<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant x
Filed by a Party other than the Registrant
Check the appropriate box:
X Preliminary Proxy Statement Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
DAILEY PETROLEUM SERVICES CORP.
(Name of Registrant as Specified in its Charter)
DAILEY PETROLEUM SERVICES CORP.
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required
$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
N/A
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
N/A
<PAGE> 2
x Fee paid previously by written preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
(2) Form, Schedule or Registration Statement No.:
N/A
(3) Filing Party:
N/A
(4) Date Filed:
N/A
<PAGE> 3
DAILEY PETROLEUM SERVICES CORP.
One Lawrence Centre
2507 North Frazier
P.O. Box 2866
Conroe, Texas 77305-2866
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NOTICE OF ANNUAL MEETING
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The 1997 Annual Meeting of Stockholders (the "Meeting") of Dailey
Petroleum Services Corp., a Delaware corporation (the "Company") will be held
at the Wyndham Greenspoint Hotel, Salon 1, 12400 Greenspoint Dr., Houston,
Texas at 10:00 a.m. on October 7, 1997, for the following purposes:
1. to elect two Class I directors for a three-year term to expire at
the 2000 annual meeting of stockholders of the Company;
2. to approve the Dailey Petroleum Services Corp. 1997 Long-Term
Incentive Plan;
3. to consider and act on a proposal to amend the Company's Restated
Certificate of Incorporation to change the name of the Company to "Dailey
International Inc.";
4. to ratify the appointment of Ernst & Young LLP as the Company's
auditors for the fiscal year ended December 31, 1997; and
5. to take action upon any other matters which may properly come before
the meeting.
Stockholders of record at the close of business on August 20, 1997, are
entitled to notice of and to vote at the Meeting and any adjournment thereof.
It is important that your shares be represented at the Meeting. I urge
you to sign, date and promptly return the enclosed proxy card in the enclosed
postage paid envelope.
BY ORDER OF THE BOARD OF DIRECTORS
William D. Sutton,
Secretary
September 5, 1997
<PAGE> 4
DAILEY PETROLEUM SERVICES CORP.
One Lawrence Centre
2507 North Frazier
P.O. Box 2866
Conroe, Texas 77305-2866
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PROXY STATEMENT
- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 7, 1997
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Dailey Petroleum Services Corp., a
Delaware corporation (the "Company"), of proxies to be voted at the Company's
1997 Annual Meeting of Stockholders (the "Meeting") to be held at the Wyndham
Greenspoint Hotel, Salon 1, Houston, Texas on October 7, 1997, at 10:00 a.m.
local time, and at any adjournment thereof. This Proxy Statement and the
accompanying proxy are being mailed to the Company's stockholders on or about
September 5, 1997.
Properly executed proxies received in time for the meeting will be
voted as directed therein, unless revoked in the manner provided hereafter. As
to any matter for which no choice has been specified in a proxy, the shares
represented thereby will be voted by the persons named in the proxy (i) "FOR"
the election of the nominees to the Board of Directors; (ii) "FOR" approval of
the Dailey Petroleum Services Corp. 1997 Long-Term Incentive Plan (the "1997
Incentive Plan"); (iii) "FOR" approval of the amendment to the Company's
Restated Certificate of Incorporation changing the Company's name to "Dailey
International Inc."; (iv) "FOR" approval of Ernst & Young LLP as the Company's
independent auditors for the year ended December 31, 1997; and (v) in the
discretion of such persons, "FOR" or "AGAINST" any other proposals which may be
submitted at the Meeting. A stockholder giving a proxy may revoke it at any
time before the proxy is voted by giving written notice to the Secretary of the
Company, by executing and delivering a proxy bearing a later date, or by
attending the Meeting and voting in person.
PERSONS MAKING THE SOLICITATION
This Proxy Statement solicits proxies on behalf of the Board of
Directors of the Company. The total expense of such solicitation, including
the cost of preparing, assembling, and mailing the proxy materials to
stockholders, will be borne by the Company. It is anticipated that
solicitations of proxies for the Meeting will be made only by use of the mails;
however, the Company may use the services of its directors, officers and
employees to solicit proxies personally or by telephone, without additional
salary or compensation to them. Brokerage houses, custodians, nominees and
fiduciaries will be required to forward the proxy soliciting materials to the
beneficial owners of the Company's shares held of record by such persons and
the Company will reimburse such persons for their reasonable out-of-pocket
expenses incurred in that connection.
SHARES OUTSTANDING AND VOTING RIGHTS
Only stockholders of record at the close of business on August 20, 1997,
are entitled to notice of and to vote at the Meeting or any adjournment
thereof. Holders of the Company's Class A Common Stock, $.01 par value ("Class
A Common Stock") are entitled to one vote per share. Holders of the Company's
Class B Common Stock, $.01 par value ("Class B Common Stock" and together with
the Class A Common Stock, the "Common Stock") are entitled to seven votes per
share. All actions submitted to a vote of stockholders are voted on by holders
of Class A Common Stock and Class B Common Stock voting together as a single
class, except as otherwise required by law. Holders of the Company's Common
Stock are not entitled to cumulative voting in the election of directors. On
August 20, 1997, there were issued and outstanding 4,171,000 shares of Class A
Common Stock, entitled to
<PAGE> 5
cast an aggregate of 4,171,000 votes on all matters subject to a vote at the
Meeting, and 5,000,000 shares of Class B Common Stock, entitled to cast an
aggregate 35 million votes on all matters subject to a vote at the Meeting.
The Company has a total of 9,171,000 shares of Common Stock outstanding,
entitled to cast an aggregate 39,171,000 votes on all matters subject to a vote
at the Annual Meeting. A list of stockholders entitled to notice of and to
vote at the Meeting will be made available during regular business hours at the
offices of the Company, One Lawrence Centre, 2507 North Frazier, P.O. Box 2866,
Conroe, Texas 77305-2866 from September 5, 1997, through October 6, 1997, and
at the Meeting, for inspection by any stockholder for any purpose regarding the
Meeting.
Stockholders present in person or represented by proxy at the meeting
holding a majority of the votes of all of the shares of Common Stock issued and
outstanding on the Record Date will constitute a quorum for the transaction of
business at the Meeting. The shares held by each stockholder who signs and
returns the enclosed form of proxy will be counted for purposes of determining
the presence of a quorum at the Meeting.
The enclosed form of proxy provides a means for stockholders to vote for
both of the director nominees listed herein, to withhold authority to vote for
one of such nominees or to withhold authority to vote for both of such
nominees. All proxies that are properly executed and received by the Company
prior to the Annual Meeting will be voted in accordance with the choices
indicated. Any stockholder may be represented and may vote at the Meeting by a
proxy or proxies appointed by an instrument in writing. In the event that any
such instrument in writing shall designate two or more persons to act as
proxies, a majority of such persons present at the meeting, or, if only one
shall be present, then that one shall have and may exercise all of the powers
conferred by such written instrument upon all of the persons so designated
unless the instrument shall otherwise provide. No such proxy shall be valid
after the expiration of [six months] from the date of its execution, unless
coupled with an interest or unless the person executing it specifies therein
the length of time for which it is to continue in force, which in no case shall
exceed [seven years] from the date of its execution. Any Stockholder giving a
proxy may revoke it at any time prior to its use at the Meeting by filing with
the Secretary of the Company a revocation of the proxy, by delivering to the
Company a duly executed proxy bearing a later date, or by attending the meeting
and voting in person.
The approval of the 1997 Incentive Plan and the ratification of Ernst &
Young LLP as the Company's auditors each requires the affirmative vote of
stockholders holding a majority of the votes of the shares of Common Stock
entitled to vote on the proposal and present in person or represented by proxy
at the Meeting, while approval of the amendment to the Restated Certificate of
Incorporation of changing the name of the Company to "Dailey International
Inc." requires the affirmative vote of stockholders holding a majority of the
votes of shares of Common Stock issued and outstanding as of the Record Date.
Broker non-votes, i.e. shares held in the name of brokers for which
discretionary authority is not permitted under the rules of the Nasdaq National
Market, will not be considered entitled to vote on such proposals or counted in
determining the number of shares voted in favor of any proposal. Shares that
are represented at the Meeting but abstain from voting on such proposals will
be counted as shares entitled to vote on such proposals and will have the same
effect as a vote against such proposals. Accordingly, broker non-votes will
have no effect on the vote for approval of the 1997 Incentive Plan or the
ratification of Ernst & Young LLP and will have the same effect as a vote
against the proposed amendment to the Restated Certificate of Incorporation.
Lawrence Industries, Inc. ("Lawrence"), which beneficially owned
5,000,000 shares of Class B Common Stock (constituting 100% of Class B Common
Stock and 55% of all Common Stock) at August 20, 1997, controls sufficient
votes to determine the outcome of any of the proposals being voted upon by the
stockholders. Lawrence has advised the Company that it intends to vote the
shares owned by it "for" election of the two nominees named herein, "for" the
1997 Incentive Plan; "for" the amendment to the Company's Restated Certificate
of Incorporation changing the name of the Company to "Dailey International,
Inc."; and "for" the ratification of the appointment of Ernst & Young LLP as
the Company's independent auditors for the fiscal year ended December 31, 1997.
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PROPOSAL NO. 1
ELECTION OF CLASS I DIRECTORS
The Company's Board of Directors currently is comprised of six members.
The Company's Restated Certificate of Incorporation provides for the
classification of the Board of Directors into three classes of directors, with
the term of each class expiring at successive annual stockholders' meetings.
At and after the 1997 annual meeting of stockholders, all nominees of the class
standing for election will be elected for three-year terms.
Two directors will be elected at the Meeting to serve as Class I
directors for three-year terms ending at the Annual Meeting of Stockholders or
until such person's successor shall be duly elected and qualified. The Board
of Directors recommends the election of Mr. William D. Sutton and Mr. David T.
Tighe as the Class I Directors to serve for such three-year terms. Both Mr.
Sutton and Mr. Tighe are currently directors of the Company.
Unless contrary instructions are set forth in the proxies, it is intended
that the persons executing a proxy will vote all shares represented by such
proxy for the election as director of both Mr. Sutton and Mr. Tighe. Should
either Mr. Sutton or Mr. Tighe become unable or unwilling to accept nomination
or election, it is intended that the person acting under the proxy will vote
for the election of such other person as the Board of Directors of the Company
may recommend. Management has no reason to believe that either Mr. Sutton or
Mr. Tighe will be unable or are unwilling to serve if elected.
There are currently two Class I directorships up for election. Proxies
cannot be voted for other than such directorships. Pursuant to the Company's
bylaws, directors are elected to serve for three-year terms and until their
successors are elected or their earlier resignation or removal. Class I
directors' terms expire at the Meeting, Class II directors' terms expire at the
Company's 1998 Annual Meeting of Stockholders and Class III directors' terms
expire at the Company's 1999 Annual Meeting of Stockholders.
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<PAGE> 7
Set forth below is the name, age as of the date of this Proxy Statement,
and position of each of the directors of the Company and the year of expiration
of his initial term of office.
<TABLE>
<CAPTION>
YEAR TERM
AS DIRECTOR
NAME AGE POSITION WILL EXPIRE
- ---------------------------------------- ----- ----------------------------- -----------
<S> <C> <C> <C>
J. D. Lawrence . . . . . . . . . . . . 51 Chairman of the Board of 1999
Directors
James F. Farr (1)(2) . . . . . . . . . 40 President, Chief Executive 1999
Officer and Director
William D. Sutton (1)(2) . . . . . . . 43 Senior Vice President, General 1997
Counsel, Secretary and
Director
David T. Tighe (2) . . . . . . . . . . 45 Senior Vice 1997
President--Finance, Chief
Financial Officer, Treasurer
and Director
Bernard J. Duroc-Danner (1)(3) . . . . 43 Director 1998
Al Kite (1)(3) . . . . . . . . . . . . 65 Director 1998
</TABLE>
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(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Executive Committee of the Board of Directors.
(3) Member of the Compensation Committee of the Board of Directors.
J. D. Lawrence has been a director of the Company since 1973, and
Chairman of the Board of Directors since June 1989. He has been employed by
the Company since 1968, serving as its President from 1982 to 1989 and as a
Vice President from 1973 to 1982. Mr. Lawrence is Chairman of the Board of
Directors, President and the sole director of Lawrence.
James F. Farr has been President of the Company since December 1990, its
Chief Executive Officer since August 1991, and a director of the Company since
September 1991. As International Manager from October 1989 to December 1990,
he was responsible for all international activities, including the marketing,
distribution and sale of the Company's products and services, and developing
and maintaining the Company's relationships with its agents. From August 1988
to October 1989, Mr. Farr served as Managing Director of Dailey International,
Inc., the Company's wholly-owned subsidiary, and as Regional Manager for
Europe/West Africa, with responsibility for the Company's facilities in the
United Kingdom as well as marketing operations in Europe/West Africa. From
1975 to August 1988, he served the Company in various managerial, marketing and
operating capacities.
William D. Sutton has been Senior Vice President, General Counsel and
Secretary since 1984, and a director of the Company since September 1991. He
has served as the Company's Secretary and General Counsel since 1980. He also
served as a director of the Company from 1979 to 1990, and as a Vice President
from 1982 to 1984. Prior to joining the Company in 1979, Mr. Sutton was an
attorney in private practice.
David T. Tighe has been Senior Vice President--Finance and Treasurer of
the Company since May 1988. He became a director of the Company in September
1991. From 1985 to April 1988, he served as Corporate Controller. From 1984
to 1985, he was the Company's Assistant Controller. Prior to joining the
Company in 1984, Mr. Tighe, a certified public accountant, was Controller of
Carolina International, Inc. from 1982 to 1984 and Tandem Industries, Inc. from
1980 to 1982.
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<PAGE> 8
Bernard J. Duroc-Danner became a director of the Company in September
1996. Mr. Duroc-Danner is Chief Executive Officer of EVI, Inc. In prior
years, Mr. Duroc-Danner was with Arthur D. Little Inc., a management consulting
firm in Cambridge, Massachusetts. He has held management positions with Mobil
Oil, Inc. (New York), Anheuser Busch Center for Management Science
(Philadelphia) and Lambert Freres & Co., (Paris). Mr. Duroc-Danner holds a
Ph.D. in economics from the University of Pennsylvania and an MBA in finance
from The Wharton School.
Al Kite became a director of the Company in September 1996. Mr. Kite was
President of Halliburton Drilling Systems from 1993 to 1994 and President of
Eastman Christensen from 1986 to 1990. He has served as International Manager
in London and Executive Vice President of Operations for Smith/Servco,
President of Worldwide Operations at Eastman Christensen and Senior Vice
President Eastern Hemisphere for Smith International. Mr. Kite is retired but
maintains several industry interests.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held five meetings during the fiscal year ended
April 30, 1997. Each director attended at least 75% of the total combined
number of meetings held by the Board and by the committees on which each
director served. Pursuant to the Company's Bylaws, the Board has established
standing Audit, Executive and Compensation Committees. The Company does not
have a nominating or other similar committee.
The Audit Committee is currently comprised of Messrs. Sutton,
Duroc-Danner and Kite and is charged with the duties of recommending the
appointment of the independent certified public accountants, reviewing their
fees, ensuring that proper guidelines are established for the dissemination of
financial information, meeting periodically with the independent auditors, the
Board of Directors and certain officers of the Company and its subsidiaries to
ensure the adequacy of internal controls and reporting, reviewing consolidated
financial statements and performing any other duties or functions deemed
appropriate by the Board of Directors. Two Audit Committee meetings were held
during the year ended April 30, 1997.
The Executive Committee is currently comprised of Messrs. Farr, Sutton
and Tighe and is responsible for assisting with the general management of the
business and affairs of the Company during intervals between meetings of the
Board of Directors. No meetings of the Executive Committee were held during
the year ended April 30, 1997.
The Compensation Committee is currently comprised of Messrs. Duroc-Danner
and Kite and recommends to the Board the compensation to be paid to the
Company's senior executive officers and administers the Company's 1996 Employee
Stock Plan (the "1996 Plan") and will administer the 1997 Incentive Plan in the
event it is approved at the Meeting. Two meetings of the Compensation Committee
were held during the year ended April 30, 1997.
COMPENSATION OF DIRECTORS
Employee directors of the Company do not receive any additional
compensation for their services as a director of the Company. The Company pays
an annual retainer of $15,000 to each non-employee director. In addition, each
non-employee director receives $1,000 for each Board of Directors meeting
attended and $750 for each committee meeting attended. The Company also pays
reasonable out-of-pocket expenses incurred by non-employee directors to attend
Board of Directors and committee meetings. Non-employee directors also are
entitled to receive options pursuant to the 1996 Non-Employee Director Stock
Plan (the "1996 Director Plan"). Under the 1996 Director Plan, an aggregate of
100,000 shares of Class A Common Stock have been reserved for grant of options
to purchase Class A Common Stock. To date, options to acquire 10,000 shares of
Class A Common Stock at an exercise price equal to the fair market value of the
Class A Common Stock on the date of grant have been granted to each of Messrs.
Duroc-Danner and Kite pursuant to the 1996 Director Plan. In addition, under
such plan, options to acquire 10,000 shares automatically will be granted after
each annual meeting of stockholders to each non-employee director who served as
a director during the preceding six months and who will continue to serve as a
director.
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<PAGE> 9
Effective April 23, 1997, the Board of Directors granted to each of the
Company's non-employee directors, Messrs. Duroc-Danner and Kite additional
options to purchase 10,000 shares of Class A Common Stock at an exercise price
equal to the fair market value on the date of grant.
PROPOSAL NO. 2
APPROVAL OF 1997 LONG-TERM INCENTIVE PLAN
GENERAL
On July 9, 1997, the Board of Directors adopted the 1997 Incentive Plan,
subject to the approval of the Company's stockholders. A complete copy of the
1997 Incentive Plan is attached hereto as Annex A. The following description
of the 1997 Incentive Plan is qualified in its entirety by reference to Annex
A, which is hereby incorporated herein by reference as if fully set forth
herein.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 1997
INCENTIVE PLAN. Approval of the 1997 Incentive Plan requires the affirmative
vote of the holders of a majority of the shares of Common Stock entitled to
vote on the proposal and present in person or by proxy at the Meeting. If not
otherwise provided, proxies will be voted "FOR" approval of the 1997 Incentive
Plan.
PURPOSE
The 1997 Incentive Plan is intended to advance the best interests of the
Company, its subsidiaries and its stockholders by attracting, retaining and
motivating key employees. The 1997 Incentive Plan provides for the grant of
stock options (which may be non-qualified stock options or incentive stock
options for tax purposes), stock appreciation rights issued independent of or
in tandem with such options ("SARs"), restricted stock awards; and performance
awards (payable in cash or shares of Class A Common Stock) to certain key
employees of the Company and its subsidiaries, thereby increasing the personal
stake of such key employees in the continued success and growth of the Company.
There are approximately 25 key employees of the Company and its subsidiaries
currently eligible to participate in the 1997 Incentive Plan. The 1997
Incentive Plan also is intended to supplement the 1996 Plan, which currently
has only 1,871 shares of Class A Common Stock available for future grants.
ADMINISTRATION
The 1997 Incentive Plan will be administered by the Compensation
Committee or other designated committee of the Board of Directors (the
"Committee"). The Committee will have broad authority to interpret and
administer the 1997 Incentive Plan, including the power to grant and modify
awards and the power to limit or eliminate its discretion as it may deem
advisable to comply with or obtain preferential treatment under any applicable
tax or other law, rule or regulation. The Committee also will have broad
authority to accelerate the vesting of an award or the time at which any award
is exercisable or to waive any condition or restriction on the vesting,
exercise or receipt of any award. The Board of Directors may at any time
amend, suspend, discontinue or terminate the 1997 Incentive Plan without
stockholder approval or approval of participants, subject to certain
limitations.
SHARES SUBJECT TO 1997 INCENTIVE PLAN
Initially, 720,000 shares of Common Stock (approximately 7.85% of the
current outstanding shares of Class A Common Stock) will be available for
issuance under the 1997 Incentive Plan. In addition, as of January 1 of each
year the 1997 Incentive Plan is in effect, if the total number of shares of
Class A Common Stock issued and outstanding, not including any shares issued
under the 1997 Incentive Plan, exceeds the total number of shares of Class A
Common Stock issued and outstanding as of January 1 of the preceding year (or,
for 1997, as of July 9, 1997), the number of shares available will be increased
by an amount such that the total number of shares available for issuance under
the 1997 Incentive Plan equals 7.85% of the total number of shares of Class A
Common Stock
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<PAGE> 10
outstanding, not including any shares issued under the 1997 Incentive Plan.
Lapsed, forfeited or canceled awards will not count against these limits. Cash
exercises of SARs and cash settlement of other awards also will not be counted
against these limits but the total number of SARs and other awards settled in
cash shall not exceed the total number of shares authorized for issuance under
the 1997 Incentive Plan (without reduction for issuances).
The aggregate number of shares of Class A Common Stock subject to stock
options or SARs that may be granted to any one participant in any one year
under the 1997 Incentive Plan shall be 100,000 (subject to certain adjustment
provisions relating to changes in capitalization). The aggregate number of
shares of Class A Common Stock that may be issued to any one participant in any
one year in respect of restricted stock shall be 100,000 (subject to certain
adjustment provisions relating to changes in capitalization). The aggregate
number of shares of Class A Common Stock that may be issued to any one
participant in any one year in respect of a performance award shall be
100,000 (subject to certain adjustment provisions relating to changes in
capitalization) and the aggregate amount of cash that may be received by any
one participant in any one year in respect to a performance award shall be
$500,000.
Stock Options
The Committee is authorized to determine the terms and conditions of all
option grants, which may be of incentive stock options subject to the limits of
Section 422 of the Internal Revenue Code of 1986, as amended (the"Code") or
non-qualified stock options. The aggregate number of shares of Common Stock
that are available for incentive stock options granted under the 1997 Incentive
Plan is 720,000 (subject to certain adjustment provisions relating to changes
in capitalization). Stock options may be awarded subject to time, performance
or other vesting limitations imposed by the Committee. The term of an
incentive stock option shall not exceed ten years from date of grant. The
exercise price of an option shall be determined by the Committee upon the
option grant, provided that the exercise price of incentive stock options shall
be no less than the fair market value of the Common Stock on the date of grant.
Payment of the exercise price may be made in a manner specified by the
Committee (which may include payment in cash, Common Stock, a combination
thereof, or by "cashless exercise").
Stock Appreciation Rights
The Committee is authorized to grant SARs independent of or in tandem
with options. The terms, conditions and exercise price of SARs granted
independent of options under the 1997 Incentive Plan will be determined by the
Committee on the date of grant. A tandem SAR can be exercised only to the
extent the option with respect to which it is granted is then exercisable and
is subject to the same terms and conditions as the option to which it is
relates. An option related to a tandem SAR will terminate automatically upon
exercise of the tandem SAR. Similarly, when an option is exercised, the tandem
SARs relating to the shares covered by such option exercise shall terminate.
Any tandem SAR which is outstanding on the last day of the term of the related
option will be automatically exercised on such date for cash.
Upon exercise of an SAR, the holder will be entitled to receive, for the
number of shares referenced by the SAR, an amount per share (the
"appreciation") equal to the difference between the base price per share (which
shall be the exercise price per share of the related option in the case of a
tandem SAR) and the fair market value (as determined by the Committee) of a
share of Common Stock on the date of exercise of the SAR. The appreciation will
be payable in cash, Common Stock or a combination of both, at the discretion of
the Committee.
Restricted Stock
The Committee is authorized to award restricted stock subject to such
terms and conditions as the Committee may determine consistent with the 1997
Incentive Plan. The Committee has the authority to determine the number of
shares of restricted stock to be awarded, the price, if any, to be paid by the
recipient of the restricted stock and the date or dates on which the restricted
stock will vest. The number of shares and vesting of restricted stock may be
conditioned upon the completion of a specified period of service with the
Company or its subsidiaries or upon the attainment of specified performance
objectives based on increases in share prices, operating income, net income
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<PAGE> 11
or cash flow thresholds on a company-wide, subsidiary, division or group basis,
return on common equity or any combination of the foregoing.
Stock certificates representing the restricted stock granted to an
eligible employee will be registered in the employee's name. No share of
restricted stock may be sold, transferred, assigned or pledged by the employee
until such share has vested in accordance with the terms of the restricted
stock award. Except as otherwise specified in the grant of a restricted stock
award, in the event of an employee's termination of employment before all his
or her restricted stock has vested, or in the event other conditions to the
vesting of restricted stock have not been satisfied prior to any deadline for
the satisfaction of such conditions set forth in the award, the shares of
restricted stock that have not vested will be forfeited and the lower of (i)
the fair market value of the forfeited shares on the date of forfeiture or (ii)
the purchase price paid by the employee that is allocable to the forfeited
shares will be returned to the employee. At the time the restricted stock
vests, a certificate for such vested shares will be delivered to the employee
(or the beneficiary designated by the employee, in the event of death), free of
all restrictions.
Performance Awards
The Committee is authorized to grant performance awards, which are
payable in stock, cash or a combination thereof, at the discretion of the
Committee. An employee to whom a performance award is granted will be given
achievement objectives to be reached within a specified period of time (the
"performance period"). A minimum level of acceptable achievement also will be
established. Achievement objectives may be described either in terms of
Company-wide performance or in terms that are related to the performance of the
employee or of the division, subsidiary, department or function within the
Company in which the employee is employed. The Committee has the authority to
determine the size of the award, frequency of awards, the date or dates when
awards vest, the performance periods and the specific performance objectives to
be achieved in order to receive the award. Performance objectives, however,
will be based on increases in share prices, operating income, net income or
cash flow thresholds on a company-wide, subsidiary, division or group basis,
return on common equity or any combination of the foregoing.
If at the end of the performance period, the specified objectives have
been fully attained, the employee will be deemed to have fully earned the
performance award. If such objectives have been partially attained, the
employee will be deemed to have partly earned the performance award and will
become entitled to receive a portion of the total award. If the required
minimum level of achievement has not been met, the employee will not be
entitled to any part of the performance award. If a performance award is
granted after the start of a performance period, the award will be reduced to
reflect the portion of the performance period during which the award was in
effect.
An employee who, by reason of death, disability or retirement, terminates
employment before the end of the performance period will be entitled to
receive, to the extent earned, a portion of the award which is proportional to
the portion of the performance period during which the employee was employed.
An employee who terminates employment for any other reason will not be entitled
to any part of the award unless the Committee determines otherwise; however,
the Committee may in no event pay the employee more than that portion of the
award which is proportional to his or her period of actual service.
Change of Control
Upon the occurrence of a "Change of Control" (as defined in the 1997
Incentive Plan) of the Company, all outstanding shares of restricted stock and
performance awards will immediately vest. All stock options and all SARs
granted under the 1997 Incentive Plan and held by then-current employees will
become immediately exercisable and will remain exercisable for three years (but
in no event beyond their expiration date) following the employee's termination
of employment for any reason other than for dishonesty, conviction of a felony,
wilful unauthorized disclosure of confidential information or wilful refusal to
perform the duties of such employee's position. Certain incentive stock
options may lose their favorable tax treatment as a result of the Change of
Control vesting and extension of the option term. In such case, they would be
treated like non-qualified options. In addition, each
-8-
<PAGE> 12
participant in the 1997 Incentive Plan will receive the maximum performance
award he or she could have earned for the proportionate part of the performance
period prior to the Change of Control and will retain the right to earn any
additional portion of his or her award if he or she remains in the Company's
employ.
Federal Income Tax Consequences
Incentive Stock Options. The grant of incentive stock options to an
employee does not result in any income tax consequences. The exercise of an
incentive stock option does not result in any income tax consequences to the
employee if the incentive stock option is exercised by the employee during his
employment with the Company or a subsidiary, or within a specified period after
termination of employment. However, the excess of the fair market value of the
shares of stock as of the date of exercise over the option price is a tax
preference item for purposes of determining an employee's alternative minimum
tax. An employee who sells shares acquired pursuant to the exercise of an
incentive stock option after the expiration of (i) two years from the date of
grant of the incentive stock option and (ii) one year after the transfer of the
shares to him (the "Waiting Period") will generally recognize long-term capital
gain or loss on the sale.
An employee who disposes of his incentive stock option shares prior to
the expiration of the Waiting Period (an "Early Disposition") generally will
recognize ordinary income in the year of sale in an amount equal to the excess,
if any, of (a) the lesser of (i) the fair market value of the shares as of the
date of exercise or (ii) the amount realized on the sale, over (b) the option
price. Any additional amount realized on an Early Disposition should be
treated as capital gain to the employee, short or long term, depending on the
employee's holding period for the shares. If the shares are sold for less than
the option price, the employee will not recognize any ordinary income but will
recognize a capital loss, short or long term, depending on the holding period.
The Company will not be entitled to a deduction as a result of the grant
of an incentive stock option, the exercise of an incentive stock option or the
sale of incentive stock option shares after the Waiting Period. If an employee
disposes of his incentive stock option shares in an Early Disposition, the
Company will be entitled to deduct the amount of ordinary income recognized by
the employee.
Non-Qualified Stock Options. The grant of non-qualified stock options
will not result in the recognition of any taxable income by the employee. An
employee will recognize ordinary income on the date of exercise of the
non-qualified stock option equal to the difference between (i) the fair market
value on that date of the shares acquired and (ii) the exercise price. The tax
basis of these shares for the purpose of a subsequent sale includes the option
price paid and the ordinary income reported on exercise of the option. The
income reportable on exercise of the non-qualified stock option is subject to
federal and state income and employment tax withholding. Generally, the
Company will be entitled to a deduction in the amount reportable as income by
the employee on the exercise of a non-qualified stock option.
Stock Appreciation Rights. The grant of Stock Appreciation Rights does
not result in taxable income to the employee. At the time of exercise of the
Stock Appreciation Rights, the issuance of shares of Common Stock or the
payment of cash, without other payment by the recipient, will be treated as
additional compensation for services to the Company. The employee will
recognize taxable income equal to the cash received or the fair market value of
the shares on the date of receipt, which becomes the tax basis in a subsequent
sale. Generally, the Company will be entitled to a corresponding deduction in
an amount equal to the income recognized by the employee.
Restricted Stock Grants. The grant of Restricted Stock generally will
not be taxed to the recipient, nor deductible by the Company, at the time of
grant. Restricted Stock Grants involve the issuance of stock to an employee
subject to specified restrictions as to sale and transferability of the stock
and subject to a substantial risk of forfeiture. On the date the restrictions
lapse, or the performance goals are met, and the stock becomes transferable or
not subject to a substantial risk of forfeiture, whichever is applicable, the
recipient recognizes ordinary income equal to the excess of the fair market
value of the stock on that date over the purchase price paid for the stock, if
any. The employee's tax basis for the stock includes the amount paid for the
stock, if any, and
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<PAGE> 13
the income recognized. Generally, the Company will be entitled to a
corresponding tax deduction in an amount equal to the income recognized by the
employee.
Performance Awards. Performance awards involve the issuance of shares of
stock, cash, or a combination of both, without any payment, as compensation for
services to the Company only after satisfaction of specified performance goals
established by the Committee and certification by the Committee, prior to
payment, that the goals have been satisfied. Generally, the Company will be
entitled to a corresponding tax deduction in an amount equal to and in the year
income is recognized by the employee. See following discussion of "performance
based" compensation in the following paragraph.
Compensation Deduction Limitation. Under Section 162(m) of the Code, the
Company's tax deduction for certain compensation paid to designated executives
is limited to $1 million per year. These executives include the Chief
Executive Officer and the next four highest compensated officers of the
Company. Section 162(m) provides an exception from this deduction limitation
for certain "performance based" compensation approved by a committee consisting
solely of at least two "outside directors". The 1997 Incentive Plan is
generally designed to be able to satisfy these statutory requirements for stock
options and SAR's, when the exercise price is not less than fair market value
on the date of grant, and for performance awards (including restricted stock
that is conditioned upon the attainment of performance goals). The Company
believes that the current members of its Compensation Committee, who will
administer the Plan initially, will constitute "outside directors" under the
Code.
The following table summarizes the benefits or amounts that have been
allocated by the Compensation Committee under the 1997 Incentive Plan as of
September 5, 1997. Although no benefits or awards under the 1997 Incentive
Plan have been granted to, or set aside for, the Company's Chief Executive
Officer or other senior executive officers of the Company, the Company expects
that grants under the 1997 Incentive Plan may be made to such individuals in
the future.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1997 LONG-TERM
INCENTIVE PLAN
------------------------------------
Name and Position Dollar Value ($) Number of Units
- ---------------------------------------------- ---------------- ---------------
<S> <C> <C>
James F. Farr
Chief Executive * *
J. D. Lawrence
Chairman of the Board * *
William D. Sutton
Senior Vice President, General Counsel &
Secretary * *
David T. Tighe
Senior Vice President, Chief Financial Officer
and Treasurer * *
James T. Percle
Former Executive Vice President and Chief
Operating Officer * *
Executive Group (1) 120,000(1)
Non-Executive Director
Group N/A(2) N/A(2)
Non-Executive Officer
Employee Group * *
</TABLE>
- -------------------------
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<PAGE> 14
* No benefits have been allocated or awarded to such individuals as of
September 5, 1997, although future grants or awards may be made in the
future at the discretion of the Compensation Committee.
(1) Represents options to purchase 20,000 shares of Class A Common Stock
granted to each of Messrs. Melhotre, Ramsay, Torres, Goolsbay, Lyons and
Brane, with exercise prices equal to the fair market value of the Class A
Common Stock on the date of grant.
(2) Non-employee directors are not eligible to receive awards under the 1997
Plan.
PROPOSAL NO. 3
PROPOSAL TO AMEND THE
RESTATED CERTIFICATE OF INCORPORATION
On July 9, 1997, the Board of Directors approved an amendment to the
Company's Restated Certificate of Incorporation changing the name of the
Company to "Dailey International Inc.". Over the past five years, the Company
has significantly expanded the geographic scope of the Company's operations.
With its recent acquisition of Air Drilling International, Inc., the Company
believes that over half of its revenues will be generated by operations in
foreign countries. In recognition of this fact, the Company believes that
changing its name from "Dailey Petroleum Services Corp." to "Dailey
International Inc." will more fully identify the true status and scope of the
Company's current and future operations.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
PROPOSED AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO CHANGE THE
NAME OF THE COMPANY TO DAILEY INTERNATIONAL INC. The affirmative vote of
stockholders holding a majority of the votes of shares of Common Stock issued
and outstanding as of the Record Date is required for approval of the proposed
amendment to the Company's Restated Certificate of Incorporation.
The change of the Company's name will be effected through an amendment to
Article 1 of the Company's Restated Certificate of Incorporation. As amended,
such paragraph would read in its entirety as follows:
ARTICLE I
"The name of the Corporation is Dailey International Inc."
PROPOSAL NO. 4
RATIFICATION OF AUDITORS
The firm of Ernst & Young LLP, Certified Public Accountants, has been
appointed by the Board of Directors to audit the accounts and records of the
Company for the fiscal year ending December 31, 1997. It is proposed that the
appointment of Ernst & Young LLP be submitted to the stockholders for
ratification.
Stockholder ratification of this appointment is not required. If the
proposal is not approved, management may reconsider the appointment for the
fiscal year ending December 31, 1997. The affirmative vote of stockholders
holding a majority of the votes of the shares of Common Stock entitled to vote
on the proposal and present in person or represented by proxy at the Meeting is
required for stockholder ratification of the appointment of the auditors. The
Board of Directors recommends that the stockholders vote "FOR" this proposal.
In the absence of an indication to the contrary, the proxies intend to vote
shares represented by proxies furnished to them for this proposal.
Ernst & Young LLP has served as the Company's independent accountants
for at least the past five years.
-11-
<PAGE> 15
It is anticipated that a representative of Ernst & Young LLP will be
present at the Meeting. Such representative will be given the opportunity to
make a statement should he so desire and will be available to answer
appropriate questions.
EXECUTIVE OFFICERS
Set forth below is certain information concerning the present executive
officers of the Company. There is no family relationship between any of these
individuals or any of the Company's directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- -------------------------------------------------------
<S> <C> <C>
J. D. Lawrence . . . . . . 51 Chairman of the Board of Directors
James F. Farr . . . . . . . 40 President, Chief Executive Officer and Director
William D. Sutton . . . . . 43 Senior Vice President, General Counsel, Secretary and
Director
David T. Tighe . . . . . . 45 Senior Vice President--Finance, Chief Financial Officer,
Treasurer and Director
John W. Sinders, Jr. . . . 43 Advisory Director
Chaman Malhotra . . . . . . 60 President--Air Drilling International, Inc.
Tommy Ramsay . . . . . . . 41 President--Canadian Air Drilling
Services Ltd.
John E. Blacklaws 40 Vice President--Production Services
James C. Brame . . . . . . 45 Vice President--Business Development/Air Drilling
International, Inc.
Dwight A. Goolsbay . . . . 36 Vice President--Eastern Hemisphere Operations
Martin Lyons . . . . . . . 48 Vice President--North American Operations
Mike Torres . . . . . . . . 45 Vice President--South American Operations
</TABLE>
- -----------------------
For information concerning Messrs. Lawrence, Farr, Sutton and Tighe, see
"Directors" above.
John W. Sinders, Jr. became an advisory director of the Company in August
1997, to serve until the 1998 Annual Meeting of Stockholders. Mr. Sinders is
entitled to notice of and to attend all meetings of the Board of Directors but
is not entitled to vote on any matters coming before the Board of Directors.
Mr. Sinders has served as an Executive Vice President of Jefferies & Company,
Inc. ("Jefferies") since February 1997, and from 1993 to 1997, served as a
Managing Director of Jefferies. From 1987 to 1993, Mr. Sinders served as a
Managing Director of Howard, Weil, Labouisse, Friedrichs Incorporated ("Howard
Weil") and a member of the Board of Directors of Howard Weil from 1990 to 1993.
Prior to joining Howard Weil, he was a director with the law firm of
McGlinchey, Stafford, Mintz, Cellini & Lang, P.C. Mr. Sinders is also a member
of the Board of Directors of The Shaw Group Inc.
Chaman Malhotra has been President and Chief Executive Officer of Air
Drilling International, Inc. (or its predecessor) ("ADI") since 1975. He has
been employed by ADI since 1961, serving eleven years in sales and operations.
Tommy Ramsay has been President of Canadian Air Drilling Services, Ltd.
("CADS") since 1995. Mr. Ramsay joined CADS in 1974 where he handled various
operation functions. In 1979 he became a
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<PAGE> 16
project manager for True Test Pipelines, Ltd., a division of CADS, and was
promoted to Assistant General Manager in 1984.
John E. Blacklaws has been Vice President--Production Services since June
1997, with responsibility for the Company's manufacturing, engineering,
domestic field repairs and management inventory. Between September 1994 and
June 1997, Mr. Blacklaws held the title of President of Production Services and
had substantially the same responsibilities as he has now. From November 1990
to September 1994, he was Vice President for the manufacturing and production
division in Houston, Texas. From March 1989 to November 1990, he was Manager
of Manufacturing Technical Services with quality control responsibilities at
the Company's Houston facility and in the field.
James C. Brame was named Vice President--Business Development in July
1996 and Vice President--ADI in June 1997. From August 1991 to June 1997, he
served as Senior Marketing Analyst, Project Manager, Director of Business
Development and IT Steering Committee Chairman. Prior to joining the Company
in 1991, Mr. Brame was president and owner of a manufacturing and distribution
company from 1986 to 1991. From 1977 to 1986, Mr. Brame held Assistant
Controller and Manager of Financial Analysis and Reporting positions with
Hughes Production Tools, a division of Hughes Tool Company.
Dwight A. Goolsbay has been Vice President--Eastern Hemisphere Operations
since June 1997 and prior to such time had been Vice President--MWD Services
since May 1996. As an MWD Product Manager between December 1993 and May 1996,
he was responsible for managing the Company's entry into the domestic and
international MWD services business. From October 1990 to December 1993, he
was a drilling motor product engineer and assisted with development and
expansion of the drilling motor product line. Prior to joining the Company in
1990, Mr. Goolsbay was the Oklahoma City District Manager for Halliburton
Drilling Systems, Inc.--MWD Division. From 1985 to 1987, he was U.S.
Operations Coordinator for Drilex Systems, Inc.
Martin Lyons was named Vice President--North American Operations in June
1997. Before such time, Mr. Lyons had been Senior Vice President Directional
Drilling & Marketing since May 1996. From December 1993 through May 1996, he
served as Vice President Directional Drilling, responsible for management of
all the Company's domestic directional drilling sales and operations. His
duties during this time period also included operations and capital budgeting
for all domestic directional drilling operations. During the time period of
August 1990 to December 1993 he functioned as Western Division Manager and was
responsible for the Gulf Coast directional drilling and sales operations west
of the Sabine River. From August of 1989 to August of 1990 Mr. Lyons was a
Senior Technical Sales Representative in the Houston, Texas market. Prior to
joining Dailey, Mr. Lyons was employed by Helmer Directional Drilling, Inc.
where he held the positions of Office Manager and Directional Drilling
Supervisor.
Mike Torres was named Vice President of Operations--Latin America in June
1997. He previously served as Eastern Regional Manager and then Vice President
of Eastern Region. Mr. Torres began his career with the Company in Directional
Sales in 1980. Prior to joining Dailey, Mr. Torres was employed by NL
Industries and Eastman Whipstock, Inc.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation levels for the Company's executive officers prior to the IPO
in August 1996 were established by the Company's Board of Directors. The Board
of Directors at the time of the IPO also established the salary levels set
forth in the Company's employment agreements with its executive officers,
including the Company's Chief Executive Officer, as well as the restricted
stock and stock options awards granted at the time of the IPO. Members of the
Board of Directors at such time consisted entirely of executive officers of the
Company, including the Company's Chairman of the Board, Chief Executive
Officer, General Counsel and Chief Financial Officer (collectively, the "Senior
Executive Officers").
-13-
<PAGE> 17
Following the IPO, compensation relating to the Senior Executive Officers
has been set by the Compensation Committee, except with respect to compensation
levels previously set forth in employment agreements executed in connection
with the IPO, while compensation with respect to other officers of the Company
has been set by the Company's Executive Committee, whose members consist of
Messrs. Farr, Sutton and Tighe. The Compensation Committee also has
administered the 1996 Plan following the initial public offering and will
administer the 1997 Incentive Plan assuming it is approved by the stockholders
of the Company at the Meeting.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL POLICY
The Company's executive compensation program is designed to attract,
motivate and retain talented management personnel and to reward management for
successful performance of their duties and improving stockholder value.
Compensation and incentives are provided through a combination of cash salaries
and bonuses and stock-based awards. The Company's overall compensation package
is intended to provide the Company's executive officers with compensation
indicative of their results and performance, with an emphasis on compensation
that rewards the executive for actions that have demonstrably benefited the
long-term interests of the Company. Decisions with respect to compensation for
any particular executive officer are based on a number of factors, including
the individual's performance and contribution to the future growth of the
Company, the financial and operational results of the Company and industry and
market conditions.
Prior to the IPO, the Company entered into employment agreements with its
then-existing executive officers, including the Company's Chief Executive
Officer. Compensation levels contained in such employment agreements were
established by the Board of Directors, which was comprised entirely of the
Company's Senior Executive Officers at such time.
Following the IPO, decisions with respect to the cash compensation of the
Company's executive officers have been made in a bifurcated manner. Cash
compensation levels with respect to the Company's Senior Executive Officers
(other than minimum annual salary amounts that have been established pursuant
to employment agreements executed in connection with the IPO) have been made by
the Company's Compensation Committee, while cash compensation awarded to the
Company's other executive officers has been established by the Company's
Executive Committee, which is comprised of Messrs. Farr, Sutton and Tighe.
Compensation decisions with respect to the granting of stock-based awards
to the Company's executive officers prior to the IPO were made by the Company's
Board of Directors at that time. Following the IPO, the Compensation Committee
has administered the Company's employee stock plans and the awards thereunder
to the Company's executive officers, including the Company's Chief Executive
Officer.
The components of the Company's executive compensation program are more
specifically summarized below.
Base Salary.
The base salaries of the Company's executive officers are based upon
employment agreements executed in connection with the IPO in August 1996, and
were determined on a subjective basis after considering their positions with
the Company, their talents and experience and competitive market factors,
including the desire by the Company to attract and retain executives with
expertise in the Company's business. The Compensation Committee has the
authority to increase the annual salaries paid to the Chief Executive Officer
and other Senior Executive Officers under their respective employment
agreements. No salary increases were granted by the Compensation
Committee during the fiscal year ended April 30, 1997, except that Mr. Pescle's
annual salary from $140,000 to $238,596 in connection with his promotion to
Chief Operating Officer of the Company and Mr. Farr's annual salary was
increased from $240,000 to $280,000 in connection therewith.
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<PAGE> 18
Bonus Compensation
Each of Messrs. Farr, Sutton and Tighe were awarded cash bonuses for 1997
of $93,240, $75,819 and $59,940, respectively. These bonuses were
determined on a subjective basis and were intended to reward such individuals
for the significant contributions that they made to both the operations and
finances of the Company in 1997. Among the contributions and accomplishments
considered by the Executive Compensation Committee in awarding these bonuses
were the successful completion of the Company's initial public offering, the
successful implementation of the Company's operating strategies and their work
in identifying and reviewing various strategic acquisition candidates.
LONG-TERM INCENTIVE COMPENSATION
The Board of Directors also believes that long-term incentive
compensation is an important component of the Company's compensation program
and that the value of long-term incentive compensation should be directly
related to increases in stockholder value. Thus, in addition to base salaries
and bonuses, the Company provides long-term incentive compensation to its
executive officers through stock options under the Company's stock plans.
Stock Option and Awards
Under the 1996 Plan, options to purchase shares of Class A Common Stock
may be granted to the Company's executive officers and key employees with
exercise prices equal to the market price of the Class A Common Stock at the
time of grant and with vesting conditions established at the time of grant.
Awards under the 1996 Plan are intended to provide incentives to the
participants to increase stockholder value by providing benefits that are
directly related to the market value of the Class A Common Stock. The Board of
Directors believes that options provide a desirable form of incentive to the
Company's executive officers in that options received by an executive officer
will be of no value to the officer unless the value of the Common Stock
increases.
Contemporaneously with the IPO, restricted stock awards of 120,000 shares
were granted by the Board of Directors to Mr. Farr as well as to Messrs. Sutton
and Tighe. Such grants were intended to provide such individuals with an
immediate equity interest in the Company that did not exist prior to the IPO
and to immediately align their interests with those of the Company's
stockholders. At the time of the IPO, Messrs. Farr, Sutton and Tighe also were
granted options to purchase 72,912 shares at an exercise price equal to the
fair market value of the Class A Common Stock on the date of grant, which were
designed to further align each individual's interests with long-term interests
of the Company's stockholders.
The Compensation Committee granted additional options to purchase 25,000
shares of Class A Common Stock to Mr. Farr at an exercise price equal to the
fair market value of the Class A Common Stock on the date of grant as well as
options to purchase 25,000 and 25,000 shares of Class A Common Stock to Messrs.
Sutton and Tighe, respectively. During the year ended April 30, 1997, the
Compensation Committee also approved the acceleration of vesting on the
restricted stock and options granted to each of Messrs. Farr, Tighe and Sutton
at the time of the IPO.
Long-Term Incentive Plan
As described in Proposal No. 3, the Company is proposing the adoption of
the 1997 Incentive Plan. The Board of Directors believes that the adoption of
this plan is in the best interests of the Company and will further align the
interests of the Company's officers and employees with those of the Company's
stockholders.
Decisions as to whether to grant options and other awards under the 1997
Incentive Plan to an executive officer will be made in light of existing
circumstances, including the executive officer's contributions to the Company
over the prior year and the expected contributions by the executive officer in
the future. If an option or stock-based award is granted to an executive
officer, the number of shares of Class A Common Stock subject to the granted
option or award will be based on, among other things, the level of
responsibility of the executive officer, the anticipated contribution of the
officer to the future
-15-
<PAGE> 19
growth of the Company, the number of shares that the Board of Directors
determines would be appropriate to provide the executive officer with a
meaningful incentive to improve stockholder value and the potential dilution
that might result from the grant. The Board of Directors also considers the
amount and terms of the options and other stock-based benefits held by the
executive officers. Vesting requirements generally will be placed on stock
based awards to condition the benefits of any award granted to an executive
officer to his or her continued employment with the Company.
COMPENSATION DEDUCTION
Section 162(m) of the Code currently imposes a $1 million limitation on
the deductibility of certain compensation paid to the Company's five highest
paid executives. Excluded from the limitation is compensation that is
"performance based" under the Code. For compensation to be performance based,
it must meet certain criteria, including being based on predetermined objective
standards approved by the stockholders of the Company. The 1996 Plan and the
1997 Incentive Plan are designed to allow for various awards to be granted under
such plans to be excluded from the $1 million limitation under certain
circumstances when the plans are administered by a committee comprised of at
least two persons who would qualify as "outside directors" under Section 162(m).
The Company believes that grants of options, SARs and restricted stock
conditioned upon the attainment of performance goals by the Compensation
Committee under the 1997 Incentive Plan will be considered "performance-based"
compensation under the Code. The Board of Directors and the Compensation
Committee intend to take into account the potential application of Section
162(m) with respect to incentive compensation awards and other compensation
decisions made by it in the future.
J.D. Lawrence
Bernard J. Duroc-Danner*
James F. Farr
Al Kite*
William D. Sutton
David T. Tighe
* Member of the Compensation Committee
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<PAGE> 20
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for
the fiscal years ended April 30, 1997 and 1996 earned by or paid to the
Company's Chief Executive Officer and the four other most highly compensated
executive officers of the Company during the year ended April 30, 1997
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30, 1997
--------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- -------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
OTHER ANNUAL AWARD(S) OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION ($) SARS (#) (1)
- ------------------------------ ---- ----------- -------- -------------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. D. Lawrence . . . . . . . 1997 $221,022 $ -- $29,202(3) -- -- $ 924
Chairman of the Board 1996 296,532(2) 73,280 * -- -- 2,326
James F. Farr . . . . . . . . 1997 274,890 93,240 49,131(4) $960,000 97,912 924
President and Chief 1996 248,651 55,500 * -- -- 571
Executive Officer
William D. Sutton . . . . . . 1997 237,117 75,819 36,973(5) $960,000 97,912 924
Senior Vice President, 1996 230,896 55,260 * -- -- 824
General Counsel and
Secretary
David T. Tighe . . . . . . . 1997 215,290 59,940 35,675(6) $960,000 97,912 924
Senior Vice President 1996 148,671 54,960 21,723(7) -- -- 901
Finance, Chief Financial
Officer and Treasurer
James J. Percle . . . . . . . 1997 227,611 79,452 9,692(9) $405,000 34,200 462
Former Executive Vice 1996 -- -- -- -- -- --
President and Chief
Operating Officer (8)
</TABLE>
* Amounts exclude the value of perquisites and personal benefits because
the aggregate amount thereof did not exceed the lesser of $50,000 or
10% of the total annual salary and bonus reported for each Executive
Officer.
(1) Represents payments for premiums for group term life insurance on
behalf of such individual.
(2) Effective upon the closing of the IPO, Mr. Lawrence's salary was
reduced to $100,000, subject to subsequent adjustment upward in the
discretion of the Compensation Committee of the Board of Directors.
See "--Employment Agreements" below.
(3) Relates to payments for a car allowance and a charge for usage of
Company assets.
(4) Includes $26,923 related to accrued vacation cashed rather than taken
during the year and $22,209 related to a Company auto allowance.
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<PAGE> 21
(5) Includes $17,514 related to accrued vacation cashed rather than taken
during the year and $19,459 related to a Company auto allowance.
(6) Includes $17,308 related to accrued vacation cashed rather than taken
during the year and $19,459 related to a Company auto allowance.
(7) Includes $16,618 related to accrued vacation cashed rather than taken
during the year and $5,105 related to a Company automobile.
(8) Mr. Percle was not employed by the Company during the year ended April
30, 1996. Mr. Percle ceased to be employed by the Company effective
June 23, 1997.
(9) Relates to payments for a Company automobile.
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<PAGE> 22
The following table summarizes certain information relating to options
granted to the Company's Named Executive Officers during the year ended April
30, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
for
Individual Grants Option Term
- ------------------------------------------------------------------------------------ ---------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- -------------------- ------------ ------------ ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
J. D. Lawrence . . -- -- -- -- -- --
James F. Farr . . . 72,912 14.8% 8.00 8/13/06 366,831 929,623
25,000 5.1% 8.75 3/06/07 137,571 348,631
William D. Sutton . 72,912 14.8% 8.00 8/13/06 366,831 929,623
25,000 5.1% 8.75 3/06/07 137,571 348,631
David T. Tighe . . 72,912 14.8% 8.00 8/13/06 366,831 929,623
25,000 5.1% 8.75 3/06/07 137,571 348,631
James J. Percle (1) 19,199 3.9% 8.00 8/13/06 96,953 244,786
15,001 3.0% 9.00 8/13/06 84,906 209,193
</TABLE>
(1) Mr. Percle ceased to be employed by the Company effective June 23,
1997.
The following table sets forth for each Named Executive Officer
information concerning stock option exercises in fiscal 1997 and the value of
unexercised options at April 30, 1997.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1997 AND VALUE TABLE AT
APRIL 30, 1997
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS/SARS AT OPTIONS/SARS AT
ON REALIZED APRIL 30, 1997 FY-END (1)
NAME EXERCISE ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
J. D. Lawrence . . . -- -- -- --
James F. Farr . . . . -- -- 97,912/0 0
William D. Sutton . . -- -- 97,912/0 0
David T. Tighe . . . -- -- 97/912/0 0
James J. Percle (2) . -- -- 34,200/0 0
</TABLE>
- ----------------- -
(1) The exercise price for options owned by the Named Executive
Officers exceeded the fair market value of the Class A Common Stock at
April 30, 1997.
-19-
<PAGE> 23
(2) Mr. Percle ceased to be employed by the Company effective June 23,
1997.
1996 KEY EMPLOYEE STOCK PLAN
The Company has established the 1996 Plan pursuant to which incentive and
non-qualified options to purchase shares of Class A Common Stock and awards of
restricted shares of Class A Common Stock will be available for future grants.
The 1996 Plan is designed to provide certain key employees, including officers
and employee-directors of the Company, with additional incentives to promote
the success of the Company's business and to enhance the Company's ability to
attract and retain the services of qualified persons. Under the Plan, options
to purchase Class A Common Stock and restricted stock awards up to an aggregate
of 900,000 shares of Class A Common Stock may be granted by the Committee. In
the event options or restricted stock granted under the 1996 Plan or unvested
restricted stock grants expire or terminate or are surrendered, the unexercised
portion thereof may again be available for award under the 1996 Plan. As of
July 30, 1997, only 1,871 additional shares were available for grant under the
1996 Plan.
401(k) PLAN
The Company's employees are eligible to participate in a defined
contribution retirement plan that complies with Section 401(k) of the Code.
Pursuant to such plan, the Company provides matching contributions up to 50% of
the employee's contribution up to 2% of the employee's compensation.
EMPLOYMENT CONTRACTS WITH EXECUTIVE OFFICERS
Each of the Senior Executive Officers has entered into an employment
agreement (collectively, the "Executive Employment Agreements") with the
Company. Each of the Executive Employment Agreements has an initial term
through December 31, 1999, except the Executive Employment Agreement with Mr.
Sutton which has an initial term through April 30, 1999. The Executive
Employment Agreements provide for a minimum annual salary during the term of
the Executive Employment Agreements of approximately $100,000, $280,000,
$228,000 and $180,000 for Messrs. Lawrence, Farr, Sutton and Tighe,
respectively. The Executive Employment Agreements also provide for certain
automobile allowances, employee benefits, vacation and reimbursement of
expenses.
The Executive Employment Agreements may be terminated by the Company with
or without cause (as hereinafter defined) or by the Executive Officer at any
time for any reason.
If the Company terminates the Executive Employment Agreement for any
reason other than for "cause" and such termination is not within one year of a
change in control (as defined in the Executive Employment Agreements), the
Company is required to pay to the Executive Officer an amount equal to (i) the
greater of (x) his total base salary for the remainder of the employment period
(as defined in the Executive Employment Agreement) or (y) one month of base
salary for each full year of service completed with the Company as of the date
of termination (or in the case of Mr. Lawrence, three months of his base
salary, if greater) and with the exception of Mr. Lawrence, (ii) to pay an
amount equal to the Senior Executive Officer's most recent annual bonus and
(iii) to cause the Senior Executive Officer to become fully vested in any stock
options and stock grants held by him. If the Company terminates the Executive
Employment Agreement for any reason other than for "cause" and such termination
occurs within one year of a change in control, or if the Executive Officer
terminates the Agreement for good cause (as defined in the Executive Employment
Agreement) and such termination occurs within one year of a change in control,
the Company is required to pay to the Executive Officer an amount equal to the
greater of (i) his total base salary for the remainder of the employment
period; (ii) two times the greater of (a) his annualized base salary for the
remainder of the employment period; (ii) two times the greater of (a) his
annualized base salary in effect upon the occurrence of the change in control
or (b) his annualized base salary in effect on the date notice of termination
is received; or (iii) one month of base salary for each full year of service
completed with the Company as of the date of termination and with the exception
of Mr. Lawrence, (A) to pay to the Senior Executive
-20-
<PAGE> 24
Officer an amount equal to two times his most recent annual bonus and (B) to
cause the Senior Executive Officer to become fully vested in any stock options
and stock grants held by him.
Each of Messrs. Farr, Sutton and Tighe has agreed that for the term of
his Executive Employment Agreement and (i) perpetually after termination for
whatever reason, he will not, directly or indirectly, disclose confidential
information; (ii) for a period of two years (one year for Mr. Tighe) following
termination for whatever reason, he will not participate in any business in any
geographic region in which the Company conducts business that is in competition
with the Company or employ any of the Company's employees, induce any of the
Company's employees to leave their employment or in any way interfere with the
employee relations of the Company; and (iii) will disclose and assign to the
Company all inventions developed by him.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL STOCKHOLDER
Prior to the IPO, the Company funded certain of its working capital
requirements through advances from Lawrence, which had been evidenced by a note
to Lawrence. The Company repaid the full amount of principal and accrued
interest on such note with $1.6 million of the net proceeds from the IPO. In
addition, on June 27, 1996, Dailey declared and paid a dividend in the form of
a $10.0 million promissory note to Dailey's then sole stockholder, a subsidiary
of Lawrence. On August 13, 1996, such stockholder contributed $5.0 million of
the outstanding principal amount of such note to the capital of the Company.
The remaining $5.0 million principal plus accrued interest was repaid utilizing
a portion of the net proceeds from the IPO.
Lease Agreements. The Company maintains executive offices in a building
located in Conroe, Texas and occupies four adjacent manufacturing and
maintenance research and development, and storage facilities, all of which are
owned by Lawrence. During fiscal 1997, the Company incurred rent expense of
$915,000, respectively, relating to such properties. Prior to completion of
the IPO, Dailey entered into a new lease agreement with Lawrence relating to
the executive office building and a separate lease agreement relating to the
adjacent facilities. The rental rates under these new lease agreements were
determined by the Company and Lawrence based upon a survey of rental rates
prepared by an independent firm. Based upon this survey, the Company believes
that the rental rates and other terms under these lease agreements are
comparable to those that would be obtained in an arm's-length transaction with
an independent third party.
The Office Lease Agreement is for a five-year term effective as of May
1996, and covers all of the 64,368 square feet of office space in the Conroe
building, as well as the use of access roads and an adjacent outdoor parking
lot. Rent is payable monthly at the rate of $48,276 per month for the first
two years of the lease, $51,226 per month for the third year, $52,781 per month
for the fourth year and $54,390 per month for the fifth year.
The Service Center Lease Agreement is for a five-year term effective as
of May 1996. This lease covers the combined square feet of the district
facility building, 31,316 square feet; the manufacturing building, 31,373
square feet; the open storage building, 17,000 square feet and the separator
building, 1,530 square feet. The use of access roads and immediately
surrounding grounds is also included. Rent is $28,000 per month for all four
buildings in the aggregate.
Relationship Agreement. Under the terms of a relationship agreement
between the Company and Lawrence (the "Relationship Agreement"), the Company
has agreed to provide to Lawrence and its affiliates, upon their request and on
an as-available basis, various administrative and management services including
cash management, accounting, tax, data processing, human resources and legal
services. Lawrence pays for such services at rates calculated to recover the
Company's reasonable costs of providing such services. The Relationship
Agreement also provides that Lawrence will render to the Company technical
consulting services when requested by the Company. In return, the Company will
pay Lawrence approximately $250,000 per year for the term of the Relationship
Agreement. The Relationship Agreement commenced upon the closing of the IPO in
August 1996 and terminates
-21-
<PAGE> 25
on April 30, 1999. In addition, under the Relationship Agreement, Lawrence and
the Company have agreed to reimburse each other for the costs of certain
insurance policies purchased by one party on behalf of the other. As of April
30, 1997, Lawrence owed the Company approximately $68,000, for products and
services rendered pursuant to the Relationship Agreement.
Tax Allocation Agreement. For taxable periods ending on or before the
closing of the IPO, the Company was included in the consolidated federal income
tax returns filed by Lawrence as the common parent for itself, its subsidiaries
and affiliated companies. The Company is jointly and severally liable for
federal income tax imposed on the Lawrence consolidated group while the Company
was a member. The Tax Allocation Agreement imposes an indemnity on Lawrence in
favor of the Company for any federal income tax relating to members of the
Lawrence consolidated group other than the Company and its subsidiaries.
Registration Rights Agreement. Pursuant to the terms of a registration
rights agreement with Lawrence (the "Registration Rights Agreement"), upon the
request of Lawrence (or certain assignees) for a period of ten years (beginning
in 1996), the Company has agreed to register, on up to two occasions, the sale
of a minimum of 500,000 shares of Common Stock beneficially owned by Lawrence
that Lawrence (or such assignees) requests to be registered under applicable
federal and state securities laws. The Company will become obligated to
register the sale of the Common Stock on one additional occasion if Mr.
Lawrence dies during the term of the Registration Rights Agreement and Lawrence
previously has exhausted its two demand registrations. The Company also is
obligated to offer Lawrence and certain assignees the right to include shares
of the Common Stock owned by them in certain registration statements filed by
the Company. The Company is obligated to pay all expenses incidental to such
registrations, excluding fees of counsel to Lawrence, underwriters' discounts
and commissions, and transfer fees.
OTHER
In January 1997, the Company loaned Mr. Farr $250,000 pursuant to a
five-year promissory note. Interest accrues at the prime rate and is payable
monthly by Mr. Farr. The note is secured by a pledge of 36,000 shares of Class
A Common Stock held by Mr. Farr.
Air Drilling International, Inc. ("ADI"), which was acquired by the
Company in June 1997, leases its Casper, Wyoming property from Melodi Lane
Investments, L.L.C. ("Melodi Lane"), a limited liability company in which Mr.
Malhotra is a member. The lease is for a term of ten years and provides for
monthly rental payments of $4,250, subject to adjustment after July 2001. The
lease also provides ADI with a right to purchase the property at its fair
market value on or before May 31, 2001. ADI also leases certain equipment from
Melodi Lane for $7,400 per month. Such equipment lease expires in June 2001
and provides for an option to purchase based on an amortization schedule
providing for a purchase price of $0 at the end of the term.
Certain subsidiaries of ADI guarantee a loan of Mr. Malhotra to Southern
Pacific Thrift and Loan Assn., which had a principal balance of $87,987 at
April 30, 1997. Such loan relates to a condominium held by Mr. Malhotra and
his wife as nominee for such subsidiaries.
ADI also leases real property in Nisku, Alberta from Malhotra Enterprises
Ltd. ("Malhotra Enterprises"), a Canadian corporation in which both Mr.
Malhotra and Mr. Ramsay are shareholders. Lease payments for this real
property aggregate $8,470 per month. The lease expires in August 2001. ADI
also leases certain equipment from Malhotra Enterprises pursuant to a lease
expiring in October 1997. This equipment lease requires monthly payments of
$21,822 and contains an option to purchase the equipment for $20,000 plus the
monthly rental for all unexpired months.
-22-
<PAGE> 26
PERFORMANCE GRAPH
The following graph compares the cumulative stockholder return on the
Common Stock of the Company, for the period from August 14, 1996, the date on
which the Company's Class A Common Stock was first registered under Section 12
of the Securities Exchange Act of 1934, as amended, through April 30, 1996,
with the cumulative total return of the NASDAQ Stock Market Index and the S&P
Oil & Gas (Drilling & Equip) Index. The graph assumes investment of $100 on
August 14, 1996 and reinvestment of all dividends.
Cumulative Total Return
------------------------------------
8/15/96 10/96 1/97 4/97
DAILEY PETER SVCS CORP 100 125 131 88
NASDAQ STOCK MARKET (U.S.) 100 112 128 116
S & P OIL & GAS (DRILLING & EQUIP) 100 123 138 132
The foregoing graph is based on historical data and is not necessarily
indicative of future performance. This graph shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission or subject to the Regulations of 14A or 14C under the Exchange Act
or to the liabilities of Section 18 under such act.
-23-
<PAGE> 27
SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDER
The following table sets forth certain information regarding the
beneficial ownership of the Class A Common Stock and Class B Common Stock on
August 20, 1997, by (i) each director and director nominee of the Company, (ii)
each Named Executive Officer, (iii) each person known or believed by the
Company to own beneficially 5% or more of either the Class A Common Stock or
Class B Common Stock and (iv) all directors and executive officers as a group.
Unless otherwise indicated, each person has sole voting and dispositive power
with respect to such shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-------------------------------------------------------------------
CLASS A CLASS B PERCENT
COMMON PERCENT COMMON PERCENT VOTING
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK CLASS A STOCK CLASS B POWER(2)
- -------------------------------------- ----------- ------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
Lawrence (3) . . . . . . . . . . . . * * 5,000,000 100% 89%
J. D. Lawrence (3) . . . . . . . . . * * 5,000,000 100% 89%
James F. Farr . . . . . . . . . . . . 147,912(4) 3.4% -- -- *
William D. Sutton . . . . . . . . . . 169,912(4) 3.9% -- -- *
David T. Tighe . . . . . . . . . . . 169,912(4) 3.9% -- -- *
Bernard J. Duroc-Danner . . . . . . . 10,000(5) * -- -- *
Al Kite . . . . . . . . . . . . . . . 10,000(5) * -- -- *
James J. Percle . . . . . . . . . . . 79,200(6) 1.8% -- -- *
----------- ------- --------- ------- --------
All executive officers and directors
as a group (13 Persons). . . . . . . 663,732 14.4% 5,000,000 100% 90%
</TABLE>
- ------------------------
* Less than 1%
(1) The Securities and Exchange Commission has defined beneficial
ownership to include sole or shared voting or investment power with
respect to a security or the right to acquire beneficial ownership of
a security within 60 days. The number of shares indicated are owned
with sole voting and investment power unless otherwise noted.
(2) Percent based upon both Class A Common Stock and Class B Common Stock,
combined.
(3) Represents shares owned by Dailey Holdings Inc. ("Dailey Holdings"), a
wholly-owned subsidiary of Lawrence. The executive offices of Dailey
Holdings and Lawrence are located at 2507 North Frazier, Conroe, Texas
77305. Mr. Lawrence and trusts for his children own all of the voting
stock of Lawrence. Because of these relationships, Mr. Lawrence may
be deemed to be the beneficial owner of all shares of Class B Common
Stock owned by Lawrence.
(4) Includes presently exercisable options to purchase 97,912 shares of
Class A Common Stock.
(5) Represents options exercisable within 60 days to purchase 10,000
shares of Class A Common Stock. Excludes options to purchase 10,000
shares of Class A Common Stock which are not exercisable within 60
days.
(6) Includes presently exercisable options to purchase 34,200 shares of
Class A Common Stock. Mr. Percle ceased to be employed by the Company
on June 23, 1997.
-24-
<PAGE> 28
OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who beneficially own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten-percent stockholders are
required by the regulations promulgated under Section 16(a) to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
August 14, 1997 through April 30, 1997, all filing requirements applicable to
officers, directors, and greater than ten-percent stockholders were complied
with.
OTHER BUSINESS
As of the date of this Proxy Statement, management of the Company was
not aware of any matter to be presented at the Meeting other than as set forth
herein. If any other matters are properly brought before the Meeting, however,
the shares represented by valid proxies will be voted with respect to such
matters in accordance with the judgment of the persons voting them.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING.
Any proposal by a Stockholder to be presented at the Company's next
Annual Meeting of Stockholders, currently expected to be held in
_______________________, 1998, must be received at the offices of the Company,
One Lawrence Centre, 2507 North Frazier, P.O. Box 1863, Conroe, Texas
77305-2866 not later than __________________________, 1997.
ANNUAL REPORT
The Company has elected to satisfy its obligation to furnish an Annual
Report to stockholders by providing stockholders with a copy of its Annual
Report on Form 10-K for the year ended April 30, 1997, as filed with the
Securities and Exchange Commission, less exhibits. The financial statements
and related information contained therein are incorporated by reference into
this Proxy.
BY ORDER OF THE BOARD OF DIRECTORS
William D. Sutton,
Secretary
September 5, 1997
-25-
<PAGE> 29
ANNEX A
DAILEY PETROLEUM SERVICES CORP.
1997 LONG-TERM INCENTIVE PLAN
ARTICLE I: GENERAL
SECTION 1.1 Purpose of the Plan. The Long-Term Incentive Plan (the
"Plan") of Dailey Petroleum Services Corp. (the "Company") is intended to
advance the best interests of the Company, its subsidiaries and its
stockholders in order to attract, retain and motivate key employees by
providing them with additional incentives through (i) the grant of options
("Options") to purchase shares of Class A Common Stock, par value $.01 per
share, of the Company ("Common Stock"), (ii) the grant of stock appreciation
rights ("Stock Appreciation Rights"), (iii) the award of shares of restricted
Common Stock ("Restricted Stock") and (iv) the award of units payable in cash
or shares of Common Stock based on performance ("Performance Awards"), thereby
increasing the personal stake of such key employees in the continued success
and growth of the Company.
SECTION 1.2 Administration of the Plan. (a) The Plan shall be
administered either by the full Board of Directors of the Company (the "Board
of Directors") or by the Compensation Committee or other designated committee
of the Board of Directors. The Board of Directors or such committee is
referred to herein as the "Committee". The Committee shall have authority to
interpret conclusively the provisions of the Plan, to adopt such rules and
regulations for carrying out the Plan as it may deem advisable, to decide
conclusively all questions of fact arising in the application of the Plan, to
establish performance criteria in respect of Awards (as defined herein) under
the Plan, to certify that Plan requirements have been met for any participant
in the Plan, to submit such matters as it may deem advisable to the Company's
shareholders for their approval, and to make all other determinations and take
all other actions necessary or desirable for the administration of the Plan.
The Committee is expressly authorized to adopt rules and regulations limiting
or eliminating its discretion in respect of certain matters as it may deem
advisable to comply with or obtain preferential treatment under any applicable
tax or other law rule, or regulation. All decisions and acts of the Committee
shall be final and binding upon all affected Plan participants.
(b) The Committee shall designate the eligible employees, if any,
to be granted Awards and the type and amount of such Awards and the time when
Awards will be granted. All Awards granted under the Plan shall be on the
terms and subject to the conditions determined by the Committee consistent with
the Plan.
SECTION 1.3 Eligible Participants. Key employees, including officers
and advisory directors, of the Company and its subsidiaries (all such
subsidiaries being referred to as "Subsidiaries") shall be eligible for Awards
under the Plan.
SECTION 1.4 Awards Under the Plan. Awards to key employees may be in
the form of (i) Options, (ii) Stock Appreciation Rights, which may be issued
independent of or in tandem with Options, (iii) shares of Restricted Stock,
(iv) Performance Awards, or (v) any combination of the foregoing (collectively,
"Awards").
A-1
<PAGE> 30
SECTION 1.5 Shares Subject to the Plan. Initially, the aggregate
number of shares of Common Stock that may be issued under the Plan shall be
720,000. This number of shares, represent approximately 7.85% of the total
outstanding number of shares of Common Stock as of the effective date of the
Plan. As of January 1 of each year the Plan is in effect, if the total number
of shares of Common Stock issued and outstanding, not including any shares
issued under the Plan, exceeds the total number of shares of Common Stock
issued and outstanding as of January 1 of the preceding year (or, for 1998, as
of the commencement of the Plan), the number of shares that may be issued under
the Plan shall be increased by an amount such that the total number of shares
of Common Stock available for issuance under the Plan equals 7.85% of the total
number of shares of Common Stock outstanding, not including any shares issued
under the Plan. Shares distributed pursuant to the Plan may consist of
authorized but unissued shares or treasury shares of the Company, as shall be
determined from time to time by the Board of Directors. For purposes of this
first paragraph of Section 1.5 only, "Common Stock" shall include both the
Company's Class A Common Stock and Class B Common Stock.
If any Award under the Plan shall expire, terminate or be canceled
(including cancellation upon an Option holder's exercise of a related Stock
Appreciation Right) for any reason without having been exercised in full, or if
any Award shall be forfeited to the Company, the unexercised or forfeited Award
shall not count against the above limits and shall again become available for
Awards under the Plan (unless the holder of such Award received dividends or
other economic benefits with respect to such Award, which dividends or other
economic benefits are not forfeited, in which case the Award shall count
against the above limits). Shares of Common Stock equal in number to the
shares withheld in a "cashless exercise" in payment of the exercise price, and
shares of Common Stock which are withheld in order to satisfy Federal, state or
local tax liability, shall count against the above limits. Only the number of
shares of Common Stock actually issued upon exercise of a Stock Appreciation
Right shall count against the above limits, and any shares which were estimated
to be used for such purposes and were not in fact so used shall again become
available for Awards under the Plan. Cash payments of Stock Appreciation
Rights and cash settlement of other Awards will not count against the above
limits.
The aggregate number of shares of Common Stock subject to Options or
Stock Appreciation Rights that may be granted to any one participant in any one
year under the Plan shall be 100,000. The aggregate number of shares of Common
Stock that may be granted to any one participant in any one year in respect of
Restricted Stock shall be 100,000. The aggregate number of shares of Common
Stock that may be issued to any one participant in any one year in respect of a
Performance Award shall be 100,000 and the aggregate amount of cash that may be
received by any one participant in any one year in respect to a Performance
Award shall be $500,000.
The total number of Awards (or portions thereof) settled in cash under
the Plan, based on the number of shares covered by such Awards (e.g., 100
shares for a Stock Appreciation Right with respect to 100 shares), shall not
exceed a number equal to (i) the number of shares initially available for
issuance under the Plan plus (ii) the number of shares that have become
available for issuance under the Plan pursuant to the first paragraph of this
Section 1.5.
The aggregate number of shares of Common Stock that are available
under the Plan for Options granted in accordance with Section 2.4(i) ("ISOs")
is 720,000, subject to adjustments as provided in Section 5.2 of the Plan.
A-2
<PAGE> 31
SECTION 1.6 Other Compensation Programs. Nothing contained in the
Plan shall be construed to preempt or limit the authority of the Board of
Directors to exercise its corporate rights and powers, including, but not by
way of limitation, the right of the Board of Directors (i) to grant incentive
awards for proper corporate purposes otherwise than under the Plan to any
employee, officer, director or other person or entity or (ii) to grant
incentive awards to, or assume incentive awards of, any person or entity in
connection with the acquisition (whether by purchase, lease, merger,
consolidation or otherwise) of the business or assets (in whole or in part) of
any person or entity.
ARTICLE II: STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
SECTION 2.1 Terms and Conditions of Options. Subject to the
following provisions, all Options granted under the Plan shall be in such form
and shall have such terms and conditions as the Committee, in its discretion,
may from time to time determine consistent with the Plan.
(a) Option Price. The option price per share shall be determined
by the Committee, except that in the case of an ISO the option price per share
shall not be less than the fair market value of a share of Common Stock (as
determined by the Committee) on the date the Option is granted (other than in
the case of substitute or assumed Options to the extent required to qualify
such Options for preferential tax treatment under the Code as in effect at the
time of such grant). In the case of any 10% stockholder, the price at which
shares of Common Stock may be purchased under an ISO shall not be less than
110% of the fair market value of the Common Stock on the date the ISO is
granted.
(b) Term of Option. The term of an Option shall be determined by
the Committee, except that in the case of an ISO the term of the Option shall
not exceed ten years from the date of grant, and, notwithstanding any other
provision of this Plan, no Option shall be exercised after the expiration of
its term. In addition, in the case of a 10% Stockholder, no ISO shall be
exercisable after the expiration of five years from the date the ISO is
granted.
(c) Exercise of Options. Options shall be exercisable at such
time or times and subject to such terms and conditions as the Committee shall
specify in the Option grant. Unless the Option grant specifies otherwise, the
Committee shall have discretion at any time to accelerate such time or times
and otherwise waive or amend any conditions in respect of all or any portion of
the Options held by any optionee, except that the Committee cannot take any
action that invalidates the ISO status of an Option granted to an employee
without obtaining the written consent of such employee. An Option may be
exercised in accordance with its terms as to any or all shares purchasable
thereunder. To the extent that the aggregate fair market value (determined as
of the time an ISO is granted) of the Common Stock with respect to which ISO
first become exercisable by the optionee during any calendar year (under this
Plan and any other incentive stock option plan(s) of the Company or any
affiliate) exceeds $100,000, the Options shall be treated as Nonqualified
Options (as defined under the Code). In making this determination, Options
shall be taken into account in the order in which they were granted.
(d) Payment of Exercise Price for Shares. The Committee may
authorize payment of the exercise price for shares as to which an Option is
exercised to be made in cash, shares of Common Stock, a combination thereof, by
"cashless exercise" or in such other manner as the Committee in its discretion
may provide. In a "cashless exercise", the exercise price for the Option shall
be paid by the Company retaining and not issuing to the holder of the Option a
A-3
<PAGE> 32
number of shares equal to the exercise price (with the holder of the Option
paying in cash to the Company the value of any fractional shares). In
determining the number of shares that is equal to the exercise price, the
closing price of the Common Stock reported on the Nasdaq National Market (or
any national securities exchange on which the Common Stock is regularly
traded) on the date notice of the exercise of the Option is received by the
Company shall be utilized.
(e) Stockholder Rights. The holder of an Option shall, as such,
have none of the rights of a stockholder.
(f) Termination of Employment. The Committee shall have
discretion to specify in the Option grant, or, with the consent of the
optionee, an amendment thereof, provisions with respect to the period, not
extending beyond the term of the Option, during which the Option may be
exercised following the optionee's termination of employment.
Unless it is expressly provided otherwise in the option agreement:
(i) Options shall terminate one day less than three
months after severance of employment of the employee from the Company
for any reason, with or without cause, other than death, retirement
under the then established rules of the Company or severance for
disability. Whether authorized leave of absence or absence on
military or government service shall constitute severance of the
employment of the employee shall be determined by the Committee at
that time.
(ii) If, before the expiration of an ISO, the employee
shall be retired in good standing from the employ of the Company under
the then established rules of the Company, the ISO shall terminate on
the earlier of the Option's expiration date or one day less than three
months after his retirement. If before the expiration of a
Nonqualified Option, the employee shall be retired in good standing
from the employ of the Company under the then established rules of the
Company, the Nonqualified Option shall terminate on the earlier of the
Option's expiration date or one year after his retirement. In the
event of retirement the employee shall have the right prior to the
termination of the Option to exercise the Option to the extent to
which he was entitled to exercise it immediately prior to his
retirement unless it is expressly provided otherwise in the option
agreement.
(iii) If, before the expiration of an Option, the employee
shall be retired for disability under the then established rules of
the Company, or severed from the employ of the Company for disability,
the Option shall terminate on the earlier of the Option's expiration
date or one day less than one year after the date he retired or was
severed because of disability. In the event that the employee shall be
retired for disability under the then established rules of the Company
or severed from the employ of the Company for disability, the Employee
shall have the right prior to the termination of the Option to
exercise the Option to the extent to which he was entitled to exercise
it immediately prior to his retirement or severance of employment for
disability unless it is expressly provided otherwise in the option
agreement.
(iv) If, before the expiration of an Option, the employee,
whether in the employ of the Company or after he has retired or was
severed for disability, dies the Option shall continue until the
earlier of the Option's expiration date or one year
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following the date of his death. After the death of the Employee, his
executors, administrators or any persons to whom his Option may be
transferred by will or by the laws of descent and distribution shall
have the right, at any time prior to the Option's termination, to
exercise it to the extent to which he was entitled to exercise it
immediately prior to the death unless it is expressly provided
otherwise in the option agreement.
In determining the employment relationship between the Company
and the Employee, employment by any affiliate shall be considered employment by
the Company, as shall employment by a corporation issuing or assuming a stock
option in a transaction to which Section 424(a) of the Code applies, or by a
parent corporation or subsidiary corporation of the corporation issuing or
assuming a stock option (and for this purpose, the phrase "corporation issuing
or assuming a stock option" shall be substituted for the word "Company" in the
definitions of parent corporation and subsidiary corporation in Section 2.1,
and the parent-subsidiary relationship shall be determined at the time of the
corporate action described in Section 424(a) of the Code).
SECTION 2.2 Stock Appreciation Rights in Tandem with Options. (a)
The Committee may, either at the time of grant of an Option or at any time
during the term of the Option, grant Stock Appreciation Rights ("Tandem SARs")
with respect to all or any portion of the shares of Common Stock covered by
such Option, except that the Committee will not grant Tandem SARs relating to
an ISO without the written consent of the holder of such ISO, and if such
Tandem SAR is granted pursuant to an ISO, such option will immediately become a
non-statutory option. A Tandem SAR may be exercised at any time the Option to
which it relates is then exercisable, but only to the extent the Option to
which it relates is exercisable, and shall be subject to the conditions
applicable to such Option. When a Tandem SAR is exercised, the Option to which
it relates shall cease to be exercisable to the extent of the number of shares
with respect to which the Tandem SAR is exercised. Similarly, when an Option
is exercised, the Tandem SARs relating to the shares covered by such Option
exercise shall terminate. Any Tandem SAR which is outstanding on the last day
of the term of the related Option (as determined pursuant to Section 2.1(b) or
2.1(f) in the event of a termination of employment) shall be automatically
exercised on such date for cash without any action by the optionee.
(b) Upon exercise of a Tandem SAR, the holder shall receive, for
each share with respect to which the Tandem SAR is exercised, an amount (the
"Appreciation") equal to the difference between the option price per share of
the Option to which the Tandem SAR relates and the fair market value (as
determined by the Committee) of a share of Common Stock on the date of exercise
of the Tandem SAR. The Appreciation shall be payable in cash, Common Stock, or
a combination of both, at the option of the Committee, and shall be paid within
30 days of the exercise of the Tandem SAR.
(c) Stockholder Rights. The holder of a Tandem SAR shall, as
such, have none of the rights of a stockholder.
SECTION 2.3 Stock Appreciation Rights Independent of Options.
Subject to the following provisions, all Stock Appreciation Rights granted
independent of Options ("Independent SARs") under the Plan to employees of the
Company and its Subsidiaries shall be in such form and shall have such terms
and conditions as the Committee, in its discretion, may from time to time
determine consistent with the Plan.
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(a) Exercise Price. The exercise price per share shall be
determined by the Committee on the date the Independent SAR is granted.
(b) Term of Independent SAR. The term of an Independent SAR shall
be determined by the Committee, and, notwithstanding any other provision of
this Plan, no Independent SAR shall be exercised after the expiration of its
term.
(c) Exercise of Independent SARs. Independent SARs shall be
exercisable at such time or times and subject to such terms and conditions as
the Committee shall specify in the Independent SAR grant. Unless the
Independent SAR grant specifies otherwise, the Committee shall have discretion
at any time to accelerate such time or times and otherwise waive or amend any
conditions in respect of all or any portion of the Independent SARs held by any
participant. Upon exercise of an Independent SAR, the holder shall receive,
for each share specified in the Independent SAR grant, an amount (the
"Appreciation") equal to the difference between the exercise price per share
specified in the Independent SAR grant and the fair market value (as determined
by the Committee) of a share of Common Stock on the date of exercise of the
Independent SAR. The Appreciation shall be payable in cash, Common Stock, or a
combination of both, at the option of the Committee, and shall be paid within
30 days of the exercise of the Independent SAR.
(d) Stockholder Rights. The holder of an Independent SAR shall,
as such, have none of the rights of a stockholder.
(e) Termination of Employment. The Committee shall have
discretion to specify in the Independent SAR grant, or, with the consent of the
holder, an amendment thereof, provisions with respect to the period, not
extending beyond the term of the Independent SAR, during which the Independent
SAR may be exercised following the holder's termination of employment.
SECTION 2.4 Statutory Options. Subject to the limitations on Option
terms set forth in Section 2.1, the Committee shall have the authority to grant
(i) ISOs within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and (ii) Options containing such terms and
conditions as shall be required to qualify such Options for preferential tax
treatment under the Code as in effect at the time of such grant, including, if
then applicable, limits with respect to minimum exercise price, duration and
amounts and special limitations applicable to any individual who, at the time
the Option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any affiliate.
Options granted pursuant to this Section 2.4 may contain such other terms and
conditions permitted by Article II of this Plan as the Committee, in its
discretion, may from time to time determine (including, without limitation,
provision for Stock Appreciation Rights), to the extent that such terms and
conditions do not cause the Options to lose their preferential tax treatment.
If an Option intended to be an ISO ceases or is otherwise not eligible to be an
ISO, such Option (or portion thereof necessary to maintain the status of the
remaining portion of the Option as an ISO) shall remain valid but be treated as
an Option other than an ISO.
SECTION 2.5 Change of Control. Notwithstanding the exercisability
schedule governing any Option or Stock Appreciation Right, upon the occurrence
of a Change of Control (as defined in Section 5.9) all Options and Stock
Appreciation Rights outstanding at the time of such Change of Control and held
by participants who are employees of the Company or its
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subsidiaries at the time of such Change of Control shall (unless specifically
provided otherwise in the grant thereof) become immediately exercisable and,
unless the participant agrees otherwise in writing, remain exercisable for
three years (but not beyond the term of the Option or Stock Appreciation Right)
after the employee's termination of employment for any reason other than
termination by the Company or a subsidiary of the Company for dishonesty,
conviction of a felony, wilful unauthorized disclosure of confidential
information or wilful refusal to perform the duties of such employee's position
or positions with the Company or such subsidiary (termination for "cause");
provided that this Section 2.5 shall not apply to Awards granted to a
participant if, in connection with a Change of Control pursuant to clause (1)
of Section 5.9, such participant is the Person or forms part of the Person
specified in such clause (1); and provided that, this Section 2.5 shall not
apply to an ISO unless it is specifically set forth in the option agreement
relating to such ISO that such provision shall apply.
ARTICLE III: RESTRICTED STOCK
SECTION 3.1 Terms and Conditions of Restricted Stock Awards. Subject
to the following provisions, all Awards of Restricted Stock under the Plan
shall be in such form and shall have such terms and conditions as the
Committee, in its discretion, may from time to time determine consistent with
the Plan.
(a) Restricted Stock Award. The Restricted Stock Award shall
specify the number of shares of Restricted Stock to be awarded, the price, if
any, to be paid by the recipient of the Restricted Stock, and the date or dates
on which the Restricted Stock will vest. The vesting and number of shares of
Restricted Stock may be conditioned upon the completion of a specified period
of service with the Company or its Subsidiaries, upon the attainment of
specified performance objectives, or upon such other criteria as the Committee
may determine in accordance with the provisions hereof. Performance objectives
will be based on increases in share prices, operating income, net income or
cash flow thresholds on a company-wide, subsidiary, division or other group
basis, return on common equity or any combination of the foregoing.
(b) Restrictions on Transfer. Stock certificates representing the
Restricted Stock granted to an employee shall be registered in the employee's
name. Such certificates shall either be held by the Company on behalf of the
employee, or delivered to the employee bearing a legend to restrict transfer of
the certificate until the Restricted Stock has vested, as determined by the
Committee. No share of Restricted Stock may be sold, transferred, assigned, or
pledged by the employee until such share has vested in accordance with the
terms of the Restricted Stock Award. Unless the grant of a Restricted Stock
Award specifies otherwise, in the event of an employee's termination of
employment before all the employee's Restricted Stock has vested, or in the
event other conditions to the vesting of Restricted Stock have not been
satisfied prior to any deadline for the satisfaction of such conditions set
forth in the Award, the shares of Restricted Stock that have not vested shall
be forfeited and the lesser of (i) the fair market value of the forfeited
shares (determined utilizing the closing price of the Common Stock on the date
of forfeiture as reported on the Nasdaq National Market or other national
securities exchange on which the Common Stock is regularly traded) on the date
of forfeiture or (ii) the portion of the purchase price paid allocable to the
forfeited shares shall be returned to the employee. At the time Restricted
Stock vests (and, if the employee has been issued legended certificates of
Restricted Stock, upon the return of such certificates to the Company), a
certificate for such vested shares shall be delivered to the employee or the
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employee's estate, free of all restrictions (other than legends required by
federal or state securities laws).
(c) Accelerated Vesting. Notwithstanding the vesting conditions
set forth in the Restricted Stock Award, (i) unless the Restricted Stock grant
specifies otherwise, the Committee may in its discretion at any time accelerate
the vesting of Restricted Stock or otherwise waive or amend any conditions of a
grant of Restricted Stock, and (ii) all shares of Restricted Stock shall vest
upon a Change of Control of the Company; provided that clause (ii) above shall
not apply to Awards granted to a participant if, in connection with a Change of
Control pursuant to clause (1) of Section 5.9, such participant is the Person
or forms part of the Person specified in such clause (1).
ARTICLE IV: PERFORMANCE AWARDS
SECTION 4.1 Terms and Conditions of Performance Awards. The
Committee shall be authorized to grant Performance Awards, which are payable in
stock, cash or a combination thereof, at the discretion of the Committee.
(a) Performance Period. The Committee shall establish with
respect to each Performance Award a performance period over which the
performance goal of such Performance Award shall be measured. The performance
period for a Performance Award shall be established prior to the time such
Performance Award is granted and may overlap with performance periods relating
to other Performance Awards granted hereunder to the same employee. The terms
and provisions herein relating to performance based stock awards are intended
to satisfy Section 162(m) of the Code and regulations issued thereunder. The
designation of an employee eligible for a specific performance based Stock
Award shall be made by the Committee in writing prior to the beginning of the
12-month period for which the performance is measured (or within such period as
permitted by IRS regulations). The Committee shall establish the number of
shares to be issued to a designated employee if the performance goal is met;
provided the maximum number of shares which may be issued to any one employee
per year under this Section 4.1 is 100,000 shares.
(b) Performance Objectives. The Committee shall establish a
minimum level of acceptable achievement for the holder at the time of each
Award. Each Performance Award shall be contingent upon future performances and
achievement of objectives described either in terms of Company-wide performance
or in terms that are related to performance of the employee or of the division,
subsidiary, department or function within the Company in which the employee is
employed. The Committee shall have the authority to establish the specific
performance objectives and measures applicable to such objectives. Such
objectives, however, shall be based on increases in share prices, operating
income, net income or cash flow thresholds on a company-wide, subsidiary,
division or other group basis, return on common equity or any combination of
the foregoing.
(c) Size, Frequency and Vesting. The Committee shall have the
authority to determine at the time of the Award the maximum value of a
Performance Award, the frequency of Awards and the date or dates when Awards
vest.
(d) Payment. Following the end of each performance period, the
holder of each Performance Award will be entitled to receive payment of an
amount, not exceeding the maximum value of the Performance Award, based on the
achievement of the performance
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measures for such performance period, as determined by the Committee. If at
the end of the performance period the specified objectives have been attained,
the employee shall be deemed to have fully earned the Performance Award. If
the employee exceeds the specified minimum level of acceptable achievement but
does not fully attain such objectives, the employee shall be deemed to have
partly earned the Performance Award, and shall become entitled to receive a
portion of the total Award, as determined by the Committee. If a Performance
Award is granted after the start of a performance period, the Award shall be
reduced to reflect the portion of the performance period during which the Award
was in effect. Unless the Award specifies otherwise, including restrictions in
order to satisfy the conditions under Section 162(m) of the Code, the Committee
may adjust the payment of Awards or the performance objectives if events occur
or circumstances arise which would cause a particular payment or set of
performance objectives to be inappropriate, as determined by the Committee.
With respect to performance-based stock awards, the Committee must certify in
writing that a performance goal has been met prior to issuance of any
certificate for a performance-based stock award to any employee. If the
Committee certifies the entitlement of an employee to the performance based
stock award, the certificate shall be issued to the employee as soon as
administratively practicable, and subject to other applicable provisions of the
Plan, including but not limited to, all legal requirements and tax withholding.
(e) Termination of Employment. A recipient of a Performance Award
who, by reason of death, disability or retirement, terminates employment before
the end of the applicable performance period shall be entitled to receive, to
the extent earned, a portion of the Award which is proportional to the portion
of the performance period during which the employee was employed. A recipient
of a Performance Award who terminates employment for any other reason shall not
be entitled to any part of the Award unless the Committee determines otherwise;
however, the Committee may in no event pay the employee more than that portion
of the Award which is proportional to his or her period of actual service.
(f) Accelerated Vesting. Notwithstanding the vesting conditions
set forth in a Performance Award, (i) unless the Award specifies otherwise, the
Committee may in its discretion at any time accelerate vesting of the Award or
otherwise waive or amend any conditions (including but not limited to
performance objectives) in respect of a Performance Award, and (ii) all
Performance Awards shall vest to the extent a portion has been earned upon a
Change of Control of the Company. In addition, each participant in the Plan
shall receive the maximum Performance Award he or she could have earned for the
proportionate part of the performance period prior to the Change of Control,
and shall retain the right to earn any additional portion of his or her Award
if he or she remains in the Company's employ. However, clause (ii) above shall
not apply to Awards granted to a participant if, in connection with a Change of
Control pursuant to clause (1) of Section 5.9, such participant is the Person
or forms part of the Person specified in such clause (1).
(g) Stockholder Rights. The holder of a Performance Award shall,
as such, have none of the rights of a stockholder.
ARTICLE V: ADDITIONAL PROVISIONS
SECTION 5.1 General Restrictions. Each Award under the Plan shall be
subject to the requirement that, if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any
state or Federal law, or (ii) the consent or approval of any government
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regulatory body, or (iii) an agreement by the recipient of an Award with
respect to the disposition of shares of Common Stock, is necessary or desirable
(in connection with any requirement or interpretation of any Federal or state
securities law, rule or regulation) as a condition of, or in connection with,
the granting of such Award or the issuance, purchase or delivery of shares of
Common Stock thereunder, such Award may not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval or
agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee.
SECTION 5.2 Adjustments for Changes in Capitalization. In the event
of any stock dividends, stock splits, recapitalizations, combinations,
exchanges of shares, mergers, consolidation, liquidations, split-ups, split-
offs, spin-offs, or other similar changes in capitalization, or any
distribution to shareholders, including a rights offering, other than regular
cash dividends, changes in the outstanding stock of the Company by reason of
any increase or decrease in the number of issued shares of Common Stock
resulting from a split-up or consolidation of shares or any similar capital
adjustment or the payment of any stock dividend, any share repurchase at a
price in excess of the market price of the Common Stock at the time such
repurchase is announced or other increase or decrease in the number of such
shares, the Committee shall make appropriate adjustment in the number and kind
of shares authorized by the Plan (including shares available for ISOs), in the
number, price or kind of shares covered by the Awards and in any outstanding
Awards under the Plan; provided, however, that no such adjustment shall
increase the aggregate value of any outstanding Award.
In the event of any adjustment in the number of shares covered by any
Award, any fractional shares resulting from such adjustment shall be
disregarded and each such Award shall cover only the number of full shares
resulting from such adjustment.
SECTION 5.3 Amendments. (a) The Board of Directors may at any time
and from time to time and in any respect amend or modify the Plan.
(b) The Committee shall have the authority to amend any Award to
include any provision which, at the time of such amendment, is authorized under
the terms of the Plan; however, no outstanding Award may be revoked or altered
in a manner unfavorable to the holder without the written consent of the
holder.
SECTION 5.4 Cancellation of Awards. Any Award granted under the Plan
may be canceled at any time with the consent of the holder and a new Award may
be granted to such holder in lieu thereof, which Award may, in the discretion
of the Committee, be on more favorable terms and conditions than the canceled
Award.
SECTION 5.5 Withholding. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the
Company shall have the right to require the holder to pay an amount in cash or
to retain or sell without notice, or demand surrender of, shares of Common
Stock in value sufficient to satisfy any Federal, state or local withholding
tax liability ("Withholding Tax") prior to the delivery of any certificate for
such shares (or remainder of shares if Common Stock is retained to satisfy such
tax liability). Whenever under the Plan payments are to be made in cash, such
payments shall be net of an amount sufficient to satisfy any Federal, state or
local withholding tax liability. An Award may also provide the holder with the
right to satisfy the Withholding Tax with previously owned shares of Common
Stock or shares of Common Stock otherwise issuable to the holder.
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Whenever Common Stock is so retained or surrendered to satisfy
Withholding Tax, the value of shares of Common Stock so retained or surrendered
shall be determined by the Committee, and the value of shares of Common Stock
so sold shall be the net proceeds (after deduction of commissions) received by
the Company from such sale, as determined by the Committee.
SECTION 5.6 Non-assignability. Except as expressly provided in the
Plan, no Award under the Plan shall be assignable or transferable by the holder
thereof except by will or by the laws of descent and distribution. During the
life of the holder, Awards under the Plan shall be exercisable only by such
holder or by the guardian or legal representative of such holder.
SECTION 5.7 Non-uniform Determinations. Determinations by the
Committee under the Plan (including, without limitation, determinations of the
persons to receive Awards; the form, amount and timing of such Awards; the
terms and provisions of such Awards and the agreements evidencing same; and
provisions with respect to termination of employment) need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, Awards under the Plan, whether or not such persons are similarly
situated.
SECTION 5.8 No Guarantee of Employment. The grant of an Award under
the Plan shall not constitute an assurance of continued employment for any
period.
SECTION 5.9 Change of Control. A "Change of Control" shall be deemed
to have occurred if:
(1) any Person (as defined below), other than a
Designated Person, is or becomes the Beneficial Owner (as defined
below) of securities of the Company representing 35% or more of the
Voting Power (as defined below); provided however, a Change in Control
shall not be deemed to have occurred due to Lawrence Industries' or
its affiliates' aggregate Voting Power falling below 35% or
subsequently increasing above 35%.
(2) there shall occur a change in the composition of a
majority of the Board of Directors within any period of four
consecutive years which change shall not have been approved by a
majority of the Board of Directors as constituted immediately prior to
the commencement of such period;
(3) at any meeting of the stockholders of the Company
called for the purpose of electing directors, more than one of the
persons nominated by the Board of Directors for election as directors
shall fail to be elected; or
(4) the stockholders of the Company approve a merger,
consolidation, sale of substantially all assets or other
reorganization of the Company, other than a reincorporation, in which
the Company does not survive.
For purposes of this Section 5.9, (i) "Person" shall have the meaning
set forth in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of
1934 (the "Exchange Act"), as in effect on July 9, 1997, (ii) "Beneficial
Owner" shall have the meaning set forth in Rules 13d-3 and 13d-5 promulgated
under the Exchange Act on July 9, 1997; (iii) "Voting Power" shall mean the
voting power of the outstanding securities of the Company having the
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right under ordinary circumstances to vote at an election of the Board of
Directors; and (iv) "Designated Person" shall mean any Person whose Beneficial
Ownership of securities is solely the result of such Person acquiring
securities as an underwriter in an underwritten public offering of such
securities or who owned greater than 35% or more of the Voting Power as of July
9, 1997.
SECTION 5.10 Duration and Termination. (a) The Plan shall be of
unlimited duration. Notwithstanding the foregoing, no ISO (within the meaning
of Section 422 of the Code) shall be granted under the Plan ten (10) years
after the effective date of the Plan, but Awards granted prior to such date may
extend beyond such date, and the terms of this Plan shall continue to apply to
all Awards granted hereunder.
(b) The Board of Directors may suspend, discontinue or terminate
the Plan at any time. Such action shall not impair any of the rights of any
holder of any Award outstanding on the date of the Plan's suspension,
discontinuance or termination without the holder's written consent.
SECTION 5.11 Deferred Compensation and Trust Agreements. The
Committee may authorize and establish deferred compensation agreements and
arrangements in connection with Awards under the Plan and may establish trusts
and other arrangements including "rabbi trusts", with respect to such
agreements and appoint one or more trustees for such trusts. Shares of Common
Stock under the Plan may also be acquired by one or more trustees from the
Company, in the open market or otherwise.
SECTION 5.12 Effective Date. The Plan shall be effective as of July
9, 1997, subject in all respects to approval of the Corporation's stockholders.
SECTION 5.13 Indemnification. With respect to administration of the
Plan, the Company shall indemnify each present and future member of the
Committee and the Board of Directors against, and each member of the Committee
and the Board of Directors shall be entitled without further act on his part to
indemnity from the Company for, all expenses (including the amount of judgments
and the amount of approved settlements made with a view to the curtailment of
costs of litigation, other than amounts paid to the Company itself) reasonably
incurred by him in connection with or arising out of any action, suit, or
proceeding in which he may be involved by reason of his being or having been a
member of the Committee and/or the Board of Directors, whether or not he
continues to be a member of the Committee and/or the Board of Directors at the
time of incurring the expenses. However, this indemnity shall not include any
expenses incurred by any member of the Committee and/or the Board of Directors
(a) in respect of matters as to which he shall be finally adjudged in any
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as a member of the Committee and the
Board of Directors, or (b) in respect of any matter in which any settlement is
effected, to an amount in excess of the amount approved by the Company on the
advice of its legal counsel. In addition, no right of indemnification under
this Plan shall be available to or enforceable by any member of the Committee
and the Board of Directors unless, within 60 days after institution of any
action, suit or proceeding, he shall have offered the Company, in writing, the
opportunity to handle and defend same at its own expense. This right of
indemnification shall inure to the benefit of the heirs, executors or
administrators of each member of the Committee and the Board of Directors and
shall be in addition to all other rights to which a member of the Committee and
the Board of Directors may be entitled as a matter of law, contract, or
otherwise.
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SECTION 5.14 Section 83(b) Election. No employee shall exercise the
election permitted under Section 83(b) of the Code without written approval of
the Committee. Any employee doing so shall forfeit all Options, Stock
Appreciation Rights and/or Awards issued to him under this Plan.
SECTION 5.15 Governing Law. The provisions of the Plan shall be
construed, administered and governed under the laws of the State of Texas and,
to the extent applicable, the federal laws of the United States.
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PROXY
DAILEY PETROLEUM SERVICES CORP.
The undersigned hereby appoints James F. Farr and David t. Tighe,
and each of them, as proxies, with full power of substitution in each, to vote
all the shares of Dailey Petroleum Services Corp. of the undersigned at the
Annual Meeting of the Stockholders to be held Friday, October 7, 1997 at 10:00
a.m. at the Wyndham Greenspoint Hotel, Salon 1, 12400 Greenspoint Dr., Houston,
Texas 77060-1998 and any adjournment thereof as specified on the reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[SEE REVERSE SIDE]
<PAGE> 43
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
DAILEY PETROLEUM SERVICES CORP.
OCTOBER 7, 1997
Please detach here and mail in the envelope provided
A [X] Please mark your votes as
indicated in this example.
This proxy is solicited by the Board of Directors and may be revoked prior to
the Annual Meeting. This proxy, when properly executed, will be voted as
directed herein by the undersigned stockholder. In the absence of direction,
this proxy will be voted FOR Items 1, 2, 3, 4 and 5.
1. Election of Class I Directors
FOR AUTHORITY WITHHELD
[ ] [ ]
Nominees:
William D. Sutton
David T. Tighe
[ ] Instruction: To withhold authority for one or more of the nominees
listed at the right, write the name of the nominee's name on the
line above.
2. Approval of the Company's 1997 Long-Term Incentive Plan
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the amendment to the Company's Restated Certificate of
Incorporation changing the name of the Company to "Dailey International
Inc."
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Ratification of Ernst & Young LLP as the Company's independent auditors for
the fiscal year ended December 31, 1997
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. Other Business.
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. The Board of Directors at
present know of no other formal business to be brought before the meeting.
IF YOU PLAN TO ATTEND THE MEETING INDICATE NUMBER OF ATTENDEES IN THE BOX
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MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
[ ]
Signature: Date:
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Signature: Date:
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Instruction: Please sign _______ as name appears herein. Executors,
Administrators, Guardians, attorneys or any other representatives
should give full titles. Corporate stockholders sign with
full titles appearing and by a duly authorized officer. If a
partnership, sign partnership names by authorized person.
