his employment or other associations with the
Company, except that Executive may disclose confidential information
only to the extent that disclosure is required (i) at the Company's
direction or (ii) by a court or other governmental agency of competent
jurisdiction (in which event Executive shall promptly notify the
Company prior to disclosure so that the Company may seek a protective
order or other appropriate remedy and Executive shall cooperate with
the Company in connection therewith). Executive shall not use such
confidential information in any way or in any capacity other
-9-
<Page>
than as expressly consented to by the Chief Executive Officer or
General Counsel of the Company.
(b) Such confidential information shall be deemed to include
any and all information regarding the Company other than information
disclosed in its public filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, or
information that becomes public other than by violation of SECTIONS 10
OR 11 hereof. Such confidential information shall also include, but is
not limited to, personnel information (including information relating
to any and all aspects of compensation of any and all employees of the
Company), ideas, discoveries, designs, inventions, improvements, trade
secrets, know-how, manufacturing processes, design specifications,
writings and other works of authorship, computer programs, financial
information, accounting information, organizational structure, Company
expenditures, marketing plans, customer lists and data, business plans
or methods and the like, that relate in any manner to the actual or
anticipated business of the Company.
(c) Executive agrees that all records, drawings, data,
samples, models, correspondence, manuals, notes, reports, notebooks,
proposals, and any other documents concerning the Company's customers
or products or other technical, payroll, financial or business
information used by the Company and any other tangible materials or
copies or extracts of tangible materials regarding the Company's
operations or business, received by Executive during his employment
with the Company are, and shall be, the property of the Company
exclusively, with the exception of those items to which the Company has
agreed in writing to permit Executive to retain possession of pursuant
to SECTION 8(a) hereof. Executive agrees to immediately return to the
Company all of the material mentioned above, including writing notes,
memoranda or notes taken by Executive and all tangible materials,
including, without limitation, correspondence, drawings, blueprints,
letters, notebooks, reports, flow-charts, computer programs and data
proposals, except that Executive may retain possession of those items
to which the Company has consented to his continued retention in
writing pursuant to SECTION 8(a) hereof. No copies will be made by
Executive, or retained by Executive, of any such confidential
information, whether or not developed by Executive.
(d) The parties agree that all work product conceived,
created or developed by Executive either solely or jointly with others
in the course or as a result of his employment with the Company is
proprietary to Company and constitutes confidential information subject
to this Agreement. The parties further agree that Company is the sole
owner of all such work product.
12. WAIVER OF AGE DISCRIMINATION CLAIMS. Executive specifically,
knowingly and voluntarily waives any and all rights and claims arising under the
Age Discrimination in Employment Act (ADEA), which claims have arisen as of the
date that Executive executes this Agreement. Executive acknowledges that the
consideration set forth in SECTION 3 hereof includes consideration for
Executive's agreement herein to waive any and all rights and claims arising
under the ADEA.
-10-
<Page>
13. CONTINUANCE OF SECTION 6 OF EMPLOYMENT AGREEMENT. Executive hereby
reaffirms his obligations under Section 6 of the Employment Agreement with the
same force and effect as such Section were set forth fully herein (together with
any other provisions of the Employment Agreement necessary or desirable to
enforce such Section 6), and acknowledges and agrees that he shall continue to
be bound by such Section 6 on and after the Termination Date.
14. NO WAIVER AND HEADINGS. The parties acknowledge and agree that the
failure of either party to enforce any provision of this Agreement shall not
constitute a waiver of that provision, or of any other provision in this
Agreement. The headings of sections as used herein are intended for reference
purposes only and shall not affect the interpretation of this Agreement.
15. TERMINATION OF CERTAIN PROVISIONS OF EMPLOYMENT AGREEMENT. The
Employment Agreement shall terminate on the Effective Date effective as of the
Termination Date and be of no further force or effect (except that the
obligations of Executive pursuant to Section 6 thereof, together with any other
provisions of the Employment Agreement necessary or desirable to enforce such
Section 6, shall remain in full force and effect as provided herein); PROVIDED,
HOWEVER, that if the conditions for receiving the severance payments contained
in SECTION 3(a) hereof are not met and the first such severance payment is not
made, the Employment Agreement shall remain in effect unless and until
terminated in accordance with the terms thereof and this Agreement shall
automatically terminate and be of no force or effect.
16. ENTIRE AGREEMENT. The parties acknowledge and agree that this
Agreement, together with Section 6 of the Employment Agreement and any other
provisions of the Employment Agreement necessary or desirable to enforce such
Section 6, constitutes the complete and entire agreement between the parties;
that the parties have executed this Agreement based upon the express terms and
provisions set forth herein; that the parties have not relied on any
representations, oral or written, which are not set forth in this Agreement;
that no previous employment, severance or other agreement, whether oral or
written, shall have any effect on the terms and provisions of this Agreement
except as expressly provided herein; and that all such previous agreements,
except as expressly provided in this Agreement, are expressly superseded and
revoked by this Agreement. Executive hereby declares and represents that no
promise, inducement, or agreement not contained in this Agreement has been made
or offered to him, and that the terms hereof are contractual and not a mere
recital.
17. AMENDMENT. This Agreement shall not be modified by any subsequent
agreement unless the modifying agreement (a) is in writing, (b) contains an
express provision referencing this Agreement, (c) is executed by a designated
officer of the Company, and (d) is executed by Executive.
18. CONSULTATION WITH LEGAL COUNSEL. This Agreement creates legal
obligations and the Company hereby advises Executive to consult with an attorney
prior to executing this Agreement. Executive acknowledges and agrees that he has
been provided a reasonable time to review this Agreement with legal counsel and
to consider the terms and provisions of this Agreement. Both parties acknowledge
and agree that they are voluntarily entering into this Agreement, after
consultation with their legal counsel if so desired, and after full disclosure
of all the facts and circumstances surrounding the execution of this Agreement
and its legal effect.
-11-
<Page>
19. BINDING EFFECT. This Agreement shall inure to the benefit of the
Company (as defined in SECTION 1 hereof), and to its successors and assigns, and
to the persons released hereunder pursuant to SECTIONS 6 AND 12 hereof. This
Agreement shall inure to the benefit of Executive and his heirs, executors,
administrators, representatives, attorneys and permitted assigns; PROVIDED,
HOWEVER, that this Agreement is personal to Executive, and Executive may not
assign, delegate or otherwise transfer any of his rights, duties or obligations
hereunder without the written consent of the Chief Executive Officer or General
Counsel of the Company, and any attempt to do so without such written consent
shall be deemed void and of no force and effect.
20. NOTICES. Except as expressly provided herein, notices provided for
in this Agreement shall be in writing and shall be deemed to have been duly
received (a) when delivered in person or sent by facsimile transmission, (b) on
the first business day after it is sent by air express overnight courier
service, or (c) on the fourth business day following deposit in the United
States mail, registered or certified mail, return receipt requested, postage
prepaid and addressed, to the following address, as applicable:
(1) If to Company, addressed to:
Key Energy Services, Inc.
400 South River Road
New Hope, PA 18938
Attention: General Counsel
With a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Winthrop G. Minot, Esq.
(2) If to Executive, addressed to the address set forth
below his name on the execution page hereof, with a
copy to:
Dow, Lohnes & Albertson , PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036-6802
Attention: Paul R. Lang, Esq.
or to such other address as either party may have furnished to the other party
in writing in accordance with this SECTION 20.
21. EXECUTIVE ACKNOWLEDGMENT/NO STRICT CONSTRUCTION. Executive
represents to Company that he is knowledgeable and sophisticated as to business
matters, including the subject matter of this Agreement, that he has read the
Agreement and that he understands its terms and conditions. The parties hereto
agree that the language used in this Agreement shall be deemed to be the
language chosen by them to express their mutual intent, and no rule of strict
construction
-12-
<Page>
shall be applied against either party hereto. Executive also represents that he
is free to enter into this Agreement. Executive acknowledges that he has had
the opportunity to consult with counsel of his choice, independent of the
Company's counsel, regarding the terms and conditions of this Agreement.
22. GOVERNING LAW. The laws of the Commonwealth of Pennsylvania,
without regard to conflicts of law provisions, shall govern the enforceability,
interpretation and legal effect of this Agreement.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Facsimile signatures shall be enforceable.
STATEMENT BY EXECUTIVE: THE COMPANY HAS ADVISED ME IN WRITING TO
CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT. I HAVE
CAREFULLY READ AND FULLY UNDERSTOOD THE PROVISIONS OF THIS AGREEMENT
AND HAVE HAD SUFFICIENT TIME AND OPPORTUNITY (NOT LESS THAN A PERIOD OF
21 DAYS) TO CONSULT WITH MY PERSONAL TAX, FINANCIAL AND LEGAL ADVISORS
PRIOR TO EXECUTING THIS AGREEMENT, AND I INTEND TO BE LEGALLY BOUND BY
ITS TERMS. I UNDERSTAND THAT I MAY REVOKE MY CONSENT TO THIS AGREEMENT
WITHIN SEVEN (7) DAYS FOLLOWING THE DATE I SIGN THIS AGREEMENT BY
NOTICE TO THE COMPANY OF MY REVOCATION ACTUALLY RECEIVED WITHIN SEVEN
(7) DAYS AFTER I HAVE SIGNED THIS AGREEMENT; THEREAFTER, I CANNOT
REVOKE THIS AGREEMENT. I UNDERSTAND THAT MY RIGHTS UNDER THIS
AGREEMENT, INCLUDING MY RIGHT TO RECEIVE THE PAYMENTS AND OTHER
BENEFITS PROVIDED HEREIN, ARE CONTINGENT ON MY SIGNATURE BELOW AND NOT
REVOKING THIS AGREEMENT WITHIN THE 7-DAY PERMITTED REVOCATION PERIOD.
[SIGNATURE PAGE FOLLOWS]
-13-
<Page>
IN WITNESS WHEREOF, the parties have executed this Agreement with the
intent that it be enforceable in all respects.
EXECUTIVE:
/s/ Thomas K. Grundman /s/ Diane V. Garrity
- ------------------------------------ ---------------------------------
Thomas K. Grundman Witness' Signature
Address: 4 Bowman's Drive
----------------------------
New Hope, PA 18938 Name: Diane V. Garrity
---------------------------- ----------------------------
Date: 5/6/02 Date: 5/6/02
------------------------------- ----------------------------
THE COMMONWEALTH OF PENNSYLVANIA
COUNTY OF BUCKS
BEFORE ME, the undersigned authority, on this day personally appeared
Thomas K. Grundman, known to me to be the person whose name is subscribed to the
foregoing Separation and Release Agreement, who acknowledged to me that he
executed the same for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL on this 6th day of May, 2002.
(Seal)
ATTEST: COMPANY:
By: /s/ Jack D. Loftis, Jr. By: /s/ Francis D. John
--------------------------------- ------------------------------
Name: Jack D. Loftis, Jr. Name: Francis D. John
------------------------------- ----------------------------
Title: Sr. VP & General Counsel Title: Chairman & CEO
------------------------------ ---------------------------
Date: 5/6/02 Date: 5/6/02
------------------------------- ----------------------------
-14-
<Page>
EXHIBIT A
DEFINITION OF "CHANGE IN CONTROL"
The occurrence of any of the following shall constitute a "Change in
Control" of the Company:
(a) If any person (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as from time to time in effect (the
"Exchange Act"), or any successor provision), other than the Company,
becomes the beneficial owner directly or indirectly of more than
twenty-five percent (25%) of the outstanding Common Stock of the
Company, determined in accordance with Rule 13d-3 under the Exchange
Act (or any successor provision), or otherwise becomes entitled to vote
more than twenty-five percent (25%) of the voting power entitled to be
cast at elections for directors ("Voting Power") of the Company;
(b) If the Company is subject to the reporting requirements
of Section 13 or 15(d) (or any successor provision) of the Exchange
Act, and any person (as defined in Section 3(a)(9) of the Exchange Act,
or any successor provision), other than the Company, purchases shares
pursuant to a tender offer or exchange offer to acquire Common Stock of
the Company (or securities convertible into or exchangeable for or
exercisable for Common Stock) for cash, securities or any other
consideration, if after consummation of the offer, the person in
question is the beneficial owner, directly or indirectly, of more than
twenty-five percent (25%) of the outstanding Common Stock of the
Company, determined in accordance with Rule 13d-3 under the Exchange
Act (or any successor provision);
(c) If the stockholders or the Board of Directors of the
Company (the "Board") approve any consolidation or merger of the
Company (i) in which the Company is not the continuing or surviving
corporation unless such merger is with a subsidiary of the Company (a
"Subsidiary") at least eighty percent (80%) of the Voting Power of
which is held by the Company or (ii) pursuant to which the holders of
the Company's shares of Common Stock immediately prior to such merger
or consolidation would not be the holders immediately after such merger
or consolidation of at least a majority of the Voting Power of the
Company;
(d) The stockholders or the Board shall have approved any
sale, lease, exchange or other transfer (in one transaction or a series
of transactions) of all or substantially all of the assets of the
Company; or
(e) Upon the election of one or more new directors of the
Company, a majority of the directors holding office, including the
newly elected directors, were not nominated as candidates by a majority
of the directors in office immediately before such election.
As used in this definition of "Change in Control", "Common Stock" means
the Common Stock, or if changed, the capital stock of the Company as it shall be
constituted from time to time
-15-
<Page>
entitling the holders thereof to share generally in the distribution of all
assets available for distribution to the Company's stockholders after the
distribution to any holders of capital stock with preferential rights.
Notwithstanding the occurrence of any of the events described in the
immediately preceding clauses (a) and (b) which would otherwise result in a
Change in Control pursuant to said clause (a) or (b), the Board may determine in
its discretion, if it deems it to be in the best interest of the Company, that
an event or events otherwise constituting a Change in Control pursuant to said
clause (a) or (b) but which would not constitute such a Change in Control if the
phrase "fifty percent (50%)" were to be substituted for the phrase "twenty-five
percent (25%)" each place it appears therein shall not be considered such a
Change in Control; provided, however, that such determination shall not affect
any accelerated vesting of any stock options or restricted stock purchase rights
or any extensions of the term of exercisability of such options or rights which
would otherwise have occurred by virtue of such events; and provided, further,
that such determination shall not be effective hereunder unless the Company
shall have at least one other executive officer who has a provision similar to
this paragraph in such executive officer's employment agreement with the Company
and the Board shall make such determination with respect to all executive
officers of the Company who have a provision similar to this paragraph in such
executive officers' employment agreements with the Company. Such determination
shall be effective only if it is made by the Board prior to the occurrence of an
event that otherwise would be or probably would lead to such a Change in
Control; or within thirty (30) days after such event if made by the Board a
majority of which is composed of directors who were members of the Board
immediately prior to the event that otherwise would be or probably would lead to
such a Change in Control.
-16-
<Page>
EXHIBIT B
<Table>
<Caption>
OUTSTANDING OPTIONS
DATE GRANTED NUMBER OF SHARES EXERCISE PRICE VESTING STATUS STATED EXPIRATION DATE *
------------ ---------------- -------------- -------------- ---------------------- -
5/5/1999 50,000 $3.00 Vested 5/5/2009
5/5/1999 50,000 $3.00 Not Vested 5/5/2009
4/18/2000 250,000 $8.50 Vested 4/18/2010 *
4/18/2000 250,000 $8.50 Not Vested 4/18/2010 *
12/11/2000 45,000 $8.25 Vested 12/11/2010 *
12/11/2000 90,000 $8.25 Not Vested 12/11/2010 *
10/16/2001 150,000 $8.00 Not Vested 10/16/2011 *
</Table>
-17-