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SEC Filings

S-4/A
KEY ENERGY SERVICES INC filed this Form S-4/A on 03/08/1996
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the  purposes of Section 83 while it is both subject to a  "substantial  risk of
forfeiture" and nontransferable. If stock received upon exercise of an option is
substantially  nonvested,  the difference is measured as of the date or dates on
which  the  stock  becomes  substantially  vested.  The 1995  Plan  permits  the
Committee to impose  repurchase rights that should create a "substantial risk of
forfeiture"  on Common  Stock  acquired  upon  exercise of Options and cause the
Common Stock to be  nontransferable.  For  example,  a right to  repurchase  the
Common  Stock for par  value in the event  that the  Optionee's  performance  of
services for Key ceases within two years after the date of exercise of the NSO.

         Common Stock  acquired by exercise of NSOs by insiders is treated under
Section 83(c) of the Code as being subject to a "substantial risk of forfeiture"
and  nontransferable  during the period in which the Common Stock cannot be sold
without  violating  Section 16(b) of the Exchange  Act.  Since the sale of stock
acquired  pursuant  to the  exercise  of a NSO within six months of the date the
Option was granted would violate  Section  16(b),  the income taxed by reason of
the  exercise of a NSO by an Optionee  within six months after the date of grant
of the Option generally would not be measured until six months after the date of
the grant,  and the  Optionee's  holding  period for the Common  Stock would not
begin until that date,  unless he made the election  described in the  following
paragraph.

         An Optionee may elect, in accordance with Section 83(b) of the Code, to
be taxed on the difference  between the exercise price and the fair market value
of the Common  Stock on the date of  exercise,  even  though  some or all of the
Common Stock acquired is subject to a "substantial  risk of forfeiture." Such an
election must be made in writing to the Internal  Revenue Service within 30 days
of the date the Option is exercised,  and an election is  irrevocable at the end
of that period.

         Key receives no tax deduction on the grant of a NSO, but is entitled to
a tax deduction when the Optionee recognizes taxable income on or after exercise
of the  NSO,  in the  same  amount  as the  income  recognized  by the  Optionee
(subject,  in the case of certain  insiders,  to the  limitation on deduction of
executive  compensation  under Section 162(m) of the Code). If an NSO is granted
with an exercise  price at least  equal to the fair  market  value of the Common
Stock  on the  date of the  grant,  it  should  constitute  "performance  based"
compensation  for purposes of Section 162(m);  and Key's deduction on account of
the  exercise  of a NSO by such an  insider  should  not be  limited  under that
provision.

         Tax  Treatment  of  ISOs.   Except  with  respect  to  any   applicable
"alternative  minimum  tax,"  Section 422 of the Code  provides that an Optionee
incurs no federal income tax liability on either the grant or the exercise of an
ISO.  Provided  that the stock  acquired  on  exercise of the ISO is held for at
least one year after the date the ISO is exercised  and at least two years after
the date the ISO was granted,  any gain realized on the  subsequent  sale of the
stock will be taxed as  long-term  capital  gain.  If the stock is  disposed  of
within a shorter period of time (a  "disqualifying  disposition"),  the Optionee
will be taxed as if he had then  received  ordinary  compensation  income  in an
amount equal to the  difference  between the lesser of (i) the fair market value
of the stock on the date of exercise of the Option or (ii) the sale price of the

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