KEY ENERGY SERVICES INC (Form: 10-Q, Received: 05/13/2016 16:38:37)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________

Form 10-Q

_____________________________________________

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-08038

_____________________________________________

KEY ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________



Maryland		04-2648081
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1301 McKinney Street, Suite 1800, Houston, Texas		77010
(Address of principal executive offices)		(Zip Code)

(713) 651-4300

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

____________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of May 3, 2016 , the number of outstanding shares of common stock of the registrant was 160,995,578 .

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KEY ENERGY SERVICES, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2016



Part I — Financial Information

Item 1.	Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	40

Part II — Other Information

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	43

Item 4.	Mine Safety Disclosures	43

Item 5.	Other Information	43

Item 6.	Exhibits	43

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature or that relate to future events and conditions are, or may be deemed to be, forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections and management’s beliefs and assumptions concerning future events and financial trends affecting our financial condition and results of operations. In some cases, you can identify these statements by terminology such as “may,” “will,” “should,” “predicts,” “expects,” “believes,” “anticipates,” “projects,” “potential” or “continue” or the negative of such terms and other comparable terminology. These statements are only predictions and are subject to substantial risks and uncertainties and are not guarantees of performance. Future actions, events and conditions and future results of operations may differ materially from those expressed in these statements. In evaluating those statements, you should carefully consider the information above as well as the risks outlined in “ Item 1A. Risk Factors ” in our Annual Report on Form 10-K for the year ended December 31, 2015 .

We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this report except as required by law. All of our written and oral forward-looking statements are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements.

Important factors that may affect our expectations, estimates or projections include, but are not limited to, the following:


•	conditions in the oil and natural gas industry, especially oil and natural gas prices and capital expenditures by oil and natural gas companies;


•	volatility in oil and natural gas prices;


•	our ability to implement price increases or maintain pricing on our core services;


•	industry capacity;


•	increased labor costs or unavailability of skilled workers;


•	asset impairments or other charges;


•	the periodic low demand for our services and resulting operating losses and negative cash flows;


•	our highly competitive industry as well as operating risks, which are primarily self-insured, and the possibility that our insurance may not be adequate to cover all of our losses or liabilities;


•	the economic, political and social instability risks of doing business in certain foreign countries;


•	significant costs and potential liabilities resulting from compliance with investigations relating to the possible violations the U.S. Foreign Corruption Practices Act and other applicable laws;


•	our historically high employee turnover rate and our ability to replace or add workers;

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•	our ability to incur debt or long-term lease obligations;


•	our ability to implement technological developments and enhancements;


•	significant costs and liabilities resulting from environmental, health and safety laws and regulations, including those relating to hydraulic fracturing;


•	severe weather impacts on our business;


•	our ability to successfully identify, make and integrate acquisitions and our ability to finance future growth of our operations or future acquisitions;


•	the loss of one or more of our larger customers;


•	the impact of compliance with climate change legislation or initiatives;


•	our ability to generate sufficient cash flow to meet debt service obligations;


•	the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt, including our ability to comply with covenants under our current debt agreements;


•	an increase in our debt service obligations due to variable rate indebtedness;


•	our ability to receive shareholder approval at the 2016 annual meeting with respect to the reverse stock split proposal;


•	the delisting of our common stock from trading on the NYSE;


•	our inability to achieve our financial, capital expenditure and operational projections, including quarterly and annual projections of revenue and/or operating income and our inaccurate assessment of future activity levels, customer demand, and pricing stability which may not materialize (whether for Key as a whole or for geographic regions and/or business segments individually);


•	our ability to execute our plans to withdraw from international markets outside North America;


•	our ability to achieve the benefits expected from acquisition and disposition transactions;


•	our ability to respond to changing or declining market conditions, including our ability to reduce the costs of labor, fuel, equipment and supplies employed and used in our businesses;


•	our ability to maintain sufficient liquidity;


•	the terms and conditions of any strategic transaction or alternative undertaken to restructure or refinance our indebtedness; and


•	other factors affecting our business described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015.

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PART I — FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)



	March 31, 2016			December 31, 2015
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	155,704		$	204,354
Restricted cash	18,605			—
Accounts receivable, net of allowance for doubtful accounts of $21,526 and $20,951, respectively	84,929			115,992
Inventories	27,056			29,395
Other current assets	67,960			70,685
Total current assets	354,254			420,426
Property and equipment	2,345,961			2,376,388
Accumulated depreciation	(1,491,385		)	(1,496,356		)
Property and equipment, net	854,576			880,032
Intangible assets, net	4,443			5,883
Other non-current assets	12,773			21,457
TOTAL ASSETS	$	1,226,046		$	1,327,798
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	23,022		$	30,740
Current portion of long-term debt	10,650			3,150
Other current liabilities	106,830			120,593
Total current liabilities	140,502			154,483
Long-term debt	954,719			961,700
Workers’ compensation, vehicular and health insurance liabilities	24,229			26,327
Deferred tax liabilities	14,031			14,252
Other non-current liabilities	33,695			30,746
Commitments and contingencies
Equity:
Common st ock, $0.10 par value; 200,000,000 shares authorized, 161,020,295 and 157,543,259 s hares issued and outstanding	16,102			15,754
Additional paid-in capital	965,951			966,637
Accumulated other comprehensive loss	(43,208		)	(43,740		)
Retained deficit	(879,975		)	(798,361		)
Total equity	58,870			140,290
TOTAL LIABILITIES AND EQUITY	$	1,226,046		$	1,327,798

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

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Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)



	Three Months Ended
	March 31,
	2016			2015
REVENUES	$	111,088		$	267,799
COSTS AND EXPENSES:
Direct operating expenses	90,598			204,530
Depreciation and amortization expense	35,752			47,211
General and administrative expenses	46,245			67,644
Impairment expense	—			21,700
Operating loss	(61,507		)	(73,286		)
Interest expense, net of amounts capitalized	21,584			13,342
Other (income) loss, net	(1,231		)	4,432
Loss before income taxes	(81,860		)	(91,060		)
Income tax benefit	246			31,384
NET LOSS	$	(81,614	)	$	(59,676	)
Loss per share:
Basic and diluted	$	(0.51	)	$	(0.39	)
Weighted average shares outstanding:
Basic and diluted	160,047			154,816

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

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Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)



	Three Months Ended
	March 31,
	2016			2015
NET LOSS	$	(81,614	)	$	(59,676	)
Other comprehensive income (loss):
Foreign currency translation income (loss)	532			(697		)
COMPREHENSIVE LOSS	$	(81,082	)	$	(60,373	)

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

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Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



	Three Months Ended
	March 31,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(81,614	)	$	(59,676	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	35,752			47,211
Impairment expense	—			21,700
Bad debt expense	665			1,001
Accretion of asset retirement obligations	142			152
Loss (income) from equity method investments	83			(10		)
Amortization and write-off of deferred financing costs and premium	1,306			490
Deferred income tax benefit	(252		)	(11,692		)
Loss on disposal of assets, net	1,934			2,246
Share-based compensation	2,313			3,523
Excess tax expense from share-based compensation	2,508			2,840
Changes in working capital:
Accounts receivable	30,653			60,214
Other current assets	5,038			4,711
Accounts payable, accrued interest and accrued expenses	(20,895		)	(57,899		)
Share-based compensation liability awards	(189		)	599
Other assets and liabilities	(7,508		)	(18,074		)
Net cash used in operating activities	(30,064		)	(2,664		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(2,701		)	(18,995		)
Proceeds from sale of fixed assets	7,435			2,890
Proceeds from notes receivable	—			400
Net cash provided by (used in) investing activities	4,734			(15,705		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt	(787		)	—
Restricted cash	(18,605		)	—
Proceeds from borrowings on revolving credit facility	—			91,000
Repayments on revolving credit facility	—			(61,000		)
Payment of deferred financing costs	—			(125		)
Repurchases of common stock	(143		)	(210		)
Excess tax expense from share-based compensation	(2,508		)	(2,840		)
Net cash provided by (used in) financing activities	(22,043		)	26,825
Effect of changes in exchange rates on cash	(1,277		)	159
Net increase (decrease) in cash and cash equivalents	(48,650		)	8,615
Cash and cash equivalents, beginning of period	204,354			27,304
Cash and cash equivalents, end of period	$	155,704		$	35,919

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

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Key Energy Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1. GENERAL

Key Energy Services, Inc., and its wholly owned subsidiaries (collectively, “Key,” the “Company,” “we,” “us,” “its,” and “our”) provide a full range of well services to major oil companies, foreign national oil companies and independent oil and natural gas production companies. Our services include rig-based and coiled tubing-based well maintenance and workover services, well completion and recompletion services, fluid management services, fishing and rental services, and other ancillary oilfield services. Additionally, certain of our rigs are capable of specialty drilling applications. We operate in most major oil and natural gas producing regions of the continental United States and have operations in Mexico and Russia. In addition, we have a technology development and control systems business based in Canada.

The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed December 31, 2015 balance sheet was prepared from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 (the “ 2015 Form 10-K”). Certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in this Quarterly Report on Form 10-Q. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2015 Form 10-K.

The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented herein. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results expected for the full year or any other interim period, due to fluctuations in demand for our services, timing of maintenance and other expenditures, and other factors.

We have evaluated events occurring after the balance sheet date included in this Quarterly Report on Form 10-Q and through the date on which the unaudited condensed consolidated financial statements were issued, for possible disclosure of a subsequent event.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

The preparation of these unaudited condensed consolidated financial statements requires us to develop estimates and to make assumptions that affect our financial position, results of operations and cash flows. These estimates may also impact the nature and extent of our disclosure, if any, of our contingent liabilities. Among other things, we use estimates to (i) analyze assets for possible impairment, (ii) determine depreciable lives for our assets, (iii) assess future tax exposure and realization of deferred tax assets, (iv) determine amounts to accrue for contingencies, (v) value tangible and intangible assets, (vi) assess workers’ compensation, vehicular liability, self-insured risk accruals and other insurance reserves, (vii) provide allowances for our uncollectible accounts receivable, (viii) value our asset retirement obligations, and (ix) value our equity-based compensation. We review all significant estimates on a recurring basis and record the effect of any necessary adjustments prior to publication of our financial statements. Adjustments made with respect to the use of estimates relate to improved information not previously available. Because of the limitations inherent in this process, our actual results may differ materially from these estimates. We believe that the estimates used in the preparation of these interim financial statements are reasonable.

There have been no material changes or developments in our evaluation of accounting estimates and underlying assumptions or methodologies that we believe to be a “Critical Accounting Policy or Estimate” as disclosed in our 2015 Form 10-K.

Recent Accounting Developments

ASU 2016-09. In March 2016, the FASB Issued ASU 2016-09 Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for the Company for annual reporting periods beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the standard to determine the impact of its adoption on the consolidated financial statements.

ASU 2016-02. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will replace the existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to

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record right-of-use assets and corresponding lease liabilities on the balance sheet. Additional disclosure requirements include qualitative disclosures along with specific quantitative disclosures with the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for the Company for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented. We are currently evaluating the standard to determine the impact of its adoption on the consolidated financial statements.

ASU 2015-17. In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740) . The objective of this ASU is to simplify the current guidance which requires entities to separately present deferred tax assets and liabilities as current and non-current in a classified balance sheet. The new guidance will require entities to present deferred tax assets and liabilities as non-current in a classified balance sheet. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, and may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. We are currently evaluating the standard to determine the impact of its adoption on the consolidated financial statements.

ASU 2014-09. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . The objective of this ASU is to establish the principles to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue from contracts with customers. The core principle is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 must be adopted using either a full retrospective method or a modified retrospective method. During a July 2015 meeting, the FASB affirmed a proposal to defer the effective date of the new revenue standard for all entities by one year. As a result, ASU 2014-09 is effective for the Company for interim and annual reporting periods beginning after December 15, 2017 with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. We are currently evaluating the standard to determine the impact of its adoption on the consolidated financial statements.

NOTE 3. ASSETS HELD FOR SALE

In April 2015, we announced our decision to exit markets in which we participate outside of North America. Our strategy is to sell or relocate the assets of the businesses operating in these markets. During the fourth quarter of 2015, the assets and related liabilities of our Russian business unit which is included in our International reporting segment met the criteria for assets held for sale. We expect this sale to occur by the end of 2016.

During the third quarter of 2015, certain assets of our Enhanced Oilfield Technology business unit, which is included in our Fishing and Rental reporting segment, met the criteria for assets held for sale. This sale was completed in the first quarter of 2016.

The following assets and related liabilities of our Russian business unit are classified as held for sale on our March 31, 2016 condensed consolidated balance sheet (in thousands):



Current assets:
Cash and cash equivalents	$	250
Accounts receivable	3,105
Total current assets	3,355
Current liabilities:
Accounts payable	354
Other current liabilities	630
Total current liabilities	984
Net Assets	$	2,371

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NOTE 4. EQUITY

A reconciliation of the total carrying amount of our equity accounts for the three months ended March 31, 2016 is as follows:



	COMMON STOCKHOLDERS
	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Deficit			Total
	Number of Shares		Amount at Par			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Deficit			Total
	(in thousands)
Balance at December 31, 2015	157,543		$	15,754		$	966,637		$	(43,740	)	$	(798,361	)	$	140,290
Foreign currency translation	—		—			—			532			—			532
Common stock purchases	(449	)	(45		)	(98		)	—			—			(143		)
Share-based compensation	3,926		393			1,920			—			—			2,313
Tax expense from share-based compensation	—		—			(2,508		)	—			—			(2,508		)
Net loss	—		—			—			—			(81,614		)	(81,614		)
Balance at March 31, 2016	161,020		$	16,102		$	965,951		$	(43,208	)	$	(879,975	)	$	58,870

A reconciliation of the total carrying amount of our equity accounts for three months ended March 31, 2015 is as follows:



	COMMON STOCKHOLDERS
	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total
	Number of Shares		Amount at Par			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total
	(in thousands)
Balance at December 31, 2014	153,557		$	15,356		$	960,647		$	(37,280	)	$	119,340		$	1,058,063
Foreign currency translation	—		—			—			(697		)	—			(697		)
Common stock purchases	(106	)	(11		)	(199		)	—			—			(210		)
Share-based compensation	2,517		252			2,753			—			—			3,005
Tax expense from share-based compensation	—		—			(2,840		)	—			—			(2,840		)
Net loss	—		—			—			—			(59,676		)	(59,676		)
Balance at March 31, 2015	155,968		$	15,597		$	960,361		$	(37,977	)	$	59,664		$	997,645

NOTE 5. OTHER BALANCE SHEET INFORMATION

The table below presents comparative detailed information about other current assets at March 31, 2016 and December 31, 2015 :



	March 31, 2016		December 31, 2015
	(in thousands)
Other current assets:
Deferred tax assets	$	10,131	$	10,131
Prepaid current assets	21,352		23,287
Reinsurance receivable	8,165		8,409
VAT asset	12,437		12,784
Current assets held for sale	3,355		4,691
Other	12,520		11,383
Total	$	67,960	$	70,685

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The table below presents comparative detailed information about other non-current assets at March 31, 2016 and December 31, 2015 :



	March 31, 2016		December 31, 2015
	(in thousands)
Other non-current assets:
Deferred tax assets	$	—	$	6,260
Reinsurance receivable	8,728		8,877
Deposits	2,578		3,463
Equity method investments	943		1,026
Non-current assets held for sale	—		1,209
Other	524		622
Total	$	12,773	$	21,457

The table below presents comparative detailed information about other current liabilities at March 31, 2016 and December 31, 2015 :



	March 31, 2016		December 31, 2015
	(in thousands)
Other current liabilities:
Accrued payroll, taxes and employee benefits	$	16,657	$	19,578
Accrued operating expenditures	9,372		12,514
Income, sales, use and other taxes	20,083		24,833
Self-insurance reserve	27,909		30,029
Accrued interest	12,162		23,685
Accrued insurance premiums	2,344		3,588
Current liabilities held for sale	984		529
Other	17,319		5,837
Total	$	106,830	$	120,593

The table below presents comparative detailed information about other non-current liabilities at March 31, 2016 and December 31, 2015 :



	March 31, 2016		December 31, 2015
	(in thousands)
Other non-current liabilities:
Asset retirement obligations	$	11,902	$	12,218
Environmental liabilities	4,925		5,520
Accrued rent	738		192
Accrued sales, use and other taxes	10,967		11,137
Other	5,163		1,679
Total	$	33,695	$	30,746

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NOTE 6. INTANGIBLE ASSETS

The components of our other intangible assets as of March 31, 2016 and December 31, 2015 are as follows:



	March 31, 2016			December 31, 2015
	(in thousands)
Noncompete agreements:
Gross carrying value	$	1,535		$	1,535
Accumulated amortization	(1,338		)	(1,289		)
Net carrying value	197			246
Patents, trademarks and tradenames:
Gross carrying value	400			1,329
Accumulated amortization	(313		)	(302		)
Net carrying value	87			1,027
Customer relationships and contracts:
Gross carrying value	40,650			41,996
Accumulated amortization	(37,730		)	(38,705		)
Net carrying value	2,920			3,291
Developed technology:
Gross carrying value	4,778			4,778
Accumulated amortization	(3,539		)	(3,459		)
Net carrying value	1,239			1,319
Total:
Gross carrying value	48,139			50,417
Accumulated amortization	(43,696		)	(44,534		)
Net carrying value	$	4,443		$	5,883

The weighted average remaining amortization periods and expected amortization expense for the next five years for our definite lived intangible assets are as follows:



	Weighted average remaining amortization period (years)	Expected Amortization Expense
	Weighted average remaining amortization period (years)	Remainder of 2016		2017		2018		2019		2020		2021
		(in thousands)
Noncompete agreements	1.5	$	117	$	80	$	—	$	—	$	—	$	—
Trademarks	2.2	30		40		17		—		—		—
Customer relationships and contracts	3.4	929		989		431		341		230		—
Developed technology	4.0	237		316		316		243		127		—
Total expected intangible asset amortization expense		$	1,313	$	1,425	$	764	$	584	$	357	$	—

Amortization expense for our intangible assets was $0.5 million and $0.8 million for the three months ended March 31, 2016 and 2015 , respectively.

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NOTE 7. LONG-TERM DEBT

As of March 31, 2016 and December 31, 2015 , the components of our long-term debt were as follows:



	March 31, 2016			December 31, 2015
	(in thousands)
6.75% Senior Notes due 2021	$	675,000		$	675,000
Term Loan Facility due 2020	312,638			313,425
Senior Secured Credit Facility revolving loans due 2016	—			—
Debt issuance costs and unamortized premium (discount) on debt, net	(22,269		)	(23,575		)
Total	965,369			964,850
Less current portion	(10,650		)	(3,150		)
Long-term debt	$	954,719		$	961,700

6.75% Senior Notes due 2021

We have outstanding $675.0 million of 6.75% Senior Notes due 2021 (the “2021 Notes”). The 2021 Notes are general unsecured senior obligations and are effectively subordinated to all of our existing and future secured indebtedness. The 2021 Notes are or will be jointly and severally guaranteed on a senior unsecured basis by certain of our existing and future domestic subsidiaries. Interest on the 2021 Notes is payable on March 1 and September 1 of each year. The 2021 Notes mature on March 1, 2021 .

The 2021 Notes are subject to redemption at any time and from time to time at our option, in whole or in part, at the redemption prices below (expressed as percentages of the principal amount redeemed), plus accrued and unpaid interest to the applicable redemption date, if redeemed during the twelve-month period beginning on March 1 of the years indicated below:



Year	Percentage
2016	103.375	%
2017	102.250	%
2018	101.125	%
2019 and thereafter	100.000	%

If we experience a change of control, subject to certain exceptions, we must give holders of the 2021 Notes the opportunity to sell to us their 2021 Notes, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest to the date of purchase.

We are subject to certain negative covenants under the Indenture. The Indenture limits our ability to, among other things:


•	incur additional indebtedness and issue preferred equity interests;


•	pay dividends or make other distributions or repurchase or redeem equity interests;


•	make loans and investments;


•	enter into sale and leaseback transactions;


•	sell, transfer or otherwise convey assets;


•	create liens;


•	enter into transactions with affiliates;


•	enter into agreements restricting subsidiaries’ ability to pay dividends;


•	designate future subsidiaries as unrestricted subsidiaries; and


•	consolidate, merge or sell all or substantially all of the applicable entities’ assets.

These covenants are subject to certain exceptions and qualifications, and contain cross-default provisions relating to the covenants of our Facilities discussed below. Substantially all of the covenants will terminate before the 2021 Notes mature if one of two specified ratings agencies assigns the 2021 Notes an investment grade rating in the future and no events of default exist under the Indenture. As of March 31, 2016 , the 2021 Notes were rated below investment grade. Any covenants that cease to apply to us as a result of achieving an investment grade rating will not be restored, even if the investment rating assigned to the 2021 Notes later falls below investment grade. We were in compliance with these covenants as of March 31, 2016 .

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ABL Facility

On June 1, 2015, the Company entered into a Loan and Security Agreement (the “ABL Facility”), among the Company and Key Energy Services, LLC, as the Borrowers (collectively, the “ABL Borrowers”), certain subsidiaries of the ABL Borrowers named as guarantors therein, the financial institutions party thereto from time to time as Lenders (collectively, the “ABL Lenders”), Bank of America, N.A., as Administrative Agent for the Lenders (the “ABL Administrative Agent”), and Bank of America, N.A. and Wells Fargo Bank, National Association, as Co-Collateral Agents for the Lenders. The ABL Facility provides for aggregate initial commitments from the ABL Lenders of $100 million (the “Commitments”) and matures on February 28, 2020 .

The ABL Facility provides the ABL Borrowers with the ability to borrow up to an aggregate principal amount equal to the lesser of (i) the Commitments and (ii) the sum of (a) 85% of the value of eligible accounts receivable plus (b) 80% of the value of eligible unbilled accounts receivable, subject to a limit equal to the greater of (x) $35 million and (y) 25% of the Commitments plus (c) certain cash and cash equivalents deposited for the benefit of the ABL Lenders, subject to a limit of $15 million . The amount that may be borrowed under the ABL Facility is subject to reduction for certain reserves provided for by the ABL Facility. In addition, the percentages of accounts receivable and unbilled accounts receivable included in the calculation described above is subject to reduction to the extent of certain bad debt write-downs and similar amounts provided in the ABL Facility.

Borrowings under the ABL Facility bear interest, at the ABL Borrowers’ option, at a per annum rate equal to (i) LIBOR for 30, 60, 90, 180, or, with the consent of the ABL Lenders, 360 days, plus 4.5% or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the Federal Funds rate, plus 0.50% or (z) 30-day LIBOR, plus 1.0% plus (b) 3.5% . In addition, the ABL Facility provides for unused line fees of 1.00% to 1.25% per year, depending on utilization, letter of credit fees and certain other fees.

The ABL Facility is guaranteed by certain of the Company’s existing and future subsidiaries (the “ABL Guarantors,” and together with the ABL Borrowers, the “ABL Loan Parties”). To secure their obligations under the ABL Facility, each of the ABL Loan Parties has granted to the Administrative Agent a first-priority security interest for the benefit of the ABL Lenders in its present and future accounts receivable, inventory and related assets and proceeds of the foregoing (the “ABL Priority Collateral”). In addition, the obligations of the ABL Loan Parties under the ABL Facility are secured by second-priority liens on the Term Priority Collateral (as described below under “Term Loan Facility”).

The revolving loans under the ABL Facility may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to breakage or similar costs.

The ABL Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the ABL Loan Parties to take certain actions without the permission of the ABL Lenders or as permitted under the ABL Facility including the incurrence of debt, the granting of liens, the making of investments, the payment of dividends and the sale of assets. The ABL Facility also contains a requirement that the ABL Borrowers comply with a minimum liquidity covenant, an asset coverage ratio and, during certain periods, a fixed charge coverage ratio.

Under the asset coverage ratio covenant, the ABL Borrowers must maintain an asset coverage ratio of at least 1.5 to 1.0. The asset coverage ratio is generally defined as the ratio of (i) the sum of (a) the value of the Term Priority Collateral plus (b) certain cash and cash equivalents in excess of $100 million held for the benefit of the Term Loan Lenders to (ii) the sum of (a) the amount outstanding under the Term Loan Facility and, following repayment of the Term Loan Facility, the amount outstanding under the ABL Facility, plus (b) the amount of any fine or settlement in respect of the FCPA Matter (as defined in the ABL Facility) that is secured by a lien on the ABL Priority Collateral or the Term Priority Collateral (the “Asset Coverage Ratio”).

Under the fixed charge coverage ratio covenant, the ABL Borrowers must maintain a fixed charge coverage ratio of at least 1.0 to 1.0 during the period commencing on the day that availability under the ABL Facility is less than the greater of $20 million and 20% of the Commitments and continuing until the 90th day following the day that availability under the ABL Facility is greater than the greater of $20 million and 20% of the Commitments. The fixed charge coverage ratio is generally defined as the ratio of (i) EBITDA minus certain capital expenditures and cash taxes paid to (ii) the sum of cash interest expenses, scheduled principal payments on borrowed money and certain distributions. The ABL Facility permits the ABL Borrowers, in calculating EBITDA, to add back certain amounts in respect of the investigatory expenses associated with the FCPA Matter and amounts paid in settlement of the FCPA Matter to the extent such amounts do not exceed net liquidity, defined as certain cash and cash equivalents minus the principal amount of loans outstanding under the ABL Facility.

Under the minimum liquidity covenant (the “Minimum Liquidity Covenant”), the ABL Borrowers must not permit Liquidity, defined as the sum of (i) availability under the ABL Facility plus (ii) certain unrestricted cash and cash equivalents, to be less than $100.0 million as of the last day of any fiscal quarter or immediately after any cash payment of a settlement of, or fine in connection with, the FCPA Matter.

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The ABL Facility contains customary representations and warranties and conditions to borrowing, including the absence of any default or event of default, the accuracy in all material respects of the representations and warranties of the ABL Loan Parties contained in the ABL Facility and the absence of any event or circumstance that has or could reasonably be expected to have a material adverse effect.

The ABL Facility contains customary events of default, the occurrence of which entitle the ABL Lenders to accelerate the maturity of amounts outstanding under the ABL Facility and exercise other customary remedies including an event of default that is triggered if, immediately after any cash payment of a settlement of the FCPA Matter (and after any cash or borrowings under the ABL Facility are used to fund such payment), (i) the Company shall fail to be in compliance with the Minimum Liquidity Covenant or (ii) if any loans under the ABL Facility are outstanding on the date of such cash payment, availability under the ABL Facility is less than 33% of the borrowing base in effect on such date.

As of March 31, 2016 , we have no borrowings outstanding under the ABL Facility and $45.8 million of letters of credit outstanding with borrowing capacity of $25.9 million available subject to covenant constraints under our ABL Facility.

Term Loan Facility

On June 1, 2015, the Company entered into a Term Loan and Security Agreement (the “Term Loan Facility”), among the Company, as Borrower, certain subsidiaries of the Company named as guarantors therein, the financial institutions party thereto from time to time as Lenders (collectively, the “Term Loan Lenders”), Cortland Capital Market Services LLC, as Agent for the Lenders(the “Term Loan Administrative Agent”), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Bookrunner.

On June 1, 2015, the Company and other parties thereto closed on the Term Loan Facility, the Company borrowed $315 million (prior to giving effect to an upfront discount of 3% which resulted in net proceeds to the Company, prior to expenses, of approximately $305.5 million ), and the Company used a portion of such proceeds to repay its prior credit facility. The Term Loan Facility provides for an incremental facility which, subject to the agreement of one or more Term Loan Lenders or other institutional lenders agreeing to provide the additional loans and the satisfaction of certain terms and conditions, would enable the Company to borrow additional amounts under the Term Loan Facility as long as the aggregate outstanding amount of all borrowings thereunder does not exceed $400 million . The Term Loan Facility will mature on June 1, 2020 , although such maturity date may, at the Company’s request, be extended by one or more of the Term Loan Lenders pursuant to the terms of the Term Loan Facility.

Borrowings under the Term Loan Facility bear interest, at the Company’s option, at a per annum rate equal to (i) LIBOR for one, two, three, six, or, with the consent of the Term Loan Lenders, 12 months, plus 9.25% or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the Federal Funds rate, plus 0.50% and (z) 30-day LIBOR, plus 1.0% plus (b) 8.25% .

The Term Loan Facility is guaranteed by certain of the Company’s existing and future subsidiaries (the “Term Loan Guarantors,” and together with the Company, the “Term Loan Parties”). To secure their obligations under the Term Loan Facility, each of the Term Loan Parties has granted to the Agent a first-priority security interest for the benefit of the Term Loan Lenders in substantially all of each Term Loan Party’s assets other than certain excluded assets and the ABL Priority Collateral (the “Term Priority Collateral”). In addition, the obligations of the Term Loan Parties under the Term Loan Facility are secured by second-priority liens on the ABL Priority Collateral (as described above under “ABL Facility”).

The loans under the Term Loan Facility may be prepaid at the Company’s option, subject to the payment of a prepayment premium in certain circumstances as provided in the Term Loan Facility. The Company is required to make principal payments in the amount of $787,500 per quarter commencing with the quarter ended September 30, 2015. In addition, pursuant to the Term Loan Facility, the Company must offer to prepay term loans out of the Net Cash Proceeds (as defined in the Term Loan Facility) of certain asset sales and, for each fiscal year beginning with the Company’s fiscal year ending December 31, 2015, the Company must offer to prepay term loans in an aggregate principal amount equal to 50% of the Company’s Excess Cash Flow (as defined in the Term Loan Facility) for such fiscal year. Within 30 days following any Change of Control (as defined in the Term Loan Facility), the Company must offer to prepay all term loans (i) at a price of 101% of the amount thereof if, after giving effect to such Change of Control, the Asset Coverage Ratio is at least 1.5 to 1.0 or (ii) at a price equal to the greater of 101% of the amount thereof and the applicable prepayment premium provided for in the Term Loan Facility if, after giving effect to such Change of Control, the Asset Coverage Ratio is less than 1.5 to 1.0.

The Term Loan Facility contains customary representations and warranties and certain affirmative and negative covenants, including covenants that restrict the ability of the Term Loan Parties to take certain actions without the permission of the Term Loan Lenders or as permitted under the Term Loan Facility including the incurrence of debt, the granting of liens, the making of investments, the payment of dividends and the sale of assets. The Term Loan Facility also contains financial covenants requiring that the Company maintain an Asset Coverage Ratio of at least 1.5 to 1.0 and that Liquidity (as defined in

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the Term Loan Facility) must not be less than $100 million as of the last day of any fiscal quarter or immediately after any cash payment of a settlement of, or fine in connection with, the FCPA Matter.

The Term Loan Facility contains events of default, the occurrence of which entitle the Term Loan Lenders to accelerate the maturity of amounts outstanding under the Term Loan Facility and exercise other customary remedies.

Covenant Compliance

As of March 31, 2016, we were in compliance with the covenants under the indenture governing the 2021 Notes and under the ABL Facility and the Term Loan Facility (collectively, the “Facilities”), subject to the matter described below.

In calculating the Asset Coverage Ratio under the Term Loan Facility and the ABL Facility, the value of certain of the Term Priority Collateral used in calculating the Asset Coverage Ratio is determined pursuant to an appraisal required to be obtained by the Company and provided to the Term Loan Administrative Agent and the ABL Administrative Agent (collectively, the “Administrative Agents”) in connection with the delivery to the Administrative Agents of the Company’s year-end and June 30 financial statements. In addition, the Term Loan Lenders are permitted to request an additional appraisal once each fiscal year.

Based on the appraisal obtained by the Company and delivered to the Administrative Agents with our financial statements for the year ended December 31, 2015, we were in compliance with the Asset Coverage Ratio as of March 31, 2016. However, during the first quarter of 2016, certain of the Term Loan Lenders requested a new appraisal from a different appraiser, and, based on that appraisal, certain of the Term Loan Lenders have alleged that we were not in compliance with the Asset Coverage Ratio as of March 31, 2016. Although the Company disagrees with the validity of the appraisal commissioned by the Term Loan Lenders, and has reserved certain of its rights to contest such appraisal, we entered into a Forbearance Agreement dated as of May 11, 2016 (the “Forbearance Agreement”) with certain of the Term Loan Lenders pursuant to which such lenders agreed that, subject to the terms and conditions of the Forbearance Agreement, they would forbear through June 6, 2016 from exercising remedies available to them under the Term Loan Facility as a result of our alleged non-compliance with the Asset Coverage Ratio under the Term Loan Facility. As consideration for the Term Loan Lenders’ forbearance, we prepaid $7.5 million in principal and accrued interest under the Term Loan Facility. We also entered into a Limited Consent and Forbearance Agreement dated May 11, 2016 (the “Limited Consent”) with certain of the ABL Lenders pursuant to which such lenders consented to th e prepayment we made under the Term Loan Facility and agreed to a substantially similar forbearance.The forbearance provided by the Term Loan Lenders and the ABL Lenders is subject to termination under certain circumstances, including if a default or event of default occurs under the Term Loan Facility or, in the case of the Term Loan Agreement, if we terminate discussions with the Term Loan Lenders related to the negotiation and implementation of an amendment and/or restatement of the Term Loan Facility.

In addition to entering into the Forbearance Agreement and the Limited Consent, we included additional collateral that was omitted from the Term Loan Lenders’ appraisal, and we believe that the inclusion of this additional collateral, together with the $7.5 million prepayment made to the Term Loan Lenders, results in the cure of the alleged default, as contemplated in each facility, and our being in compliance with the Asset Coverage Ratio under both Facilities as of March 31, 2016.

Liquidity and Capital Resources

Our ability to fund our operations, pay the principal and interest on our long-term debt and satisfy our other obligations will depend upon our available liquidity and the amount of cash flows we are able to generate from our operations. Cash used in operations was $22.4 million during 2015 and $30.1 million during the quarter ended March 31, 2016, and, if industry conditions do not improve, we are likely to continue to have significant negative cash flows from operations during the remainder of 2016.

We believe that our current reserves of cash and availability under our ABL facility are sufficient to finance our cash requirements for current and future operations, budgeted capital expenditures, debt service and other obligations for the next twelve months. However, in light of the current conditions in our industry, our significant negative cash flow, our high level of indebtedness and diminishing liquidity and the risk that we may be unable to remain in compliance with the financial ratios in our Facilities, we continue to analyze a variety of transactions and alternatives designed to reduce our debt and improve our liquidity, and we are in active discussions with our lenders and noteholders regarding such transactions and alternatives. No assurance can be given, however, that we will be able to implement any such transaction or alternative, if necessary, on commercially reasonable terms or at all, and, even if we are successful in implementing a strategic transaction or alternative, such transaction or alternative may not be successful in allowing us to meet our debt obligations and improving our liquidity.

If we breach the covenants under our debt agreements or otherwise default under those agreements or if we lack sufficient liquidity to satisfy our debt or other obligations, then, in the absence of a strategic transaction or alternative, our creditors could potentially force us into bankruptcy or we could be forced to seek bankruptcy protection to restructure our business and capital structure, in which case we could be forced to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements. Even if we are able to implement a strategic transaction or alternative,

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such transaction or alternative may impose onerous terms on us. Additionally, we have a significant amount of secured indebtedness that is senior to our unsecured indebtedness and a significant amount of total indebtedness that is senior to our existing common stock in our capital structure. As a result, implementation of a strategic transaction or alternative or a bankruptcy proceeding could result in a limited recovery for unsecured noteholders, if any, and place equity holders at significant risk of losing all of their interests in the Company.

Additionally, if we default under one or more of our debt agreements, the ABL Lenders will no longer be obligated to extend credit to us. Finally, access to the liquidity provided by our ABL Facility is predicated upon the absence of a default under the ABL Facility and our other debt agreements and on our ability to satisfy the conditions to borrowing, which among other things require that the representations and warranties under the ABL Facility, including representations and warranties related to our solvency and the absence of a material adverse effect, remain true and correct and that we not be in violation of any of the covenants in the ABL Facility.

The weighted average interest rates on the outstanding borrowings under the ABL Facility and Term Loan Facility for the three months ended March 31, 2016 were as follows:



	Three Months Ended
	March 31, 2016
	(in thousands)
ABL Facility	—	%
Term Loan Facility	10.25	%

Letter of Credit Facility

On November 7, 2013, we entered into an uncommitted, unsecured $15.0 million letter of credit facility to be used solely for the issuances of performance letters of credit. As of March 31, 2016 , $2.0 million of letters of credit were outstanding under the facility.

NOTE 8. OTHER (INCOME) LOSS

The table below presents comparative detailed information about our other income and expense, shown on the condensed consolidated statements of operations as “ other (income) loss, net ” for the periods indicated:



	Three Months Ended March 31,
	2016			2015
	(in thousands)
Interest income	$	(132	)	$	(15	)
Foreign exchange (gain) loss	(252		)	1,260
Allowance for collectibility of notes receivable	—			3,950
Other, net	(847		)	(763		)
Total	$	(1,231	)	$	4,432

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NOTE 9. INCOME TAXES

We are subject to U.S. federal income tax as well as income taxes in multiple state and foreign jurisdictions. Our effective tax rates for the three months ended March 31, 2016 and 2015 were 0.3% and 34.5% , respectively. Our effective tax rate varies due to the mix of pre-tax profit between the U.S. and international taxing jurisdictions with varying statutory rates, the impact of permanent differences, including goodwill impairment expense, and discrete tax adjustments, such as valuation allowances against deferred tax assets and tax expense or benefit recognized for uncertain tax positions. The variance between our effective rate and the U.S. statutory rate reflects international profits and losses subject to varying statutory rates, the impact of permanent items, including goodwill impairment expense and expenses subject to statutorily imposed limitations such as meals and entertainment expenses, plus the impact of state income taxes and discrete tax adjustments, such as valuation allowances against deferred tax assets and tax expense or benefit recognized for uncertain tax positions.

The Company assesses the realizability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. In 2015, due to the history of losses in recent years and the current downturn in the oil and gas industry, management has determined it is more likely than not that we will not be able to realize a substantial portion of our net deferred tax assets.

As of March 31, 2016 and December 31, 2015 , we had $0.4 million of unrecognized tax benefits, net of federal tax benefit, which, if recognized, would impact our effective tax rate. We recognized a tax expense of less than $0.1 million for the three months ended March 31, 2016 and 2015 , related to these items. We have substantially concluded all U.S. federal and state tax matters through the year ended December 31, 2012.

We record interest and penalties related to unrecognized tax benefits as income tax expense. We have accrued a liability of less than $0.1 million for the payment of interest and penalties as of March 31, 2016 and December 31, 2015 . We believe that it is reasonably possible that $0.1 million of our currently remaining unrecognized tax positions, each of which is individually insignificant, may be recognized in the next twelve months as a result of a lapse of statute of limitations and settlement of ongoing audits. No release of our deferred tax asset valuation allowance was made during the three months ended March 31, 2016 and 2015 .

NOTE 10. COMMITMENTS AND CONTINGENCIES

Litigation

Various suits and claims arising in the ordinary course of business are pending against us. We conduct business throughout the continental United States and may be subject to jury verdicts or arbitrations that result in outcomes in favor of the plaintiffs. We are also exposed to various claims abroad. We continually assess our contingent liabilities, including potential litigation liabilities, as well as the adequacy of our accruals and our need for the disclosure of these items, if any. We establish a provision for a contingent liability when it is probable that a liability has been incurred and the amount is reasonably estimable. We have $1.7 million of other liabilities related to litigation that is deemed probable and reasonably estimable as of March 31, 2016 . We do not believe that the disposition of any of these matters will result in an additional loss materially in excess of amounts that have been recorded.

Since January 2014, the Company has been cooperating with investigations by the Department of Justice and the Securities and Exchange Commission into possible violations by the Company of the Foreign Corrupt Practices Act (“FCPA”). On April 28, 2016, the Company announced that the Department of Justice had closed its investigation and that the Department had decided to decline prosecution of the Company. In addition, the Company has been engaged in negotiations with the staff of the Division of Enforcement of the SEC in an effort to reach a resolution of the staff’s investigation related to these same matters. the Company has reached an agreement in principle with the staff on the terms of a proposed offer of settlement, which must be presented to the Commission for approval. While there is no assurance that the offer of settlement will be accepted by the Commission, the Company is optimistic that the proposed resolution will become final in the second quarter of 2016. In connection with the offer of settlement, the Company has accrued a liability in the amount of $5 million .

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parties are working on scheduling a mediation. The court in one of the remaining cases that had been stayed pending the outcome of the class certification motion recently issued an order lifting the stay, and the parties have agreed to an amended complaint. No date has been set for class certification. The fourth case is waiting for a decision regarding whether it will move forward in California state court or in federal court. The fifth case is an enforcement action for civil penalties based on California’s Private Attorneys General Act, which is pending in California state court. We have investigated the claims in all five lawsuits, and intend to vigorously defend them. Because these cases are at an early stage, we cannot estimate any possible loss or range of loss.

In August 2014, two class action lawsuits were filed in the U.S. District Court, Southern District of Texas, Houston Division, individually and on behalf of all other persons similarly situated against the Company and certain officers of the Company, alleging violations of federal securities laws, specifically, violations of Section 10(b) thereunder, and Rule 10(b)-5 thereunder, and Section 20(a) of the Securities Exchange Act of 1934. Those lawsuits were styled as follows: Sean Cady, Individually and on Behalf of All Other Persons Similarly Situated v. Key Energy Services, Inc., Richard J. Alario, and J. Marshall Dodson, No. 4:14-cv-2368, filed on August 15, 2014; and Ian W. Davidson, Individually and on Behalf of All Other Persons Similarly Situated v. Key Energy Services, Inc., Richard J. Alario, and J. Marshall Dodson, No. 4.14-cv-2403, filed on August 21, 2014. On December 11, 2014, the Court entered an order that consolidated the two lawsuits into one action, along with any future filed tag-along actions brought on behalf of purchasers of Key Energy Services, Inc. common stock. The order also appointed Inter-Local Pension Fund as the lead plaintiff in the class action and approved the law firm of Spector Roseman Kodroff & Willis, P.C. as lead counsel for the consolidated class and Kendall Law Group, LLP, as local counsel for the consolidated class. The lead plaintiff filed the consolidated amended complaint on February 13, 2015. Among other changes, the consolidated amended complaint added Taylor M. Whichard III and Newton W. Wilson III as defendants, and sought to represent a class of purchasers of the Company’s stock between September 4, 2012 and July 17, 2014. Defendants Key Energy Services, Inc., Richard J. Alario, J. Marshall Dodson and Newton W. Wilson III filed a Motion to Dismiss on April 14, 2015. Defendant Taylor M. Whichard III filed a Joinder in Motion and Motion to Dismiss on the same date. Lead plaintiff filed an opposition to that motion, and all defendants filed reply briefs in support of the motion. On April 1, 2016, the Court issued its Opinion and Order granting the defendants’ Motion to Dismiss. The Court allowed the lead plaintiff 20 days to file another amended complaint or to inform the Court that it no longer wishes to proceed with the suit. On April 20, 2016, the lead plaintiff notified the Court that it did not intend to amend its complaint. On April 26, 2016, the Court entered a final judgment dismissing the case. The deadline for the lead plaintiff to appeal the dismissal of its suit has not yet expired. Accordingly, we cannot estimate any possible loss or range of loss.

In addition, in a letter dated September 4, 2014, a purported shareholder of the Company demanded that the Board commence an independent internal investigation into and legal proceedings against each member of the Board, a former member of the Board and certain officers of the Company for alleged violations of Maryland and/or federal law. The letter alleges that the Board and senior officers breached their fiduciary duties to the Company, including the duty of loyalty and due care, by (i) improperly accounting for goodwill, (ii) causing the Company to potentially violate the FCPA, resulting in an investigation by the SEC, (iii) causing the Company to engage in improper conduct related to the Company’s Russia operations; and (iv) making false statements regarding, and failing to properly account for, certain contracts with Pemex. As described in the letter, the purported shareholder believes that the legal proceedings should seek recovery of damages in an unspecified amount allegedly sustained by the Company. The Board of Directors referred the demand letter to a special committee of the Board. We cannot predict the outcome of this matter.

In March 2015, two collective action lawsuits were filed in the Southern District of Texas, Corpus Christi Division, individually and on behalf of all others similarly situated, alleging violations of the Fair Labor Standards Act of 1938 (“FLSA”). We agreed to conditional certification in the first lawsuit and notice of the case issued to 56 putative class members. Roughly 20% of the eligible putative class members timely filed a notice of consent to join the lawsuit. We will soon begin merit-based discovery in the first lawsuit, which we expect to last at least six months. We also agreed to conditional certification in the second lawsuit and notice of the case recently issued to 14 putative class members. Nine putative class members, including the named plaintiff, have filed a notice of consent to join the lawsuit and the deadline to join expired on April 4, 2016. The parties will begin merit-based discovery in the second case soon. Because merit based discovery has not commenced, we cannot predict the outcome of these cases at this time. Accordingly, we cannot estimate any possible loss or range of loss for either case.

In May 2015, a class and collective action lawsuit was filed in the Southern District of Texas, Houston Division, individually and on behalf of all others similarly situated, alleging violations of the FLSA and the New Mexico Minimum Wage Act. We agreed to conditional certification of a putative class and notice issued to 174 putative class members. The notice period closed in early February and roughly 15% of eligible putative class members timely filed consents to join the lawsuit. The parties will soon begin merit-based discovery in this case, which will likely last six to nine months. Because merit based discovery has not begun, we cannot predict the outcome at this time. Accordingly, we cannot estimate any possible loss or range of loss for this case.

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In November 2015, the Santa Barbara County District Attorney filed a criminal complaint against two former employees and Key, specifically alleging three counts of violations of California Labor Code section 6425(a) against Key. The complaint seeks unspecified penalties against Key related to an October 12, 2013 accident which resulted in the death of one Key employee at a drilling site near Santa Maria, California. An arraignment was held on February 10, 2016, where Key and its former employees pleaded not guilty to all charges. Because the matter is in early stages, we cannot predict the outcome at this time. Accordingly, we cannot estimate any possible loss or range of loss.

On or about November 23, 2015, the North Dakota Industrial Commission (“NDIC”) filed a notice in the county of Burleigh County, ND alleging statutory violations by Key Energy Services, LLC, as operator of two salt water disposal wells in the state of North Dakota. The NDIC has pled for approximately $888,000 in fines and costs. The Company is currently in discussions with the NDIC and is not able to estimate any possible loss or range of loss at this time.

Self-Insurance Reserves

We maintain reserves for workers’ compensation and vehicle liability on our balance sheet based on our judgment and estimates using an actuarial method based on claims incurred. We estimate general liability claims on a case-by-case basis. We maintain insurance policies for workers’ compensation, vehicle liability and general liability claims. These insurance policies carry self-insured retention limits or deductibles on a per occurrence basis. The retention limits or deductibles are accounted for in our accrual process for all workers’ compensation, vehicular liability and general liability claims. As of March 31, 2016 and December 31, 2015 , we have recorded $54.0 million and $56.4 million , respectively, of self-insurance reserves related to workers’ compensation, vehicular liabilities and general liability claims. Partially offsetting these liabilities, we had $16.9 million and $ 17.3 million of insurance receivables as of March 31, 2016 and December 31, 2015 , respectively. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued for existing claims.

Environmental Remediation Liabilities

For environmental reserve matters, including remediation efforts for current locations and those relating to previously disposed properties, we record liabilities when our remediation efforts are probable and the costs to conduct such remediation efforts can be reasonably estimated. As of March 31, 2016 and December 31, 2015 , we have recorded $4.9 million and $5.5 million , respectively, for our environmental remediation liabilities. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued.

NOTE 11. LOSS PER SHARE

Basic loss per share is determined by dividing net loss attributable to Key by the weighted average number of common shares actually outstanding during the period. Diluted loss per common share is based on the increased number of shares that would be outstanding assuming conversion of potentially dilutive outstanding securities using the treasury stock and “as if converted” methods.

The components of our loss per share are as follows:



	Three Months Ended
	March 31,
	2016			2015
	(in thousands, except per share amounts)
Basic and Diluted EPS Calculation:
Numerator
Net loss	$	(81,614	)	$	(59,676	)
Denominator
Weighted average shares outstanding	160,047			154,816
Basic and diluted loss per share	$	(0.51	)	$	(0.39	)

Stock options and stock appreciation rights (“SARs”) are included in the computation of diluted loss per share using the treasury stock method. Restricted stock awards are legally considered issued and outstanding when granted and are included in basic weighted average shares outstanding.

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The company has issued potentially dilutive instruments such as stock options and SARs. However, the company did not include these instruments in its calculation of diluted loss per share during the periods presented, because to include them would be anti-dilutive. The following shows potentially dilutive instruments:



	Three Months Ended
	March 31,
	2016	2015
	(in thousands)
Stock options	812	1,319
SARs	240	315

No events occurred after March 31, 2016 that would materially affect the number of weighted average shares outstanding.

NOTE 12. SHARE-BASED COMPENSATION

We recognized employee share-based compensation expense of $2.4 million and $4.1 million during the three months ended March 31, 2016 and 2015 , respectively. We did not capitalize any share-based compensation during the three months ended March 31, 2016 and 2015 .

The unrecognized compensation cost related to our unvested restricted stock as of March 31, 2016 is estimated to be $4.4 million and is expected to be recognized over a weighted-average period of 1.6 years. All outstanding stock options are vested and there are no unrecognized cost related to our stock options as of March 31, 2016 .

In January 2015, we issued 2.1 million performance units to our executive officers under the 2014 Plan with such material terms as set forth in the 2014 PU Award Agreement. In February 2015, we issued 0.4 million performance units to certain other employees under the 2015 PU Plan. The performance units are measured based on one three -year performance period from January 1, 2015 to December 31, 2017. The number of performance units that may be earned by a participant is determined at the end of the performance period based on the relative placement of Key’s total stockholder return for that period within the peer group, as follows:



Company Placement for the Performance Period	Performance Units Earned as a Percentage of Target
First	200	%
Second	180	%
Third	160	%
Fourth	140	%
Fifth	120	%
Sixth	100	%
Seventh	0	%
Eighth	0	%
Ninth	0	%
Tenth	0	%
Eleventh	0	%
Twelfth	0	%

If any performance units vest for a given performance period, the award holder will be paid a cash amount equal to the vested percentage of the performance units multiplied by the closing stock price of our common stock on the last trading day of the performance period. We account for the performance units as a liability-type award as they are settled in cash. As of March 31, 2016 , the fair value of outstanding performance units was $0.2 million , and is being accreted to compensation expense over the vesting terms of the awards. As of March 31, 2016 , the unrecognized compensation cost related to our unvested performance units is estimated to be $0.1 million and is expected to be recognized over a weighted-average period of 2.8 years.

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NOTE 13. TRANSACTIONS WITH RELATED PARTIES

Board of Director Relationships

A member of our board of directors is the Executive Vice President, General Counsel and Chief Administrative Officer of Anadarko Petroleum Corporation (“Anadarko”), which is one of our customers. Sales to Anadarko were approximately $1.8 million and $5.1 million for the three months ended March 31, 2016 and 2015 , respectively. Receivables outstanding from Anadarko were approximately $0.6 million and $0.9 million as of March 31, 2016 and December 31, 2015 , respectively. Transactions with Anadarko for our services are made on terms consistent with other customers.

NOTE 14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of March 31, 2016 and December 31, 2015 .

Cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities. These carrying amounts approximate fair value because of the short maturity of the instruments or because the carrying value is equal to the fair value of those instruments on the balance sheet date.



	March 31, 2016				December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Financial liabilities:
6.75% Senior Notes due 2021	$	675,000	$	136,755	$	675,000	$	175,568
Term Loan Facility due 2020	312,638		312,638		313,425		313,425

6.75% Senior Notes due 2021. The fair value of these notes are based upon the quoted market prices for those securities as of the dates indicated. The carrying value of these notes as of March 31, 2016 was $675.0 million , and the fair value was $136.8 million ( 20.3% of carrying value).

Term Loan Facility due 2020 . Because the variable interest rates of these loans approximate current market rates, the fair values of the loans borrowed under this facility approximate their carrying values.

NOTE 15. SEGMENT INFORMATION

Our reportable business segments are U.S. Rig Services, Fluid Management Services, Coiled Tubing Services, Fishing and Rental Services and International. We also have a “Functional Support” segment associated with overhead and other costs in support of our reportable segments. Our U.S. Rig Services, Fluid Management Services, Coiled Tubing Services, Fishing and Rental Services operate geographically within the United States. The International reportable segment includes our operations in Mexico and Russia and our Canadian subsidiary. During the second half of 2015, we ceased operations in Colombia, Ecuador and the Middle East. We evaluate the performance of our segments based on gross margin measures. All inter-segment sales pricing is based on current market conditions.

U.S. Rig Services

Our U.S. Rig Services include the completion of newly drilled wells, workover and recompletion of existing oil and natural gas wells, well maintenance, and the plugging and abandonment of wells at the end of their useful lives. We also provide specialty drilling services to oil and natural gas producers with certain of our larger rigs that are capable of providing conventional and horizontal drilling services. Our rigs encompass various sizes and capabilities, allowing us to service all types of wells with depths up to 20,000 feet. Many of our rigs are outfitted with our proprietary KeyView® technology, which captures and reports well site operating data and provides safety control systems. We believe that this technology allows our customers and our crews to better monitor well site operations, improves efficiency and safety, and adds value to the services that we offer.

The completion and recompletion services provided by our rigs prepare wells for production, whether newly drilled, or recently extended through a workover operation. The completion process may involve selectively perforating the well casing to access production zones, stimulating and testing these zones, and installing tubular and downhole equipment. We typically provide a well service rig and may also provide other equipment to assist in the completion process. Completion services vary by well and our work may take a few days to several weeks to perform, depending on the nature of the completion.

The workover services that we provide are designed to enhance the production of existing wells and generally are more complex and time consuming than normal maintenance services. Workover services can include deepening or extending wellbores into new formations by drilling horizontal or lateral wellbores, sealing off depleted production zones and accessing previously bypassed production zones, converting former production wells into injection wells for enhanced recovery operations

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and conducting major subsurface repairs due to equipment failures. Workover services may last from a few days to several weeks, depending on the complexity of the workover.

Maintenance services provided with our rig fleet are generally required throughout the life cycle of an oil or natural gas well. Examples of these maintenance services include routine mechanical repairs to the pumps, tubing and other equipment, removing debris and formation material from wellbores, and pulling rods and other downhole equipment from wellbores to identify and resolve production problems. Maintenance services are generally less complicated than completion and workover related services and require less time to perform.

Our rig fleet is also used in the process of permanently shutting-in oil or natural gas wells that are at the end of their productive lives. These plugging and abandonment services generally require auxiliary equipment in addition to a well servicing rig. The demand for plugging and abandonment services is not significantly impacted by the demand for oil and natural gas because well operators are required by state regulations to plug wells that are no longer productive.

Fluid Management Services

We provide transportation and well-site storage services for various fluids utilized in connection with drilling, completions, workover and maintenance activities. We also provide disposal services for fluids produced subsequent to well completion. These fluids are removed from the well site and transported for disposal in saltwater disposal wells owned by us or a third party. In addition, we operate a fleet of hot oilers capable of pumping heated fluids used to clear soluble restrictions in a wellbore. Demand and pricing for these services generally correspond to demand for our well service rigs.

Coiled Tubing Services

Coiled Tubing Services involve the use of a continuous metal pipe spooled onto a large reel which is then deployed into oil and natural gas wells to perform various applications, such as wellbore clean-outs, nitrogen jet lifts, through-tubing fishing, and formation stimulations utilizing acid and chemical treatments. Coiled tubing is also used for a number of horizontal well applications such as milling temporary isolation plugs that separate frac zones, and various other pre- and post-hydraulic fracturing well preparation services.

Fishing and Rental Services

We offer a full line of fishing services and rental equipment designed for use in providing both onshore and offshore drilling and workover services. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a broad array of “fishing tools.” Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk ^® pipe-handling units and services), pressure-control equipment, pumps, power swivels, reversing units, foam air units, frac stack equipment used to support hydraulic fracturing operations and the associated flowback of frac fluids, proppants, oil and natural gas. We also provide well testing services.

Demand for our fishing and rental services is closely related to capital spending by oil and natural gas producers, which is generally a function of oil and natural gas prices.

International

Our International segment includes operations in Mexico and Russia. During the second half of 2015, we ceased operations in Colombia, Ecuador and the Middle East. We provide rig-based services such as the maintenance, workover, recompletion of existing oil wells, completion of newly-drilled wells and plugging and abandonment of wells at the end of their useful lives in each of our international markets. In addition, in Mexico we provide drilling, coiled tubing, wireline and project management and consulting services. Our work in Mexico also requires us to provide third-party services, which vary in scope by project. We also have a technology development and control systems business based in Canada which is focused on the development of hardware and software related to oilfield service equipment controls, data acquisition and digital information flow.

In April 2015, we announced our decision to exit markets in which we participate outside of North America. Our strategy is to sell or relocate the assets of the businesses operating in these markets. As of December 31, 2015, we sold our subsidiary in Bahrain and certain assets in Oman, Ecuador and Colombia and are no longer operating in these markets. We are currently in discussions to sell our subsidiary in Russia.

Functional Support

Our Functional Support segment includes unallocated overhead costs associated with administrative support for our U.S. and International reporting segments.

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Financial Summary

The following tables set forth our unaudited segment information as of and for the three months ended March 31, 2016 and 2015 (in thousands):



As of and for the three months ended March 31, 2016
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services			Fishing and Rental Services			International			Functional Support(2)			Reconciling Eliminations			Total
Revenues from external customers	$	58,988		$	22,670		$	9,531		$	16,283		$	3,616		$	—		$	—		$	111,088
Intersegment revenues	245			309			40			987			140			—			(1,721		)	—
Depreciation and amortization	14,905			5,880			2,986			7,182			2,237			2,562			—			35,752
Other operating expenses	50,449			23,062			12,694			13,113			6,439			31,086			—			136,843
Operating loss	(6,366		)	(6,272		)	(6,149		)	(4,012		)	(5,060		)	(33,648		)	—			(61,507		)
Interest expense, net of amounts capitalized	—			—			—			—			—			21,584			—			21,584
Loss before income taxes	(6,362		)	(6,268		)	(6,076		)	(4,014		)	(4,497		)	(54,643		)	—			(81,860		)
Long-lived assets(1)	482,588			123,400			52,113			120,984			53,894			174,785			(135,972		)	871,792
Total assets	1,323,797			262,688			131,421			482,133			175,044			(737,293		)	(411,744		)	1,226,046
Capital expenditures	140			820			101			1,084			364			192			—			2,701



As of and for the three months ended March 31, 2015
	U.S. Rig Services		Fluid Management Services		Coiled Tubing Services			Fishing and Rental Services			International			Functional Support(2)			Reconciling Eliminations			Total
Revenues from external customers	$	120,822	$	50,755	$	31,017		$	42,690		$	22,515		$	—		$	—		$	267,799
Intersegment revenues	263		308		—			1,802			1,367			542			(4,282		)	—
Depreciation and amortization	14,710		7,722		5,767			8,964			6,829			3,219			—			47,211
Impairment expense	—		—		21,700			—			—			—			—			21,700
Other operating expenses	98,112		41,557		27,372			33,782			25,297			46,054			—			272,174
Operating income (loss)	8,000		1,476		(23,822		)	(56		)	(9,611		)	(49,273		)	—			(73,286		)
Interest expense, net of amounts capitalized	—		—		—			—			—			13,342			—			13,342
Income (loss) before income taxes	8,032		1,524		(23,820		)	(226		)	(10,631		)	(65,939		)	—			(91,060		)
Long-lived assets(1)	796,710		177,308		170,972			324,197			256,741			269,613			(153,366		)	1,842,175
Total assets	1,609,337		297,450		257,599			664,370			390,886			(606,273		)	(390,969		)	2,222,400
Capital expenditures	9,661		1,294		2,114			3,495			1,366			1,065			—			18,995


(1)	Long-lived assets include fixed assets, goodwill, intangibles and other non-current assets.


(2)	Functional Support is geographically located in the United States.

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NOTE 16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Our 2021 Notes, ABL Facility and Term Loan Facility are guaranteed by virtually all our domestic subsidiaries, all of which are wholly owned. The guarantees are joint and several, full, complete and unconditional. There are no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.

As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information pursuant to SEC Regulation S-X Rule 3-10, “ Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”



CONDENSED CONSOLIDATING UNAUDITED BALANCE SHEETS
	March 31, 2016
	Parent Company		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Assets:
Current assets	$	159,025	$	132,720		$	62,509		$	—		$	354,254
Property and equipment, net	—		829,364			25,212			—			854,576
Intercompany notes and accounts receivable and investment in subsidiaries	2,061,038		1,426,173			23,085			(3,510,296		)	—
Other assets	—		14,261			2,955			—			17,216
TOTAL ASSETS	$	2,220,063	$	2,402,518		$	113,761		$	(3,510,296	)	$	1,226,046
Liabilities and equity:
Current liabilities	$	31,403	$	70,193		$	38,906		$	—		$	140,502
Long-term debt	954,719		—			—			—			954,719
Intercompany notes and accounts payable	1,162,648		2,671,057			272,137			(4,105,842		)	—
Deferred tax liabilities	6,166		—			7,865			—			14,031
Other long-term liabilities	6,273		51,087			564			—			57,924
Equity	58,854		(389,819		)	(205,711		)	595,546			58,870
TOTAL LIABILITIES AND EQUITY	$	2,220,063	$	2,402,518		$	113,761		$	(3,510,296	)	$	1,226,046

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CONDENSED CONSOLIDATING BALANCE SHEETS

	December 31, 2015
	Parent Company		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Assets:
Current assets	$	202,688	$	192,083		$	25,655		$	—		$	420,426
Property and equipment, net	—		869,150			10,882			—			880,032
Intercompany notes and accounts receivable and investment in subsidiaries	2,107,092		1,226,433			87,435			(3,420,960		)	—
Other assets	—		16,885			10,455			—			27,340
TOTAL ASSETS	$	2,309,780	$	2,304,551		$	134,427		$	(3,420,960	)	$	1,327,798
Liabilities and equity:
Current liabilities	$	35,233	$	101,594		$	17,656		$	—		$	154,483
Long-term debt	961,700		—			—			—			961,700
Intercompany notes and accounts payable	1,162,648		2,731,926			125,565			(4,020,139		)	—
Deferred tax liabilities	3,658		15,159			(4,565		)	—			14,252
Other long-term liabilities	6,267		50,229			577			—			57,073
Equity	140,274		(594,357		)	(4,806		)	599,179			140,290
TOTAL LIABILITIES AND EQUITY	$	2,309,780	$	2,304,551		$	134,427		$	(3,420,960	)	$	1,327,798



CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF OPERATIONS
	Three Months Ended March 31, 2016
	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Revenues	$	—		$	107,472		$	3,756		$	(140	)	$	111,088
Direct operating expense	—			86,807			3,923			(132		)	90,598
Depreciation and amortization expense	—			34,534			1,218			—			35,752
General and administrative expense	193			43,598			2,454			—			46,245
Operating loss	(193		)	(57,467		)	(3,839		)	(8		)	(61,507		)
Interest expense, net of amounts capitalized	21,584			—			—			—			21,584
Other income, net	(645		)	(143		)	(558		)	115			(1,231		)
Loss before income taxes	(21,132		)	(57,324		)	(3,281		)	(123		)	(81,860		)
Income tax (expense) benefit	(6		)	—			252			—			246
Net loss	$	(21,138	)	$	(57,324	)	$	(3,029	)	$	(123	)	$	(81,614	)

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CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF OPERATIONS
	Three Months Ended March 31, 2015
	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Revenues	$	—		$	249,407		$	22,951		$	(4,559	)	$	267,799
Direct operating expense	—			189,626			17,295			(2,391		)	204,530
Depreciation and amortization expense	—			44,439			2,772			—			47,211
General and administrative expense	221			65,635			3,951			(2,163		)	67,644
Impairment expense	—			21,700			—			—			21,700
Operating loss	(221		)	(71,993		)	(1,067		)	(5		)	(73,286		)
Interest expense, net of amounts capitalized	13,342			—			—			—			13,342
Other (income) loss, net	(318		)	4,041			709			—			4,432
Loss before income taxes	(13,245		)	(76,034		)	(1,776		)	(5		)	(91,060		)
Income tax benefit	30,862			77			445			—			31,384
Net income (loss)	$	17,617		$	(75,957	)	$	(1,331	)	$	(5	)	$	(59,676	)



CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF CASH FLOWS
	Three Months Ended March 31, 2016
	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net cash provided by (used in) operating activities	$	—		$	(31,902	)	$	1,838		$	—		$	(30,064	)
Cash flows from investing activities:
Capital expenditures	—			(2,701		)	—			—			(2,701		)
Intercompany notes and accounts	—			21,596			—			(21,596		)	—
Other investing activities, net	—			7,435			—			—			7,435
Net cash provided by investing activities	—			26,330			—			(21,596		)	4,734
Cash flows from financing activities:
Repayments of long-term debt	(787		)	—			—			—			(787		)
Restricted stock	(18,605		)	—			—			—			(18,605		)
Repurchases of common stock	(143		)	—			—			—			(143		)
Intercompany notes and accounts	(21,596		)	—			—			21,596			—
Other financing activities, net	(2,508		)	—			—			—			(2,508		)
Net cash used in financing activities	(43,639		)	—			—			21,596			(22,043		)
Effect of changes in exchange rates on cash	—			—			(1,277		)	—			(1,277		)
Net increase (decrease) in cash and cash equivalents	(43,639		)	(5,572		)	561			—			(48,650		)
Cash and cash equivalents at beginning of period	191,065			10,024			3,265			—			204,354
Cash and cash equivalents at end of period	$	147,426		$	4,452		$	3,826		$	—		$	155,704

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CONDENSED CONSOLIDATING UNAUDITED STATEMENTS OF CASH FLOWS
	Three Months Ended March 31, 2015
	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net cash used in operating activities	$	—		$	(1,409	)	$	(1,255	)	$	—		$	(2,664	)
Cash flows from investing activities:
Capital expenditures	—			(18,327		)	(668		)	—			(18,995		)
Intercompany notes and accounts	—			16,132			—			(16,132		)	—
Other investing activities, net	—			3,290			—			—			3,290
Net cash provided by (used in) investing activities	—			1,095			(668		)	(16,132		)	(15,705		)
Cash flows from financing activities:
Proceeds from borrowings on revolving credit facility	91,000			—			—			—			91,000
Repayments on revolving credit facility	(61,000		)	—			—			—			(61,000		)
Payment of deferred financing costs	(125		)	—			—			—			(125		)
Repurchases of common stock	(210		)	—			—			—			(210		)
Intercompany notes and accounts	(16,132		)	—			—			16,132			—
Other financing activities, net	(2,840		)	—			—			—			(2,840		)
Net cash provided by financing activities	10,693			—			—			16,132			26,825
Effect of changes in exchange rates on cash	—			—			159			—			159
Net increase (decrease) in cash and cash equivalents	10,693			(314		)	(1,764		)	—			8,615
Cash and cash equivalents at beginning of period	19,949			450			6,905			—			27,304
Cash and cash equivalents at end of period	$	30,642		$	136		$	5,141		$	—		$	35,919

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Key Energy Services, Inc., and its wholly owned subsidiaries (collectively, “Key,” the “Company,” “we,” “us,” “its,” and “our”) provide a full range of well services to major oil companies, foreign national oil companies and independent oil and natural gas production companies. Our services include rig-based and coiled tubing-based well maintenance and workover services, well completion and recompletion services, fluid management services, fishing and rental services, and other ancillary oilfield services. Additionally, certain rigs are capable of specialty drilling applications. We operate in most major oil and natural gas producing regions of the continental United States and have operations in Mexico and Russia. In addition, we have a technology development and control systems business based in Canada.

The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of and for the three months ended March 31, 2016 and 2015 , included elsewhere herein, and the audited consolidated financial statements and notes thereto included in our 2015 Form 10-K and Part 1A. Risk Factors of our 2015 Form 10-K.

We operate in five business segments; U.S. Rig Services, Fluid Management Services, Coiled Tubing Services, Fishing and Rental Services and International. We also have a “Functional Support” segment associated with managing our U.S. and International business segments. See “Note 15. Segment Information” in “Item 1. Financial Statements” of Part I of this report for a summary of our business segments.

PERFORMANCE MEASURES

The Baker Hughes U.S. rig count data, which is publicly available on a weekly basis, is often used as an indicator of overall Exploration and Production (“E&P”) company spending and broader oilfield activity. In assessing overall activity in the U.S. onshore oilfield service industry in which we operate, we believe that the Baker Hughes U.S. land drilling rig count is the best available barometer of E&P companies’ capital spending and resulting activity levels. Historically, our activity levels have been highly correlated to U.S. onshore capital spending by our E&P company customers as a group.



	WTI Cushing Oil(1)		NYMEX Henry Hub Natural Gas(1)		Average Baker Hughes U.S. Land Drilling Rigs(2)
2016:
First Quarter	$	33.35	$	1.99	524

2015:
First Quarter	$	48.49	$	2.90	1,353
Second Quarter	$	57.85	$	2.75	876
Third Quarter	$	46.49	$	2.76	833
Fourth Quarter	$	41.94	$	2.12	744


(1)	Represents the average of the monthly average prices for each of the periods presented. Source: EIA and Bloomberg


(2)	Source: www.bakerhughes.com

Internally, we measure activity levels for our well servicing operations primarily through our rig and trucking hours. Generally, as capital spending by E&P companies increases, demand for our services also rises, resulting in increased rig and trucking services and more hours worked. Conversely, when activity levels decline due to lower spending by E&P companies, we generally provide fewer rig and trucking services, which results in lower hours worked.

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In the U.S., our rig activity occurs primarily on weekdays during daylight hours. Accordingly, we track U.S. rig activity on a “per U.S. working day” basis. Key’s U.S. working days per quarter, which exclude national holidays, are indicated in the table below. Our international rig activity and domestic trucking activity tend to occur on a 24/7 basis. Accordingly, we track our international rig activity and our domestic trucking activity on a “per calendar day” basis. The following table presents our quarterly rig and trucking hours from 2015 through the first quarter of 2016 :



	Rig Hours			Trucking Hours	Key’s U.S. Working Days(1)
2016:	U.S.	International	Total
First Quarter	153,417	5,715	159,132	217,429	63
Total 2016	153,417	5,715	159,132	217,429	63

2015:
First Quarter	271,005	36,950	307,955	418,032	62
Second Quarter	232,169	25,555	257,724	342,271	63
Third Quarter	226,953	13,330	240,283	309,601	64
Fourth Quarter	203,252	8,279	211,531	247,979	62
Total 2015	933,379	84,114	1,017,493	1,317,883	251


(1)	Key’s U.S. working days are the number of weekdays during the quarter minus national holidays.

MARKET CONDITIONS AND OUTLOOK

Market and Business Conditions — Quarter Ended March 31, 2016

Our core businesses depend on our customers’ willingness to make expenditures to produce, develop and explore for oil and natural gas. Industry conditions are influenced by numerous factors, such as the supply of and demand for oil and natural gas, domestic and worldwide economic conditions, and political instability in oil producing countries.

Oil and natural gas prices began a rapid and substantial decline in the fourth quarter of 2014. Depressed commodity price conditions persisted and worsened during 2015 and that trend has continued into 2016. As a result, the rig count and demand for our products and services has declined substantially, and the prices we are able to charge our customers for our products and services have also declined substantially.

Further deterioration in oil prices early in the first quarter drove another sequential decline in oilfield services activity. While we have sought to anticipate incremental activity declines and have undertaken to reshape our organizational and cost structure to mitigate the negative impact of these declines, we have continued to experience negative operating results and cash flows from operations. During the first quarter of 2016, we recorded a net loss of $81.6 million and had negative cash flows from operating activities of $30.1 million. If industry conditions do not improve, we are likely to continue to suffer net losses and negative cash flows from operations.

Additionally, our liquidity declined by approximately $50 million during the first quarter of 2016 as we made two interest payments on our outstanding debt instruments totaling approximately $32 million and placed approximately $19 million of cash into restricted cash in order to maintain the borrowing base under our asset-based credit facility.

Market and Business Outlook

Although oil prices have improved more recently, we have not experienced an uptick in activity levels commensurate with that of oil prices. We believe that our customers need some level of confidence that oil will stay in a reasonably economic range in order to materially resume activity. We believe that as activity picks up in the oilfield, our production services businesses will benefit from the backlog of deferred maintenance on existing wells. However, each of our customers will act independently, with different economics thresholds and spending cycles, so the timing associated with a material activity improvement is difficult to predict.

As a result, in light of the current conditions in our industry, our significant negative cash flow, our levels of indebtedness and liquidity and the risk that we may be unable to remain in compliance with the financial ratios in our Facilities, we continue to analyze a variety of transactions and alternatives designed to reduce our debt and improve our liquidity, and we are in active discussions with our lenders and noteholders regarding transactions and alternatives to address our level of indebtedness and liquidity. These matters are discussed more fully below under “Liquidity and Capital Resources.”

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RESULTS OF OPERATIONS

The following table shows our consolidated results of operations for the three months ended March 31, 2016 and 2015 , respectively (in thousands):



	Three Months Ended
	March 31,
	2016			2015
REVENUES	$	111,088		$	267,799
COSTS AND EXPENSES:
Direct operating expenses	90,598			204,530
Depreciation and amortization expense	35,752			47,211
General and administrative expenses	46,245			67,644
Impairment expense	—			21,700
Operating loss	(61,507		)	(73,286		)
Interest expense, net of amounts capitalized	21,584			13,342
Other (income) loss, net	(1,231		)	4,432
Loss before income taxes	(81,860		)	(91,060		)
Income tax benefit	246			31,384
NET LOSS	$	(81,614	)	$	(59,676	)

Consolidated Results of Operations — Three Months Ended March 31, 2016 and 2015

Revenues

Our revenues for the three months ended March 31, 2016 decreased $156.7 million , or 58.5% , to $111.1 million from $267.8 million for the three months ended March 31, 2015 , due to lower spending from our customers as a result of lower oil prices. These market conditions resulted in reduced customer activity and a reduction in the price received for our services. Internationally, we had lower revenue as a result of reduced customer activity in Russia and the exit of operations in the Middle East and South America. See “Segment Operating Results — Three Months Ended March 31, 2016 and 2015 ” below for a more detailed discussion of the change in our revenues.

Direct Operating Expenses

Our direct operating expenses decreased $113.9 million , to $90.6 million ( 81.6% of revenues), for the three months ended March 31, 2016 , compared to $204.5 million ( 76.4% of revenues) for the three months ended March 31, 2015 . The decrease is primarily related to a decrease in employee compensation costs, fuel expense and repair and maintenance expense as we sought to reduce our cost structure and as a result of lower activity levels.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased $11.5 million , or 24.3% , to $35.8 million during the three months ended March 31, 2016 , compared to $47.2 million for the three months ended March 31, 2015 . The decrease is primarily attributable to the impairment of certain fixed assets and decreases in capital expenditures.

General and Administrative Expenses

General and administrative expenses decreased $21.4 million , to $46.2 million ( 41.6% of revenues), for the three months ended March 31, 2016 , compared to $67.6 million ( 25.3% of revenues) for the three months ended March 31, 2015 . The decrease is primarily due to lower employee compensation costs due to reduced staffing levels and reduction in wages and a decrease in expenses related to FCPA investigations.

Impairment Expense

No impairment was recorded during the three months ended March 31, 2016 . During the three months ended March 31, 2015 , we recorded a $21.7 million impairment of goodwill in our Coiled Tubing Services segment related to the finalization of our 2014 goodwill impairment testing.

Interest Expense, Net of Amounts Capitalized

Interest expense increased $8.2 million , or 61.8% , to $21.6 million for the three months ended March 31, 2016 , compared to $13.3 million for the same period in 2015 . The increase is primarily related to increased borrowings and interest rate under the new Term Loan Facility for the three months ended March 31, 2016 compared to the same period in 2015 .

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Other (Income) Loss, Net

During the three months ended March 31, 2016 , we recognized other income, net, of $1.2 million , compared to other loss, net, of $4.4 million for the three months ended March 31, 2015 . A $4.0 million allowance for the collectibility of our notes receivable related to the sale of our operations in Argentina was recorded in the first quarter of 2015. Our foreign exchange (gain) loss relates to U.S. dollar-denominated transactions in our foreign locations and fluctuations in exchange rates between local currencies and the U.S. dollar.

The following table summarizes the components of other (income) loss, net for the periods indicated:



	Three Months Ended March 31,
	2016			2015
	(in thousands)
Interest income	$	(132	)	$	(15	)
Foreign exchange (gain) loss	(252		)	1,260
Allowance for collectibility of notes receivable	—			3,950
Other, net	(847		)	(763		)
Total	$	(1,231	)	$	4,432

Income Tax Benefit

We recorded an income tax benefit of $0.2 million on a pre-tax loss of $81.9 million for the three months ended March 31, 2016 , compared to an income tax benefit of $31.4 million on a pre-tax loss of $91.1 million for the same period in 2015 . Our effective tax rate was 0.3% for the three months ended March 31, 2016 , compared to 34.5% for the three months ended March 31, 2015 . Our effective tax rates for such periods differ from the U.S. statutory rate of 35% due to a number of factors, including the mix of profit and loss between domestic and international taxing jurisdictions and the impact of permanent items, including goodwill impairment expense and expenses subject to statutorily imposed limitations such as meals and entertainment expenses, that affect book income but do not affect taxable income and discrete tax adjustments, such as valuation allowances against deferred tax assets and tax expense or benefit recognized for uncertain tax positions.

Segment Operating Results — Three Months Ended March 31, 2016 and 2015

The following table shows operating results for each of our segments for the three months ended March 31, 2016 and 2015 (in thousands):



For the three months ended March 31, 2016
	U.S. Rig Services			Fluid Management Services			Coiled Tubing Services			Fishing and Rental Services			International			Functional Support			Total
Revenues from external customers	$	58,988		$	22,670		$	9,531		$	16,283		$	3,616		$	—		$	111,088
Operating expenses	65,354			28,942			15,680			20,295			8,676			33,648			172,595
Operating loss	(6,366		)	(6,272		)	(6,149		)	(4,012		)	(5,060		)	(33,648		)	(61,507		)



For the three months ended March 31, 2015
	U.S. Rig Services		Fluid Management Services		Coiled Tubing Services			Fishing and Rental Services			International			Functional Support			Total
Revenues from external customers	$	120,822	$	50,755	$	31,017		$	42,690		$	22,515		$	—		$	267,799
Operating expenses	112,822		49,279		54,839			42,746			32,126			49,273			341,085
Operating income (loss)	8,000		1,476		(23,822		)	(56		)	(9,611		)	(49,273		)	(73,286		)

U.S. Rig Services

Revenues for our U.S. Rig Services segment decreased $61.8 million , or 51.2% , to $59.0 million for the three months ended March 31, 2016 , compared to $120.8 million for the three months ended March 31, 2015 . The decrease for this segment is primarily due to lower spending from our customers as a result of lower oil prices. These market conditions resulted in reduced customer activity and a reduction in the price received for our services.

Operating expenses for our U.S. Rig Services segment were $65.4 million for the three months ended March 31, 2016 , which represented a decrease of $47.5 million , or 42.1% , compared to $112.8 million for the same period in 2015 . These

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expenses decreased primarily as a result of a decrease in employee compensation costs and equipment expense as we sought to reduce our cost structure and as a result of lower activity levels.

Fluid Management Services

Revenues for our Fluid Management Services segment decreased $28.1 million , or 55.3% , to $22.7 million for the three months ended March 31, 2016 , compared to $50.8 million for the three months ended March 31, 2015 . The decrease for this segment is primarily due to lower spending from our customers as a result of lower oil prices. These market conditions resulted in reduced customer activity and a reduction in the price received for our services.

Operating expenses for our Fluid Management Services segment were $28.9 million for the three months ended March 31, 2016 , which represented a decrease of $20.3 million , or 41.3% , compared to $49.3 million for the same period in 2015 . These expenses decreased primarily as a result of a decrease in equipment expense and employee compensation costs as we sought to reduce our cost structure and as a result of lower activity levels.

Coiled Tubing Services

Revenues for our Coiled Tubing Services segment decreased $21.5 million , or 69.3% , to $9.5 million for the three months ended March 31, 2016 , compared to $31.0 million for the three months ended March 31, 2015 . The decrease for this segment is primarily due to lower spending from our customers as a result of lower oil prices. These market conditions resulted in reduced customer activity and a reduction in the price received for our services.

Operating expenses for our Coiled Tubing Services segment were $15.7 million for the three months ended March 31, 2016 , which represented a decrease of $39.2 million , or 71.4% , compared to $54.8 million for the same period in 2015 . These expenses decreased primarily as a result of a decrease in employee compensation costs, repair and maintenance expense and fuel costs as we sought to reduce our cost structure and as a result of lower activity levels and no impairment expense compared to a $21.7 million impairment in 2015.

Fishing and Rental Services

Revenues for our Fishing and Rental Services segment decreased $26.4 million , or 61.9% , to $16.3 million for the three months ended March 31, 2016 , compared to $42.7 million for the three months ended March 31, 2015 . The decrease for this segment is primarily due to lower spending from our customers as a result of lower oil prices. These market conditions resulted in reduced customer activity and a reduction in the price received for our services.

Operating expenses for our Fishing and Rental Services segment were $20.3 million for the three months ended March 31, 2016 , which represented a decrease of $22.5 million , or 52.5% , compared to $42.7 million for the same period in 2015 . These expenses decreased primarily as a result of a decrease in employee compensation costs, repair and maintenance expense and fuel costs as we sought to reduce our cost structure and as a result of lower activity levels.

International

Revenues for our International segment decreased $18.9 million , or 83.9% , to $3.6 million for the three months ended March 31, 2016 , compared to $22.5 million for the three months ended March 31, 2015 . The decrease was primarily attributable to lower customer activity in Russia and the exit of operations in the Middle East and South America.

Operating expenses for our International segment decreased $23.5 million , or 73.0% , to $8.7 million for the three months ended March 31, 2016 , compared to $32.1 million for the three months ended March 31, 2015 . These expenses decreased primarily as a result of a decrease in employee compensation costs and equipment expense, primarily due to lower activity.

Functional Support

Operating expenses for Functional Support, which represent expenses associated with managing our U.S. and International reporting segments, decreased $15.6 million , or 31.7% , to $33.6 million ( 30.3% of consolidated revenues) for the three months ended March 31, 2016 compared to $49.3 million ( 18.4% of consolidated revenues) for the same period in 2015 . The decrease is primarily due to lower employee compensation costs due to reduced staffing levels and a decrease in legal expenses related to the FCPA investigations.

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LIQUIDITY AND CAPITAL RESOURCES

Current Financial Condition and Liquidity

As of March 31, 2016 , we had cash and cash equivalents of $155.7 million compared to $204.4 million as of December 31, 2015 . Our working capital was $213.8 million as of March 31, 2016 , compared to $265.9 million as of December 31, 2015 . Our working capital decreased from the prior year end primarily as a result of a decrease in cash and cash equivalents and accounts receivable partially offset by a decrease in accounts payable and increase in restricted cash. Our cash balance declined by $48.7 million during the first quarter of 2016 primarily as a result of our making two interest payments on our outstanding debt instruments totaling $31.7 million and moving approximately $18.6 million to restricted cash in order to maintain the borrowing base under our ABL Facility. As of March 31, 2016 , we had no borrowings outstanding and $45.8 million in committed letters of credit outstanding under our ABL Facility with borrowing capacity of $25.9 million available subject to covenant constraints under that facility.

The following table summarizes our cash flows for the three months ended March 31, 2016 and 2015 :



	Three Months Ended March 31,
	2016			2015
	(in thousands)
Net cash used in operating activities	$	(30,064	)	$	(2,664	)
Cash paid for capital expenditures	(2,701		)	(18,995		)
Proceeds received from sale of fixed assets	7,435			2,890
Proceeds from notes receivable	—			400
Repayments of long-term debt	(787		)	—
Restricted cash	(18,605		)	—
Proceeds from borrowings on revolving credit facility	—			91,000
Repayments on revolving credit facility	—			(61,000		)
Payment of deferred financing costs	—			(125		)
Other financing activities, net	(2,651		)	(3,050		)
Effect of exchange rates on cash	(1,277		)	159
Net increase (decrease) in cash and cash equivalents	$	(48,650	)	$	8,615

Cash used in operating activities was $30.1 million for the three months ended March 31, 2016 compared to cash used in operating activities of $2.7 million for the three months ended March 31, 2015 . Cash used by operating activities for the three months ended March 31, 2016 was primarily related to net loss adjusted for noncash items. Cash used by operating activities for the three months ended March 31, 2015 was primarily related to decrease in deferred tax liabilities partially offset by net loss adjusted for noncash items.

Cash provided by investing activities was $4.7 million for three months ended March 31, 2016 compared to cash used in investing activities of $15.7 million for three months ended March 31, 2015 . Cash inflows during these periods consisted primarily of proceeds from sales of fixed assets. Cash outflows during these periods consisted primarily of capital expenditures. Our capital expenditures through March 31, 2016 primarily relate to maintenance of our equipment.

Cash used in financing activities was $22.0 million for the three months ended March 31, 2016 compared to cash provided by financing activities of $26.8 million for the three months ended March 31, 2015 . Overall financing cash outflows for 2016 primarily relate to the increase in restricted cash. Overall financing cash inflows for 2015 primarily relate to net proceeds from the borrowings under our prior revolving credit facility.

Sources of Liquidity and Capital Resources

Our sources of liquidity include our current cash and cash equivalents, availability under our ABL Facility, and internally generated cash flows from operations. However, as discussed above, we had negative cash from operating activities of $22.4 million during 2015 and $30.1 million during the first quarter of 2016 , and, if industry conditions do not improve or worsen, we expect to continue to experience negative cash from operations for the foreseeable future.

As of March 31, 2016, our total outstanding debt of was $965.4 million. We have no significant maturities of debt until 2020. Interest to be paid for the remainder of 2016 related to our 2021 Notes is approximately $23 million and is due on September 1, 2016. Mandatory principal payments for the remainder of 2016 related to our Term Loan Facility, assuming we make no optional principal payments and without giving effect to the prepayment described below under “-Covenant Compliance,”, is approximately $2.4 million . Interest on our Term Loan Facility is due each quarter and, assuming we make no

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optional principal payments on the Term Loan Facility, quarterly interest payments are expected to be approximately $8 million.

At March 31, 2016 , our annual debt maturities for our 2021 Notes and Term Loan Facility were as follows:



Year	Principal Payments
	(in thousands)
2016	$	2,363
2017	3,150
2018	3,150
2019	3,150
2020 and thereafter	975,825
Total principal payments	$	987,638

Covenant Compliance

Based on the appraisal obtained by the Company and delivered to the Administrative Agents with our financial statements for the year ended December 31, 2015, we were in compliance with the Asset Coverage Ratio as of March 31, 2016. However, during the first quarter of 2016, certain of the Term Loan Lenders requested a new appraisal from a different appraiser, and, based on that appraisal, certain of the Term Loan Lenders have alleged that we were not in compliance with the Asset Coverage Ratio as of March 31, 2016. Although the Company disagrees with the validity of the appraisal commissioned by the Term Loan Lenders, and has reserved certain of its rights to contest such appraisal, we entered into a Forbearance Agreement dated as of May 11, 2016 (the “Forbearance Agreement”) with certain of the Term Loan Lenders pursuant to which such lenders agreed that, subject to the terms and conditions of the Forbearance Agreement, they would forbear through June 6, 2016 from exercising remedies available to them under the Term Loan Facility as a result of our alleged non-compliance with the Asset Coverage Ratio under the Term Loan Facility. As consideration for the Term Loan Lenders’ forbearance, we prepaid $7.5 million in principal and accrued interest under the Term Loan Facility. We also entered into a Limited Consent and Forbearance Agreement dated May 11, 2016 (the “Limited Consent”) with certain of the ABL Lenders pursuant to which such lenders consented to the prepayment we made under the Term Loan Facility and agreed to a substantially similar forbearance.

The forbearance provided by the Term Loan Lenders and the ABL Lenders is subject to termination under certain circumstances, including if a default or event of default occurs under the Term Loan Facility or, in the case of the Term Loan Agreement, if we terminate discussions with the Term Loan Lenders related to the negotiation and implementation of an amendment and/or restatement of the Term Loan Facility. The Forbearance Agreement and Limited Consent are filed as exhibits 10.3 and 10.4, respectively, to this Current Report on Form 10-Q and reference is hereby made to such exhibits for their complete terms.

For more information, please read “-Liquidity Outlook” below.

6.75% Senior Notes due 2021

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Year	Percentage
2016	103.375	%
2017	102.250	%
2018	101.125	%
2019 and thereafter	100.000	%

We are subject to certain negative covenants under the Indenture. The Indenture limits our ability to, among other things:


•	incur additional indebtedness and issue preferred equity interests;


•	pay dividends or make other distributions or repurchase or redeem equity interests;


•	make loans and investments;


•	enter into sale and leaseback transactions;


•	sell, transfer or otherwise convey assets;


•	create liens;


•	enter into transactions with affiliates;


•	enter into agreements restricting subsidiaries’ ability to pay dividends;


•	designate future subsidiaries as unrestricted subsidiaries; and


•	consolidate, merge or sell all or substantially all of the applicable entities’ assets.

ABL Facility

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its present and future accounts receivable, inventory and related assets and proceeds of the foregoing (the “ABL Priority Collateral”). In addition, the obligations of the ABL Loan Parties under the ABL Facility are secured by second-priority liens on the Term Priority Collateral (as described below under “Term Loan Facility”).

The revolving loans under the ABL Facility may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to breakage or similar costs.

Term Loan Facility

On June 1, 2015, the Company entered into a Term Loan and Security Agreement (the “Term Loan Facility”), among the Company, as Borrower, certain subsidiaries of the Company named as guarantors therein, the financial institutions party thereto from time to time as Lenders (collectively, the “Term Loan Lenders”), Cortland Capital Market Services LLC, as Agent for the Lenders (the “Term Loan Administrative Agent”), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Bookrunner.

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maturity date may, at the Company’s request, be extended by one or more of the Term Loan Lenders pursuant to the terms of the Term Loan Facility.

We were in compliance with covenants of the Facilities as of March 31, 2016 . As of March 31, 2016 , we have no borrowings outstanding and $45.8 million of letters of credit outstanding with borrowing capacity of $25.9 million available subject to covenant constraints under our ABL Facility.

Letter of Credit Facility

Liquidity Outlook

As of March 31, 2016 , we had cash and cash equivalents of $155.7 million and borrowing capacity of $25.9 million , subject to covenant constraints under the ABL Facility. During the first quarter, we utilized existing cash balances to fund the Company’s operations as our cash flow from operations was negative $30.1 million . Our ability to fund our operations, pay the principal and interest on our long-term debt and satisfy our other obligations will depend upon our available liquidity and the amount of cash flows we are able to generate from our operations. If industry conditions do not improve, we are likely to continue to have significant negative cash flows from operations during the remainder of 2016.

We believe that our current reserves of cash and availability under our ABL facility are sufficient to finance our cash requirements for current and future operations, budgeted capital expenditures, debt service and other obligations for the next twelve months. However, we have had negative cash flows from operations in recent fiscal periods, conditions in our industry remain depressed and our ability to generate cash from operations and maintain availability of cash and other sources of liquidity can be affected by events beyond our control, including commodity prices, demand for our services, the valuation of our assets, costs incurred in connection with resolving our FCPA investigation and other obligations as well as prevailing economic, financial and industry conditions. Additionally, and as more fully described below, each of our

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Facilities and our Indenture contain affirmative and negative covenants, including financial ratios and tests, and if we fail to remain in compliance with those covenants, our lenders and note holders may declare us to be in default and exercise a variety of remedies against us. These covenants include, among others, covenants that restrict our ability to take certain actions without the permission of the holders of our indebtedness, including the incurrence of debt, the granting of liens, the making of investments, the payment of dividends and the sale of assets, and the financial ratios and tests include, among others, a requirement that we comply with a Minimum Liquidity Covenant, an Asset Coverage Ratio and, during certain periods, a fixed charge coverage ratio.

Our ability to satisfy required financial covenants, ratios and tests in our debt agreements can be affected by events beyond our control, including commodity prices, demand for our services, the valuation of our assets, costs incurred in connection with resolving our FCPA investigation and other obligations as well as prevailing economic, financial and industry conditions, and we can offer no assurance that we will be able to comply with such covenants or that the holders of our indebtedness will not seek to assert that we are not in compliance with our covenants. For example, as described above under “-Covenant Compliance,” certain of the Term Loan Lenders have asserted that we were not in compliance with the Asset Coverage Ratio under the Term Loan Facility as of March 31, 2016. In addition to contesting the appraisal used by certain of the Term Loan Lenders as the basis for such assertion, we believe that we have cured the alleged defaults and achieved compliance with such covenant, as contemplated by the applicable agreements, through prepaying $7.5 million under the Term Loan Facility and including collateral that was omitted from the appraisal used by such lenders to make such assertion. Additionally, such lenders and certain of the lenders under the ABL Facility have agreed to forbear exercising remedies against us related to this alleged non-compliance through June 6, 2016.

Even though we believe we were in compliance with the Asset Coverage Ratio as of March 31, 2016, we may have difficulty complying with this and other financial ratios and tests in future periods. For example, the Term Priority Collateral includes substantially all of our operating assets, and the value of these assets is susceptible to decline during periods of low activity. If the appraised value of these assets further declines and we are unable to repay amounts outstanding under the Term Loan Facility and/or provide additional Term Priority Collateral, we may be unable to comply with the Asset Coverage Ratio in the Facilities. Likewise, we are required to maintain Liquidity (as defined in the Facilities) of not less than $100 million as of the last day of any fiscal quarter or immediately after any cash payment of a settlement of, or fine in connection with, the FCPA matter. If we continue to experience negative cash from operations or are required to expend cash to repay additional amounts under the Term Loan Facility or to discharge other obligations, we may be unable to maintain compliance with the Minimum Liquidity Covenant under the Facilities.

Finally, under our ABL Facility, we must maintain a fixed charge coverage ratio of at least 1.0 to 1.0 during the period commencing on the day that availability under the ABL Facility is less than the greater of $20 million and 20% of the Commitments under the ABL Facility. The fixed charge coverage ratio is generally defined as the ratio of (i) EBITDA minus certain capital expenditures and cash taxes paid to (ii) the sum of cash interest expenses, scheduled principal payments on borrowed money and certain distributions. We have generated negative EBITDA in recent fiscal periods and therefore believe that, in the absence of a significant improvement in the conditions in our industry, we would not be in compliance with the fixed charge coverage ratio if our availability were to decrease to a level that resulted in such covenant becoming applicable. Availability under the ABL Facility is influenced primarily by our use of the facility and by the level of our accounts receivable. As of March 31, 2016, we had no borrowings outstanding but had $45.8 million of committed letters of credit outstanding, resulting in availability under the ABL Facility of $25.9 million subject to covenant constraints under that facility. Our accounts receivable have been decreasing as a result of the conditions in our industry, and, although we have been taking steps to seek to maintain the availability under our ABL Facility, such as by depositing cash with the ABL Lenders and seeking to cash collateralize certain letters of credit, we may not be able to maintain sufficient availability to avoid the application, and a potential breach, of the fixed charge coverage ratio. A breach of any of these covenants, ratios or tests would result in a default under our indebtedness. If we default, lenders under our ABL Facility will no longer be obligated to extend credit to us and they, as well as the trustee for the 2021 Notes and the Term Loan Administrative Agent, could declare all amounts of outstanding debt together with accrued interest, to be immediately due and payable. The results of such actions would have a significant negative impact on our financial position and liquidity, and absent strategic alternatives such as refinancing or restructuring our indebtedness or capital structure, we would not have sufficient liquidity to repay all of our outstanding indebtedness.

As a result, in light of the current conditions in our industry, our significant negative cash flow, our high level of indebtedness and diminishing liquidity and the risk that we may be unable to remain in compliance with the financial ratios in our Facilities, we continue to analyze a variety of transactions and alternatives designed to reduce our debt and improve our liquidity, and we are in active discussions with our lenders and noteholders regarding such transactions and alternatives.

No assurance can be given, however, that we will be able to implement any such transaction or alternative, if necessary, on commercially reasonable terms or at all, and, even if we are successful in implementing a strategic transaction or alternative, such transaction or alternative may not be successful in allowing us to meet our debt obligations and improving our

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liquidity. If we breach the covenants under our debt agreements or if we are lack sufficient liquidity to satisfy our debt or other obligations, then, in the absence of, a strategic transaction or alternative, our creditors could potentially force us into bankruptcy or we could be forced to seek bankruptcy protection to restructure our business and capital structure, in which case we could be forced to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements. Even if we are able to implement a strategic transaction or alternative, such transaction or alternative may impose onerous terms on us. Additionally, we have a significant amount of secured indebtedness that is senior to our unsecured indebtedness and a significant amount of total indebtedness that is senior to our existing common stock in our capital structure. As a result, we believe that implementation of a strategic transaction or alternative or a bankruptcy proceeding could result in a limited recovery for unsecured noteholders, if any, and place equity holders at significant risk of losing all of their interests in our company.

In addition, access to the liquidity provided by our ABL Facility is predicated upon the absence of a default under the ABL Facility and our other debt agreements and on our ability to satisfy the conditions to borrowing, which, among other things, require that the representations and warranties under the facility, including representations and warranties related to our solvency and the absence of a material adverse effect, remain true and correct and that we not be in violation of any of the covenants in the ABL Facility.

Future Capital Requirements

During the three months ended March 31, 2016 , our capital expenditures totaled $2.7 million , primarily related to the ongoing replacement to our rig service fleet, coiled tubing units, fluid transportation equipment and rental equipment. Our capital expenditure plan for 2016 contemplates spending up to approximately $20.0 million, subject to market conditions. This is primarily related to equipment maintenance needs. Our capital expenditure program for 2016 is subject to market conditions, including activity levels, commodity prices, industry capacity and specific customer needs. Our focus for 2016 has been and continues to be the maximization of our current equipment fleet, but we may choose to increase our capital expenditures in 2016 to increase market share or expand our presence into a new market. We may also incur capital expenditures for strategic investments and acquisitions. We currently anticipate funding our 2016 capital expenditures through a combination of cash on hand, operating cash flow, and borrowings under our ABL Facility. Should our operating cash flows or activity levels prove to be insufficient to fund our currently planned capital spending levels, management expects it will adjust our capital spending plans accordingly. We may also incur capital expenditures for strategic investments and acquisitions.

Off-Balance Sheet Arrangements

At March 31, 2016 we did not, and we currently do not, have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our quantitative and qualitative disclosures about market risk from those disclosed in our 2015 Form 10-K. More detailed information concerning market risk can be found in “ Item 7A. Quantitative and Qualitative Disclosures about Market Risk ” in our 2015 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on this evaluation, management concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the first quarter of 2016 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

We are subject to various suits and claims that have arisen in the ordinary course of business. We do not believe that the disposition of any of our ordinary course litigation will result in a material adverse effect on our consolidated financial position, results of operations or cash flows. For additional information on legal proceedings, see “ Note 10. Commitments and Contingencies ” in “ Item 1. Financial Statements ” of Part I of this report, which is incorporated herein by reference.

Between May of 2013 and June of 2014, five lawsuits ( four class actions and one enforcement action) were filed in California involving alleged violations of California’s wage and hour laws. In general, the lawsuits allege failure to pay wages, including overtime and minimum wages, failure to pay final wages upon employment terminations in a timely manner, failure to reimburse reasonable and necessary business expenses, failure to provide wage statements consistent with California law, and violations of the California meal and break period laws, among other claims. Two of the five cases have been consolidated in United States District Court for the Central District of California. On December 22, 2015, that court issued an order granting in part and denying in part a class certification motion. The court certified a class of hourly paid, non-exempt oilfield employees who allege they did not receive reimbursement for all business expenses and allege they did not receive all rest breaks required by California law. The court did not determine whether Key is liable to any of the class members. Plaintiffs have moved to reconsider the class certification ruling, and the Court has taken that motion under submission. In addition, the parties are working on scheduling a mediation. The court in one of the remaining cases that had been stayed pending the outcome of the class certification motion recently issued an order lifting the stay, and the parties have agreed to an amended complaint. No date has been set for class certification. The fourth case is waiting for a decision regarding whether it will move forward in California state court or in federal court. The fifth case is an enforcement action for civil penalties based on California’s Private Attorneys General Act, which is pending in California state court. We have investigated the claims in all five lawsuits, and intend to vigorously defend them. Because these cases are at an early stage, we cannot estimate any possible loss or range of loss.

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ITEM 1A.	RISK FACTORS

Reference is made to Part I, Item 1A. Risk Factors of the 2015 Form 10-K for information concerning risk factors.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

During the three months ended March 31, 2016 , we repurchased the shares shown in the table below to satisfy tax withholding obligations upon the vesting of restricted stock awarded to certain of our employees:



Period	Number of Shares Purchased	Average Price Paid per Share(1)
January 1, 2016 to January 31, 2016	150,128	$	0.32
February 1 2016 to February 29, 2016	168,576	0.26
March 1, 2016 to March 31, 2016	130,335	0.39
Total	449,039	$	0.32


(1)	The price paid per share with respect to the tax withholding repurchases was determined using the closing prices on the applicable vesting date, as quoted on the NYSE.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS

The Exhibit Index, which follows the signature pages to this report and is incorporated by reference herein, sets forth a list of exhibits to this report.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX



Exhibit No.		Description

3.1		Articles of Restatement of Key Energy Services, Inc. (Incorporated by reference to Exhibit 3.1 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, File No. 001-08038).

3.2		Unanimous consent of the Board of Directors of Key Energy Services, Inc. dated January 11, 2000, limiting the designation of the additional authorized shares to common stock. (Incorporated by reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, File No. 001-08038).

3.3		Ninth Amended and Restated By-laws of Key Energy Services, Inc. as amended through August 21, 2015. (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed on August 24, 2015, File No. 001-08038).

10.1 †		Promotion Bonus Agreement (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on February 18, 2016, File No. 001-08038).

10.2 † *		Robert Drummond Amended and Restated Employment Agreement.

10.3*		Forbearance Agreement dated as of May 11, 2016, among Key Energy Services, Inc., each of the guarantors party thereto, each of the Lenders party thereto and Cortland Capital Market Services LLC, as administrative agent for the Lenders.

10.4*		Limited Consent to Loan Agreement and Forbearance Agreement, Dated May 11, 2016, among Key Energy Services, Inc., Key Energy Services, LLC, certain subsidiaries of the Borrowers as Guarantors, Lenders and Co-Collateral Agents party thereto and Bank of America, N.A., as administrative agent for the Lenders.

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32**		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*		Interactive Data File.



†	Indicates a management contract or compensatory plan, contract or arrangement in which any Director or any Executive Officer participates.

*	Filed herewith

**	Furnished herewith

Exhibit 10.2

ROBERT DRUMMOND

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (as from time to time amended in accordance with the provisions hereof, this “ Agreement ”), is entered into as of the 25th of April, 2016, by and between Robert Drummond (the “ Executive ”), KEY ENERGY SERVICES, INC., a Maryland corporation with executive offices at 1301 McKinney Street, Suite 1800, Houston, Texas 77010 (the “ Parent ”) and KEY ENERGY SERVICES, LLC, a Texas limited liability company (the “ Company ”) (Executive, Parent, and the Company collectively referred to as the “ Parties ”). The Parties intend for this Agreement to be effective as of March 5, 2016 (the “ Commencement Date ”).

WHEREAS , the Executive, the Parent and the Company are parties to the Employment Agreement dated as of June 22, 2015 pursuant to which the Executive has been employed as the President and Chief Operating Officer of the Parent and President of the Company (the “ Original Employment Agreement ”);

WHEREAS , on August 24, 2015, the Board of Directors of the Parent (the “ Board ”) approved a succession plan (the “ Succession Plan ”) that anticipated the appointment of the Executive as President and Chief Executive Officer of the Parent and President of the Company following the retirement of the Parent’s then-current Chief Executive Officer (the “ Outgoing CEO ”);

WHEREAS , on February 17, 2016, the Outgoing CEO announced his retirement and the Board subsequently approved the promotion of the Executive to the positions of President and Chief Executive Officer of the Parent and President of the Company effective as of March 1, 2016;

WHEREAS , on February 29, 2016 the Board, with the concurrence of the Executive and the Outgoing CEO delayed the effective date of the promotion of the Executive to the earlier of April 1, 2016 or the first business day immediately following the day the Company files its Annual Report on Form 10-K for the fiscal year ending December 31, 2015;

WHEREAS , the Company filed its Annual Report on Form 10-K for the fiscal year ending December 31, 2015 on March 4, 2016 (the “ Filing Date ”);

WHEREAS , the first day immediately following the Filing Date was March 5, 2016;

WHEREAS , the Parent desires to employ the Executive as President and Chief Executive Officer of the Parent and the Company desires to employ the Executive as President of the Company;

WHEREAS , the Parties desire to amend and restate the Original Employment Agreement effective as of the Commencement Date in order to provide for the Executive’s promotion;

WHEREAS , the Parent, the Company and the Executive desire to enter into this Agreement as to the terms of the Executive's employment by the Company;

WHEREAS , the Executive agrees that he will not use his former employers' confidential information to in any way benefit the Parent or the Company at any time during his employment with the Company, or any time thereafter;

WHEREAS , the Executive acknowledges that the Parent and the Company will provide him with trade secret, proprietary, and confidential information of the Company, the Parent, and all subsidiaries and affiliates thereof (collectively, the “ Key Companies ”); and the Executive acknowledges that the Parent and the Company will provide him access to, and the opportunity to develop, business relationships with the customers, clients, vendors and partners of the Key Companies, with whom the Key Companies have developed goodwill and to which the Executive would not otherwise have access; and

WHEREAS , the Executive acknowledges that the Company employs the Executive in the top position at the Company; the Executive provides executive level services to the Key Companies; and that, based upon the nature of the Executive's position with the Company, the Executive has access to the most sensitive trade secrets, proprietary, and confidential information of the Key Companies, and is intimately involved with the Key Companies' existing product and service lines, any business plans for the expansion thereof, as well as any business plans for the development of new product and service lines for the Key Companies.

Now, THEREFORE , in consideration of the promises and mutual covenants and agreements herein contained, the Parties agree as follows:


1.	Employment; Term .

(a) As of the Commencement Date, the Company hereby employs the Executive under the terms of this Agreement, and the Executive hereby accepts employment and promotion by the Company and Parent under the terms of this Agreement, as the Company's President, and the Parent's President and Chief Executive Officer Officer. The Executive shall have the responsibilities, duties and authority commensurate with his positions as the Chief Executive Officer and President, including without limitation, general supervision of, responsibility for and control over, the management and operation of the Company, the Parent and its Subsidiaries, subject, however, to the supervision of the Parent’s Board of Directors (the “ Board ”) insofar as such supervision is required by the Maryland General Corporation Law, and the Company’s Articles of Incorporation and By-Laws.. The Executive will report only to the Board.

(b) The Executive shall hold such position with the Company and Parent hereunder until the close of business on March 5, 2018, unless the Executive's employment or this Agreement or both is sooner terminated in accordance with Section 5, and at the close of business on each anniversary of such date, commencing with March 5, 2018, the term of the Executive’s employment hereunder shall be automatically extended for twelve (12) months (unless sooner terminated in accordance with Section 5 hereof) unless either the Executive or the Company shall have given written notice (in each case a “ Non-Renewal Notice ”) to the other that such automatic extension shall not occur, which Non-Renewal Notice shall have been given no later than ninety (90) days next preceding the relevant Anniversary Date. The Executive's entire period of employment under this Agreement, until the termination of the Executive's employment or the termination of this Agreement, or both, is referred to as the “Employment Term.” The Board may, in its sole discretion, renew the Executive's Employment Term for subsequent terms.

(c) The Executive will devote his full time and best efforts to the business and affairs of the Key Companies; provided, however, that subject to Sections 7 and 8 of this Agreement, 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; (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) serve on boards of directors and 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.

(d) The principal location at which the Executive will substantially perform his duties will be the Company's Houston, Texas offices, or as otherwise agreed between the Executive and the Board.

2. Salary; Bonuses; Expenses .

(a) During the Employment Term, the Company will pay base compensation to the Executive at the annual rate of SEVEN HUNDRED FIFTY THOUSAND AND NO/100 ($750,000.00) per year (the “ Base Salary ”), subject to a 10% temporary reduction, 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 following the end of each fiscal year of the Company to determine if an increase is advisable, and the Base Salary may be increased (but not decreased) at the discretion of the Compensation Committee of the Board (the “ Compensation Committee ”'), taking into account, among other factors, the Executive's performance and the performance of the Key Companies.

(b) The Executive will be entitled to receive a bonus equal to ONE MILLION AND NO/100 ($1,000,000.00), subject to applicable deductions and withholdings, provided that he has been continuously employed from June 22, 2015 until June 22, 2016. Such payment shall be made in a lump sum cash payment within thirty (30) days following the one year anniversary of the Commencement Date. In the event that the Executive is terminated by the Company without Cause (as defined in Section 5(a)), he resigns for Good Reason (as defined in Section 5(c)), or he incurs a separation from service due to his death or Disability (as defined in Section 5(b)) (each a “ Qualifying Termination ”) prior to the one year anniversary of the Commencement Date, the bonus will instead be paid to the Executive (or his estate, as applicable) within the thirty (30) day period immediately following the Executive’s Qualifying Termination.

(c) The Executive shall be eligible to participate in all of the Company's performance cash 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 by the Compensation Committee in the Company's strategic plan as developed by the Compensation Committee, 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 the Executive. The Executive shall also receive such bonuses other than pursuant to the Performance Cash Compensation Plans in such amounts and at such times as the Compensation Committee, in its sole discretion determines are appropriate to recognize extraordinary performance by the Executive. The Executive's target bonus for each fiscal year will be a percentage of Base Salary as determined by the Compensation Committee.

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

3. Equity-Based Incentives .

The Executive shall be eligible to participate in awards of stock options, restricted stock, stock appreciation rights, deferred stock and other equity-based incentives (collectively, “ EquityBased Incentives ”), at the discretion of the Board or the Compensation Committee.


4.	Benefit Plans; Vacations .

During the Employment Term, the Executive shall be entitled to the following benefits:

(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 to this Agreement.

(b) The number of vacation days in each fiscal year as 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 the Employment Term whereby the Executive is employed 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. The Executive shall also be entitled to all paid holidays and personal days given by the Company to its senior management.

(c) To the extent he is eligible, to participate in all group insurance programs or other fringe benefit plans which the Company may from time to time in its sole and absolute discretion make available generally to its personnel, or for personnel similarly situated, but the Company shall not be required to establish or maintain any such program or plan except as may be otherwise expressly provided herein.

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 for Cause (as defined below) at any time. Except as otherwise provided in Section 5(b) of this Agreement, the Company shall also have the right to terminate the Executive's employment for any reason other than for Cause. In the event the Company terminates the Executive's employment other than for Cause, Disability or death, it must provide the Executive with at least ninety (90) days' prior written notice. During the ninety (90) day notice period, the Company may reassign the Executive's duties to another person or other persons. Such reassignment shall not reduce the Company's obligations under the Agreement 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 ninety (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 his duties hereunder or the Executive recklessly disregarding his obligation to substantially perform his duties hereunder (other than (A) any such failure resulting from the Executive's Disability (as defined below), (B) any such actual or anticipated failure after the issuance of a notice of termination by the Executive for Good Reason (as defined below), or (C) after a notice of termination by the Company without Cause or a Non-Renewal Notice is given by either the Executive or the Company)), after a written demand is delivered by the Company to the Executive that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties; or (ii) the willful engaging or the engaging with reckless disregard for the consequences by the Executive in misconduct that is, or is reasonably likely to be, materially injurious to the Key Companies, monetarily or otherwise, including, but not limited to the misappropriation of funds, fraud, or theft; a material violation of the Company’s policies or procedures; wrongful disclosure of Confidential Information; failing to disclose the existence of any non-compete or non-solicitation agreements that would, in any manner, restrict the Executive’s employment; or (iii) the Executive's conviction or plea of guilty or no contest to a felony, or, with respect to his employment, to any misdemeanor involving moral turpitude; or (iv) material violation of the Insider Trading Policy and Supplemental Insider Trading Policy, the U.S. Foreign Corrupt Practices Act, or the

Code of Business Conduct, as same may be amended from time to time. Notwithstanding the foregoing, the Executive's employment shall not be deemed to have been terminated for Cause unless (x) 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 Key Companies is curable, only if the 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); (y) an opportunity shall have been provided for the Executive to be heard before the Board; and (z) 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 has engaged in the conduct set forth in clauses (i) or (ii) above. For purposes of this paragraph, no act, or failure to act, on the part of the Executive shall be considered “willful” unless done or intended to be done in bad faith.

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

(i) If the Executive is unable to perform the essential functions of his position with or without reasonable accommodation, if any, by the Company for an aggregate of ninety (90) days (whether or not consecutive) during any period of twelve (12) consecutive months (“ Disability ”), then the Company may terminate the Executive's employment within sixty (60) days after the expiration of such ninety (90) day period (whether or not consisting of consecutive days). Such termination shall 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 to another person or other persons. Such reassignment shall not reduce the Company's obligations under this Agreement to make salary, bonus and other payments to the Executive and to provide other benefits to him, during the remainder of employment and, if applicable, following the termination of employment.

(ii) During any period that the Executive is unable to perform the essential functions of his position with or without reasonable accommodation, if any, by the Company, 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 to another person or other persons, provided that if the Executive shall again be able to perform his duties prior to the Company's termination of the Executive's employment, 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 suffers from a Disability, then a determination by a physician 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 the remainder of his employment or, if applicable, following a termination of employment.

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

(c) Termination by the Executive . The Executive may terminate his employment by giving written notice to the Company as follows: (i) at any time for any reason other than Good Reason by notice of at least ninety (90) days; (ii) at any time for Good Reason other than in connection with a “Change in Control” of the Parent (as defined in Exhibit B to this Agreement); or (iii) for Good Reason in connection with a Change in Control of the Parent only on or after the sixtieth (60th) day following the closing of the transaction or event constituting a Change in Control. In the event the Executive terminates his employment or provides the Company with notice of intent to terminate his employment, the Company may reassign the Executive's duties hereunder to another person or other persons at any time.

As used herein, “ Good Reason ” shall mean the existence of any one or more of only the following circumstances or conditions:

(i) A reduction in the Executive's Base Salary (except the salary reduction of ten percent (10%) for an indefinite amount of time, to which the Executive agreed with the Company upon hire), or a material diminution of Executive’s authority, duties or responsibilities;

(ii) A material diminution in the authority, duties or responsibilities of a supervisor to whom the Executive reports (including a requirement that the Executive report to another individual rather than the Board);

(iii) A material diminution in the budget over which the Executive retains authority;

(iv) A material change in the principal location at which the Executive must perform the services required by this Agreement. For purposes of this section, a material change in the principal location at which the Executive must perform services required by this Agreement is a change of fifty (50) miles or more; or

(v) Any other action or inaction by the Company that constitutes a material breach of this Agreement.

Notwithstanding the foregoing, the existence of any of the circumstances or conditions enumerated above in Sections 5(c)(i)-(v), shall not constitute Good Reason unless (A) the Executive provided written notice to the Company of the existence of any such circumstance or condition within ninety (90) days of the initial existence of such circumstance or condition, and (B) the circumstance or condition continued to exist after the last day of the Cure Period and (C) the Executive terminates his employment no later than sixty (60) days, or in the event of a Change in Control, no later than ninety (90) days, after the expiration of the Cure Period. For purposes of this Section 5(c), the term “Cure Period” means the period of thirty (30) consecutive days beginning on the date written notice was given by the Executive of the existence of the circumstance or condition alleged to be Good Reason.

(d) Severance Compensation .

(i) Termination of Employment by the Executive for Good Reason; Termination of Employment by the Company other than for Cause, Disability or Death . In the event the Executive's employment is terminated (A) by the Executive for Good Reason other than in connection with a Change in Control; or (B) by the Company other than for Cause, Disability or death (but including by the Company by giving Executive a Non-Renewal Notice pursuant to Section 1(b) hereof), the Executive shall be entitled, in addition to the other compensation and benefits provided for in this Agreement, to severance compensation in an aggregate amount equal to two (2) times his Base Salary at the rate in effect on the termination date (but no less than the annual Base Salary specified in Section 2(a)), payable in twenty-four (24) substantially equal monthly installments, subject to, and commencing on the date specified in Section 5(i) below.

(ii) Termination following Disability . In the event the Executive's employment is terminated by the Company as a result of Disability in accordance with Section 5(b) of this Agreement, then the Executive shall be entitled, in addition to the other compensation and benefits provided for in this Agreement, 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, reduced by the amount of any disability insurance proceeds actually paid to the Executive or for his benefit from the Company's disability plans and programs during such time period, subject to and commencing on the date specified in Section 5(i) below.

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

(iv) Termination following a Change in Control . If, during the one (1) year period immediately following a Change in Control as defined in Exhibit B, the Executive's employment is terminated (A) by the Executive for Good Reason or (B) by the Company other than for Cause or death (but including by the Company by giving Executive a Non-Renewal Notice pursuant to Section 1(b) hereof), the Executive shall be entitled, in addition to the other compensation and benefits provided for in this Agreement, to severance compensation in an aggregate amount equal to the sum of (x) three (3) times his Base Salary at the rate in effect on the termination date (but no less than the annual Base Salary specified in Section 2(a)), plus (y) three (3) times the Executive's annual target cash bonus as provided in Section 2(c) above, payable as a single lump sum on the date specified in Section 5(i) below. In the event that the Executive's employment is terminated by the Company for Disability during the one (1) year period immediately following a Change in Control, such lump sum shall be reduced by a good faith estimate of the aggregate amount of any disability insurance proceeds that will be paid to the Executive or for his benefit from the Company's disability plans during the three year period following his termination date. For purposes of this Section 5(d)(iv) only, a determination of “Change in Control” shall be made with reference to the Parent and must satisfy the requirements to be a “change in control event” as defined in Treas. Reg. § 1.409A-3(i)(5).

(v) Termination by the Executive other than for Good Reason or by the Company for Cause . In the event the Executive terminates his employment during the Employment Term for any reason other than Good Reason or in the event the Company terminates the Executive's employment during the Employment Term for Cause, the Executive shall not be entitled to any severance under Section 5(d) or otherwise or any continued benefits under Section 5(f) (other than as required by statute). Under the foregoing situations, the treatment of Equity-Based Incentives shall be as specified in Section 5(e)(ii), and the Executive shall receive the accrued compensation described in Section 5(g), except that which is provided for in Section 5(g)(iii).

(vi) For purposes of this Agreement, the Executive's employment will not be considered to have terminated unless, as a result of a termination, the Executive has had a “separation from service” (as that term is defined in Treas. Reg. § 1.409A-1(h)) (“ Separation From Service ”) with the “ Key Energy Controlled Group .” The term “Key Energy Controlled Group” means the group of corporations and trades or businesses (whether or not incorporated) composed of the Company and every

entity or other person which together with the Company constitutes a single “service recipient” (as that term is defined in Treas. Reg. § 1.409A-l(g)) as the result of the application of Treas. Reg.§ 1.409A-1 (h)(3).

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

(i) In the event the Executive's employment is terminated by the Company during the Employment Term for any reason (including a termination by giving a Non-Renewal Notice) other than for Cause or Disability or in the event the Executive terminates his employment during the Employment Term for Good Reason, then any Equity-Based Incentives held by the Executive which have not vested prior to the effective date of such termination shall immediately vest and shall remain exercisable until the earlier to occur of (A) the first anniversary of the effective date of such termination and (B) 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 (A) the first anniversary of the effective date of such termination and (B) the final stated expiration date of the Equity Based Incentive.

(ii) In the event the Executive's employment is terminated by the Company during the Employment Term for Cause or is terminated by the Executive during the Employment Term other than for Good Reason, then effective upon the date such termination is effective, any Equity-Based Incentives which have not vested prior to the effective date of such termination shall be forfeited. Any Equity-Based Incentives held by the Executive entitling the Executive to retain or purchase securities of the Company which have vested prior to the effective date of such termination shall remain subject to the terms and provisions of the plan and/or the agreement under which they were awarded.

(iii) In the event of the Executive's death during the Employment Term or in the event that the Executive's employment should terminate during the Employment Term as a result of Disability, then 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 (A) the first anniversary of the death of the Executive or the effective date of such termination and (B) the final stated expiration date of the Equity-Based Incentives. In addition, in the event of such death or such a termination as a result of Disability, 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 (A) the first anniversary of the effective date of such death or termination and (B) 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).

(v) Anything to the contrary in this Agreement notwithstanding, the final stated expiration date of an Equity-Based Incentive shall not be extended beyond the tenth (10th) anniversary of the date on which such Equity-Based Incentive was granted.

(f) Continuation of Benefits .

(i) Subject to Sections 5(f)(ii) and 5(i) hereof, in the event that the Executive's employment is terminated during the Employment Term by the Executive for Good Reason or by the Company for Disability or any reason (including by the Company giving a Non-Renewal Notice) other than for Cause and not as a result of the death of the Executive, the Executive shall continue to be entitled to receive post-employment group health, dental, vision and executive health reimbursement benefits under the Company's welfare benefit plans (the “ Welfare Plans ”) for a period of time commencing on the date of his termination and ending on the first to occur of (x) the second anniversary of his termination date or (y) the date on which the Executive commences full-time employment with another employer (the “ Coverage Period ”), provided, that in order to receive such continued coverage, the Executive shall be required to timely elect COBRA coverage under the Welfare Plans and pay the full applicable monthly COBRA premium (the “COBRA Premium”), as described below, during the Coverage Period. The COBRA continuation period shall run simultaneously during the Coverage Period. During the Coverage Period, the Company shall withhold from the Executive's severance pay each month the applicable monthly COBRA Premium for the Welfare Plans (based on the Executive's coverage level on his termination date). The Company shall reimburse the Executive for this payment by providing an additional severance benefit in an amount equal to the applicable monthly COBRA premium for the Welfare Plans (determined based on the Executive's coverage level on his termination date) for the period commencing on the Executive's termination date and ending on the last day of the Coverage Period, grossed up by the Executive's taxes paid on this COBRA Premium. For purposes of this

Section 5(f)(i) only, the COBRA premium for the Company's group health, dental and vision plans will be determined based on the COBRA rates at the time of the Executive's termination and the COBRA premium for the Company's executive health reimbursement benefits shall be based on the premium amount the Executive was paying at the time of Executive's termination.

(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 (including by the Company giving a Non-Renewal Notice) 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, grossed up by the amount of taxes paid on this amount. For purposes of this Section 5(f)(ii) only, the COBRA premium for the Company's group health, dental and vision plans will be determined based on the COBRA rates at the time of the Executive's termination and the COBRA premium for the Company's executive health reimbursement benefits will be calculated as an amount equal to the average monthly reimbursement received by the participants during the preceding twenty-four (24) month period.

(iii) In the event the Executive's employment is terminated during the Employment Term by reason of death, the Executive's spouse and his dependents shall be entitled to receive continued group health, dental and vision coverage under the Company's Welfare Plans. If the Executive's spouse and his dependents enroll in such coverage, the Company shall pay all required COBRA premiums on an after-tax basis for this continuation coverage (determined based on the Executive's coverage level on his termination date) for the period commencing on the date of the Executive's death and ending on the earlier of (x) the second anniversary of his death, or (y) the date on which the Executive's spouse and his dependents receive replacement coverage which would terminate their COBRA continuation rights.

(g) Accrued Compensation . In the event of any termination of the Executive's employment for any reason during the Employment Term, the Executive (or his estate) shall be paid: (i) any unpaid portion of his Base Salary through the effective termination date; (ii) 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 (unless the Executive resigns without Good Reason or is terminated 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 Section 2(d); and (v) any Gross-Up Payment which may become due under the terms of Section 6 hereof. Except as provided in Section 5(i), such amounts shall be paid within ten (10) days of the termination date, except that the amount provided in clause (iii) above shall be paid at the same time as bonuses are generally paid to other executives covered by the Performance Cash Compensation Plans.

(h) Director/Officer Resignations . If the Executive's employment shall be terminated by him or by the Company during the Employment Term in accordance with the terms set forth in this Agreement, then upon the date such termination is effective, he will be deemed to have resigned from all positions as an officer and director of the Key Companies, except as the Parties may otherwise agree.

(i) Release and Timing of Payments . The Executive agrees that except in the case of a termination resulting from the Executive's death, all payments under Sections 5(d), (e), (f), and (g)(iii) and Section 6 are conditioned on the Executive's prior execution and non-revocation of a full release of the Key Companies and their officers, directors, employees, and affiliates for all claims relating to his agreements, employment, compensation, and termination and such other matters as the Company reasonably requests on termination, other than any continuing obligations of the Company described in this Agreement, which shall be documented on a form substantially similar to that which is attached as Exhibit C (“ Release ”). The Release shall be executed by the Executive no earlier than the day after termination of the Executive’s employment and no later than the time period prescribed by law or as provided for in the Release (the “ Release Deadline ”). If the Executive does not properly execute the Release by the Release Deadline, or effectively revokes the executed Release within seven (7) days after delivering the executed Release to the Company, the Executive will receive only such compensation and benefits as are required by applicable law. Any Release previously executed under this Section 5(i) will be null and void if the Company reaches a determination of Cause within the Cause Review Period.

The Company shall not commence the payment of any amounts described in Sections 5(d), (e), (f), and (g)(iii) and Section 6 (if made following termination of employment) until ten (10) days after the Release is executed, provided that the Executive has not revoked the executed Release. At that time, and subject to the following sentence, the Company shall (A) commence payment of any installment payments payable under Sections 5(d)(i) or (ii) on the first day of the calendar month following the Executive’s termination date (provided that with respect to any installment that would have been paid prior to the tenth (10th) day after the Release is signed, such payment shall be made to the Executive at the same time as the first payroll following the end of such ten (10) day period), (B) make payment of any lump sum payment due under Sections 5(d)(iv), 5(f)(ii),

5(g)(iii) within five (5) business days after the Release becomes irrevocable, (C) provide the benefits described in Sections 5(e) and 5(f)(i) within five (5) business days after the Release becomes irrevocable, and (D) provide the benefits under Section 6 on the dates designated therein. If any amount payable under this Agreement (or any other agreement between the Executive and the Company) is classified as “nonqualified deferred compensation” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), then any other provision of this Agreement (or any other agreement) to the contrary notwithstanding, (i) any such amount shall be paid or commenced to be paid on the sixtieth (60th) day after the date of the Executive’s separation from service, and (ii) with respect to amounts payable in installments during the sixty (60) day period following the Executive’s separation from service, such payments shall be made to the Executive at the same time as the first payroll following the end of such sixty (60) day period.


6.	Certain Tax Consequences .

(a) Tax Consequences Under Code Section 409A .

(i) In the event that any amount arising from this Agreement is includable in the Executive's gross income for a taxable year of the Executive under Code Section 409A as the result of the terms of this Agreement and/or the administration of those terms (the “ Included Amount ”), and a twenty percent (20%) additional tax is owed under Code Section 409A, then the Company shall pay to the Executive an amount equal to the twenty percent (20%) additional tax imposed under Code Section 409A on the Included Amount, together with any underpayment penalties and interest (the “ Additional Tax ”) resulting from the inclusion of the additional amount. The Company also will pay the Executive an additional amount necessary to “gross up” the Executive for additional income taxes on the Additional Tax payment.

(ii) The payments required by this Section 6(a) will be made on the earlier of (A) the thirtieth (30th) day following the date on which it is finally determined by a court or administrative agency that the Included Amount was includible in the Executive's income as the result of the application of Code Section 409A(a)(l)(B) to the Included Amount; or (B) the last day of the Executive's taxable year next following the taxable year in which the Executive remitted the taxes due as the result of the application of Code Section 409A(a)(l)(B) to the Included Amount.

(iii) It shall be a condition precedent to the Company's obligations under this Section 6(a) that the Executive (A) has given the Company written notice of any determination by the Executive, or any claim by any taxing authority, that he owes Additional Tax as the result of the inclusion of the Included Amount; (B) that such notice was 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 (C) that such notice shall, to the extent the Executive has or may reasonably obtain such information, apprise the Company of the amount of such Additional 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 Additional 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 inclusion of the Included Amount and/or the amount of the Additional Tax, the Company and the Executive shall consult with each other and their respective tax advisors regarding the amount and payment of any Additional Tax, and it shall be a further condition precedent to the Company's obligations hereunder that the Executive will take all reasonable steps requested by the Company to contest the inclusion of the Included Amount and/or the amount of the Additional Tax resulting from such inclusion, provided that in the event there is a contest with any taxing authority regarding the inclusion and/or the amount of the Additional 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 the Additional Tax (including any interest and penalties with respect thereto) and the Company's payment of the Executive's costs and expenses hereunder.

(b) Certain Excise Tax Matters Under Section 4999 .

(i) Notwithstanding any other provision of this Agreement to the contrary, if any payment or benefit by or from the Company or any of its affiliates or successors to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise would be subject to the Excise Tax (as hereinafter defined in Section 6(b)(iv)) (all such payments and benefits being collectively referred to herein as the “Payments”), then except as otherwise provided in Section 6(b)(ii), the Payments shall be reduced (but not below zero) or eliminated (as further provided for in Section 6(b)(iii) to the extent the Independent Tax Advisor (as hereinafter defined in Section 6(b)(v)) shall reasonably determine is necessary so that no portion of the Payments shall be subject to the Excise Tax.

(ii) Notwithstanding the provisions of Section 6(b)(i), if the Independent Tax Advisor reasonably determines that the Executive would receive, in the aggregate, a greater amount of the Payments on an after-tax basis (after including and taking into account all applicable federal, state, and local income, employment and other applicable taxes and the

Excise Tax) if the Payments were not reduced or eliminated pursuant to Section 6(b)(i), then no such reduction or elimination shall be made notwithstanding that all or any portion of the Payments may be subject to the Excise Tax.

(iii) For purposes of determining which of Section 6(b)(i) and Section 6(b)(ii) shall be given effect, the determination of which of the Payments shall be reduced or eliminated to avoid the Excise Tax shall be made by the Independent Tax Advisor, provided that the Independent Tax Advisor shall reduce or eliminate, as the case may be, the Payments in the following order (and within the category described in each of the following Sections 6(b)(iii)(A) through 6(b)(iii)(E), in reverse order beginning with the Payments which are to be paid farthest in time except as otherwise provided in Section 6(b)(iii)(D)):

(A) by first reducing or eliminating the portion of the Payments otherwise due and which are not payable in cash (other than that portion of the Payments subject to Sections 6(b)(iii)(D) and 6(b)(iii)(E);

(B) then by reducing or eliminating the portion of the Payments otherwise due and which are payable in cash (other than that portion of the Payments subject to Sections 6(b)(iii)(C), 6(b)(iii)(D) and 6(b)(iii)(E));

(C) then by reducing or eliminating the portion of the Payments otherwise due to or for the benefit of Executive pursuant to the terms of this Agreement and which are payable in cash;

(D) then by reducing or eliminating the portion of the Payments otherwise due that represent equity-based compensation, such reduction or elimination to be made in reverse chronological order with the most recent equity-based compensation awards reduced first; and

(E) then by reducing or eliminating the portion of the Payments otherwise due to or for the benefit of Executive pursuant to the terms of this Agreement and which are not payable in cash.

(iv) The Independent Tax Advisor shall provide its determinations, together with detailed supporting calculations and documentation, to the Parent, Company, and the Executive for their review no later than ten (10) days after the Date of Termination. The determinations of the Independent Tax Advisor under this Section 6(b) shall, after due consideration of the Parent’s, Company’s, and the Executive’s comments with respect to such determinations and the interpretation and application of this Section 6(b), be final and binding on all parties hereto absent manifest error. The Parent, Company, and the Executive shall furnish to the Independent Tax Advisor such information and documents as the Independent Tax Advisor may reasonably request in order to make the determinations required under this Section 6(b).

(v) For purposes of this Section 6(b), “Independent Tax Advisor” shall mean a lawyer with a nationally recognized law firm, a certified public accountant with a nationally recognized accounting firm, or a compensation consultant with a nationally recognized actuarial and benefits consulting firm, in each case with expertise in the area of executive compensation tax law, who shall be selected by the Company and shall be acceptable to Executive (Executive’s acceptance not to be unreasonably withheld), and all of whose fees and disbursements shall be paid by the Company.

(vi) As used in this Agreement, the term “Excise Tax” means, collectively, the excise tax imposed by Section 4999 of the Code, together with any interest thereon, any penalties, additions to tax, or additional amounts with respect to such excise tax, and any interest in respect of such penalties, additions to tax or additional amounts.

7. Confidential Information .

(a) Company Provided Access to Confidential Information and Company Relationships . The Company will provide the Executive with access to trade secret, proprietary and confidential information of the Key Companies, including, without limitation, information pertaining to the Key Companies': current and future business plans; corporate opportunities; operations; acquisition, merger or sale strategies; research and development; production methods, strategies and forecasts; product and service line development, plans and strategies; marketing plans, goals and strategies; non-public cost and pricing structure information, pricing and profit margins, profitability data; operation and production procedures and results; partners, partnership or other business arrangements or agreements with third parties; the identities of customers (including names, addresses and telephone numbers of customers); customer lists; customer information; customer sales volumes; personnel information; and technical information relating to the intellectual property and other equipment products or services of the Key Companies (collectively, “ Confidential Information ”). Additionally, the Company will provide to the Executive, access to, and the opportunity to develop, business relationships with the Key Companies' customers, clients, vendors and partners, with whom the Key Companies have developed goodwill and to which the Executive would not otherwise have access (collectively “ Company Relationships ”).

(b) Value of Confidential Information and Access to Company Relationships; Non- Disclosure . The Executive acknowledges that the Key Companies' business is highly competitive and that the Confidential Information and Company Relationships that the Company promises to provide the Executive are valuable, special, and unique assets of the Key Companies which the Key Companies use in their business to obtain a competitive advantage over their competitors which do not know or use this information. The Executive further acknowledges that protection of the Confidential Information and Company Relationships against unauthorized disclosure and use is of critical importance to the Key Companies in maintaining their competitive position. The Executive hereby agrees that Executive will not, at any time during or after the Employment Term, without the Company's prior written consent, for the Executive's own benefit or the benefit of any third party, disclose, use, communicate or divulge any Confidential Information, or exploit commercially Company Relationships, except in the ordinary course of properly performing the Executive's duties for the Company, unless such Confidential Information becomes public information through no fault or act of the Executive.

(c) Third-Party Information . The Executive acknowledges that, as a result of the Executive's employment by the Company, the Executive will have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, clients, vendors, suppliers, partners, joint venturers, and the like, of the Key Companies. The Executive agrees to preserve and protect the confidentiality of such third-party confidential information and trade secrets to the same extent, and on the same basis, as the Confidential Information.

(d) Return of Materials . All written or electronic or other data or materials, records and other documents made by, or coming into the possession of, the Executive during the Employment Term or thereafter which contain or disclose Confidential Information and/or Company Relationships shall be and remain the exclusive property of the Company. At any time upon request by the Company, or upon termination of the Executive's employment by the Company for any reason (even without request by the Company), the Executive shall promptly deliver to the Company, or, with the Company's written consent, destroy, the same and all copies, derivatives and extracts thereof, in the Executive's possession or custody (whether prepared by the Executive or others).

(e) Breach of this Section . The Executive understands and agrees that the restrictions in this Section 7 do not terminate upon the expiration of the Employment Term. The Executive acknowledges that money damages would not be a sufficient remedy for any breach of this Section 7 by the Executive, and the Parent or Company shall be entitled to enforce the provisions of this Section 7through specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Section 7, but shall be in addition to all remedies available at law or in equity to the Company or Parent.

8. Limitation on Competition .

In order to enforce the Executive's obligations in Section 7, and in consideration for the promises of the Company in Section 7, which Executive acknowledges the receipt and sufficiency thereof, Executive hereby agrees that during his employment and the twelve (12) month period following termination of his employment:

(a) the Executive shall not, without the Company's prior written consent, for any Competitive Business (as defined below) which conducts business or operations in any Competitive Market Area (as defined below):

(i) hold the same or a substantially similar position held by the Executive with the Company at the time of the Executive's termination of employment from the Company, or during the immediately preceding twelve (12) months; or

(ii) serve as an officer, director, employee, consultant/contractor or advisor if serving in such capacity will result in Executive's use or disclosure (actual or inadvertent) of Confidential Information; or

(iii) be an investor, lender, stockholder, partner, joint venturer, or owner provided, however, that the Executive may own not more than five (5%) percent of any class of stock or other securities which is publicly traded on a national securities exchange or in a recognized over-the-counter market; and

(b) the Executive shall not, directly or indirectly, 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 or seek to employ, any employee of the Key Companies for the Executive's own benefit or for the benefit of any person or entity other than the Key Companies; (ii) entice away any employee of the Key Companies, or in any other manner induce, encourage, or influence any such employee to leave employment with the Key Companies; or (iii) engage or employ, or cause any other person or entity other than the Key Companies to engage or employ, any former employee of the Key Companies whose termination of

employment with the Key Companies occurred less than six (6) months prior to such employment by the Executive for his own benefit or for the benefit of any person or entity other than the Key Companies; and

(c) the Executive shall not, directly or indirectly: (i) initiate contact with or solicit competing business from any customer, supplier or contractor of the Key Companies, including any prospective customer, supplier or contractor which the Key Companies is actively pursuing as of the date of the Executive's termination of employment, provided, however, that the Executive had direct contact or business dealings with such existing or prospective customer, supplier or contractor, or about whom the Executive has Confidential Information; (ii) entice away from the Key Companies any such existing or prospective customer, supplier or contractor of the Key Companies, or in any other manner induce, encourage or influence, or attempt to induce, encourage or influence, any such existing or prospective customer, supplier or contractor of the Key Companies to divert present or future business away from the Key Companies, to reduce the amount or volume of current or future business given or provided to the Key Companies, to terminate or breach any agreement or arrangement with the Key Companies, or otherwise to cease doing business with the Key Companies; or (iii) induce, encourage or influence, or attempt to induce, encourage or influence, any such existing or prospective customer, supplier or contractor of the Key Companies, not to enter into any agreement or arrangement with the Key Companies or not to do business with the Key Companies.

As used herein, the term “ Competitive Business ” shall mean any business engaged in: (1) Well Servicing and Production Services, which includes rig-based services (including maintenance, workover and recompletion of existing oil and gas wells; completion of newly drilled wells; plugging and abandonment of wells); fluid management services (including oilfield transportation and produced water disposal services); coiled tubing operations; Fishing Services (including recovery of lost or stuck equipment in a wellbore); and Rental Services of equipment provided by the Key Companies, or rental of equipment which perform similar or comparable functions as equipment provided by the Key Companies; and (2) any other lines of business, products, or services offered by, engaged in, or conducted by, any of the Key Companies as of the date of the Executive's termination of employment from the Company; and (3) lines of business, products, or services if, on the date of the Executive's termination of employment or within the preceding twelve ( 12) months, the Key Companies were actively investigating with a view to conducting, or pursuing a plan to conduct, (and continue to be interested in pursuing such other line of business, product, or service), provided, however, that the Executive was directly or indirectly (through the supervision of others) involved with such investigation or plan, or has Confidential Information about such investigation or plan.

As used herein, the term “ Competitive Market Area ” shall include any geographic region productive or thought to be productive of oil, gas or other minerals: (1) wherein the Key Companies, on the date of the Executive's termination of employment hereunder, conduct business, or provide or market their products or services; or (2) wherein as of the date of the Executive's termination of employment, or within the preceding twelve (12) months, the Key Companies were actively investigating with a view to conducting, or pursuing a plan to conduct, business, or to provide, or market, products or services in such geographic region (and continue to maintain an interest in providing products or services in that geographic region), provided, however, that the Executive was involved, directly or indirectly (through the supervision of others) in such investigation or plan, or the Executive has Confidential Information related to such investigation or plan.

The Executive agrees and acknowledges that any breach or anticipatory breach by the Executive of any of the provisions of this Section 8 would cause the Key Companies irreparable injury not compensable by monetary damages alone and that, accordingly, in any such event, the Key Companies shall be entitled to injunctions, both preliminary and permanent, enjoining or restraining such breach or anticipatory breach without the necessity of showing irreparable injury (and the Executive hereby consents to the issuance thereof without bond by a court of competent jurisdiction).

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. The Executive's 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 the 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 a court of competent jurisdiction renders a final judgment 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 that the Executive is successful on some of the issues in such dispute, but not all, then the Executive shall be entitled to receive reimbursement for a portion of such legal fees and other expenses as shall be appropriately prorated. For purposes of this Section 10, the phrase “reasonable fees for legal and other related expenses” shall mean only the reasonable fees incurred by the Executive for legal and other related expenses, to the extent and only to the extent to which either (a) the reimbursement or payment of such fees and expenses by the Company does not constitute “compensation” within the meaning of that word where it appears in the phrase “a legally binding right during a taxable year to compensation” in the first sentence of Treas. Reg. § 1.409A-1(b)(1); or (b) the reimbursement or payment of such fees and expenses by the Company is a settlement or award resolving bona fide legal claims based on wrongful termination, employment discrimination, the Fair Labor Standards Act, or worker's compensation statutes, including claims under applicable Federal, state, local, or foreign laws, or for reimbursements or payments of reasonable attorneys' fees or other reasonable expenses incurred by a service provider related to such bona fide legal claims described in Treas. Reg. § 1.409A-1(b)(10).

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 1301 McKinney, Suite 1800, Houston, Texas 77010, 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. Tax Withholding .

The Executive acknowledges and agrees that any or all payments under this Agreement may be subject to reduction for tax and other required withholdings.

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 .

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 all 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 Parties 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 ensure 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 ensure 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.

19. Survival .

The covenants, agreements, representations, warranties and provisions contained in this Agreement that are intended to survive the termination of the Employment Term shall so survive such termination.

20. Compliance with Code Section 409A .

(a) The Company and the Executive intend the terms of this Agreement to be in compliance with Code Section 409A. The Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit, including, but not limited to, consequences related to Code Section 409A. To the maximum extent permissible, any ambiguous terms of this Agreement shall be interpreted in a manner that avoids a violation of Code Section 409A.

(b) Notwithstanding any provision of this Agreement, if the payment of any amount under this Agreement would cause an amount to be included in the Executive's taxable income under Code Section 409A because the timing of such payment is not delayed as provided in Code Section 409A(a)(2)(B), then any such payment that the Executive would otherwise be entitled to during the first six months following the date of the Executive's Separation From Service shall be accumulated and paid on the date that is six months after the date of the Executive's Separation From Service (or if such payment date does not fall on a business day of the Company, the next following business day of the Company), or such earlier date upon which such amount can be paid without causing any amount to be included in the Executive's taxable income under Code Section 409A.

(c) If the Executive believes he is entitled to a payment or benefit pursuant to the terms of this Agreement (or any other arrangement between the Company and the Executive) that was not timely paid or provided, and such payment or benefit is considered deferred compensation subject to the requirements of Code Section 409A, the Executive acknowledges that to avoid an additional tax on such payment or benefit pursuant to the provisions of Code Section 409A, the Executive must make a reasonable, good faith effort to collect such payment or benefit no later than ninety (90) days after the latest date upon which the payment could have been timely made or benefit timely provided without violating Code Section 409A, and if not paid or provided, must take further enforcement measures within one hundred eighty (180) days after such latest date.

(d) Neither the Company nor the Executive, individually or in combination, may accelerate any payment or benefit that is subject to Code Section 409A, except in compliance with Code Section 409A and the provisions of this Agreement, and no amount that is subject to Code Section 409A shall be paid prior to the earliest date on which it may be paid without violating Code Section 409A.

(e) For purposes of applying the provisions of Code Section 409A to this Agreement, each separately identified amount to which the Executive is entitled under this Agreement shall be treated as a separate payment. In addition, to the extent permissible under Code Section 409A, any series of installment payments under this Agreement shall be treated as a right to a series of separate payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the sole discretion of the Company.

(f) The following rules shall apply to any payment under this Agreement which is treated as a “reimbursement payment” under Code Section 409A: (i) the amount eligible for reimbursement in one calendar year shall not limit the available reimbursements for any other calendar year; (ii) the Executive shall file a claim for all reimbursement payments not later than thirty (30) days following the end of the calendar year during which the expenses were incurred; (iii) the Company shall make such reimbursement payments not later than the end of the calendar year following the calendar year during which the expenses were incurred; and (iv) the Executive's right to such reimbursement payments shall not be subject to liquidation or exchange for any other payment or benefit.

(g) The terms of this Agreement shall be construed and administered in a manner calculated to avoid the inclusion of any amount in Executive's gross income under Code Section 409A, and any provisions regarding the timing of payments shall have an effective date of August 1, 2005, as required by Code Section 409A.

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, this 25 ^th day of April, 2016.

THE PARENT:

KEY ENERGY SERVICES, INC.



By:	/s/ Scott P. Miller
	Scott P. Miller
	Sr. Vice President, Operational Service and Chief Administrative Officer

THE COMPANY:

KEY ENERGY SERVICES, LLC



By:	/s/ Scott P. Miller
	Scott P. Miller
	Sr. Vice President, Operational Service and Chief Administrative Officer

THE EXECUTIVE



	/s/ Robert Drummond
	Robert Drummond

EXHIBIT A

Company Paid Coverages

1. Executive Health Reimbursement Plan. Out-of-pocket costs that would otherwise be payable by Executive with respect to medical and dental expenses for Executive and Executive's covered dependents, shall be reimbursed under the terms of, and subject to all applicable limitations set forth in, the Company's Executive Health Reimbursement Plan, as that may be amended from time to time.

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

3. Director and Officer Liability Insurance, during the Employment Term.

4. Voluntary annual physicals at the Executive's option, during the Employment Term, with a report by the examining physician, if requested, to the Board regarding the Executive's ability to perform job related functions.

EXHIBIT B

Definition of “ Change in Control ” of the Parent

The occurrence of any of the following shall constitute a “ Change in Control ” of Key Energy Services, Inc. (referred to herein in Exhibit B as the “ Parent ”):

(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 Parent, becomes the beneficial owner directly or indirectly of more than fifty percent (50%) of the outstanding Common Stock of the Parent, 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 Parent;

(b) If the Parent is subject to the reporting requirements of Sections 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 Parent, purchases shares pursuant to a tender offer or exchange offer to acquire Common Stock of the Parent (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 Parent, 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 Parent (i) in which the Parent 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 Parent or (ii) pursuant to which the holders of the Parent'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 Parent;

(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 Parent;

(e) Upon the election of one or more new directors of the Parent, 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 Parent 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 Parent's stockholders after the distribution to any holders of capital stock with preferential rights.

EXHIBIT C

SEVERANCE AGREEMENT AND GENERAL RELEASE

This Severance Agreement and General Release (“Agreement and Release”) is made and entered into by Robert Drummond (“Executive”), Key Energy Services, Inc. (“Parent”) and Key Energy Services, LLC (“Employer”);

WHEREAS, Executive entered into an Employment Agreement on ____________, with the Parent and the Employer (the “Employment Agreement”);

WHEREAS, Executive served as the Parent’s President and Chief Operating Officer since ___________;

WHEREAS, Employer has decided based on its knowledge as of the Notice Date, to terminate Executive’s employment for reasons “Other than for Cause” pursuant to Section 5(a) of the Employment Agreement;

WHEREAS, on ____________ (the “Notice Date”), Parent and Employer gave Executive ninety (90) days’ notice of his termination, in accordance with Section 5(a) of the Employment Agreement (“Notice Period”), and the termination will become effective on ___________ (the “Termination Date”);

WHEREAS, in accordance with Section 5(a) of the Employment Agreement, during the Notice Period, the Employer reserves the right to convert the termination to a “Cause” termination (as defined in the Employment Agreement), subject to the procedural safeguards specified in the Employment Agreement, and such termination will render this Agreement and Release null and void;

WHEREAS, Executive will be deemed to have resigned from all positions as an officer of Parent and any of its subsidiaries or affiliates as of the Notice Date;

WHEREAS, the Parent’s Chief Executive Officer will direct Executive’s services to Employer during the Notice Period;

WHEREAS, Executive’s base salary on the date this Agreement and Release was given to Executive was $______________;

WHEREAS, Executive was eligible during his employment to participate in all of Employer’s cash performance compensation plans (collectively, the “Performance Cash Compensation Plans”);

WHEREAS, Executive was eligible during his employment to participate in awards of stock options, restricted stock, deferred stock, stock appreciation rights and other equity-based incentives (collectively, “Equity-Based Incentives”) under the terms of the 2007 Equity Cash and Incentive Plan, 2009 Equity Cash and Incentive Plan, and 2012 Equity Cash and Incentive Plans (collectively referred to herein as the “Equity Cash and Incentive Plans”);

WHEREAS, in consideration of the mutual promises set forth in this Agreement and Release, Executive and Employer agree as follows:

1. Payment by Employer . As consideration for signing, and not revoking, this Agreement and Release, Employer agrees to pay Executive the gross amount of $____________.00 (“Severance Compensation”). The Severance Compensation will be payable in twenty-four (24) substantially equal monthly installments (“Severance Period”) commencing at the end of the calendar month in which the Termination Date occurs.

2. Release by Executive . In consideration of the Severance Compensation paid to Executive as described in this Agreement and Release, and in lieu of any other benefits, as a full and final settlement, Executive releases and discharges Employer and Parent and all of Employer’s and Parent’s past, present and future officers, directors, principals, agents, employees, investors, attorneys, shareholders, founders, administrators, divisions, subsidiaries, parents, holding companies, affiliates, predecessors, successors, predecessors, assigns, insurers, compensation and benefit plans and administrators, trustees, fiduciaries, and insurers of such compensation and benefit plans, from any and all claims and causes of action (except for claims arising specifically from a breach of this Agreement and Release), whether known or unknown, arising out of or related to Executive’s employment with Employer, and any other events or transactions involving Employer or Parent which precede the date of this Agreement and Release. The entities released in the foregoing sentence shall be referred to collectively as the “Released Parties.” The claims and causes of action released by Executive include, but are not limited to, the following: contract claims; claims for salary, benefits, bonuses, stocks, severance pay, commissions, or vacation pay; claims or causes of action pertaining to any and all negligence and

tort claims; all matters in law, in equity, or pursuant to statute, including damages, attorney’s fees, costs and expenses; and, without limiting the generality of the foregoing, to all claims arising under the Age Discrimination in Employment Act as amended; the Older Workers’ Benefit Protection Act; Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Americans with Disabilities Act; 42 U.S.C. § 1981; the Employee Retirement Income Security Act; Genetic Information Nondiscrimination Act; Chapter 21 et seq. of the Texas Labor Code; or any other federal, state, or local law, statute, or ordinance affecting Executive’s employment with Employer; claims arising pursuant to any law, statute, ordinance, rule or regulation, including, but not limited to, the previously mentioned federal law claims and claims under state law; and any and all other claims that were ever made the basis of, or could have been made the basis of, any claims against the Released Parties in any legal proceeding.

This Agreement and Release does not apply to any claims or rights that may arise after the date that Executive signs this Agreement and Release, to vested rights under Employer’s employee benefit plans, if any, and as applicable, or to claims that the controlling law clearly states may not be released.

Nothing in this Agreement and Release generally prevents Executive from filing a charge or complaint with or from participating in an investigation or proceeding conducted by the Equal Employment Opportunity Commission (“EEOC”), National Labor Relations Board (“NLRB”), or any other federal, state, or local agency charged with the enforcement of any employment laws. Despite this, by signing this Agreement and Release, Executive is waiving his right to monetary recovery based on claims asserted in such a charge or complaint.

3. Age Discrimination in Employment Act and Older Workers’ Benefit Protection Act Release .

ADDITIONALLY, THIS AGREEMENT AND RELEASE SPECIFICALLY WAIVES ALL OF EXECUTIVE’S RIGHTS AND CLAIMS ARISING UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967 (29 U.S.C. § 621 et seq. ), AS AMENDED, AND THE OLDER WORKERS’ BENEFIT PROTECTION ACT, AS AMENDED. IN CONNECTION WITH THIS WAIVER, Executive acknowledges and agrees to the following:

(a) I am waiving rights or claims under the Age Discrimination in Employment Act in exchange for consideration that is in addition to anything of value to which I already am entitled.

(b) I have had ample opportunity to consult with an attorney prior to executing this Agreement and Release. Employer advised me and encouraged me in writing herein to consult with an attorney prior to signing this Agreement and Release.

(c) I have carefully read and fully understand all of the provisions and effects of this Agreement and Release and I knowingly and voluntarily (of my own free will) entered into all of the terms set forth in this Agreement and Release.

(d) I knowingly and voluntarily intend to be legally bound by all of the terms set forth in this Agreement and Release.

(e) I relied solely and completely upon my own judgment or the advice of my attorney in entering into this Agreement and Release.

(f) I further understand that I have been given at least twenty-one (21) days to consider the terms of this Agreement and Release before signing it. The parties agree, however, that any changes to the terms or conditions of this Agreement and Release (whether material or immaterial) will not restart the running of the twenty-one (21) day period.

(g) If I sign this Agreement and Release prior to the end of the twenty-one (21) day time period, I certify that, in accordance with 29 CFR § 1625.22(e)(6), I knowingly and voluntarily decided to sign the Agreement and Release after considering it less than twenty-one (21) days and my decision to do so was not induced by the Released Parties through fraud, misrepresentation, or a threat to withdraw or alter the offer prior to the expiration of the twenty-one (21) day time period. I have not been asked by the Released Parties to shorten my time period for consideration of whether to sign this Agreement and Release. If I decide to sign this Agreement and Release prior to the end of the twenty-one (21) day time period, the Released Parties may expedite the processing of benefits provided to me in exchange for signing this Agreement and Release.

(h) I understand that I may change my mind and revoke this Agreement and Release at any time within seven (7) days after I sign it by sending notice of revocation to the attention of Katherine I. Hargis, Vice President, Chief Legal Officer, and Secretary by fax and certified mail, return receipt requested, to Key Energy Services, Inc., 1301 McKinney, Suite 1800, Houston, Texas 77010 facsimile: 713.651.4559. I understand that this Agreement and Release shall not become effective or enforceable until after the seven (7) day revocation period has expired and that the earliest I will receive benefits would be the eighth (8th) day after I sign this Agreement and Release.

(i) I understand that following the seven (7) day revocation period, this Agreement and Release will be final and binding. I promise that I will not pursue any claim that I have settled by this Agreement and Release. If I break this promise, I agree to pay all of the Released Parties’ costs and expenses (including reasonable attorney’s fees) related to the defense of any claims except this promise not to sue does not apply to claims that I may have under the Older Workers’ Benefit Protection Act and the Age Discrimination in Employment Act. Although I am releasing claims that I may have under the Older Workers’ Benefit Protection Act and the Age Discrimination in Employment Act, I understand that I may challenge the knowing and voluntary nature of this Agreement and Release under the Older Workers’ Benefit Protection Act and the Age Discrimination in Employment Act before a court, the EEOC, the NLRB, or any other federal, state, or local agency charged with the enforcement of any employment laws. I understand, however, that if I pursue a claim against the Released Parties under the Older Workers’ Benefit Protection Act and/or the Age Discrimination in Employment Act, a court has the discretion to determine whether the Released Parties are entitled to restitution, recoupment, or set off (hereinafter “reduction”) against a monetary award obtained by me in the court proceedings. A reduction never can exceed the amount I recover, or the consideration I received for signing this Agreement and Release, whichever is less. I also recognize that the Released Parties may be entitled to recover costs and attorneys’ fees incurred by them as specifically authorized under applicable law.

(j) I am, through this Agreement and Release, releasing the Released Parties from any and all claims I may have against the Released Parties, relating to my employment and separation, including claims arising under the Age Discrimination in Employment Act of 1967 (29 U.S.C. § 6721, et seq. ). My initials below, following the present paragraph of this Agreement and Release, evidence my understanding and voluntary waiver of all claims against the Released Parties, including, but not limited to, those pursuant to the Age Discrimination in Employment Act, the Texas Labor Code, and the Older Workers’ Benefit Protection Act.

Initials: ____________________

4. Acknowledgments . Executive acknowledges and agrees that he has received all compensation due to him as a result of services performed for the Employer including, but not limited to, all base salary payments through the Termination Date; all wages; any prior fiscal year bonuses earned, but not paid; any gross up payments that were due; fringe benefits; payments under all group insurance plans; accrued but unused vacation/paid time off; housing allowances; relocation costs; interest; severance; reimbursable expenses; payments under the Performance Cash Compensation Plans; payments under the Equity-Based Incentives; stock; stock options; vesting; and any and all other benefits and compensation due to Executive. Executive further acknowledges that he has reported to the Employer any and all work-related injuries incurred by him during his employment with Employer. Executive also acknowledges that he has been properly provided any leave of absence because of his health condition, a family member’s health condition, or workplace injury, and has not been subjected to any improper treatment, conduct, retaliation, or actions due to a request for or taking such leave.

5. Clawback Provision . If the Employer, during the Notice Period, converts the termination to “Cause,” as defined in the Employment Agreement, Executive shall repay to the Employer the amount of Severance Compensation the Employer paid to Executive from the Termination Date through the date on which the Employer determined that Executive engaged in conduct that constitutes Cause. In addition, if Severance Compensation has not been paid in full as of the date it is determined that Executive has engaged in conduct that constitutes Cause, no further Severance Compensation shall be due to Executive after such date. If any repayment is due the Employer, Executive agrees that the amount of the refund due is payable in full immediately via personal check. Executive further agrees, subject to the requirements of applicable law, to permit the Employer to deduct any amount due to the Employer pursuant to this paragraph from any monies or benefits due to Executive, including wages, bonuses, reimbursements or expenses, and any remaining amounts following such deductions are Executive’s responsibility, payable via personal check.

If the Employer brings any action or proceeding to enforce any provision of this paragraph and the Employer prevails in such action or proceeding, Executive agrees to pay all costs of collection, and litigation, together with reasonable attorneys’ fees and interest at the highest rate permitted by applicable law. If Executive prevails in such action or proceeding, the Employer agrees to pay all costs of litigation together with reasonable attorneys’ fees and interest at the highest rate permitted by applicable law.

6. No Filing of Lawsuit or Other Claims . Executive agrees, promises and covenants that neither he, nor any person, organization, or other entity acting on his behalf, has or will file a lawsuit, charge, claim, sue, cause or permit to be filed, charged or claimed, or participate as a party in any action for damages against any of the Released Parties involving any matter occurring in the past up to the date of this Agreement and Release or involving any claims, demands, causes of action, obligations, damages or liabilities which are the subject of this Agreement and Release.

7. Confidentiality of Agreement and Release . Executive agrees that he shall keep the existence and terms of this Agreement and Release and the amount of Severance Compensation confidential and that he will not disclose, directly or

indirectly, such terms to third persons, except that Executive may disclose the terms of this Agreement and Release to his legal advisors and/or spouse, and as to all such persons the disclosure must be made with the condition that the persons receiving such information maintain the information in strict confidence. Executive specifically agrees not to disclose the terms of this Agreement and Release to any present or former employees or contractors of the Released Parties. Executive agrees to make no comment, either generally or specifically, regarding the amount or other terms of the Agreement and Release. Nothing in this paragraph is intended to preclude the parties from disclosing the existence and terms of this Agreement and Release as necessary to enforce its terms or in connection with a claim for breach of this Agreement and Release.

8. Non-Disparagement. Executive agrees not to commit any act or make any statement that is, or could reasonably be interpreted as, detrimental to the business, reputation, or good will of the Released Parties including disparaging or embarrassing the Released Parties or their officers, directors, agents, and/or other personnel or employees. Such acts or statements will be considered “Detrimental Activity” as that term is defined in the Equity and Cash Incentive Plans and may result in the cancellation and rescission of Awards under the Equity and Cash Incentive Plans.

9. No Adverse Cooperation. Executive agrees not to act in any manner that might damage the business of Released Parties. Executive further agrees that he will not knowingly encourage, counsel, or assist any attorneys or their clients in the presentation or prosecution of any disputes, differences, grievances, claims, charges or complaints by any third party against any of the Released Parties unless under a subpoena or other court order to do so. Executive agrees both to immediately notify Employer upon receipt of any such subpoena or court order, and to furnish, within three business days of its receipt, a copy of such subpoena or other court order to Employer. If approached by anyone for counsel or assistance in the presentation or prosecution of any disputes, differences, grievances, claims, charges or complaints against any of the Released Parties, Executive shall state no more than that he cannot provide counsel or assistance.

10. Entire Agreement . The Parties agree that this Agreement and Release may not be modified, altered, or changed except by a written agreement signed by both Executive and a duly authorized representative of Employer. Executive and Employer acknowledge that this Agreement and Release constitutes the entire agreement between them and supersedes all prior written and oral agreements aside from Sections 7 and 8 of the Employment Agreement. Executive reaffirms and agrees that for the twelve (12) month time period, during which he is receiving Severance Compensation from Employer, he shall not, without Employer’s prior or written consent, participate or engage in any of the prohibited conduct specified in Section 8(a), 7(b), or 7(c) of the Employment Agreement. Executive further reaffirms and agrees that he shall not, at any time, except with Employer’s prior written consent, disclose, communicate, or divulge any Confidential Information as set forth in Section 7 of the Employment Agreement. If any provision of this Agreement and Release is held to be invalid, the remaining provisions shall not be affected.

11. Return of Property. Executive acknowledges that his signature below constitutes his certification that he has delivered to Employer all documents and other items in his possession or custody (whether prepared by Executive or otherwise) that Executive obtained from the Employer companies or their customers, suppliers, or contractors during his employment and which relate to the past, present, or anticipated business and affairs of the Key companies including, without any limitation, any Confidential Information (as that term is defined in Section 8 of the Employment Agreement).

12. Governing Law . This Agreement and Release shall be governed by the laws of the State of Texas. The Parties also agree that the state and federal courts located in the State of Texas shall have personal jurisdiction over them to hear all disputes arising under this Agreement and Release.

13. Cooperation with Employer. Executive agrees to cooperate, at the reasonable request of Employer, in the defense and/or prosecution of any charges, claims, investigations (internal or external), administrative proceedings, and/or lawsuits relating to matters occurring during Executive’s period of employment, and to make himself reasonably available upon request for interviews by the Parent and/or its outside counsel as necessary to accomplish this requirement. Employer agrees to reimburse Executive for travel costs and reasonable incidental expenses incurred in connection with such cooperation. Executive acknowledges that any legal fees incurred in connection with such cooperation will be governed by the advancement and indemnification provisions of the Parent’s Directors’ and Officers’ insurance policy, the Parent’s charter documents, and Maryland law.

14. Counterparts. This Agreement and Release may be executed in counterparts and by facsimile or email (pdf), and each counterpart, facsimile, or email shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned.

[SIGNATURE PAGE FOLLOWS]

ROBERT DRUMMOND indicates his acceptance by signing below:



	/s/ Robert Drummond
Date:	April 25, 2016

KEY ENERGY SERVICES, INC. indicates its acceptance by signing below:



By:	/s/ Scott P. Miller
Date:	April 25, 2016

KEY ENERGY SERVICES, LLC indicates its acceptance by signing below:



By:	/s/ Scott P. Miller
Date:	April 25, 2016

Exhibit 10.3

FORBEARANCE AGREEMENT

THIS FORBEARANCE AGREEMENT (this “ Forbearance ”) dated as of May 11, 2016 is among KEY ENERGY SERVICES, INC., a Maryland corporation (the “ Borrower ”), each of the guarantors party hereto (the “ Guarantors ”), each of the lenders party hereto (the “ Consenting Lenders ” and collectively with each other lender under the Credit Agreement (as defined below), the “ Lenders ”) and CORTLAND CAPITAL MARKET SERVICES LLC, as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the “ Administrative Agent ” and collectively with the Borrower, the Guarantors and the Lenders, the “ Parties ”).

R E C I T A L S

A. The Borrower, the Administrative Agent and the Lenders are parties to that certain Term Loan and Security Agreement, dated as of June 1, 2015 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), pursuant to which the Lenders have made certain credit available to and on behalf of the Borrower. ¹

B. Section 10.3.1 of the Credit Agreement provides that the Borrower must not permit the Asset Coverage Ratio, determined with reference to the most recent PP&E Value Report delivered pursuant to Section 10.1.2(m) of the Credit Agreement, to fall below 1.50:1.00. The Borrower is required to deliver a Compliance Certificate on May 16, 2016, subject, in certain circumstances (which may or may not apply), to a cure period. An Event of Default would arise under the Credit Agreement upon delivery of the Compliance Certificate if the Asset Coverage Ratio is less than 1.50:1.00.

C. The Consenting Lenders allege that the M&E Appraisal conducted by Hilco Valuation Services and dated March 25, 2016 (the “ Hilco Report ”) constitutes the most recent PP&E Value Report and that based on such report Borrower will have an Event of Default for failure to comply with Section 10.3.1 of the Credit Agreement on May 16, 2016 (such alleged default, the “ Asset Coverage Ratio Default ”). The Consenting Lenders further allege that any failure to deliver a Compliance Certificate by May 16, 2016 would constitute an Event of Default as of such date (such alleged default, the “Compliance Certificate Default”). The Consenting Lenders further allege that a cross-default may arise under Section 12.1(f) of the Credit Agreement relating to a default of the provisions of the Loan and Security Agreement dated as of June 1, 2015 among the Borrower, the Guarantors, Bank of America, N.A., as Administrative Agent and the other parties thereto (the “ ABL Agreement ”) concerning the asset coverage test and the first fiscal quarter 2016 compliance certificate contemplated by the ABL Agreement (such alleged default solely as it concerns the asset coverage test and first fiscal quarter 2016 compliance certificate (and not any other default under the ABL Agreement), the “ Cross-Default ”; and together with the Asset Coverage Ratio Default and the Compliance Certificate Default, the “ Alleged Defaults ”). The Consenting Lenders and Administrative Agent know of no Default or Event of Default existing as of the date hereof or anticipated during the Forbearance Period, other than the Alleged Defaults.

D. The Borrower denies that the Hilco Report constitutes the most recent PP&E Value Report as of March 31, 2016, further denies that any of the Alleged Defaults is valid and asserts that it was in compliance with the Asset Coverage Ratio as of March 31, 2016.

E. The Borrower has requested, and the Administrative Agent and the Consenting Lenders, who constitute Required Lenders under the Credit Agreement, have agreed, to temporarily forbear from exercising any remedies in respect of the Alleged Defaults during a period beginning on the Effective Time (as defined below) and running through the Forbearance Termination Date (as defined below) on the terms and conditions set forth herein.

NOW, THEREFORE, to induce the Administrative Agent and the Consenting Lenders to enter into this Forbearance and in consideration of the premises and the mutual covenants herein contained, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1. Defined Terms . Each capitalized term used herein but not otherwise defined herein has the meaning given such term in the Credit Agreement. Unless otherwise indicated, all section references in this Forbearance refer to sections of the Credit Agreement.

¹ Capitalized terms used herein but not otherwise defined shall have the meaning ascribed to them in the Credit Agreement.

Section 2. Forbearance .

2.1 The “ Forbearance Period ” shall commence on the Effective Time, and shall terminate immediately and automatically upon the earliest to occur of (i) June 6, 2016, at 11:59 p.m. New York time (the “ Forbearance Termination Date ”) and (ii) the termination of this Forbearance pursuant to Section 2.3 below.

2.2 The Administrative Agent and the Consenting Lenders hereby agree, subject to the conditions set forth herein, and solely during the continuation of the Forbearance Period, to temporarily forbear from accelerating the Obligations or otherwise exercising any of their rights and remedies on account of the Alleged Defaults.

2.3 The Forbearance shall terminate three Business Days following delivery of notice by the Administrative Agent to the Borrower of the occurrence of any of the following events or circumstances (each, a “ Forbearance Termination Event ”):

(a) the occurrence and continuation of a Default or Event of Default under the Credit Agreement other than the Alleged Defaults;

(b) a material breach by any Obligor of any of the covenants set forth in Section 4 of this Forbearance;

(d) the making by any of the Obligors of any voluntary prepayment of principal or interest on, redemption, repurchase, defeasance or other acquisition or retirement for value of, any Indebtedness outstanding pursuant to the Senior Notes Indenture; or

(e) the termination by the Borrower of discussions related to the negotiation and implementation of an amendment and/or restatement of the Credit Agreement.

2.4 The Forbearance is limited in nature and nothing contained herein is intended, or shall be deemed or construed (i) to constitute a waiver of any Defaults or Events of Default other than the Alleged Defaults or compliance with any term or provision of the Loan Documents or Applicable Law, except to the extent expressly provided for herein, or (ii) to establish a custom or course of dealing between the Obligors, on the one hand, and the Administrative Agent or any Lender, on the other hand.

2.5 Upon the termination of the Forbearance Period: (i) the Forbearance shall terminate automatically and be of no further force or effect, except with respect to the waivers set forth in Section 4 of this Forbearance, which shall survive termination, and (ii) subject to the terms of the Loan Documents and Applicable Law, the Administrative Agent and each Lender, other than as expressly set forth in Section 4 of this Agreement, reserves the right in its respective sole and absolute discretion, without limitation, to proceed to enforce any or all of its respective rights and remedies set forth in the Credit Agreement, including relating to the Alleged Defaults, the other Loan Documents and Applicable Law, including, but not limited to, its rights to immediately accelerate the Loans in accordance with Section 12.2 of the Credit Agreement. In furtherance of the foregoing, and notwithstanding the occurrence of the Effective Time, each of the Obligors acknowledges and confirms that, subject to the Forbearance, all rights and remedies of the Administrative Agent and the Lenders under the Loan Documents and Applicable Law with respect to the Borrower or any other Obligor that do not arise solely and exclusively as a result of the Alleged Defaults shall continue to be available to the Administrative Agent and the Lenders.

2.6 The Parties agree that the running of all statutes of limitation and the doctrine of laches applicable to all claims or causes of action that the Administrative Agent or any Consenting Lender may be entitled to take or bring in order to enforce its rights and remedies against any Obligor are, to the fullest extent permitted by law, tolled and suspended during the Forbearance Period.

2.7 Execution of this Forbearance constitutes a direction by the Required Lenders that the Administrative Agent, in accordance with this Forbearance, act or refrain from acting. Each Consenting Lender agrees that the Administrative Agent shall not be required to act against the Obligors if such action is contrary to the terms of this Forbearance. In no event shall any discretionary obligations or duties be construed against the Administrative Agent hereunder.

Section 3. Representations and Warranties . To induce Administrative Agent and Consenting Lenders to enter into this Forbearance, each of the Loan Parties hereby represents and warrants to Administrative Agent and each Consenting Lender that:

3.1 Existence, Qualification and Power . Each of the Obligors (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority to execute, deliver and perform its obligations under this Forbearance, and (c) except as would not constitute a Material Adverse Effect, is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license.

3.2 Authorization; No Contravention . The execution, delivery and performance by each of the Obligors of this Forbearance has been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organic Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Material Contract to which such Person is a party or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Applicable Law.

3.3 No Default . No Default or Event of Default has occurred and is continuing other than the Alleged Defaults.

Section 4. Conditions to Effectiveness of this Forbearance .

This Forbearance shall become effective (the date of such effectiveness being referred to herein as the “ Effective Time ”) upon (i) the Administrative Agent having received from the Borrower, the Guarantors and the Consenting Lenders sufficient to constitute the Required Lenders, counterparts of this Forbearance signed on behalf of such Person, (ii) execution of this Forbearance by the Administrative Agent and (iii) receipt by the Administrative Agent of $7.5 million in cash (the “ Forbearance Payment ”), which payment shall be applied to prepay $7,421,813.26 in outstanding principal and $78,186.74 in accrued and unpaid interest on such principal amount of the loans outstanding under the Credit Agreement in accordance with Section 5.3.1 of the Credit Agreement. As of the Effective Time, notwithstanding any provision to the contrary in the Credit Agreement, (a) the Consenting Lenders, who constitute Required Lenders under the Credit Agreement, hereby irrevocably waive and direct the Administrative Agent to waive, (1) payment of the Applicable Premium in respect of the Forbearance Payment and (2) the requirement that the Borrower provide three business days’ notice prior to any prepayment of any LIBOR Loans in connection with the Forbearance Payment and (b) the Borrower hereby irrevocably agrees to waive its right to apply the Forbearance Payment to the principal repayment installments set forth in Section 5.2.1 of the Credit Agreement prior to the Maturity Date.

Section 5. Miscellaneous .

5.1 Ratification and Affirmation . Each of the Obligors hereby ratifies and affirms its obligations under, and acknowledges, renews and extends its continued liability under, each Loan Document to which it is a party and agrees that each Loan Document to which it is a party remains in full force and effect, subject to the terms hereof.

5.2 No Waiver; Loan Document . The execution, delivery and effectiveness of this Forbearance shall not operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents, other than as expressly set forth in Section 4 herein. On and after the Effective Time, this Forbearance shall for all purposes constitute a Loan Document.

5.3 Release .

(a) Subject to Section 5.3(d) of this Forbearance, each of the Obligors for itself and for its successors in title, legal representatives and assignees and, to the extent the same is claimed by right of, through or under any of the Obligors, for its past, present and future employees, agents, representatives, officers, directors, shareholders, and trustees (each, a “Releasing Party” and collectively, the “Releasing Parties”), does hereby remise, release and discharge, and shall be deemed to have forever remised, released and discharged, the Administrative Agent and each of the Lenders in their respective capacities as such under the Loan Documents, and the Administrative Agent’s and each Lender’s respective successors-in-title, legal representatives and assignees, past, present and future officers, directors, affiliates, shareholders, trustees, agents, employees, consultants, experts, advisors, attorneys and other professionals and all other persons and entities to whom the Administrative Agent, each of the Lenders or any of their respective successors-in-title, legal representatives and assignees, past, present and future officers, directors, affiliates, shareholders, trustees, agents, employees, consultants, experts, advisors, attorneys and other

professionals would be liable if such persons or entities were found to be liable to any Releasing Party or any of them (collectively, hereinafter the “Releasees”), from any and all manner of action and actions, cause and causes of action, claims, charges, demands, counterclaims, crossclaims, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, rights of setoff and recoupment, controversies, damages, judgments, expenses, executions, liens, claims of liens, claims of costs, penalties, attorneys’ fees, or any other compensation, recovery or relief on account of any liability, obligation, demand or cause of action of whatever nature, whether in law, equity or otherwise (including, without limitation, any claims relating to (i) the making or administration of the Loans, including, without limitation, any such claims and defenses based on mistake, duress, usury or misrepresentation, or any other claim based on so-called “lender liability” theories, (ii) any covenants, agreements, duties or obligations set forth in the Credit Agreement, (iii) increased financing costs, interest or other carrying costs, (iv) penalties, (v) lost profits or loss of business opportunity, (vi) legal, accounting and other administrative or professional fees and expenses and incidental, consequential and punitive damages payable to third parties, (vii) damages to business reputation or (viii) to the extent allowed by Applicable Law, any claims arising under 11 U.S.C. Sections 541 to 550 or any claims for avoidance or recovery under any other federal, state or foreign law equivalent), whether known or unknown, fixed or contingent, joint and/or several, secured or unsecured, due or not due, primary or secondary, liquidated or unliquidated, contractual or tortious, direct, indirect, or derivative, asserted or unasserted, foreseen or unforeseen, suspected or unsuspected, now existing, heretofore existing or which may heretofore accrue against any of the Releasees, whether held in a personal or representative capacity, and which are, in each case, based on any act, fact, event or omission or other matter, cause or thing occurring at any time prior to or on the date hereof in any way, directly or indirectly arising out of, connected with or relating to the Credit Agreement or any other Loan Document and the transactions contemplated thereby, and all other agreements, certificates, instruments and other documents and statements (whether written or oral) related to any of the foregoing (each, a “Claim” and collectively, the “Claims”). Each Releasing Party further stipulates and agrees with respect to all Claims, that it hereby waives, to the fullest extent permitted by Applicable Law, any and all provisions, rights, and benefits conferred by any applicable U.S. federal or state law, any applicable foreign law or any principle of common law, that would otherwise limit a release or discharge of any unknown Claims pursuant to this Section 5.3.

(b) Subject to Section 5.3(d) of this Forbearance, each of the Borrower and other Obligors, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Releasee that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remised and discharged by the Borrower or any other Obligor pursuant to Section 5.3(a) hereof. If the Borrower, any other Obligor or any of its successors, assigns or other legal representatives violates the foregoing covenant, the Borrower and other Obligors, each for itself and its successors, assigns and legal representatives, agrees to pay, in addition to such other damages as any Releasee may sustain as a result of such violation, all attorneys’ fees and costs incurred by any Releasee as a result of such violation.

(c) In entering into this Forbearance, each of the Obligors has consulted with and been represented by counsel and expressly disclaims any reliance on any representations, acts or omissions by the Administrative Agent, the Lenders or any of the Administrative Agent’s or the Lenders’ Affiliates and hereby agrees and acknowledges that the validity and effectiveness of the releases set forth above do not depend in any way on any such representations, acts and/or omissions or the accuracy, completeness or validity thereof. The provisions of this Section 5.3 shall survive the termination of the Credit Agreement and payment in full of all amounts owing thereunder.

(d) Notwithstanding anything to the contrary in this Section 5.3, (i) the Parties expressly reserve all of their rights (including, without limitation, the right to contest and seek judicial relief) (A) to contest the validity of the Alleged Defaults on any and all grounds and otherwise to enforce the Credit Agreement and (B) relating to any actions taken or not taken on account of the Alleged Defaults after the termination of this Forbearance and (ii) the foregoing releases in this Section 5.3 shall not apply to any claims with respect to any party that are found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted primarily and directly from the bad faith or willful misconduct of such party (it being understood and agreed that the exercise by the Lenders of their right to demand delivery of the Hilco Report and the timeframe within which the Hilco Report was prepared standing alone will not be deemed bad faith or willful misconduct on the part of the Lenders). The Parties agree that all of their respective rights and claims relating to the matters described in the previous sentence are not limited, waived or otherwise impaired by the terms of this Agreement, except as expressly set forth herein.

5.4 Counterparts . This Forbearance may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of this Forbearance by facsimile or electronic transmission in portable document format (.pdf) shall be effective as delivery of a manually executed counterpart hereof.

5.5 NO ORAL AGREEMENT . THIS FORBEARANCE AND THE OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH AND THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. AS OF THE DATE OF THIS FORBEARANCE, THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.

5.6 GOVERNING LAW . THIS FORBEARANCE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

[SIGNATURES BEGIN NEXT PAGE]

IN WITNESS WHEREOF, the parties hereto have caused this Forbearance to be duly executed as of the date first written above.


BORROWER:	KEY ENERGY SERVICES, INC.


By:	____________________________________

Name:

Title:


GUARANTORS:	KEY ENERGY SERVICES, LLC


By:	____________________________________

Name:

Title:

KEY ENERGY MEXICO, LLC


By:	____________________________________

Name:

Title:

[Signature Page to Waiver Agreement]


ADMINISTRATIVE AGENT:	CORTLAND CAPITAL MARKET SERVICES, LLC

as the Administrative Agent


By:	____________________________________

Name:

Title:

[Signature Page to Waiver Agreement]


LENDERS:	DW PARTNERS, LP ,

individually as a Lender


By:	____________________________________


Name:	Shawn R. Singh, Esq.


Title:	General Counsel

[Signature Page to Waiver Agreement]

TAO FUND LLC ,

as a Lender


By:	____________________________________


Name:	Jennifer Mello


Title:	Vice President

TPG SPECIALTY LENDING, INC ,

as a Lender


By:	____________________________________


Name:	Josh Easterly


Title:	Co-Chief Executive Officer

[Signature Page to Waiver Agreement]

BLUEMOUNTAIN CAPITAL MANAGEMENT, LLC ,

as a Lender


By:	____________________________________


Name:	David M. O’Mara


Title:	Deputy General Counsel

[Signature Page to Waiver Agreement]

TENNENBAUM ENERGY OPPORTUNITIES CO., LLC

TENNENBAUM ENHANCED YIELD OPERATING I, LLC

TENNENBAUM SENIOR LOAN FUND V, LLC

TENNENBAUM SENIOR LOAN FUNDING III, LLC

TENNENBAUM SENIOR LOAN SPV, LLC,

as Lenders

On behalf of each of the above entities:

By: Tennenbaum Capital Partners, LLC

Its: Investment Manager


By:	____________________________________


Name:	David Adler


Title:	Partner

[Signature Page to Waiver Agreement]

CERBERUS ASRS FUNDING LLC ,

as a Lender


By:	____________________________________


Name:	Kevin P. Genda


Title:	Vice President

CERBERUS AUS LEVERED II LP

as a Lender

By: CAL II GP LLC

Its: General Partner


By:	____________________________________


Name:	Kevin P. Genda


Title:	Vice President

CERBERUS ICQ LEVERED LLC ,

as a Lender


By:	____________________________________


Name:	Kevin P. Genda


Title:	Vice President

CERBERUS KRS LEVERED LLC ,

as a Lender


By:	____________________________________


Name:	Kevin P. Genda


Title:	Vice President

CERBERUS N-1 FUNDING LLC ,

as a Lender


By:	____________________________________


Name:	Kevin P. Genda


Title:	Vice President

CERBERUS OFFSHORE LEVERED II LP

as a Lender

By: COL II GP LLC

Its: General Partner


By:	____________________________________


Name:	Kevin P. Genda


Title:	Vice President

[Signature Page to Waiver Agreement]

CERBERUS SWC LEVERED LOAN OPPORTUNITIES MASTER FUND, L.P.

as a Lender

By: Cerberus SWC Levered Opportunities GP, LLC

Its: General Partner


By:	____________________________________


Name:	Kevin P. Genda


Title:	Senior Managing Director

[Signature Page to Waiver Agreement]

OAKTREE CAPITAL MANAGEMENT, L.P. ,

as investment manager on behalf of certain funds and accounts within its strategic credit strategy, as Lenders


By:	____________________________________


Name:	Edgar Lee


Title:	Managing Director


By:	____________________________________


Name:	Nick Basso


Title:	Vice President

[Signature Page to Waiver Agreement]

Exhibit 10.4

LIMITED CONSENT TO LOAN AGREEMENT AND FORBEARANCE AGREEMENT

This Limited Consent to Loan Agreement and Forbearance Agreement, dated as of May 11, 2016 (this “ Agreement ”) is among KEY ENERGY SERVICES, INC., a Maryland corporation (the “ Company ”), KEY ENERGY SERVICES, LLC, a Texas limited liability company (“ Key Energy LLC ”, and together with the Company, collectively, “ Borrowers ”), certain subsidiaries of the Borrowers as Guarantors, Lenders and Co-Collateral Agents party to this Agreement and BANK OF AMERICA, N.A., a national banking association, as administrative agent for the Lenders (in such capacity, “ Administrative Agent ”).

W I T N E S S E T H :

WHEREAS, Borrowers, certain subsidiaries of Borrowers as Guarantors from time to time party thereto, the Lenders from time to time party thereto, the Administrative Agent, and Bank of America, N.A. and Wells Fargo Bank, National Association, as Co-Collateral Agents, are parties to that certain Loan and Security Agreement dated as of June 1, 2015 (as amended, supplemented, restated or otherwise modified from time to time, the “ Loan Agreement ”; capitalized terms not otherwise defined herein having the definitions provided therefor in the Loan Agreement) and to certain other documents executed in connection with the Loan Agreement;

WHEREAS, the Company, as borrower, each of the guarantors party thereto, each of the lenders party thereto and Cortland Capital Market Services LLC, as administrative agent, are parties to a Forbearance Agreement relating to the Term Loan Credit Agreement, a copy of which is attached as Exhibit A hereto (the “ Term Loan Forbearance Agreement ”);

WHEREAS, the Borrowers have requested that the Lenders consent to the prepayment of the Term Loans in a principal amount of up to $7,500,000 pursuant to Section 4 of the Term Loan Forbearance Agreement (such repayment, the “ Specified Term Loan Repayment ”);

WHEREAS, the Lenders are willing to provide such consent on terms and subject to conditions set forth herein;

WHEREAS, the Borrowers may have an Event of Default as a result of a failure to comply with the minimum Asset Coverage Ratio set forth in Section 10.3.2 of the Loan Agreement measured as of the last day of the Fiscal Quarter ending March 31, 2016 (the “ Alleged Asset Coverage Ratio Default ”) ;

WHEREAS, the Borrowers deny that the Alleged Asset Coverage Ratio Default is valid but have requested that the Lenders and the Administrative Agent, during the Forbearance Period (as defined below), agree to forbear from exercising certain of their default-related rights and remedies against Borrowers and the other Obligors with respect to the Alleged Asset Coverage Ratio Default ; and

WHEREAS, the Lenders and the Administrative Agent are willing to agree to such forbearance on terms and subject to conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows:

NOW, THEREFORE, the parties hereto agree as follows:

1. Limited Consent . Notwithstanding anything to the contrary contained in Section 10.2.16(c)(iii)(x) of the Loan Agreement, Administrative Agent and the Lenders signatory hereto constituting Required Lenders hereby consent to the Specified Term Loan Repayment, provided that (i) the Specified Term Loan Repayment is made on or before May 16, 2016 and (ii) no proceeds of Revolver Loans are used to fund the Specified Term Loan Repayment.

The consents contained in this Section 1 are limited consents and (i) shall only be relied upon and used for the specific purpose set forth herein, (ii) shall not constitute nor be deemed to constitute a waiver of (a) any Default or Event of Default or (b) any term or condition of the Loan Agreement and the other Loan Documents, (iii) shall not constitute nor be deemed to constitute a consent by the Administrative Agent or any Lender to anything other than the specific purpose set forth herein and (iv) shall not constitute a custom or course of dealing among the parties hereto.

2. Forbearance .

2.1 Effective as of the date hereof, Administrative Agent and the Lenders signatory hereto, constituting Required Lenders, hereby agree that until the expiration or termination of the Forbearance Period, they will temporarily forbear from exercising default-related rights and remedies against the Borrowers or any other Obligor solely with respect to (i) the Alleged Asset Coverage Ratio Default; (ii) the accuracy of any Compliance Certificate insofar as it concerns the Asset Coverage Ratio as of March 31, 2016; and (iii) any cross-default to the Term Loan Agreement arising from matters that are subject to the Term Loan Forbearance Agreement for so long as such agreement shall remain ine effect (collectively, the “ Subject Defaults ”); provided , however, that nothing herein shall restrict, impair or otherwise affect any Lender’s or the Administrative Agent’s rights and remedies under any agreements (including, without limitation, the Intercreditor Agreement) containing subordination provisions in favor of any or all of the Lenders or the Administrative Agent (including, without limitation, any rights or remedies available to the Lenders or the Administrative Agent as a result of the occurrence or continuation of the Alleged Asset Coverage Ratio Default) or amend or modify any provision thereof.

2.2 As used herein, the term “ Forbearance Period ” shall mean the period beginning on the date hereof and ending on the earlier to occur of (the occurrence of clause (i) or (ii), a “ Termination Event ”): (i) any Forbearance Default (as hereinafter defined) or (ii) June 6, 2016, at 11:59 p.m. New York time. As used herein, the term “ Forbearance Default ” shall mean (A) the occurrence of any Default or an Event of Default other than the Subject Defaults, (B) the failure of any Borrower or any other Obligor to comply timely with any term, condition, or covenant set forth in this Agreement, (C) the failure of any representation or warranty made by any Borrower or any other Obligor under or in connection with this Agreement to be true and complete in all material respects as of the date hereof, (D) the repudiation and/or assertion of any defense by any Obligor with respect to this Agreement or any Loan Document or the pursuit of any claim by any Obligor against the Administrative Agent, any Issuing Bank, any Lender, or any other Indemnitee of any of the foregoing, and/or (E) the termination or expiration of any other forbearance granted by another creditor of any of the Obligors (including of the forbearance pursuant to the Term Loan Forbearance Agreement) or taking of an enforcement action or other exercise of any or all rights and remedies (including delivery of any notice of default or event of default or similar notice) by any such creditor (including by the Term Loan Agent, any “Lender” under (and as defined in) the Term Loan Credit Agreement or any other holder of obligations under the Term Loan Credit Agreement or by any holder of obligations under the Senior Notes Indenture) or acceleration by such creditor of indebtedness owing to such creditor, including, without limitation, by the Term Loan Agent, any “Lender” under (and as defined in) the Term Loan Credit Agreement or any other holder of obligations under the Term Loan Credit Agreement or by an holder of obligations under the Senior Notes Indenture.

2.3 Upon the occurrence of a Termination Event, (x) the agreement of the Administrative Agent and Required Lenders hereunder to forbear from exercising their respective default-related rights and remedies shall immediately terminate without the requirement of any demand, presentment, protest, or notice of any kind, all of which each of the Borrowers and the other Obligors hereby waives and (y) any or all of the Lenders and the Administrative Agent may at any time thereafter proceed to exercise any and all of their respective rights and remedies under any or all of the Loan Agreement, any other Loan Document and/or applicable law, including, without limitation, their respective rights and remedies with respect to the Alleged Asset Coverage Ratio Default and the other Subject Defaults.

2.4 Any agreement by the Administrative Agent and the Required Lenders to extend the Forbearance Period, if any, must be set forth in writing and signed by a duly authorized signatory of the Administrative Agent and the Required Lenders.

2.5 The Borrowers and the other Obligors each acknowledge that none of the Lenders or the Administrative Agent (the Lenders and the Administrative Agent are sometimes referred to herein individually as a “ Lender Party ,” and collectively as the “ Lender Parties ”) have made any assurances concerning (i) any possibility of an extension of the Forbearance Period, (ii) the manner in which or whether the Alleged Asset Coverage Ratio Default may be resolved or (iii) any additional forbearance, waiver, restructuring or other accommodations.

2.6 The parties hereto agree that the running of all statutes of limitation and the doctrine of laches applicable to all claims or causes of action that any Lender Party may be entitled to take or bring in order to enforce its rights and remedies against any Borrower or any other Obligor in respect of the Subject Defaults are, to the fullest extent permitted by law, tolled and suspended during the Forbearance Period.

2.7 No Lender Party has waived, is by this Agreement waiving, and has no intention of waiving (regardless of any delay in exercising such rights and remedies), any Default or Event of Default that may be continuing on the date hereof or any Event of Default that may occur after the date hereof (whether the same or similar to the Alleged Asset Coverage Ratio Default or otherwise), and no Lender Party has agreed to forbear with respect to any of its rights or remedies concerning any

Events of Default (other than, during the Forbearance Period, the Subject Defaults solely to the extent expressly set forth herein), that may have occurred or are continuing as of the date hereof, or that may occur after the date hereof.

2.8 Borrowers and the other Obligors acknowledge and agree that the Administrative Agent’s and Required Lender’ agreement to forbear from exercising certain of their default-related rights and remedies with respect to the Subject Defaults during the Forbearance Period does not in any manner whatsoever limit any Lender Party’s right to insist upon strict compliance by the Borrowers and the other Obligors with the Loan Agreement, this Agreement or any other Loan Document during the Forbearance Period.

2.9 This Agreement shall not be deemed or construed to be a satisfaction, reinstatement, novation or release of the Loan Agreement or any other Loan Document.

3. No Other Amendments or Waivers .

This Agreement, and the terms and provisions hereof, constitute the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes any and all prior or contemporaneous amendments relating to the subject matter hereof. Except for the amendments to the Loan Agreement expressly set forth in Section 1 hereof and the forbearance expressly set forth in Section 2 hereof, the Loan Agreement shall remain unchanged and in full force and effect. Except as expressly set forth in Section 1 and Section 2 hereof, the execution, delivery, and performance of this Agreement shall not operate as a waiver of or as an amendment of, any right, power, or remedy of Administrative Agent or the Lenders under the Loan Agreement or any of the other Loan Documents as in effect prior to the date hereof, nor constitute a waiver of any provision of the Loan Agreement or any of the other Loan Documents. The agreements set forth herein are limited to the specifics hereof, shall not apply with respect to any facts or occurrences other than those on which the same are based, shall not excuse future non-compliance under the Loan Agreement or other Loan Documents, and shall not operate as a consent to any further or other matter, under the Loan Documents.

4. Conditions Precedent . The effectiveness of this Agreement is subject to the satisfaction of the following conditions precedent on the date hereof:

4.1 Execution of Agreement . Each Obligor, Administrative Agent and the Required Lenders shall have duly executed and delivered this Agreement.

4.2 Accuracy of Representations and Warranties . All representations and warranties contained in Section 5 hereof shall be true and correct in all respects.

4.3 Term Loan Forbearance Agreement . Receipt by Administrative Agent of evidence reasonably satisfactory to Administrative Agent that the Term Loan Forbearance Agreement has been entered into by all requisite parties thereto.

5 Representations and Warranties . Each Obligor hereby jointly and severally represents and warrants to Administrative Agent and Lenders, that

5.1 the execution, delivery and performance by the Obligors of this Agreement:

(a) are within each Obligor’s corporate, limited liability company or partnership powers, as applicable, and have been duly authorized by all necessary corporate, limited liability company or partnership, as applicable, and, if required, equity holder action (including, without limitation, any action required to be taken by any class of directors or other governing body of any Obligor or any other Person, whether interested or disinterested, in order to ensure the due authorization of the execution, delivery and performance by the Obligors of this Agreement);

(b) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any other third Person (including shareholders or other equity holders or any class of directors or other governing body, whether interested or disinterested, of any Obligor or any other Person), nor is any such consent, approval, registration, filing or other action necessary for the validity or enforceability of this Agreement or the consummation of the transactions contemplated hereby, except such as have been obtained or made and are in full force and effect other than those third party approvals or consents which, if not made or obtained, would not cause a Default hereunder, or could not reasonably be expected to have a Material Adverse Effect,

(c) will not violate any Sanctions and Applicable Law or any Organic Documents of any Obligor or any Restricted Subsidiary, or any order of any Governmental Authority,

(d) will not violate or result in a default under any Material Contract, or give rise to a right thereunder to require any payment to be made by any Obligor or any Restricted Subsidiary and

(e) will not result in the creation or imposition of any Lien on any Property of any Obligor or any Restricted Subsidiary (other than the Liens created by the Loan Documents);

5.2 this Agreement has been duly executed and delivered by such Obligor and constitutes a legal, valid and binding obligation of such Obligor, as applicable, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law; and

5.3 no Default or Event of Default has occurred and is continuing.

6. Reaffirmation . Each of the Obligors hereby confirms its respective guarantees, pledges, grants of security interests and other obligations, as applicable, under and subject to the terms of each of the Loan Documents to which it is party, and agrees that such guarantees, pledges, grants of security interests and other obligations, and the terms of each of the Loan Documents to which it is a party, are not impaired or affected in any manner whatsoever and shall continue to be in full force and effect. Each Obligor acknowledges and agrees that any of the Loan Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Agreement.

7. Miscellaneous .

7.1 Captions . Section captions used in this Agreement are for convenience only, and shall not affect the construction of this Agreement.

7.2 Governing Law . UNLESS EXPRESSLY PROVIDED IN ANY LOAN DOCUMENT, THIS AGREEMENT AND ALL CLAIMS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES EXCEPT FEDERAL LAWS RELATING TO NATIONAL BANKS.

7.3 Severability . Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be valid under Applicable Law. If any provision is found to be invalid under Applicable Law, it shall be ineffective only to the extent of such invalidity and the remaining provisions of this Agreement shall remain in full force and effect.

7.4 Successors and Assigns . This Agreement shall be binding upon the parties hereto and their respective successors and assigns, and shall inure to the sole benefit of the parties and their respective successors and assigns.

7.5 References . Any reference to the Loan Agreement contained in any notice, request, certificate, or other document executed concurrently with or after the execution and delivery of this Agreement shall be deemed to include this Agreement unless the context shall otherwise require.

7.6 Loan Document . This Agreement shall be deemed to be and shall constitute a Loan Document.

7.7 Continued Effectiveness . Notwithstanding anything contained herein, the terms of this Agreement are not intended to and do not serve to effect a novation as to the Loan Agreement. The Loan Agreement and each of the Loan Documents remain in full force and effect.

7.8 Entire Agreement . This Agreement constitutes the entire agreement, and supersede all prior understandings and agreements, among the parties relating to the subject matter thereof.

7.9 Counterparts; Execution . This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement shall become effective when Administrative Agent has received counterparts bearing the signatures of all parties hereto. Delivery of a signature page of this Agreement by telecopy or other electronic means shall be effective as delivery of a manually executed counterpart of such agreement. Any signature, contract formation or record-keeping through electronic means shall have the same legal validity and enforceability as manual or paper-based methods, to the fullest extent

permitted by Applicable Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any similar state law based on the Uniform Electronic Transactions Act.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

BORROWERS :

KEY ENERGY SERVICES, INC.

By _________________________

Name:

Title:

KEY ENERGY SERVICES, LLC.

By _________________________

Name:

Title:

GUARANTOR :

KEY ENERGY MEXICO, LLC

By _________________________

Name:

Title:

[Signature Page to Limited Consent to

Loan Agreement and Forbearance Agreement]

ADMINISTRATIVE AGENT AND LENDERS :

BANK OF AMERICA, N.A., as Administrative Agent and a Lender

By _________________________

Name:

Title:

[Signature Page to Limited Consent to

Loan Agreement and Forbearance Agreement]

WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender

By _________________________

Name:

Title:

[Signature Page to Limited Consent to

Loan Agreement and Forbearance Agreement]

COMERICA BANK, as a Lender

By _________________________

Name:

Title:

[Signature Page to Limited Consent to

Loan Agreement and Forbearance Agreement]

AMEGY BANK NATIONAL ASSOCIATION, as a Lender

By _________________________

Name:

Title:

[Signature Page to Limited Consent to

Loan Agreement and Forbearance Agreement]

SIEMENS FINANCIAL SERVICES, INC., as a Lender

By _________________________

Name:

Title:

By _________________________

Name:

Title:

[Signature Page to Limited Consent to

Loan Agreement and Forbearance Agreement]

Exhibit A

Term Loan Forbearance Agreement

(attached)

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Robert Drummond, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Key Energy Services, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Dated:	May 13, 2016	/s/ ROBERT DRUMMOND
		Robert Drummond
		President and Chief Executive Officer
		(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT

I, J. Marshall Dodson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Key Energy Services;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Dated:	May 13, 2016	/s/ J. MARSHALL DODSON
		J. Marshall Dodson
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

Exhibit 32

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned officers of Key Energy Services, Inc. (the "Company") hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002, to such officer's knowledge that:

(1) the accompanying Quarterly Report on Form 10-Q for the period ended March 31, 2016 as filed with the U.S. Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods expressed in the Report.



Dated:	May 13, 2016	/s/ ROBERT DRUMMOND
		Robert Drummond
		President and Chief Executive Officer
		(Principal Executive Officer)



Dated:	May 13, 2016	/s/ J. MARSHALL DODSON
		J. Marshall Dodson
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)