<PAGE> 1
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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
GREY WOLF, INC.
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] 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:
-----------------
2) Aggregate number of securities to which transaction
applies:
-----------------
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):
----------------
4) Proposed maximum aggregate value of transaction: $
------------
5) Total fee paid: $
------------------
[ ] Fee paid previously with 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:
----------------
2) Form, Schedule or Registration Statement No.:
----------------
3) Filing Party:
-----------------
4) Date Filed:
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<PAGE> 2
GREY WOLF, INC.
10370 RICHMOND AVENUE, SUITE 600
HOUSTON, TEXAS 77042
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 4, 1999
---------------------
Notice is hereby given that the annual meeting of shareholders of Grey
Wolf, Inc. a Texas corporation (the "Company"), will be held at the Adam's Mark
Hotel, 2900 Briarpark Drive, Houston, Texas 77042 on May 4, 1999, at 8:30 a.m.,
Houston time, and any adjournment or postponement thereof, for the following
purposes:
1. To elect seven (7) directors to three classes to serve until their
respective terms expire or until their successors are elected and
qualified;
2. To consider and approve an amendment to the Company's Articles of
Incorporation eliminating shareholder action by less than unanimous written
consent;
3. To consider and approve an amendment to the Company's Articles of
Incorporation providing that special meetings of shareholders may be called
by shareholders only upon the request of holders of at least 50% of the
shares entitled to vote at such meeting;
4. To consider and approve an amendment to the Company's Articles of
Incorporation granting the Board of Directors the exclusive authority to
adopt, amend or repeal the Company's Bylaws;
5. To consider and approve an amendment to the Company's Articles of
Incorporation limiting the personal liability of directors to the Company
and its shareholders;
6. To consider and approve an amendment to the Company's Articles of
Incorporation deleting a provision limiting the Company's ability to redeem
or repurchase shares of its own capital stock;
7. To consider and approve an amendment to the Company's 1996 Employee
Stock Option Plan increasing the amount of shares available for grant under
the plan; and
8. To consider and act upon such other business as may properly be
presented to the annual meeting or any adjournments or postponements
thereof.
The Board of Directors has fixed the close of business on April 6, 1999, as
the record date for determination of shareholders entitled to notice of and to
vote at the annual meeting and any adjournments or postponements thereof. A
shareholders' list will be available commencing April 20, 1999, and may be
inspected during normal business hours prior to the annual meeting at the
offices of the Company, 10370 Richmond Avenue, Suite 600, Houston, Texas 77042.
Your vote is important. Whether or not you plan to attend the annual
meeting in person, we request that you sign, date and return the enclosed proxy
card promptly in the enclosed stamped envelope. The prompt return of proxies
will ensure a quorum and save the Company the expense of further solicitation.
By Order of the Board of Directors,
/s/ DAVID W. WEHLMANN
DAVID W. WEHLMANN,
Secretary
April 7, 1999
<PAGE> 3
GREY WOLF, INC.
10370 RICHMOND AVENUE, SUITE 600
HOUSTON, TEXAS 77042
PROXY STATEMENT
This proxy statement, the accompanying Notice of Meeting of Shareholders
and the enclosed proxy card are first being mailed to the shareholders of Grey
Wolf, Inc., a Texas corporation (the "Company"), commencing on or about April 9,
1999, in connection with the solicitation by the board of directors of the
Company (the "Board of Directors") of proxies to be voted at the annual meeting
of shareholders to be held at the Adam's Mark Hotel, 2900 Briarpark Drive,
Houston, Texas 77042 on Tuesday, May 4, 1999, at 8:30 a.m., Houston, Texas time
and at any adjournments or postponements thereof (the "Meeting"), for the
purposes set forth in the accompanying notice.
Proxies will be voted in accordance with the directions specified thereon
and otherwise in the discretion of the persons designated as proxies on other
matters properly brought before the Meeting. Any proxy on which no direction is
specified will be voted "FOR" the election of the nominees named herein to the
Board of Directors under Proposal 1 and "FOR" proposals 2 through 7.
A shareholder may revoke a proxy by:
- delivering to the Company written notice of revocation;
- delivering to the Company a signed proxy of a later date; or
- appearing at the Meeting and voting in person.
Votes will be tabulated and the results will be certified by election inspectors
who are required to resolve impartially any interpretive questions as to the
conduct of the vote.
VOTING AT MEETING
As of April 6, 1999, the record date for the determination of shareholders
entitled to vote at the Meeting, there were outstanding and entitled to vote
165,065,391 shares of the Company's common stock, par value $.10 per share (the
"Common Stock"). Each share of Common Stock entitles the holder to one vote on
all matters presented at the Meeting. Holders of a majority of the outstanding
shares of Common Stock must be present, in person or by proxy, to constitute a
quorum for the transaction of business. Each of the proposals to amend the
Articles of Incorporation, proposals 2 through 6, require the affirmative vote
of a majority of the outstanding Common Stock. Proxies that are marked "abstain"
and proxies relating to "street name" shares that are returned to the Company
but marked by brokers as "not voted" ("broker non-votes") will be treated as
present for purposes of determining whether a quorum is present, but will have
the same legal effect as votes against each of proposals 2 through 6. The
election of directors requires a plurality of votes cast at the Meeting with
respect to the election of directors. Proposal 7 and all other matters to be
voted on will be decided by the affirmative vote of a majority of the votes cast
by holders of Common Stock entitled to vote thereon. Accordingly, abstentions
will have the same legal effect as a vote against the amendment to the 1996
Employee Stock Option Plan. Broker non-votes are not considered present at the
Meeting for the particular proposal for which the broker lacks authority to vote
and will not be counted in determining the number of votes required for a
majority. Therefore, broker non-votes will have no effect on the outcome of the
approval of the amendment to the 1996 Employee Stock Option Plan or other
matters that may be properly brought before the Meeting.
If a quorum is not obtained, or if fewer shares are voted in favor of
approval of any of the proposals than the number required for approval, the
Meeting may be adjourned for the purpose of obtaining additional proxies or
votes or for any other purpose, and, at any subsequent reconvening of the
Meeting, all proxies will be voted in the same manner as such proxies would have
been voted at the original convening of the Meeting (except for any proxies
which have theretofore been revoked).
2
<PAGE> 4
ELECTION OF DIRECTORS
The Board has unanimously approved an amendment to the Company's Bylaws
providing for the classification of the Board of Directors. This amendment to
the Bylaws divides the Board of Directors into three classes, each class as
nearly equal in number as possible, serving staggered terms of three years.
The Board believes that the staggered three year term, as opposed to the
present one-year term, will help ensure stability and continuity in the
management of the Company's business and affairs. Although there have been no
problems with respect to stability or continuity of the Board of Directors in
the past, the Board believes that the longer the amount of time required to
elect a majority of the Board will help prevent the occurrence of such problems
in the future and help discourage hostile attempts to take control of the
Company.
The provisions for classification of the Board of Directors will apply in
all years, even when no takeover or proxy contest is proposed. Change in the
overall composition of the Board would take up to three years and change of a
majority of the directors would require two successive annual meetings.
Therefore, a classified board will make it more difficult to remove a majority
of the existing Board and could discourage a merger, tender offer, proxy contest
or an attempt to assume control by a holder of a majority of the Common Stock.
Even though such a transaction may be beneficial to the Company and its
shareholders a classified board would, however, provide the Board of Directors
with a better opportunity to review a proposed transaction and assure that the
interests of shareholders are adequately protected.
GENERAL INFORMATION
At the Meeting three (3) nominees will be elected to Class I and two (2)
nominees will be elected to each of Classes II and III. If elected, each Class I
director will hold office until the Company's Annual Meeting of Shareholders in
2000 or until his successor is elected and qualified. If elected, each Class II
and III director will hold office until the Company's Annual Meeting of
Shareholders in 2001 and 2002, respectively, or until his successor is elected
and qualified.
Mr. Peter M. Holt, a director of the Company since 1996, will not stand for
re-election at the Meeting. The Board has elected not to fill this vacancy and
has decreased the size of the Board of Directors from eight to seven. The
persons named as proxies in the accompanying proxy have been designated by the
Board of Directors and, unless authority is withheld, will vote for the election
of the nominees to the Board of Directors to their respective classes. If any
nominee should become unavailable for election, the proxy may be voted for a
substitute nominee selected by the persons named in the proxy or the Board may
be reduced accordingly. The Board of Directors is not aware of any circumstances
likely to render any nominee unavailable. All of the nominees have been
previously elected as directors by the shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR ALL
SEVEN NOMINEES TO THE COMPANY'S BOARD OF DIRECTORS.
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<PAGE> 5
NOMINEES FOR DIRECTOR
Set forth below is certain information regarding the nominees for election
to the Board of Directors.
CLASS I NOMINEES
<TABLE>
<CAPTION>
DIRECTOR
NAME AND BIOGRAPHY AGE SINCE
- ------------------ --- ---------
<S> <C> <C>
William T. Donovan has been a director of the Company 47 1997
since 1997. Since 1980, Mr. Donovan has been a Principal and
Managing Director of Lubar & Co., a private investment and
venture capital firm. Mr. Donovan also serves as Chairman of
the Board and Chief Financial Officer of C2, Inc., a
Wisconsin corporation, which engages in various operating
and investment activities and as a director of various
private industrial companies. Mr. Donovan previously served
as President, Chief Financial Officer, and was a director,
of Christiana Companies, Inc., prior to its merger with
Weatherford International, Inc. in February 1999. Prior to
joining Lubar & Co., Mr. Donovan was an officer with
Manufacturers Hanover Trust Company from 1976 until 1980,
where he specialized in merger and acquisition financing.
Thomas P. Richards became a director of the Company on 55 1998
March 24, 1998 and has been Chairman of the Board since
November 1998. Mr. Richards joined the Company in September
1996 as President and Chief Executive Officer. Mr. Richards
was with Diamond Offshore Drilling, Inc. ("Diamond
Offshore") from September 1990 until September 1996. He
started as Senior Vice President of Diamond M Corporation
("Diamond M"), a subsidiary of Diamond Offshore, in 1990 and
was serving as Senior Vice President of Worldwide Operations
when he left Diamond Offshore in 1996. Mr. Richards served
as Vice President -- Land for Penrod Drilling Corporation
("Penrod") from January 1989 until September 1990 when
Diamond M purchased substantially all of Penrod's land
drilling assets. From February 1974 until December 1988, Mr.
Richards owned and served as President and Chief Executive
Officer of Richards Drilling Company, a land drilling
contractor based in Bay City, Texas.
Ivar Siem is currently a director of the Company, was 52 1995
Chairman of the Board from August 1995 to November 1998 and
was President and Chief Executive Officer from April 1996
through August 1996. He has been an international consultant
in energy, technology and finance since 1985. He is a member
of the board of directors of several privately held and
publicly traded companies, including, Chairman of the Board
of Blue Dolphin Energy Company, an oil and gas pipeline and
exploration company, since 1989.
</TABLE>
CLASS II NOMINEES
<TABLE>
<CAPTION>
DIRECTOR
NAME AND BIOGRAPHY AGE SINCE
- ------------------ --- ---------
<S> <C> <C>
James K. B. Nelson has been a director of the Company 71 1997
since 1997. Prior to the acquisition of Grey Wolf Drilling
Company ("GWDC") by the Company in 1997, Mr. Nelson served
as President and Chief Executive Officer of GWDC since 1978.
He joined GWDC in 1960 and began his career in the oil field
drilling industry as a roughneck in 1946.
</TABLE>
<TABLE>
Roy T. Oliver, Jr. has been director of the Company since April 1996. He has been the 46 1996
Chairman of the Board, President and Chief Executive Officer of U.S. Rig & Equipment,
Inc., an Oklahoma corporation ("USRE"), a worldwide supplier of drilling equipment, since
its organization in 1982.
<S> <C> <C>
</TABLE>
4
<PAGE> 6
CLASS III NOMINEES
<TABLE>
<CAPTION>
DIRECTOR
NAME AND BIOGRAPHY AGE SINCE
- ------------------ --- ---------
<S> <C> <C>
Steven A. Webster has been a director of the Company 47 1996
since August 1996. He was the Chairman of the Board and
Chief Executive Officer of Falcon Drilling Company, Inc., a
marine oil and gas drilling contractor from 1988 until 1997.
He has been the President and Chief Executive Officer of R&B
Falcon Corporation, a marine oil and gas drilling contractor
since 1998. He serves as a director of Crown Resources
Corporation (a mining company); Trust Manager of Camden
Property Trust; a general partner of Somerset Capital
Partners, a New York general partnership ("SCP"), the
managing member of Somerset Drilling Associates, L.L.C., a
Delaware limited liability company ("SDA"); Chairman of the
Board of Carrizo Oil & Gas, Inc., an independent oil and gas
exploration company; a director of Ponder Industries, Inc.,
an oil service and rental tool company; and a director of
Geokinetics, Inc., a 3-D seismic acquisition and geophysical
services provider to the oil and gas industry.
William R. Ziegler has been a director of the Company 56 1996
since August 1996 and is currently Vice Chairman of the
Board of Directors. He has been a partner of the law firm of
Parson & Brown LLP since June 1994. Prior to that time he
was a partner in the law firm of Whitman Breed Abbott &
Morgan and a predecessor firm for over five years. Mr.
Ziegler is a director of R&B Falcon Corporation; a general
partner of SCP, the managing member of SDA; a director of
Geokinetics, Inc., a 3-D seismic acquisition and geophysical
services provider to the oil and gas industry; a director of
Ponder Industries, Inc., an oil service and rental tool
company; and a director of Flotek Industries, Inc., an oil
services equipment supplier.
</TABLE>
BOARD AND COMMITTEE ACTIVITY, STRUCTURE AND COMPENSATION
The Board of Directors has several standing committees, including an Audit
Committee, a Compensation Committee, an Executive Committee and a Nominating
Committee.
Audit Committee. During 1998, the Audit Committee was composed of Messrs.
Donovan and Holt. During 1998, the Audit Committee met twice. The functions of
the Audit Committee include (i) reviewing the accounting principles and
practices employed by the Company; (ii) meeting with the Company's independent
accountants to review their report and discuss matters pertaining to their
audit; and (iii) recommending annually to the Board of Directors the appointment
of the Company's independent auditors.
Compensation Committee. The Compensation Committee is currently composed of
Messrs. Holt, Siem and Webster. During 1998, the Compensation Committee met
twice. The Compensation Committee (i) recommends to the Board the compensation
for the Company's officers; (ii) administers and makes awards under the
Company's compensation plans; and (iii) monitors and makes recommendation with
respect to the Company's various employee benefit plans.
Executive Committee. In November 1998 the Board of Directors formed an
Executive Committee. The Executive Committee did not meet in 1998 and is
currently composed of Messrs. Donovan, Richards and Ziegler. The Executive
Committee will exercise the powers of the Board of Directors when the Board is
not in session, except for specific authority retained by the Board. The Board
has retained authority relating to, among other things, (i) amendments to the
Articles of Incorporation and Bylaws; (ii) mergers, consolidations, sales or
exchanges involving substantially all of the Company's assets; (iii)
declarations of dividends; and (iv) issuances of stock.
Nominating Committee. In November 1998 the Board of Directors formed a
Nominating Committee. The Nominating Committee did not meet in 1998 and is
currently composed of Messrs. Donovan, Oliver and Ziegler. The Nominating
Committee will recommend to the Board of Directors nominees for election to the
Company's Board of Directors. Shareholders who desire to recommend nominees for
election as directors
5
<PAGE> 7
should forward any such recommendation, together with the proposed nominee's
qualifications and consent to be considered as a nominee, to the Secretary of
the Company.
During 1998, there were seven meetings of the Board of Directors. Each
director attended at least 75% or more of the aggregate number of meetings of
the Board and each committee on which he served during 1998.
Each director who is not an employee of the Company is paid an annual fee
of $10,000 plus travel expenses, if any. Directors are not compensated for
service on committees of the Board. The Board of Directors suspended the 1987
Stock Option Plan for Non-employee Directors in August 1996.
INTRODUCTION TO PROPOSALS 2, 3 AND 4
The Board of Directors has observed that the inequitable treatment of
shareholders sometimes occurs in unsolicited takeover transactions. The Board of
Directors considers the tactics used in these types of takeover transactions to
be highly disruptive to a corporation and often contrary to the overall best
interests of shareholders. In particular, these tactics frequently represent an
attempt to acquire a corporation in the marketplace at an inadequate price or in
a manner that is unfair to shareholders. Proposals 2, 3 and 4, (each a "Proposed
Amendment" and collectively, the "Proposed Amendments"), are being submitted for
shareholder approval to strengthen the ability of the Board of Directors to
respond to an unsolicited takeover offer and protect the interests of
shareholders by discouraging the use of such takeover tactics. The Board of
Directors believes approval of the Proposed Amendments is in the best interests
of the Company and its shareholders.
Currently, the Company's Articles of Incorporation do not contain any
provisions which would discourage an unsolicited takeover attempt. On September
18, 1998, however, the Board of Directors adopted a shareholder rights plan (the
"Shareholder Rights Plan") pursuant to which the Company distributed a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
Common Stock. Each Right entitles the registered holder to purchase from the
Company one one-thousandth of a share of Series B Junior Participating Preferred
Stock, $1.00 par value per share (the "Preferred Shares"), of the Company at an
exercise price of $11.00 per one-thousandth of a Preferred Share. The Rights
will cause substantial dilution to a person or group that attempts to acquire
the Company on terms not approved by the Board of Directors, except pursuant to
an offer conditioned on a substantial number of Rights being acquired.
Accordingly, the Rights may deter an unsolicited takeover attempt by increasing
the costs of such attempt. The description and terms of the Rights are set forth
in a Rights Agreement, dated as of September 21, 1998, between the Company and
American Stock Transfer & Trust Company, as rights agent, a copy of which has
been filed with the Securities and Exchange Commission as an exhibit to a
registration statement on Form 8-A and current report on Form 8-K.
The Proposed Amendments are not in response to any specific attempt or
offer to acquire the Company. The primary purposes for the Proposed Amendments
are to (i) discourage any attempt to acquire control of the Company without
negotiation with the Board and (ii) attempt to insure that any such transaction
is on terms favorable to all of the Company's shareholders. The Board of
Directors believes that the Proposed Amendments to the Articles of Incorporation
will enable it to adequately evaluate unsolicited offers, as well as appropriate
alternatives, and maximize shareholder value in a manner which assures fair
treatment of all shareholders. The Proposed Amendments to the Articles of
Incorporation are also intended to improve the bargaining position of the Board
of Directors, on behalf of the Company in any negotiations concerning a
potential change of control of the Company. The Proposed Amendments to the
Articles of Incorporation will, however, make more difficult or discourage an
unfriendly or unfair takeover attempt and could increase the likelihood that the
incumbent management of the Company will retain their positions. Furthermore, if
adopted, the Proposed Amendments could also have the effect of discouraging a
third party from making an unsolicited offer or otherwise attempting to obtain
control of the Company even though such attempt might be beneficial to
shareholders.
Shareholders are urged to read carefully the following sections of the
proxy statement which describe the Proposed Amendments and their purposes and
effects. The Proposed Amendments may have the effect of deterring or delaying
attempts to acquire the Company which are not approved by the Board of
Directors.
6
<PAGE> 8
PROPOSAL 2
TO APPROVE AN AMENDMENT TO THE ARTICLES OF
INCORPORATION ELIMINATING SHAREHOLDER
ACTION BY LESS THAN UNANIMOUS WRITTEN CONSENT
The Board of Directors has unanimously approved this Proposed Amendment to
the Articles of Incorporation which would delete Article Thirteen of the
Articles of Incorporation. Presently, Article Thirteen of the Company's Articles
of Incorporation provides that shareholders may take action by written consent
of the holders of shares of outstanding Common Stock having the requisite number
of votes that would be necessary to authorize such action at a meeting of
shareholders. In most instances, this means that the holders of a simple
majority of the outstanding Common Stock may take shareholder action without
affording other shareholders the opportunity to consider and vote on the matter
at a meeting of shareholders.
The adoption of this Proposed Amendment would eliminate the ability of the
Company's shareholders to act by written consent in lieu of a meeting unless
shareholders unanimously approve the action. This Proposed Amendment will
prevent shareholders from soliciting consents and effecting changes without (i)
affording the Board an opportunity to evaluate the merits of such proposed
action and (ii) giving all of the Company's shareholders entitled to vote on a
proposed action an adequate opportunity to participate at a meeting where such
proposed action is considered. This Proposed Amendment would prevent a holder(s)
who controls a majority of the Common Stock from using the written consent
procedure to take shareholder action unilaterally.
This Proposed Amendment will ensure that all shareholders will have advance
notice of any attempted major corporate action by shareholders, and that all
shareholders will have an equal opportunity to consider and evaluate such
action. It should also reduce the possibility of disputes or confusion regarding
the validity of purported shareholder action and also encourage potential
acquirors to negotiate directly with the Board of Directors.
The Board of Directors does not believe that the elimination of the ability
of a simple majority shareholder to take action by written consent will preclude
an acquisition or other attempt to take control of the Company. Nevertheless,
the effect of this Proposed Amendment may be to make more difficult, or delay,
certain actions by a person or group acquiring a substantial percentage of the
outstanding shares of Common Stock, even though such actions might be desired
by, or beneficial to, the holders of a majority of the outstanding shares of
Common Stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR APPROVAL OF PROPOSAL 2.
7
<PAGE> 9
PROPOSAL 3
TO APPROVE AN AMENDMENT TO THE ARTICLES OF INCORPORATION
PROVIDING THAT SPECIAL MEETINGS OF SHAREHOLDERS MAY BE
CALLED BY SHAREHOLDERS ONLY UPON THE REQUEST OF HOLDERS OF
AT LEAST 50% OF ALL SHARES ENTITLED TO VOTE AT SUCH MEETING
The Board of Directors has unanimously approved this Proposed Amendment to
the Articles of Incorporation which would provide that special meetings of
shareholders may be called by the Chairman of the Board, the Vice Chairman of
the Board, the Chief Executive Officer, the President, a majority of the Board
of Directors or by holders of at least 50% of all shares of Common Stock
entitled to vote at such meeting. The text of the Proposed Amendment is as
follows:
"ARTICLE 11
SPECIAL MEETINGS
Special meetings of the shareholders may be called only by the
Chairman of the Board, the Vice Chairman of the Board, the Chief
Executive Officer, the President, the Board of Directors by the
written order of a majority of the entire Board of Directors or by the
holders of at least fifty percent of all the shares entitled to vote
at the proposed special meeting."
The Board of Directors has observed that proxy contests have been, and may
be, utilized by potential acquirors in unsolicited takeover transactions to
attempt to undercut the authority and ability of a board of directors to
negotiate on behalf of a corporation and its shareholders. Some potential
acquirors have called special shareholders' meetings and solicited proxies to
remove directors, replace them with nominees of the acquiror, or to take other
actions to reverse prior actions of the board taken to protect the corporation
and its shareholders where the board has determined that a takeover bid is
unfair or inadequate to shareholders. Pursuant to Article 2.24 of the Texas
Business Corporation Act (the "TBCA"), a potential acquiror who holds at least
10% of the outstanding Common Stock, or is able to solicit proxies sufficient to
represent that number of shares, can put the Company to the expense of a special
meeting, and can place before the meeting any proposals that the potential
acquiror desires, so long as the proposals are appropriate for shareholder
action.
The Proposed Amendment to Article 11 of the Articles of Incorporation
would, however, strengthen the position of the Board of Directors in dealing
with potential acquirors. It would make it more difficult for a potential
acquiror opposed to the Board of Directors' position regarding an unsolicited
takeover proposal to call a special meeting of shareholders and initiate the
process of removing the directors and replacing them with nominees disposed to
accept the potential acquiror's offer. Accordingly, the Board will have an
adequate opportunity to respond to any unsolicited takeover proposals and
evaluate the fairness of any such proposal to all shareholders.
The Proposed Amendment would limit the power of shareholders to call
special meetings, whether to remove and replace the incumbent directors or for
other purposes, by increasing the amount of shares of Common Stock a shareholder
needs to call a special meeting from 10% to 50%. This Proposed Amendment may
secure the positions and decisions of the existing members of the Board of
Directors. This Proposed Amendment may also discourage certain potential
acquirors from making unsolicited offers for control of the Company, if they
anticipate that their offer will be viewed negatively by the Board of Directors
even though such offer may be beneficial to shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR PROPOSAL 3.
8
<PAGE> 10
PROPOSAL 4
TO APPROVE AN AMENDMENT TO THE ARTICLES OF INCORPORATION
GRANTING THE BOARD OF DIRECTORS THE EXCLUSIVE AUTHORITY
TO ADOPT, AMEND OR REPEAL THE BYLAWS
The Company's Board of Directors has unanimously approved this Proposed
Amendment to the Articles of Incorporation which would grant the Board of
Directors the exclusive authority to adopt, amend or repeal the Bylaws of the
Company. This Proposed Amendment will vest the Board of Directors, rather than
the shareholders, with the authority to amend, alter, change and repeal the
Bylaws and to adopt new bylaws without shareholder approval to the extent
allowed by the TBCA. The text of the Proposed Amendment is as follows:
"ARTICLE 12
BYLAWS
The Board of Directors is expressly and exclusively authorized to
adopt, amend or repeal the Bylaws, or adopt new bylaws, without any
action on the part of the shareholders, and the shareholders of the
Corporation may not adopt, amend or repeal the Bylaws, or adopt new
bylaws. Notwithstanding any other provision of these Articles, no
amendment to these Articles shall amend, alter, change or repeal any
of the provisions of this Article, unless such amendment, alteration,
change or repeal shall receive the affirmative vote of the holders of
not less than seventy-five percent of all shares of stock of the
Corporation entitled to vote at a meeting of shareholders, voting
together as a single class."
The Board of Directors presently has authority under the Bylaws to adopt,
amend, and repeal the Bylaws and would retain such right under this Proposed
Amendment. If approved, this Proposed Amendment may only be amended if
seventy-five percent of the holders of Common Stock approve any such amendment.
This will prevent a holder of fifty percent of the Common Stock from
circumventing the requirements of this Proposed Amendment and subsequently
altering the Bylaws. Accordingly, this provision will prevent a shareholder or
shareholders having a majority of the Common Stock from making any change to the
Bylaws which would conflict with or amend Bylaws established by the Board of
Directors, otherwise reduce the authority of the Board of Directors in the
governance of the Company or impair the Board of Directors ability to adequately
protect the best interests of shareholders.
This Proposed Amendment to the Articles of Incorporation would make any
attempt to gain control of the Company, or the Board of Directors, more
difficult and increase the length of time associated with any such attempt.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR PROPOSAL 4.
PROPOSAL 5
TO APPROVE AN AMENDMENT TO THE ARTICLES OF
INCORPORATION LIMITING THE PERSONAL LIABILITY OF DIRECTORS
TO THE COMPANY AND ITS SHAREHOLDERS
The Board of Directors has unanimously approved this proposed amendment to
Article Twelve of the Articles of Incorporation. The existing Article Twelve of
the Articles of Incorporation limits the personal liability of directors to the
Company or its shareholders for monetary damages for any act or omission as a
director, except to the extent otherwise expressly provided by Texas law.
However, Article Twelve does not accurately reflect the current provisions of
Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act (the "Act").
The Act provides that a Texas corporation's articles of incorporation may
include a provision eliminating or limiting directors' exposure to liability for
monetary damages. Furthermore, the Act enumerates the types
9
<PAGE> 11
of acts and omissions for which a director's personal liability may not be
eliminated. Specifically, the Act does not eliminate the directors' liability
for monetary damages for breach of the duty of loyalty to the Company or its
shareholders, acts or omissions not in good faith that constitute a breach of
duty of a director to the Company or involving intentional misconduct or a
knowing violation of law, any transaction from which a director received an
improper personal benefit or any act or omission for which the liability of a
director is expressly provided by an applicable statute. In addition, the Act
does not apply to claims made against directors by third parties or to persons
who are officers as well as directors when acting in their capacities as
officers.
The text of the proposed amendment is as follows:
"ARTICLE TEN
LIMITATION OF LIABILITY
No director of the Corporation shall be liable to the Corporation
or to its shareholders for an act or omission in the director's
capacity as a director, provided that this Article shall not eliminate
or limit the liability of a director for:
(i) a breach of the director's duty of loyalty to the Corporation
or its shareholders;
(ii) an act or omission not in good faith that constitutes a breach
of duty of the director to the Corporation or an act or omission that
involves intentional misconduct or a knowing violation of the law;
(iii) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action taken within
the scope of the director's office; or
(iv) an act or omission for which the liability of a director is
expressly provided for by an applicable statute.
If the Texas Miscellaneous Corporation Laws Act or any other
applicable law is amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the such laws, as so amended. No amendment to or repeal
of this Article will apply to, or have any effect on, the liability or
alleged liability of any director of the Corporation for or with respect to
any acts or omissions of the director occurring prior to such amendment or
repeal."
This proposed amendment limits the right of shareholders and the Company to
sue the directors for monetary damages for negligent or grossly negligent
breaches of the duty of care. It does not affect, change or eliminate a
director's duty of care. The Board believes that the diligence and care
exercised by directors stem primarily from their desire to act in the best
interest of the Company and not from a fear of monetary damages. Therefore, the
Board of Directors believes that the level of care and diligence exercised by
directors will not be lessened by adoption of this proposed amendment.
Under this proposed amendment, as under the existing Article Twelve, the
Company and its shareholders will remain unable to recover monetary damages
based on a claim of breach of the directors' fiduciary duty of care, even if the
directors' conduct involved gross negligence, unless the conduct falls within
the statutory limitation. Similarly, the Company and the shareholders will
retain the right to pursue equitable remedies, such as an injunction or
rescission of a contract. A remedy such as an injunction may be ineffective,
however, particularly if the shareholders are not aware of a transaction until
it is completed.
If adopted, this proposed amendment will have the effect of extending the
benefit to the Board of Directors of any subsequent amendments to the Act, or
any other applicable law, by eliminating or further limiting their personal
liability to the fullest possible extent. The proposed amendment will have no
effect on the liability of the directors for violations of the federal
securities laws or other statutory liabilities. This proposed amendment is not
being proposed in response to any specific resignation, threat of resignation,
or
10
<PAGE> 12
refusal to serve by any director or potential director, and the Company is not
aware of any threatened resignation if the proposed amendment is not adopted.
The Board of Directors, individual members of which will personally benefit
from adoption of this proposed amendment, strongly believes that this proposed
amendment is in the best interest of the Company and its shareholders. The Board
of Directors believes that this proposed amendment will help the Company remain
competitive in its ability to attract qualified directors and will positively
affect the ability of its directors to serve shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR APPROVAL OF PROPOSAL 5.
PROPOSAL 6
TO APPROVE AN AMENDMENT TO THE ARTICLES OF INCORPORATION
DELETING A PROVISION LIMITING THE COMPANY'S ABILITY
TO REDEEM OR REPURCHASE SHARES OF ITS OWN CAPITAL STOCK
The Board of Directors has unanimously approved this proposed amendment to
the Articles of Incorporation deleting Article Ten. Currently, Article Ten,
adopted September 30, 1990, authorizes the Company, upon a resolution adopted by
the Board of Directors, to purchase shares of its own capital stock, but only to
the extent of the aggregate of the "available unrestricted capital surplus" and
"unrestricted reduction surplus." As adopted, Article Ten was consistent with
the then existing provisions of the TBCA pertaining to dividends which included
definitions of the terms "available unrestricted capital surplus" and
"unrestricted reduction surplus." Subsequent legislative amendments to the TBCA
make Article Ten inconsistent with TBCA. In particular, the TBCA no longer
defines "available unrestricted capital surplus" and "unrestricted reduction
surplus."
Presently, Article 2.38 of the TBCA explicitly permits a corporation's
Board of Directors to make a distribution involving a purchase or redemption of
any of its own shares if the distribution does not exceed the "net assets" of
the corporation, and the distribution is otherwise in compliance with the TBCA.
"Net Assets" means the amount by which the total assets of a corporation exceeds
its total liabilities. Furthermore, it is not necessary to specifically
authorize the board of directors in the corporation's articles of incorporation
to effect a purchase by the corporation of shares of its own capital stock.
Thus, the authorization contained in Article Ten of the Company's Articles of
Incorporation is obsolete and unnecessary.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR APPROVAL OF PROPOSAL 6.
EXECUTIVE OFFICERS
The executive officers of the Company serve at the pleasure of the Board of
Directors and are subject to annual appointment by the Board of Directors at its
first meeting following the annual meeting of shareholders. In addition to
Messrs. Ziegler and Richards, who are listed in the foregoing table, the
Company's executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Ronnie E. McBride........ 49 Senior Vice President -- Domestic Operations
David W. Wehlmann........ 40 Senior Vice President, Chief Financial Officer and Secretary
Merrie S. Costley........ 39 Vice President and Controller
Donald J. Guedry, Jr..... 42 Vice President and Treasurer
Gary D. Lee.............. 53 Vice President -- Human Resources
</TABLE>
Ronnie E. McBride joined the Company in September 1996 as Senior Vice
President -- Domestic Operations. Mr. McBride was the Vice President of Turnkey
Services at Diamond Offshore from December 1995 until September 1996. He served
as Operational Manager of Diamond M from October 1991 until
11
<PAGE> 13
March 1993, at which time he was promoted to Vice President -- Onshore
Operations and served in this position until December 1995. Prior to October
1991, Mr. McBride was Vice President -- Operations for Harkins & Company for
four years until it was acquired by Diamond M.
David W. Wehlmann joined the Company in July 1996 as Vice President and
Controller. He was promoted to Senior Vice President, Chief Financial Officer
and Secretary in February 1998. From November 1994 until he joined the Company,
Mr. Wehlmann was Vice President and Chief Accounting Officer of EnerVest
Management Company, L.C., a privately-held oil and gas property acquisition and
management company. Mr. Wehlmann was Controller of Convest Energy Corporation
from April 1991 until November 1994. Mr. Wehlmann is a certified public
accountant.
Merrie S. Costley joined the Company in January 1997 as Assistant
Controller. She was promoted to Vice President and Controller in February 1998.
She served as Financial Reporting Manager of Transworld Mortgage Corp., a
mortgage service company, from February 1996 until December 1996 and as Audit
Experienced Manager at Arthur Andersen LLP from June 1988 until February 1996.
Ms. Costley is a certified public accountant.
Donald J. Guedry, Jr. has been the Company's Treasurer since October 1996
and was appointed Vice President in November 1997. During the seven years prior
to joining the Company, Mr. Guedry served in various treasury management
positions for Weatherford Enterra, Ind. and a predecessor company.
Gary D. Lee joined the Company in March 1997 as Vice President -- Human
Resources. Prior to joining the Company, he was with Diamond Offshore from 1982
until 1997, where he served as Vice President -- Human Resources from 1990 until
March 1997.
OWNERSHIP BY MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by (i) all directors of the Company, (ii) the
chief executive officer and each of the other executive officers, and (iii) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AT MARCH 15, 1999
-------------------------
NUMBER(1) PERCENT
----------- --------
<S> <C> <C>
Thomas P. Richards.......................................... 1,129,540(2) *
William R. Ziegler.......................................... 29,976,978(3) 18.2%
William T. Donovan.......................................... 585,938(4) *
Peter M. Holt............................................... 175,000(5) *
James K. B. Nelson.......................................... 4,694,091 2.8%
Roy T. Oliver, Jr. ......................................... 11,437,329(6) 6.9%
Ivar Siem................................................... 572,000(7) *
Steven A. Webster........................................... 29,972,978(8) 18.2%
Ronnie E. McBride........................................... 226,000(11) *
David W. Wehlmann........................................... 50,860(11) *
Merrie S. Costley........................................... 9,000(11) *
Donald J. Guedry, Jr. ...................................... 20,714(9) *
Gary D. Lee................................................. 75,053(10) *
Directors and Executive Officers as a group (13 persons
named above).............................................. 49,028,503 29.7%
</TABLE>
- ---------------
* Indicates less than one percent
(1) Each person has sole voting and investment power with respect to the Shares
listed, except as otherwise specified.
(2) Includes 529,540 shares of Common Stock underlying currently exercisable
options, 400,000 shares of Common Stock and 200,000 shares of Common Stock
underlying currently exercisable options owned by a limited partnership
controlled by Mr. Richards for the benefit of his children.
12
<PAGE> 14
(3) Includes 5,000 shares of Common Stock owned by Mr. Ziegler, 75,000 shares
of Common Stock underlying currently exercisable options and 29,896,978
shares of Common Stock beneficially owned by SCP, of which Mr. Ziegler is a
general partner.
(4) Includes 317,278 shares of Common stock owned by Mr. Donovan and 268,660
shares of common stock beneficially owned through Cambridge Associates,
L.P., a Wisconsin limited partnership ("Cambridge"), of which Mr. Donovan
is a general partner. Mr. Donovan disclaims ownership of 214,056 shares
owned by Cambridge.
(5) Includes 100,000 shares of Common Stock owned by Mr. Holt and 75,000 shares
of Common Stock underlying currently exercisable options.
(6) Includes 9,559,374 shares of Common Stock owned by Mr. Oliver, 75,000
shares of Common Stock underlying currently exercisable options, 1,127,079
shares of Common Stock beneficially owned through U.S. Rig & Equipment,
Inc., an Oklahoma corporation wholly-owned and controlled by Mr. Oliver
("USRE"), 35,876 shares of Common Stock beneficially owned through Mr.
Oliver's minor children and 640,000 shares of Common Stock owned by the
Oliver Family Trust for the benefit of Mr. Oliver's children. Mr. Oliver
disclaims beneficial ownership of shares of Common Stock owned by USRE, his
children and the trust.
(7) Includes 572,000 shares of Common Stock underlying currently exercisable
options.
(8) Includes 1,000 shares of Common stock owned by Mr. Webster, 75,000 shares
of Common Stock underlying currently exercisable options, and 29,896,978
shares of Common Stock beneficially owned through SCP, of which Mr. Webster
is a general partner.
(9) Includes 1,000 shares of Common Stock owned by Mr. Guedry, 19,000 shares of
Common Stock underlying currently exercisable options and 714 shares of
Common Stock held in the Grey Wolf Drilling Company 401(k) Plan (the
"401(k) Plan").
(10) Includes 1,000 shares of Common Stock owned by Mr. Lee, 72,320 shares
currently exercisable options and 1,733 shares of Common Stock held in the
401(k) Plan.
(11) Except as otherwise specified, represents shares of Common Stock underlying
currently exercisable options.
13
<PAGE> 15
OTHER INFORMATION
EXECUTIVE COMPENSATION
Summary Compensation Table. The following tables reflects the compensation
for services to the Company for the years ended December 31, 1998, 1997, and
1996 for (i) the Chief Executive Officer of the Company, (ii) the four most
highly compensated executive officers of the Company, other than the Chief
Executive Officer, and (iii) a former executive officer (the "Named Executive
Officers").
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG TERM COMPENSATION
--------------------------------------- --------------------------------
AWARDS PAYOUTS
OTHER ---------------------- -------
ANNUAL RESTRICTED ALL OTHER
SALARY BONUS COMPENSATION STOCK LTIP COMPENSATION(1)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) AWARD(S) OPTIONS PAYOUTS ($)
- --------------------------- ---- ------- ------- ------------ ---------- --------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas P. Richards............... 1998 375,000 -- -- -- 147,700 -- 10,061
Chairman, President and 1997 300,000 200,000 -- -- -- -- 8,990
Chief Executive Officer(2) 1996 81,140 36,500 -- -- 2,000,000(3) -- --
Ronnie E. McBride................ 1998 200,000 -- -- -- 80,000 -- 5,957
Senior Vice President -- 1997 162,500 80,000 -- -- -- -- 7,102
Domestic Operations(2) 1996 43,980 9,900 -- -- 400,000 -- --
Terrell L. Sadler................ 1998 180,000 -- -- 61,600 209,956
Senior Vice President -- 1997 150,000 54,000 -- -- -- -- 6,384
Domestic Operations(4) 1996 123,605 28,000 -- -- 400,000 -- 2,472
Forrest M. Conley, Jr. .......... 1998 180,000 -- 61,600 6,413
Senior Vice President -- 1997 146,250 54,000 -- -- -- -- 7,400
International Operations(2) 1996 34,135 7,800 -- -- 350,000 -- --
David W. Wehlmann................ 1998 165,000 -- -- -- 114,300 -- 9,112
Senior Vice President, 1997 109,550 33,000 -- -- -- -- 5,163
Chief Financial Officer and 1996 47,604 4,800 -- -- 70,000 -- --
Secretary(2)
Gary D. Lee...................... 1998 150,000 -- -- -- 61,600 -- 4,913
Vice President -- 1997 107,917 47,500 -- -- 150,000 -- 3,447
Human Resources(2)
</TABLE>
- ---------------
(1) Except as otherwise specified, consists of cash amounts contributed by the
Company to match a portion of the executive's contributions under the 401(k)
Plan, group term life insurance provided to employees and personal use of
company owned vehicle. With respect to Mr. Sadler, includes $206,000 payable
pursuant to the terms of his employment agreement upon separation from the
Company.
(2) Messrs. Richards, McBride and Conley began their employment in September
1996. Mr. Wehlmann began in July 1996. Mr. Lee began his employment in March
1997.
(3) Includes options to purchase 1,000,000 shares of Common Stock sold by Mr.
Richards in September 1996 to a limited partnership controlled by Mr.
Richards for the benefit of his children. Mr. Richards disclaims beneficial
ownership of these options and the shares underlying these options.
(4) Mr. Sadler, who had been the Senior Vice President -- Domestic Operations,
left the Company's employ effective November 1, 1998.
EMPLOYEE OPTIONS
Under the Company's 1982 Stock Option and Long-Term Incentive Plan for Key
Employees (the "1982 Employee Plan") and 1996 Employee Stock Option Plan (the
"1996 Employee Plan"), shares of Common Stock may be granted to executive
officers and other employees. As of December 31, 1998, 1,893,100 shares were
reserved for outstanding options and 3,457,875 shares were reserved and remained
available for future grant pursuant to the 1982 Employee Plan and 1996 Employee
Plan. During 1998, options to purchase 526,800 shares of Common Stock were
granted to the Named Executive Officers under the 1996 Employee Plan.
14
<PAGE> 16
During 1998, no options to purchase shares of Common Stock were granted to
the Named Executive Officers under the 1982 Employee Plan. The Board of
Directors suspended the 1982 Employee Plan in March 1999. The suspension of the
1982 Employee Plan will not impair the rights of a holder of an outstanding
option granted under the 1982 Employee Plan.
Option Grants Table. Options granted in 1998 vest in equal installments of
one-fifth on the first through the fifth anniversaries of the date of grant and
expire 10 years from the date of grant. The following table provides information
concerning stock options granted to the Named Executive Officers during the year
ended December 31, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES
--------------------------------------------------------- OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED OPTION TERM
UNDERLYING TO EMPLOYEES IN EXERCISE EXPIRATION --------------------------
OPTIONS GRANTED FISCAL YEAR PRICE DATE 5% 10%
--------------- --------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Richards...... 147,700 12.9% 4.0625 03/05/08 $377,360 $956,270
Ronnie E. McBride....... 80,000 7.0% 4.0625 03/05/08 204,393 517,953
Terrell L. Sadler....... 61,600 5.4% 4.0625 03/05/08 157,382 398,823
Forrest M. Conley,
Jr. .................. 61,600 5.4% 4.0625 03/05/08 157,382 398,823
David W. Wehlmann....... 65,000 5.7% 4.3750 02/12/08 178,843 453,208
49,300 4.3% 4.0625 03/05/08 125,957 319,188
Gary D. Lee............. 61,600 5.4% 4.0625 03/05/08 157,382 398,823
</TABLE>
Option Exercises and Year-End Option Values. The following table sets forth
information with respect to options exercised by each of the Named Executive
Officers during 1998 and the value at December 31, 1998 of unexercised options
by such individuals. The value of unexercised options reflects the increase in
market value of Common Stock from the date of grant through December 31, 1998
(when the fair market value of Common Stock was $.75 per share). The actual
value realized upon option exercise will depend on the value of the Common Stock
at the time exercised.
<TABLE>
<CAPTION>
OPTIONS EXERCISED
DURING 1998 NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
------------------- OPTIONS HELD AT YEAR END MONEY OPTIONS AT YEAR END
SHARES VALUE --------------------------- -----------------------------
ACQUIRED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- -------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Richards........... 0 $-- 729,540(1) 918,160(2) $0 $0
Ronnie E. McBride............ 0 -- 226,000 224,000 0 0
Terrell L. Sadler............ 0 -- 207,600 224,600 0 0
Forrest M. Conley, Jr. ...... 0 -- 152,320 229,280 0 0
David W. Wehlmann............ 0 -- 50,860 133,440 0 0
Gary D. Lee.................. 0 -- 42,320 169,280 0 0
</TABLE>
- ---------------
(1) Includes 200,000 exercisable options owned by a limited partnership
controlled by Mr. Richards for the benefit of his children.
(2) Includes 400,000 unexercisable options owned by a limited partnership
controlled by Mr. Richards for the benefit of his children.
15
<PAGE> 17
COMPENSATION COMMITTEE REPORT
TO OUR SHAREHOLDERS
The compensation committee of the Board of Directors (the "Committee")
exists to develop executive compensation policies that support the Company's
strategic business objectives and values. The duties of this committee include:
- Review and approval of the design of executive compensation programs and
all salary arrangements that Company executives receive;
- Assessment of the effectiveness of the programs in light of compensation
policies; and
- Evaluation of executive performance.
COMPENSATION PHILOSOPHY
The Committee adheres to an executive compensation philosophy that supports
the Company's business strategies. These strategies are to:
- Maximize profits;
- Increase stockholder value;
- Strengthen cash flow; and
- Be the leading provider of products and services within our markets.
The Committee's philosophy for executive compensation is to:
- Emphasize at-risk compensation, while balancing short-term and long-term
compensation to support the Company's business and financial strategic
goals;
- Reflect positive, as well as negative, Company and individual performance
in pay;
- Encourage equity-based compensation to reinforce management's focus on
shareholder value; and
- Provide competitive pay opportunities that will attract, retain, and
develop executive talent.
Company executives participate in a comprehensive compensation program that
is built around this four-pronged philosophy. The key components of this program
include base salary, annual bonus opportunities and long-term stock based
incentives.
Each of these components is reviewed by the Committee. To ensure the
Company's pay is comparable to market practices, competitive market data is
collected from multiple external sources on comparable onshore drilling
companies. This market information, which is reviewed annually by the Committee,
is used for assessing all components of the Company executives' pay.
BASE SALARY
Generally, salaries reflect an individual's level of responsibility, prior
experience, breadth of knowledge, personal contributions (past and future),
position within the Company's executive structure, and market pay practices.
Overall, salaries are targeted at the median of the market practice, with annual
adjustments based upon performance. When making annual adjustments, a
qualitative assessment of performance is conducted, which considers many factors
including individual performance, both past and present. The factors used in
making this evaluation may vary by position.
Mr. Richards' 1997 annual base salary was $275,000. For 1998, Mr. Richards'
received a 36% increase in base salary ($100,000). This increase reflected the
Company's growth and the Committee's evaluation of Mr. Richards' individual
contribution to and leadership of the Company since he joined the Company as
well
16
<PAGE> 18
as competitive data for chief executive officers of comparable companies as
previously described. Mr. Richards' total compensation package remains heavily
weighted toward equity based incentives.
ANNUAL BONUS
To support its short-term financial focus, the Company provides annual
bonus opportunities. For fiscal year 1998, as in the prior year, annual bonuses
were based on the achievement of a minimum level of Company financial
performance as well as the Committee's evaluation of the Named Executives'
performance. The Committee believes the goals associated with bonus payments are
achievable yet require considerable effort and innovation on the part of each
executive. Named Executives only receive payments under the plan if the minimum
level of financial performance is reached. If the minimum level of financial
performance is exceeded, bonus payments are increased. Bonus awards are
considered when the Committee reviews the Company's financial performance after
the close of the fiscal year.
For fiscal year 1998, neither Mr. Richards nor any other Named Executive
received an annual bonus. The absence of annual bonuses reflects the overall
depressed market conditions in the land drilling industry. This does not reflect
the performance of Mr. Richards or any other Named Executive.
LONG-TERM INCENTIVES
The Company's 1996 Employee Stock Option Plan provides executives with
equity-based opportunities to earn additional compensation based upon Company
and stock performance over the mid- to long-term. Use of such incentives focuses
management on the long-term interests of shareholders. The Committee considers
multiple factors when determining award sizes.
Stock Options. Stock options are granted to Company executives to provide
an equity-based incentive component to their compensation. Under the Company's
1996 Employee Stock Option Plan, stock options are granted at exercise prices
equal to fair market value of the underlying Common Stock on the date of grant.
Executives do not realize value unless the stock price rises above the price on
the date of grant. This reflects the Company's focus on increasing shareholder
value.
During fiscal year 1998, Mr. Richards received a grant of options to
acquire 147,700 shares of Common Stock at an exercise price of $4.0625 per
share. Although annual bonuses were not awarded based on current industry and
market conditions, Named Executives received option grants for their service to,
and guidance of, the Company during this current industry downturn. This option
grant was priced at the fair market value of the underlying common stock on the
date of grant, and reflect the Committee's continued focus on the "at risk"
component of Mr. Richards' and the Named Executives' total compensation.
CONCLUSION
The Committee believes these executive compensation policies and programs
serve the interests of shareholders and the Company effectively. The various pay
vehicles offered are appropriately balanced to provide increased motivation for
executives to contribute to the Company's overall future success, thereby
enhancing the value of the Company for the shareholders' benefit.
We will continue to monitor the effectiveness of the Company's total
compensation programs to meet the current needs of the Company.
Composition of the Committee. Non-management members of the Committee
owned, controlled or represented an aggregate of 30,719,978 shares, or
approximately 18.6% of the Common Stock outstanding and, accordingly, also
maintain a substantial interest in the company's financial performance.
17
<PAGE> 19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Of the members of the Committee, who are identified in the preceding
paragraph, none have ever been an employee of the Company except Ivar Siem, who
was acting President and Chief Executive Officer of the Company from April 1996
through August 1996. Mr. Siem has also served as Chairman of the Board of
Directors from August 1995 to November 1998. In 1998, the Company incurred
management consulting fees of $45,833 for Mr. Siem's assistance in locating and
renegotiating acquisitions and related financing. Effective October 1, 1997, Mr.
Siem's compensation for these services was at an annualized rate of $50,000;
however, effective December 1, 1998 these fees were eliminated.
EMPLOYMENT AGREEMENTS
Messrs. Richards, McBride, Sadler, Conley and Lee were employed under
agreements pursuant to which each received (i) an annual salary of $275,000,
$150,000, $140,000, $135,000 and $130,000, respectively, and (ii) a bonus at the
sole discretion of the Board of Directors. In October 1997, the Board of
Directors approved increases in the annual salaries of Messrs. Richards,
McBride, Sadler, Conley and Lee to $375,000, $200,000, $180,000, $180,000, and
$150,000, respectively. Each of these employment agreements also provided for
the grant of options to purchase Common stock as set forth above under
"-- Employee Options." The employment agreements of Mr. Richards expires in
September 2001, and is cancelable without further compensation only with cause.
The employment agreements for each of Messrs. McBride, Sadler and Conley were
renewed by their terms for a period of one year in September 1998. The
employment agreement for Mr. Lee was renewed by its term for a period of one
year in March 1999. Pursuant to the employment agreements, in the event of a
"Change in Control" (as defined) or other termination if without cause, each of
these executives shall be paid the greater of (i) his annual salary and bonus
for the number of months remaining under the term of the employment agreement,
and (ii) his annual salary for a period of one year (three years in the case of
Mr. Richards). The Company entered into an employment agreement with Mr.
Wehlmann in February 1998, which by its terms was renewed for a period of one
year in February 1999.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended, the Company's directors, executive officers, and shareholders who own
more than 10% of the Common Stock, are required to file reports of stock
ownership and changes in ownership with the Securities and Exchange Commission
and the American Stock Exchange, Inc. and to furnish the Company with copies of
all such reports they file. The Company believes that during 1998, all filing
requirements applicable to its directors, executive officers and greater than
10% shareholders were complied with.
18
<PAGE> 20
CERTAIN SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by each person, other than Company directors or
executive officers, who is known by the Company to own beneficially more than 5%
of the outstanding Shares. See "Ownership by Management" for information
regarding beneficial ownership of Company directors and executive officers.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AT MARCH 15, 1999
NAME AND ADDRESS OF BENEFICIAL -------------------------
OWNER, IDENTITY OF GROUP NUMBER PERCENT
- ------------------------------ ---------- -------
<S> <C> <C>
The Somerset Group(1)....................................... 30,052,978(2),(3) 18.2%
Somerset Capital Partners................................. 29,896,978(3) 18.2%
Thomas H. O'Neill, Jr. ................................... 29,896,978(3) 18.2%
Somerset Drilling Associates, L.L.C....................... 24,435,223 14.8%
69 Delaware Avenue
Buffalo, New York 14202
Crabbe Huson Group, Inc..................................... 16,059,700(4) 9.7%
James E. Crabbe
121 SW Morrison, Suite 1400
Portland, Oregon 97204
</TABLE>
- ---------------
(1) As reported on Schedule 13D (Amendment No. 1) dated January 28, 1998.
Includes shares owned of record and shares underlying outstanding options
owned by Messrs. Ziegler and Webster. See notes 3 and 8 under the caption
"Ownership by Management."
(2) Does not include shares of Common Stock that members of the Somerset Group
may have rights to acquire upon exercise of warrants. Such rights, if any,
to acquire shares of Common Stock pursuant to such warrants are contingent
upon the occurrence of events not within the control of the members of the
Somerset Group.
(3) Includes 5,461,755 shares of Common Stock owned by SCP, and 24,435,223
shares of Common Stock beneficially owned through SDA of which SCP is the
managing member. Mr. O'Neill is a general partner of SCP.
(4) As reported on Schedule 13G dated February 12, 1999. Such filing indicates
that 16,059,700 shares of Common Stock are beneficially owned by the Crabbe
Huson Group, Inc. (the "Crabbe Huson"). Crabbe Huson disclaims beneficial
ownership of such shares.
19
<PAGE> 21
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder returns on
the Common Stock, the American Stock Exchange ("AMEX") market value index and
two Company-determined peer indices. The graph assumes that $100 was invested on
December 31, 1993, in the Common Stock and in each index and that any cash
dividends were reinvested. The Company has not declared any dividends during the
period covered by this graph.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG GREY WOLF, INC., THE AMEX MARKET VALUE INDEX AND A PEER GROUP
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
AMEX
MEASUREMENT PERIOD GREY WOLF, PEER MARKET
(FISCAL YEAR COVERED) INC. GROUP(1) VALUE
<S> <C> <C> <C>
12/93 100 100 100
12/94 80 87 91
12/95 80 124 115
12/96 300 218 122
12/97 580 332 148
12/98 80 139 151
1997
1998
</TABLE>
(1) Consists of Nabors Industries, Inc., Parker Drilling Company, UTI Energy
Corp., Helmerich & Payne, Precision Drilling Corporation and Patterson
Energy, Inc. All of the members of the Peer Group are providers or contract
oil and gas land drilling services, with revenues comparable to the Company.
This graph depicts the past performance of the Common Stock and in no way
should be used to predict future performance. The Company does not make or
endorse any predictions as to future share performance.
The foregoing price performance comparisons shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically incorporates this graph by reference, and
shall not otherwise be deemed filed under such acts.
CERTAIN TRANSACTIONS
Purchase of Rigs and Rig Equipment. In 1998, the Company made purchases of
rig equipment from affiliates of two of the Company's directors, Peter M. Holt
and Roy T. Oliver. The purchase price of the rig equipment was $898,000. The
consideration paid by the Company pursuant to the purchase of the rig equipment
was based on arm's length negotiation among the parties.
In 1998, the Company sold all of the rigs and drilling related equipment in
its Eastern Division located in Ohio to Union Drilling, Inc. ("Union"), an
affiliate of Messrs. Ziegler and Webster. The aggregate sales price
20
<PAGE> 22
for the rigs and equipment sold to Union was $2.4 million. The consideration
received by the Company pursuant to the sale of such rigs and equipment was
based on arm's length negotiation among the parties.
PROPOSAL 7
TO APPROVE AN AMENDMENT TO THE 1996 EMPLOYEE PLAN
As of March 15, 1999, 1,178,875 shares of Common Stock were available for
grant pursuant to the 1996 Employee Plan. The Board of Directors does not
believe that such remaining amount under this plan is sufficient to carry out
its compensation policy. Accordingly, as part of the Company's overall effort to
increase shareholder value, on March 16, 1999, the Board of Directors
unanimously adopted an amendment to the 1996 Employee Plan, subject to
shareholder approval, increasing the aggregate number of shares reserved for
grant pursuant to the 1996 Employee Plan from 7,000,000 to 10,000,000. The
amendment to the 1996 Employee Plan is intended to (i) further the Company's
efforts in attracting, retaining and motivating officers, key employees and
non-employee consultants of the Company and (ii) continue to closely align the
interests of participants in the 1996 Employee Plan with those of shareholders
by encouraging stock ownership and by tying compensation to the performance of
the Company and the Common Stock. In March 1999, the Board of Directors
suspended the 1982 Employee Plan. Prior to the suspension, 1,871,800 shares were
available for grant under the 1982 Employee Plan.
If approved, 4,178,875 shares of Common Stock will be available for future
grants pursuant to the 1996 Employee Plan. If approved, this amendment will not
change any other material term of the 1996 Employee Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
PROPOSAL 7.
INDEPENDENT ACCOUNTANTS
KPMG LLP, certified public accountants, have served as the independent
auditors of the Company since October 1996. It is not proposed that any formal
action be taken at the Meeting with respect to the continued employment of KPMG
LLP, inasmuch as no such action is legally required. Representatives of KPMG LLP
plan to attend the Meeting and will be available to answer questions. Its
representatives will also have an opportunity to make a statement at the Meeting
if they so desire, although it is not expected that any statement will be made.
CHANGE OF CONTROL
Under its credit agreement with The CIT Group/Business Credit, Inc., the
Company has pledged the stock of substantially all of its subsidiaries of which
the Company owns a majority of outstanding shares to guaranty payment of its
indebtedness.
DISTRIBUTION OF ANNUAL REPORTS TO SHAREHOLDERS
The annual report to shareholders covering the year ended December 31,
1998, has been mailed to each shareholder entitled to vote at the Meeting.
SHAREHOLDER PROPOSALS
Any shareholder who wishes to submit a proposal for action to be included
in the proxy statement and form of proxy relating to the Company's 2000 annual
meeting of shareholders is required to submit such proposals to the Company on
or before December 15, 1999.
Shareholders that intend to present a proposal that will not be included in
the proxy statement for the Company's 2000 Meeting must give written notice of a
shareholder's intent to submit such a proposal on or before March 4, 1999. The
notice submitted by a shareholder should include a statement that the proponent
intends to solicit the necessary percentage of shareholder votes to carry the
proposal supported by evidence that the stated percentage will actually be
solicited.
21
<PAGE> 23
COST OF SOLICITING PROXIES
The cost of soliciting proxies in the accompanying form will be borne by
the Company. In addition to solicitations by mail, a number of regular employees
of the Company may, if necessary to assure the presence of a quorum, solicit
proxies in person or by telephone for which they will receive no additional
compensation. Brokerage houses, banks and other custodians, nominees will be
reimbursed for their customary out-of-pocket and reasonable expenses incurred in
forwarding proxy materials to their clients who are beneficial owners of Common
Stock.
VOTING OF PROXIES
The persons designated to vote shares covered by Board of Directors'
proxies intend to exercise their judgment in voting such shares on other matters
that may properly come before the Meeting. Management does not expect that any
matters other than those referred to in this proxy statement will be presented
for action at the Meeting.
By Order of the Board of Directors,
/s/ DAVID W. WEHLMANN
DAVID W. WEHLMANN,
Secretary
April 7, 1999
22
<PAGE> 24
(FRONT SIDE OF PROXY CARD)
PROXY PROXY GREY WOLF, INC. PROXY
PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE 1999 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON TUESDAY, MAY 4, 1999
The undersigned shareholders of Grey Wolf, Inc., a Texas corporation
(the "Company"), hereby appoints Thomas P. Richards, David W. Wehlmann, and each
of them, with full power of substitution, the attorneys and proxies of the
undersigned to vote all of the shares of common stock, par value $.10 per share,
of the Company which the undersigned is entitled to vote at the Annual Meeting
of Shareholders of the Company to be held at the Adam's Mark Hotel, 2900
Briarpark Drive, Houston, Texas 77042 on May 4, 1999 at 8:30 a.m., Houston time,
and at any adjournments thereof, as follows:
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ELECTION OF
THE NOMINEES TO THEIR RESPECTIVE CLASSES AS SET FORTH ON THE REVERSE AS
DIRECTORS AND FOR EACH OF THE OTHER PROPOSALS.
THIS PROXY IS TO BE VOTED AS DIRECTED. IN THE ABSENCE OF SPECIFIC DIRECTION,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF WILLIAM T. DONOVAN, THOMAS P.
RICHARDS, IVAR SIEM, JAMES K. B. NELSON, ROY T. OLIVER, JR., STEVEN A. WEBSTER
AND WILLIAM R. ZIEGLER AS DIRECTORS AND FOR EACH OF THE OTHER PROPOSALS.
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
GREY WOLF, INC.
MAY 4, 1999
<PAGE> 25
(REVERSE SIDE OF PROXY CARD)
A |X| PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
FOR (except as WITHHOLD Nominees: Class I:
marked to the VOTE William T. Donovan
contrary below) Thomas P. Richards
Ivar Siem
1. Election of |_| |_|
Directors Class II:
James K. B. Nelson
Roy T. Oliver, Jr.
Class III:
Steven A. Webster
William R. Ziegler
(INSTRUCTION: To withhold authority to vote for any individual nominee,
print that nominee's name on the line below.)
2. Approval of the amendment to the Company's Articles of Incorporation
eliminating shareholder action by less than unanimous written consent.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. Approval of the amendment to the Company's Articles of Incorporation
providing that special meetings of shareholders may be called only upon
the request of holders of at least 50% of the shares entitled to vote
at such meeting.
FOR AGAINST ABSTAIN
|_| |_| |_|
4. Approval of the amendment to the Company's Articles of Incorporation
granting the Board of Directors the exclusive authority to adopt, amend
or repeal the Company's Bylaws.
FOR AGAINST ABSTAIN
|_| |_| |_|
5. Approval of the amendment to the Company's Articles of Incorporation
limiting the personal liability of directors to the Company and its
shareholders.
FOR AGAINST ABSTAIN
|_| |_| |_|
6. Approval of the amendment to the Company's Articles of Incorporation
deleting a provision limiting the Company's ability to redeem or
repurchase shares of its own capital stock.
FOR AGAINST ABSTAIN
|_| |_| |_|
7. Approval of the amendment to the Company's 1996 Employee Stock Option
Plan increasing the amount of shares available for grant under the
plan.
FOR AGAINST ABSTAIN
|_| |_| |_|
8. As such proxies may in their discretion determine upon such other
matters (including procedural and other matters relating to the conduct
of the meeting), as may properly be presented to the annual meeting and
any adjournments or postponements thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS AND THE PROXY STATEMENT FURNISHED HEREWITH. PLEASE SIGN, DATE AND
RETURN THIS PROXY PROMPTLY IN THE ENCLOSED, PRE-ADDRESSED STAMPED ENVELOPE.
Signature(s) of Stockholder ________________ Dated this ___ day of _______, 1999
Note: Please sign exactly as your name appears on your stock certificate.
When signing as executor, administrator, trustee or other
representative, please give your full title. All joint owners should
sign.
2
