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KEY ENERGY SERVICES INC filed this Form S-4/A on 03/08/1996
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per share. The Compensation Committee determined that in each of the three years
ended June 30, 1995,  Key exceeded its internal  projections  and target levels.
During the three year period, salary increases and bonuses had been conservative
and  modest  compared  with  Key's  performance,   in  large  part  due  to  the
Compensation  Committee's and the Board of Directors'  cautious and conservative
approach following Key's successful  reorganization in December 1992. In lieu of
bonuses for the fiscal year ended 1995, the  Compensation  Committee  elected to
approve the employment  agreements  with executive  officers which are described
elsewhere  in  this  Proxy  Statement-Prospectus.  These  employment  agreements
provide for  significant  bonuses in future years based upon an  incentive  plan
adopted by Key.  Bonus awards under the  incentive  plan will be based upon both
Key or Key's respective  operating  subsidiary  achieving certain earnings goals
and the  attainment of individual  qualitative  goals relating to the employee's
position and responsibilities  with Key. The Board of Directors determines Key's
overall  earnings  goals and,  with the review and approval of the  Compensation
Committee,  the  Chief  Executive  Officer  sets  the  earnings  and  individual
qualitative goals for Key's operating subsidiaries.

         The employment agreements also provide for option grants under the 1995
Stock Option Plan. In  determining  stock option grants for executive  employees
under the 1995 Stock Option Plan, the Compensation  Committee considered,  among
other things, the value of the shares reserved for grant to such employees under
the  Grant  Plan,  rights  to which are being  surrendered  in  connection  with
adoption of the 1995 Stock  Option  Plan and the  employee's  position  with and
contributions to Key, performance, salary and the price of the Key Common Stock.

         Fiscal year 1995  compensation for Mr. John as Chief Executive  Officer
and Chief Financial  Officer  consisted of his base salary of $250,000 under the
now superseded  Employment Letter. In lieu of bonus compensation for fiscal 1995
and in consideration  of the other factors  described  herein,  the Compensation
Committee  structured the new employment  agreement with Mr. John.  Compensation
under and the other terms and conditions of Mr. John's new employment  agreement
were determined  after  consideration  and analysis of, among other things,  the
following factors:  Key's three year performance history and the relationship of
Key's  performance  to  internal  projections  and  targets,  all of which  were
exceeded; the modest salary increases and conservative bonuses paid to the Chief
Executive  Officer  during  the  three  year  period;  average  cash  and  other
compensation  and equity  positions  of chief  executive  officers  of  selected
companies  deemed by the  Compensation  Committee  to be  comparable;  the Chief
Executive  Officer's  central  role  in  Key's  successful   reorganization  and
operating  results  since the  reorganization;  Key's  deferral  of  payment  of
emergence or success bonuses to its Chief Executive  Officer;  the fact that the
Chief Executive  Officer has also performed the functions of the Chief Financial
Officer thereby reducing corporate  overhead;  the fact that the Chief Executive
Officer  has   identified,   negotiated   and  structured   several   beneficial
acquisitions  and financings  without payment of investment  banking or finders'
fees or receipt of bonuses  with respect  thereto;  and Key's  determination  to
shift from a stock  grant to a stock  option  plan,  including  certain  options
linked  directly to increases in the price of Key's Common Stock,  and the Chief
Executive  Officer's  agreement to forego  designated and committed awards under
the Stock Grant Plan.

         Since Key's  reorganization  in December 1992, total  shareholder value
has increased  from a negative net worth of $5.6 million at November 30, 1992 to
a positive net worth of $20.8  million at September 30, 1995, an increase in net