This Stipulation and Agreement of Settlement dated as of November 16, 2007 (the

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS MIDLAND DIVISION PETER KALTMAN, MALCOLM LORD, CELESTE NAVON, DAVID W. ORTBALS, PAUL E. STEWARD, GARCO INVESTMENTS, LLP Individually and On Behalf of All Others Similarly Situated, v. Plaintiffs, KEY ENERGY SERVICES, INC., FRANCIS D. JOHN, AND ROYCE MITCHELL Defendants. CAUSE NO. MO-04-CV082 STIPULATION AND AGREEMENT OF SETTLEMENT This Stipulation and Agreement of Settlement dated as of November 16, 2007 (the "Stipulation") is made and entered into by and among Lead Plaintiff Bellaire Castle Corporation ("Lead Plaintiff"), on behalf of itself and the Class (as defined below), and defendants Key Energy Services, Inc. ("Key Energy" or the "Company"), Francis D. John ("John") and Royce W. Mitchell ("Mitchell") (collectively the "Defendants"), by and through their respective counsel. Lead Plaintiff and the Defendants are collectively referred to herein as the "Parties."

HISTORY OF THE LITIGATION A. On or after June 15, 2004, the following six actions were filed against Key Energy and certain of its current or former officers and directors in the United States District Court for the Western District of Texas: Kaltman v. Key Energy Serv., Inc., et ai., No. 7:04-cv-00082; Lord v. Key Energy Serv., Inc., et ai., No. 7:04-cv-00083; Navon v. Key Energy Serv., Inc., et ai., No. 7:04-cv-00090; Ortbals v. Key Energy Serv., Inc., et ai., No. 7:04-cv-00104; Steward v. Key Energy Serv., Inc., et ai., No. 7:04-cv-00158; and Oarco Investments, LLP v. Key Energy, Serv., Inc.} et ai., No. 7:04-cv-00159; B. On February 24, 2005, the Court entered an Order consolidating all of the abovereferenced actions, I appointing Bellaire Castle Corporation as Lead Plaintiff, and appointing Schiffrin & Barroway, LLp 2 as Lead Counsel and Smith, Robertson, Elliott, Glen, Klein & Bell, LLP as Local Counsel for the Class; C. Lead Plaintiff filed its Consolidated Amended Class Action Complaint (the "Complaint") on November 2, 2005, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Rule 10b-5 promulgated there under, against Key Energy, John, Mitchell, Richard 1. Alario ("Alario") and James 1. Byerlotzer ("Byerlotzer"). The Complaint alleged th at during the period April 29, 2003 through and including June 4, 2004 (the "Class Period") Defendants, Alario and Byerlotzer issued false and misleading statements and/or concealed material adverse facts regarding Key Energy's business, operations, management and future prospects. More specifically, the Complaint alleged that I By Order dated January 24, 2006, this Court designated MO-04-CV-082 as the lead cause number in this action (the "Action"). 2 Schiffrin & Barroway, LLP has since changed its name to Schiffrin Barroway Topaz & Kessler, LLP. 2

Defendants, Alario and Byerlotzer engaged in a persuasive and intentional scheme to materially overstate the Company's financial results by, among other things, materially misstating Key Energy's fixed asset records and materially misstating net income by shifting current operating expenses and costs to acquisition-related transactions to be capitalized over time. The Complaint further asserted that, as a result of the conduct alleged, the price of Key Energy common stock was artificially inflated, causing damage to Lead Plaintiff and the other members of a Class (defined below) who purchased or otherwise acquired Key Energy common stock during the Class Period; D. On January 20 and 23, 2006, Defendants, Alario and Byerlotzer filed motions to dismiss the Complaint. Lead Plaintiff filed an omnibus memorandum in opposition to the motions to dismiss on March 21, 2006, and Defendants, Alario and Byerlotzer filed reply memoranda in support of their motions to dismiss beginning on April 6, 2006. By Order dated August 11, 2006, the Court denied the motions to dismiss filed by Key Energy, John and Mitchell. By the same Order, the Court granted in part the motions to dismiss filed by Alario and Byerlotzer and ordered Lead Plaintiff to replead its claims against Alario and Byerlotzer within sixty days or the claims would be dismissed. Lead Plaintiff did not replead, and the Court, in accordance with its August 11, 2006 Order, dismissed the claims against Alario and Byerlotzer without prejudice on October 25, 2006; E. Following the Court's ruling on the motions to dismiss, the Parties embarked on formal discovery. Defendants filed answers to the Complaint on September 11 and 13,2006; F. Thereafter, Lead Plaintiff filed a motion for class certification on November 22, 2006. Defendants filed a reply in opposition to Lead Plaintiffs motion for class certification on June 4, 2007; Key Energy filed a sur-reply in opposition on August 16, 2007. On August 23, 3

2007, Lead Plaintiff filed a memorandum in further support of their motion for class certification. The Court heard oral argument on the motion for class certification on September 7,2007; G. During the pendency of the motion for class certification, the Parties, by and through their respective counsel, began discussing a possible resolution of the Action, and participated in a formal two-day mediation with the assistance of the Honorable Nicholas H. Politan, on May 10-11, 2007. Although the Parties were unable to resolve the Action at this mediation, Judge Politan continued to work with the Parties in furtherance of a resolution, and the Parties participated in a second mediation on August 21, 2007. Following the August 21, 2007 mediation, the Parties continued their negotiations and reached a tentative agreement to settle the Action on September 9,2007 (the "Settlement"); H. This Action is being resolved at the same time that two derivative actions that were filed against Defendants, Moonlight Investments, Ltd. v. John, Cause No. 2004-CV-44728, 385th Judicial District Court, Midland County, Texas, and Weissman v. John, Lead Case No. MO-05-CV-044, USDC, Western District of Texas, Midland Division ("Derivative Actions"), are being resolved. This Settlement is contingent upon Court approval of the settlement of the Derivative Actions; 1. Defendants have denied and continue to deny that they have committed any act or omission giving rise to any liability and/or violation of law. Nonetheless, Defendants are entering into this Settlement to eliminate the burden and expense of further litigation, and therefore, have determined that it is desirable that the Action be fully and finally settled in the manner and upon the terms and conditions set forth in this Stipulation. The Parties to this Stipulation recognize that the Action is being voluntarily settled after extensive arm's-length 4

negotiation and after advice of counsel, and that the terms of the Settlement are fair, adequate and reasonable; 1. Lead Counsel has conducted an extensive investigation and discovery relating to the claims and the underlying events and transactions alleged in the Complaint. Lead Counsel's investigation included: (i) review and analysis of public filings by Key Energy with the SEC; (ii) review and analysis of press releases, public statements, news articles and other publications disseminated by or concerning the oil and gas industry, Key Energy, and the individual defendants; (iii) review and analysis of Key Energy's analyst conference calls; (iv) review and analysis of securities analysts' reports concerning Key Energy; (v) interviews with individuals, including former Key Energy employees, having knowledge about the Company's activities during the relevant time period; (vi) consultations with experts; (vii) review and analysis of over 670,000 pages of documents produced by Defendants and third-parties during discovery; (viii) depositions of two witnesses, Defendants' class certification expert and Defendants' designee for matters regarding discovery procedures and electronic documents; and (ix) research of the applicable law with respect to the claims asserted in the Action and the potential defenses thereto; K. Based upon the investigation, discovery and negotiations as set forth above, Lead Counsel has concluded that the terms and conditions of this Stipulation are fair, reasonable and adequate to Lead Plaintiff and the Class, and in their best interests, and has agreed to settle the claims raised in the Action pursuant to the terms and provisions of this Stipulation, after considering: (i) the benefits that Lead Plaintiff and the members of the Class will receive from settlement of the Action; (ii) the attendant risks of litigation; (iii) the difficulties, expense and 5

delays inherent in such litigation; and (iv) the desirability of permitting the Settlement to be consummated as provided by the terms of this Stipulation. NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among Lead Plaintiff (individually and on behalf of each of the Class Members), and the Defendants, by and through their respective counsel of record, that, subject to the approval of the Court, the Action and the Released Claims (defined below) shall be finally and fully compromised, settled and released, and the Action shall be dismissed with prejudice, upon and subject to the terms and conditions of the Stipulation, as follows: DEFINITIONS 1. In addition to those terms defined elsewhere in this Stipulation, the following definitions shall apply herein: (a) "Authorized Claimant" means a Class Member (as defined below), who submits a timely and valid Proof of Claim and Release form to the Claims Administrator (as defined below). (b) "Claims Administrator" means The Garden City Group, Inc. ("GCG") which shall administer the Settlement. (c) "Class" or "Class Members" means all persons who purchased or otherwise acquired the common stock of Key Energy during the period April 29, 2003 through and including June 4, 2004. Excluded from the Class are the Defendants, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any affiliates or entities in which the Defendants have or had a controlling interest. 6

(d) "Class Period" means the period April 29, 2003 through and including June 4, 2004. Mitchell. (e) "Defendants" means Key Energy Services, Inc., Francis D. John and Royce W. (f) "Defendants' Counsel" means King & Spalding LLP, Lynch, Chappell & Alsup, P.C., Gibbs & Bruns, LLP, and Carrington Coleman Sloman & Blumenthal L.L.P. (g) "District Court" or "Court" means the United States District Court for the Western District of Texas. (h) "Effective Date of Settlement" or "Effective Date" is the date defined in ~34 of the Stipulation. (i) (j) "Escrow Agent" means GCG. "Final Settlement Approval Hearing" is the hearing occurring on a date to be scheduled by the Court in this Action, at which the Parties shall request the Court: (a) grant final approval of the Settlement; (b) finally certify the Class; (c) approve a plan of allocation for disbursement of the Net Settlement Fund; (d) consider objections to the Settlement, if any; and (e) rule upon Lead Counsel's application for an award of attorneys' fees and costs. (Ie) "Lead Plaintiff' means Bellaire Castle Corporation. (1) "Lead Counsel" means the law firm of Schiffrin Barroway Topaz and Kessler, LLP. (m) "Notice" means the Notice of Pendency of Class Action and Proposed Settlement and Motion for Attorneys' Fees and Expenses which is to be sent to members of the Class, substantially in the form attached hereto as Exhibit A-I. 7

(n) "Order and Final Judgment" means the order to be entered by the Court approving the Settlement, substantially in the form attached hereto as Exhibit B. (0) "Person" means an individual, corporation, partnership, limited partnership, association, joint stock company, estate, legal representative, trust, unincorporated association, government or any political subdivision or agency thereof, and any business or legal entity and their spouses, heirs, predecessors, successors, representatives, or assignees. (p) (q) (r) "Plaintiffs" means, collectively, Lead Plaintiff and the members of the Class. "Plaintiffs' Counsel" means any counsel representing any Plaintiff in the Action. "Preliminary Approval Order" means the order preliminarily approving the Settlement and directing notice thereof to the Class, substantially in the form attached hereto as Exhibit A. (s) "Proof of Claim" means the proposed Proof of Claim and Release form substantially in the form attached as Exhibit A-2. (t) "Publication Notice" means the Summary Notice of Proposed Settlement and Settlement Hearing for publication substantially in the form attached as Exhibit A-3. (u) "Released Claims" means all claims and causes of action of every nature and description, including both known claims and Unknown Claims, whether arising under federal, state, local, statutory or common law or any other law, rule or regulation, including both known claims and Unknown Claims that Lead Plaintiff or any member of the Class (i) asserted in the Complaint; or (ii) could have asserted in any forum, that arise out of or are based upon the allegations, transactions, facts, matters or occurrences, representations or omissions involved, set forth, or referred to in the Complaint and that relate to the purchase or acquisition of Key Energy's common stock during the Class Period. Notwithstanding the foregoing, Released 8

Claims does not include the claims that are asserted or could be asserted in the Derivative Actions, which actions are being separately resolved, or the claims that are asserted or could be asserted by either Mr. Mitchell or Key Energy Services, Inc. in Royce W. Mitchell v. Key Energy Services, Inc., Cause No. 06-CY-45637. (v) "Released Parties" means each of the Defendants and their respective present and former parents, subsidiaries, affiliates, and any of their officers, directors, partners, employees, agents, representatives, attorneys, advisors, fiduciaries, insurers and reinsurers, accountants, predecessors, heirs, successors and assigns of each of them, and any other person in which any of the foregoing has or had a controlling interest or which is or was related to or affiliated with any of the foregoing. Released Pmiies also includes KPMG LLP and its current and former partners, principals, and employees, and Richard 1. Alario and James 1. Byerlotzer. (w) "Settled Defendants' Claims" means any and all claims, rights or causes of action or liabi lities whatsoever, 'whether based on federal, state, local, statutory or common law or any other law, rule or regulation, including both known claims and Unknown Claims, that have been or could have been asselied in the Action or any forum by the Defendants or any of them or the successors and assigns of any of them against Lead Plaintiff, any Class Member, Lead Counsel, or any Plaintiffs' Counsel, which arise out of or relate in any way to the institution, prosecution, or settlement of the Action (except for claims to enforce the Settlement). Notwithstanding the foregoing, Settled Defendants' Claims does not include the claims which are asserted in or could be asserted by either Mr. Mitchell or Key Energy Services, Inc. in Royce W. Mitchell v. Key Energy Services, Inc., Cause No. 06-CY-45637. (x) "Settlement" means the settlement contemplated by this Stipulation. 9

(y) "Unknown Claims" means any and all Released Claims which Lead Plaintiff or any Class Member does not know or suspect to exist in his, her or its favor at the time of the release of the Released Parties, and any Settled Defendants' Claims which any Defendant does not know or suspect to exist in his, her or its favor, which if known by him, her or it might have affected his, her or its decision(s) with respect to the Settlement. With respect to any and all Released Claims and Settled Defendants' Claims, the Parties stipulate and agree that upon the Effective Date, the Parties shall expressly waive, and each Class Member shall be deemed to have waived, and by operation of the Judgment shall have expressly waived, any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar, comparable, or equivalent to Cal. Civ. Code 1542, which provides: A-general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. The Parties acknowledge, and the Class Members by operation of law shall be deemed to have acknowledged, that the inclusion of "Unknown Claims" in the definition of Released Claims and Settled Defendants' Claims was separately bargained for and was a key element of the Settlement. SCOPE AND EFFECT OF SETTLEMENT 2. The obligations incurred pursuant to this Stipulation shall be in full and final disposition of the (a) Action; (b) any and all Released Claims as against all Released Parties and (c) any and all Settled Defendants' Claims. This Stipulation does not affect any claims, rights or causes of action or liabilities whatsoever, whether based on federal, state, local, statutory or common law or any other law, rule or regulation, whether known or unknown, that any 10

Defendant may have against any other Defendant, including those asserted in the action styled Royce W Mitchell v. Key Energy Services, Inc., Cause No. 06-CV-45637. 3. This Stipulation does not purport to release any claims that arise between or among the Defendants. 4. Upon the Effective Date of this Settlement, Lead Plaintiff and members of the Class on behalf of themselves and each of their heirs, executors, administrators, successors and assigns, and any persons they represent, shall, with respect to each and every Released Claim, release and forever discharge, and shall forever be enjoined from prosecuting, any Released Claims against any of the Released Parties. 5. Upon the Effective Date of this Settlement, Lead Plaintiff and members of the Class on behalf of themselves and each of their heirs, executors, administrators, successors and assigns, and any persons they represent, shall, with respect to each and every Released Claim, release and forever discharge, and shall forever be enjoined from prosecuting, any Released Claims against Royce W. Mitchell or Francis D. Jolm. 6. Upon the Effective Date of this Settlement, Key Energy and Francis D. John, on behalf of themselves and their successors and assigns, shall also release and forever discharge each and every of the Settled Defendants' Claims, and shall forever be enjoined from prosecuting the Settled Defendants' Claims. 7. Upon the Effective Date of this Settlement, Royce W. Mitchell, on behalf of himself and his successors and assigns, shall also release and forever discharge each and every of the Settled Defendants' Claims, and shall forever be enjoined from prosecuting the Settled Defendants' Claims. 11

THE SETTLEMENT CONSIDERATION 8. Within ten (l0) business days of the COUli's entry of the Preliminary Approval Order, Key Energy (on behalf of all the Defendants) shall payor cause to be paid the sum of Fifteen Million Four Hundred and Twenty-Five Thousand Dollars ($15,425,000) (the "Settlement Amount") into an interest-bearing escrow account, for the benefit of the Class. The Settlement Amount plus any interest earned thereon shall be referred to as the "Settlement Fund." 9. The Settlement Fund, net of any Taxes (as defined below) on the income thereof, shall be used to pay (i) the notice and administration costs referred to in ~14 hereof, (ii) the attorneys' fee and expense award referred to in ~15 hereof, and (iii) the remaining administration expenses referred to in ~16 hereof. The balance of the Settlement Fund after the above payments shall be the Net Settlement Fund which shall be distributed to the Authorized Claimants as provided in ~~17-21 hereof. Any sums required to be held in escrow hereunder prior to the Effective Date shall be held by GCG as Escrow Agent for the Settlement Fund. All funds held by the Escrow Agent shall be deemed to be in the custody of the Court and shall remain subject to the jurisdiction of the Court until such time as the funds shall be distributed. The Escrow Agent shall invest any funds in excess of $100,000 in short term United States Agency or Treasury Securities, and shall collect and reinvest all interest accrued thereon. Any funds held in escrow in an amount of less than $100,000 may be held in an interest-bearing bank account insured by the FDIC. The Parties hereto agree that the Settlement Fund is intended to be a Qualified Settlement Fund within the meaning of Treasury Regulation 1.468B-l and that the Escrow Agent, as administrator of the Settlement Fund within the meaning of Treasury Regulation 1.468B-2(k)(3), shall be responsible for filing tax returns for the Settlement Fund 12

and paying from the Settlement Fund any Taxes owed with respect to the Settlement Fund. The Defendants agree to reasonably cooperate with the Escrow Agent to provide information available to them that is needed for filing tax returns for the Settlement Fund and will give their consent to the Settlement Fund's filing of any relation back election. 10. All (i) taxes on the income of the Settlement Fund and (ii) expenses and costs incurred in connection with the taxation of the Settlement Fund (including, without limitation, expenses of tax attorneys and accountants) (collectively, "Taxes") shall be paid out of the SeWement Fund, shall be considered to be a cost of administration of the Settlement and shall be timely paid by the Escrow Agent without prior order of the Court. The Released Parties shall have no liability or responsibility for the payment of any Taxes. The Settlement Fund shall indemnify and hold the Released Parties harmless for any Taxes (including, without limitation, Taxes payable by reason of any such indemnification). CLASS CERTIFICATION 11. For settlement purposes only, the Defendants shall consent to (i) the certification of this Action as a class action pursuant to Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure, on behalf of the Class as defined herein, and (ii) the certification of the Lead Plaintiff as the Class Representative. Such celiification shall be conditioned on the approval and effectiveness of this Settlement. PRELIMINARY APPROVAL 12. Upon the execution of this Stipulation, the Parties shall jointly move the Court for entry of the Preliminary Approval Order, substantially in the form of attached Exhibit A. ADMINISTRATION 13. GCG shall be the Claims Administrator for the Settlement Fund and shall administer the Settlement under Lead Counsel's supervision and subject to the jurisdiction of the 13

Court. The Released Parties shall have no liability, obligation or responsibility for the administration of the Settlement or disbursement of the Net Settlement Fund, except for the obligation to pay the Settlement Amount, as provided herein, and to provide to the Claims Administrator Key Energy's transfer records showing names and addresses of record transferees of Key Energy common stock during the Class Period for the purpose of giving direct mail notices to Class Members within three (3) calendar days of entry of the Preliminary Approval Order. Defendants shall provide this information at no cost to Lead Plaintiff or the Class. 14. All reasonable costs and expenses of notice to members of the Class and all costs and expenses associated with the administration of the Settlement Fund, escrow fees, taxes, custodial fees and expenses incurred in connection with processing Proofs of Claim or distributing the Net Settlement Fund (collectively, the "Notice and Administrative Expenses") shall also be paid from the Settlement Fund. Prior to the Effective Date of the Settlement, Lead Counsel may draw all reasonable costs up to Two Hundred and Fifty Thousand Dollars ($250,000), from the Settlement Fund to pay the actual costs of notice and settlement 8dministration. In the event that the Settlement is not consummated, money paid or incurred for this purpose, including any related fees, shall not be returned or repaid to Defendants. ATTORNEYS' FEES AND EXPENSES 15. Lead Counsel will apply to the Court for an award from the Settlement Fund of attorneys' fees and for reimbursement of expenses, plus interest earned on both amounts. The Defend8nts sh811 take no position on any application by Lead Counsel for an award of attorneys' fees and reimbursement of expenses in the Action. Attorneys' fees and reimbursement of expenses shall be payable to Lead Counsel immediately upon award, regardless of any appeal filed, subject to the obligation of Lead Counselor any Plaintiffs' Counsel to pay back any such 14

amount if, as a result of any appeal, further proceeding or successful collateral attack, the fee or expense award is amended, modified or does not become final. The procedure for and the allowance or disallowance of any application for attorneys' fees, costs and expenses are not part of the Settlement and are to be considered by the Court separately from the Court's consideration of the fairness, reasonableness and adequacy of the Settlement. Lead Counsel shall have sole discretion in the allocation of attorneys' fees among any other Plaintiffs' Counsel. ADMINISTRATIVE EXPENSES AND DISTRIBUTION ORDER 16. Lead Counsel will apply to the Court, on notice to Defendants' Counsel, for an order (the "Class Distribution Order") approving the Claims Administrator's administrative determinations concerning the acceptance and rejection of the claims submitted herein and approving any fees and expenses not previously applied for, including the fees and expenses of the Claims Administrator, and, if the Effective Date has occurred, directing payment of the Net Settlement Fund to Authorized Claimants. DISTRIBUTION TO AUTHORIZED CLAIMANTS 17. The allocation of the Settlement Fund among the members of the Class shall be subject to a plan of allocation to be proposed by Lead Counsel and approved by the Court. The Released Parties will take no position with respect to such proposed plan of allocation or such plan as may be appmved by the Court and shall have no responsibility or liability whatsoever with respect to such plan of allocation. Such plan of allocation is a matter separate and apart from the proposed Settlement between the Parties, and any decision by the Court concerning the plan of allocation shall not affect the validity or finality of the proposed Settlement. 18. No Authorized Claimant shall have any claim against the Lead Plaintiff, Lead Counsel, any Defendant, Released Party or Defendants' Counsel based on any distribution made 15

in accordance with or as contemplated by this Stipulation. Neither Defendants nor Defendants' Counsel shall have any responsibility or liability whatsoever to the Lead Plaintiff, Lead Counsel or any Class Member in connection with such allocation. 19. The Claims Administrator shall determine each Authorized Claimant's pro rata share of the Net Settlement Fund based upon each Authorized Claimant's Recognized Claim (as defined in the plan of allocation described in the Notice annexed hereto as Exhibit 1 to Exhibit A (the "Plan of Allocation"), or in such other Plan of Allocation as the Court approves). Each Authorized Claimant shall be allocated a pro rata share of the Net Settlement Fund based on his, her, or its Recognized Claim compared to the total Recognized Claims of all accepted claimants. 20. Lead Counsel shall be responsible for supervising the administration of the Settlement and disbursement of the Net Settlement Fund by the Claims Administrator. Lead Counsel shall have the right, but not the obligation, to waive what it deems to be formal or technical defects in any Proofs of Claim submitted in the interests of achieving substantial justice. Failure to submit a Proof of Claim by the date specified in the Notice, in the absence of any Order of the Court extending such period, shall not constitute a defect waivable by Lead Counsel. 21. For purposes of determining the extent, if any, to which a Class Member shall be entitled to be treated as an "Authorized Claimant," the following conditions shall apply: (a) Each Class Member shall be required to submit a Proof of Claim (see Exhibit 2 to Exhibit A), supported by such documents as are designated therein, including proof of the claimant's loss, or such other documents or proof as Lead Counsel, in its discretion, may deem acceptable; 16

(b) All Proofs of Claim must be submitted by the date specified in the Notice unless such period is extended by Order of the Court. Any Class Member who fails to submit a Proof of Claim by such date shall be forever barred from receiving any payment pursuant to this Stipulation (unless, by Order of the Court, a later submitted Proof of Claim by such Class Member is approved), but shall in all other respects be bound by all of the terms of this Stipulation and the Settlement including the terms of the Order and Final Judgment to be entered in the Action and the releases provided for herein, and will be barred from bringing any action against the Released Parties concerning the Released Claims. Provided that it is received before the Illotion for the Class Distribution Order is filed, a Proof of Claim shall be deemed to have been submitted when posted, if received with a postmark indicated on the envelope and if mailed by first-class mail and addressed in accordance with the instructions thereon. In all other cases, the Proof of Claim shall be deemed to have been submitted when actually received by the Claims Administrator; (c) Each Proof of Claim shall be submitted to and reviewed by the Claims Administrator, unclei' the supervision of Lead Counsel, who shall determine in accordance with this Stipulation the extent, if any, to which each claim shall be allowed, subject to review by the Court pursuant to subparagraph (e) below; (d) Proofs of Claim that do not meet the submission requirements may be rejected. Prior to rejection of a Proof of Claim, the Claims Administrator shall communicate with the claimant in order to remedy the curable deficiencies in the Proofs of Claim submitted. The Claims Administrator, under supervision of Lead Counsel, shall notify, in a timely fashion and in writing, all claimants whose Proofs of Claim they propose to reject in whole or in part, setting lorth the reasons therefor, (md shall indicate in such notice that the claimant whose claim is to be 17

rejected has the right to a review by the Court if the claimant so desires and complies with the l"cquirements of subparagraph (e) below; (e) If any claimant whose claim has been rejected in whole or in part desires to contest such rejection, the claimant must, within twenty (20) days after the date of mailing of the notice required in subparagraph (d) above, serve upon the Claims Administrator a notice and statement of reasons indicating the claimant's grounds for contesting the rejection along with any supporting documentation, and requesting a review thereof by the Court. If a dispute concerning a cl<:lim cannot be otherwise resolved, Lead Counsel shall thereafter present the request for review to the Court; and (f) The administrative determinations of the Claims Administrator accepting and rejecting claims shall be presented to the Court, on notice to Defendants' Counsel, for approval by the Court in the Class Distribution Order. 22. Each claimant shall be deemed to have submitted to the jurisdiction of the Court with respect to the claimant's claim, and the claim will be subject to investigation and discovery under the Federal Rules of Civil Procedure, provided that such investigation and discovery shall bc Iimited to that claimant's status as a Class Member and the validity and amount of the claimant's claim. No discovery shall be allowed on the merits of the Action or Settlement in connection wi th processing of the Proofs of Claim. 23. Payment pursuant to this Stipulation shall be deemed final and conclusive against al1 Class Members. All Class Members whose claims are not approved by the Court shall be barred from participating in distributions from the Net Settlement Fund, but otherwise shall be bound by all of the terms 0 f this Stipulation and the Settlement, including the terms of the Order 18

and Final Judgment to be entered in the Action and the releases provided for herein, and will be barred from bringing any action against the Released Parties concerning the Released Claims. 24. All proceedings with respect to the administration, processing and determination of' cl ai ms described by ~21 of this Stipulation and the determination of all controversies relating thereto, including disputed questions of law and fact with respect to the validity of claims, shall be subject to the jurisdiction of the Court. 25. The Net Settlement Fund shall be distributed to Authorized Claimants by the Claims Administrator only after the Effective Date and after: (i) all claims have been processed, and all claimants whose claims have been rejected or disallowed, in whole or in part, have been noti fied and provided the opportunity to be heard concerning such rejection or disallowance; (ii) all objections with respect to all rejected or disallowed claims have been resolved by the Court, and all appeals therefrom have been resolved or the time therefor has expired; and (iii) all costs of administration have been paid. 26. If any funds remain in the Net Settlement Fund by reason of uncashed checks, or otherwise, after the Claims Administrator has made reasonable and diligent efforts to have Authorized Claimants who are entitled to participate in the distribution of the Net Settlement Fund cash their distribution checks, then any balance remaining in the Net Settlement Fund six (6) months after the initial distribution of such funds shall be used: (a) first, to pay any amounts mistakenly omitted from the initial distribution to Authorized Claimants or to pay any late, but otherwise valid and fully documented claims received after the cut-off date used to make the initial distribution, which were not previously authorized by the Court to be paid, provided that such distributions to any late post-distribution claimants meet all of the other criteria for inclusion in the initial distribution, including the $10.00 minimum check amount set out in the 19

Notice, (b) second, to pay any additional settlement administration fees and expenses, including those of Lead Counsel as may be approved by the Court, and (c) finally, to make a second distribution to Authorized Claimants who cashed their checks from the initial distribution and who would receive at least $10.00 from such second distribution, after payment of the estimated costs or fees to be incurred in administering the Net Settlement Fund and in making this second distribution, if such second distribution is economically feasible. 27. If six (6) months after any such second distribution is undertaken, or if such second distribution is not undertaken, any funds shall remain in the Net Settlement Fund after the Claims Administrator has made reasonable and diligent efforts to have Authorized Claimants who are entitled to participate in this Settlement cash their checks, the Claims Administrator shall donate any funds remaining in the Net Settlement Fund to a 503(c) charity chosen by Lead Counsel and approved by the Court. RIGHTS OF EXCLUSION OR OBJECTION 28. Simultaneous with the execution of the Stipulation, counsel for the Parties shall execute a "Supplemental Agreement" setting forth certain conditions under which the Stipulation may be withdrawn or terminated by Key Energy if persons beneficially owning a percent of the olltslanding common stock of Key Energy during the Class Period (who would be Class ivlembers) have submitted valid and timely requests for exclusion from the Settlement. The Supplemental Agreement and all of its terms are hereby incorporated into this Stipulation (and vice versa). 29. Any Person may seek to be excluded from the Class and the Settlement provided f~)r by this Stipulatioll by submitting a written request for exclusion. Any Class Member so excluded shall not be bound by the terms of the Stipulation, nor entitled to any of its benefits, 20

and shall not be bound by any Order of Final Judgment and/or other order of the Court entered herein, whether pursuant to this Stipulation or otherwise. 30. Any Class Member who does not exclude himself, herself or itself from the Class and the Settlement shall have the right to submit written objections concerning the Settlement, Plan of Allocation, and/or Lead Counsel's application for attorneys' fees and expenses, which objections shall state all of the reasons for the objections (e.g., a mere statement that "I object" shall not be deemed sufficient). All Persons desiring to attend the Final Settlement Approval Hearing and be heard as objectors must have filed written objections as provided herein, as a condition of appearing and being heard at such hearing. Any Class Member who does not timely file written objections to the Settlement pursuant to this paragraph and the Notice shall not be permitted to object to the Settlement at the Final Settlement Approval Hearing, and shall be foreclosed from objecting to, challenging or otherwise seeking review of the Settlement by appeal or otherwise, in this Action or in any other action. 3]. To retract or withdraw a request for exclusion, a member of the Class must, in accordance with the Notice, file a written notice with the Claims Administrator stating the Person's desire to retract or withdraw his, her, or its request for exclusion and that Person's desire to be bound by any judgment or settlement in this Action; provided, however, that the tiling of such written notice may be effected by Lead Counsel. Lead Counsel shall promptly noti fy counsel for Key Energy of any retraction or withdrawal of a request for exclusion in accordance with ~4 of the Supplemental Agreement. TERMINATION OF SETTLEMENT 32. If Key Energy elects to withdraw from the Stipulation pursuant to ~28 hereof, Lead Counsel may review the validity of any request for exclusion and may attempt to cause 21

retraction or withdrawal of any request for exclusion in accordance with ~7 of the Supplemental Agreement. No Released Party shall in any way interfere with, obstruct or seek to enjoin efforts by Lead Plainti ff to seek to have those members of the Class who requested exclusion withdraw their requests for exclusion. If, by the day before the Final Settlement Approval Hearing (or a later date agreed upon in writing), Lead Plaintiff is successful in reducing the number of excluded Class Members so that the Class Members seeking exclusion, in the aggregate, purchased shares in an amount less than the Opt-Out Threshold set forth in the Supplemental Agreement, then any withdrawal from the Stipulation by Key Energy shall automatically be deemed null and void. In that event, Lead Counsel shall serve on counsel for Key Energy by hand delivery or fax a statement identifying the Class Members who have withdrawn their requests for exclusion. JJ. In the event of a withdrawal from the Stipulation in accordance with the terms of the Supplemental Agreement, the Stipulation shall become null and void and of no further force and effect, except that the provisions of ~37 shall apply. The Supplemental Agreement shall not be filed unless required by the Court, a dispute arises regarding its terms, or Key Energy exercises its rights thereunder. EFFECTIVE DATE OF THE SETTLEMENT, WAIVER OR TERMINATION 34. The Effective Date of the Settlement shall be the date upon which all the following shall have OCCUlTed: (a) funding in conformity with ~8; (b) entry of the Pre] iminary Approval Order 111 all material respects in the form annexed hereto as Exhibit A; 22

(c) fi nal approval by the Court of the Settlement, following notice to the Class and a hearing, as prescribed by Rule 23 of the Federal Rules of Civil Procedure; (d) entry by the Court of an Order and Final Judgment, in all material respects in the form set forth in Exhibit B annexed hereto, and the expiration of any time for appeal or review of such Order and Final Judgment, or, if any appeal is filed and not dismissed, after such Order and Final Judgment is upheld on appeal in all material respects and is no longer subject to review upon appeal or review by writ of certiorari, or, in the event that the Court enters an order and final judgment in a form other than that provided above ("Alternative Judgment") and none of the Parties hereto elect to terminate this Settlement, the date that such Alternative Judgment becomes final and no longer subject to appeal or review; and (e) entry of a final order and judgment in the Derivative Actions. 35. Defendants' Counselor Lead Counsel shall have the right to terminate the Setl:lement and this Stipulation by providing written notice of their election to do so ("Termination Notice") to all other Parties hereto within thirty (30) days of: (i) the Court's cleclining to enter the Preliminary Approval Order in any material respect; (ii) the Court's refusal to approve this Stipulation in any material respect; (iii) the Court's declining to enter the Order and Final Judgment in any material respect; (iv) the date upon which the Order and Final Judgment is modified or reversed in any material respect by the Court of Appeals or the Supreme Court: (v) the date upon which an Alternative Judgment is modified or reversed in any material respect by the Court of Appeals or the Supreme Court; (vi) the date upon which a court of competent jurisdiction in the Derivative Actions declines to enter any order and final judgment in any material respect; or (vii) the date upon which any order and final judgment in the Derivative 23

Actions is modified or reversed in any material respect on appeal. Lead Counsel shall also have the right to terminate the Settlement if Defendants fail to comply with the requirements of~8. 36. Except as otherwise provided herein, in the event the Settlement is terminated or fails to become effective for any reason, then the Parties to this Stipulation shall be deemed to have reverted to their respective status in the Action immediately prior to the execution of this Stipulation and, except as otherwise expressly provided, the Parties shall proceed in all respects as if this Stipulation and any related orders had not been entered, and any portion of the Settlement Amount previously paid by Key Energy or caused to be paid by Key Energy, together with any interest earned thereon, less any Taxes due with respect to such income, and less costs of administration and notice actually incurred whether paid or not paid, shall be returned within ten (10) business days to Key Energy or any entity Key Energy caused to pay any portion of the Settlement Am01.111t. 37. In the event the Settlement is terminated or fails to become effective for any reason set forth in ~28 or ~3S, all documents, negotiations, transactions, proceedings and statements connected with the Settlement: (a) shall be without prejudice to the rights of any of the Parties and their respective predecessors and successors, all of whom shall be restored to Iheil' respective positions as they existed prior to the execution of this Stipulation; (b) shall not be deemed to be, or construed as, an admission by any Party of any fact, matter or thing; and (c) shall not be offered or received in evidence or used for any purpose against any Party in any subsequent proceedings in the Action or any other action or proceeding. NO ADMISSION OF WRONGDOING 38. This Stipulation and all negotiations, statements, and proceedings in connection herc'vvi th shall not, in any event, be construed or deemed to be evidence of an admission or concession on the part of the Lead Plaintiff, any Defendant, any member of the Class, or any 24

olher person, of any liability or wrongdoing by them, or any of them, and shall not be offered or received in evidence in any action or proceeding (except an action to enforce this Stipulation and settlement contemplated hereby), or be used in any way as an admission, concession, or evidence of any liability or wrongdoing of any nature, and shall not be construed as, or deemed to be evidence of, an admission or concession that Lead Plaintiff, any member of the Class, or any other pel'son, h8s or h8s not suffered any damage. MISCELLANEOUS PROVISIONS 39. All of the exhibits attached hereto are hereby incorporated by reference as though fully set forth herein. 40. Jf 8 C8se is commenced in respect of any Defendant under Title 11 of the United SI8tes Code (B8nkruptcy), or a trustee, receiver or conservator is appointed under any similar law, and in the event of the entry of a final order of a court of competent jurisdiction determining the trcinsfer of money to the Settlement Fund or any portion thereof by or on behalf of such Defendant to be a preference, voidable transfer, fraudulent transfer or similar transaction and any portion thereof is required to be returned, and such amount is not promptly deposited to the Settlement Fund by other Defendants, then, at the election of Lead Counsel, the Pmiies shall jointly move the Court to vacate and set aside the releases given and Order of Final Judgment entered in favor of the Defendants pursuant to this Stipulation, which releases and Order of Final Judgment S-1181\ be nu1\ and void, and the Parties shall be restored to their respective positions in the litigation immediately prior to the execution of this Stipulation and any cash amounts in the Settlement Fund s!l811 be returned to the person(s) that paid such amounts as provided in ~36 above. 41. The Parties to this Stipulation intend the Settlement to be a final and complete resolution of all disputes asserted or which could be asserted by the Class Members against the 25

Released Parties with respect to the Released Claims. Accordingly, Lead Plaintiff, on behalf of itself and the Class, and the Defendants agree not to assert in any forum that the Action was brought by Le8d Plaintiff or defended by the Defendants in bad faith or without a reasonable basis. The Parties hereto shall assert no claims of any violation of Rule 11 of the Federal Rules of Civil Procedure relating to the prosecution, defense, or settlement of the Action. The Parties agree that the Settlement Amount and the other terms of the Settlement were negotiated at arm'slength and in good faith by the Parties, and reflect a settlement that was reached voluntarily after collsu\t8tion with experienced legal counsel. 42. This Stipulation may not be modified or amended, and none of its provisions may be waived except by a writing signed by all Pmiies hereto or their successors-in-interest. 43. The headings herein are used for the purpose of convenience only and are not meant to have legal effect. 44. The administration and consummation of the Settlement as embodied in this Stipulation shall be under the authority of the Court, and the Court shall retain jurisdiction for the purpose of entering orders providing for awards of attorneys' fees and expenses to Lead Counsel and enforcing the terms of this Stipulation. 45. The waiver by one Party of any breach of this Stipulation by any other Party shall not be deemed a waiver 0 rany other prior or subsequent breach of this Stipulation. 46. This Stipulation and its exhibits and the Supplemental Agreement constitute the entire agreement among the Parties hereto concerning the Settlement of the Action, and no l'epresentations, warranties, or inducements have been made by any Party hereto concerning this Stipulation and its exhiblts and the Supplemental Agreement other than those contained and memorialized in such documents. 26

47. This Stipulation may be executed in counterparts by facsimile or original signature, each of vvhich shall constitute and be deemed one and the same instrument. The Stipulation shall also provide that it may be executed in counterparts, each of which shall also be deemed one and the same instrument. 48. The terms of this Stipulation and Settlement shall inure to and be binding upon the Parties and their successors in interest. 49. The construction, interpretation, operation, effect and validity of this Stipulation, and all documents necessary to effectuate it, shall be governed by the laws of the State of Texas without regard to any choice of Jaw provision, except to the extent that federal law requires that federal Imv governs. so. This Stipulation shall not be construed more strictly against one Party than another merely by virtue of the fact that it, or any part of it, may have been prepared by counsel for one of the Parties, it being recognized that it is the result of arm's-length negotiations. 51. The undersigned signatories represent that they have authority from their respective client(s) to execute this Stipulation and any of the exhibits hereto, or any related sett1ement documents. 52. Lead Counsel ancl Defendants' Counsel agree to cooperate fully with one another 111 seeking the Court's preliminary approval of the Stipulation and the Settlement, and to promptly agree upon and execute all such other documentation as may be reasonably required to obtain final approval by the Court of the Settlement. 27

53. The Parties and their counsel agree that they will refrain from disparaging the Settlement or each other with respect to the Action in any press releases or statements to the media, or in any other communications. Dated: November/3, 2007 SCHIFFRIN BARROWAY TOPAZ & KESSLER, LLP!WA~~ fh/l~~4 Katharine M. Ryan, Esq. ~ Kay E. Sickles, Esq. Christopher L. Nelson, Esq. 280 King ofprussia Road Radnor, PA 19087 Telephone: (610) 667-7706 Facsimile: (610) 667-7056 Lead Counselfor Lead Plaintiffand the Class KING & SPALDING LLP Mark K. Glasser, Esq. State Bar No. 08014500 Penn C. Huston, Esq. State Bar No. 00796804 1100 Louisiana, Suite 4000 Houston, TX 77002 Telephone: (713) 751-3200 Facsimile: (713) 751-3290 Counselfor Defendant Key Energy Services, Inc. GIBBS & BRUNS, LLP Robin C. Gibbs, Esq. Robert Burford, Esq. Brian T. Ross, Esq. 1100 Louisiana, Suite 5300 Houston, TX 77002 Telephone: (713) 650-8805 Facsimile: (713) 750-0903 Counselfor Defendant Francis D. John 28