<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:
[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
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:
o delivering to the Company written notice of revocation;
o delivering to the Company a signed proxy of a later date; or
o 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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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>
Ivar Siem is currently a director, was Chairman of the Board from August 1995 to 52 1995
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.
Thomas P. Richards became a director of the Company on March 24, 1998 and has been 55 1998
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.
William T. Donovan has been a director of the Company since 1997. Since 47 1997
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.
</TABLE>
4
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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 since 1997. Prior to the acquisition 71 1997
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.
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.
</TABLE>
CLASS III NOMINEES
<TABLE>
<CAPTION>
DIRECTOR
NAME AND BIOGRAPHY AGE SINCE
- ------------------------------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
William R. Ziegler has been a director of the Company since August 1996 and is currently 56 1996
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 Somerset Drilling Associates,
L.L.C., a Delaware limited liability company ("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.
Steven A. Webster has been a director of the Company since August 1996. He was the 47 1996
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 SCP, the managing member of 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.
</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
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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 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
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<PAGE> 8
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.
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.
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
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<PAGE> 9
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 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.
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
8
<PAGE> 10
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 Article 14 of 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 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
9
<PAGE> 11
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 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.
10
<PAGE> 12
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.
11
<PAGE> 13
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 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.
12
<PAGE> 14
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.
(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 Somerset Capital Partners, a
New York general partnership ("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
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION STOCK LTIP COMPENSATION(1)
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 -- 107,725(5) 61,600 3,956
Senior Vice President-- 1997 150,000 54,000 -- -- -- -- 6,384
Domestic Operations 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.
(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.
(5) Severance pay.
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
14
<PAGE> 16
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.
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 AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------------- ---------------------------
% OF TOTAL
OPTIONS
GRANTED
NUMBER OF TO
SECURITIES EMPLOYEES
UNDERLYING IN
OPTIONS FISCAL EXERCISE EXPIRATION
GRANTED 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 NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
DURING 1998 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 -- 212,280 292,280 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:
o Review and approval of the design of executive compensation
programs and all salary arrangements that Company executives
receive;
o Assessment of the effectiveness of the programs in light of
compensation policies; and
o 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:
o Maximize profits;
o Increase stockholder value;
o Strengthen cash flow; and
o Be the leading provider of products and services within our
markets.
The Committee's philosophy for executive compensation is to:
o Emphasize at-risk compensation, while balancing short-term
and long-term compensation to support the Company's business
and financial strategic goals;
o Reflect positive, as well as negative, Company and individual
performance in pay;
o Encourage equity-based compensation to reinforce management's
focus on shareholder value; and
o 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.
16
<PAGE> 18
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 Committee's evaluation of Mr. Richards' individual contribution to
and leadership of the Company since he joined the Company as well 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.
17
<PAGE> 19
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.
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 1998. 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.
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.
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 "Election of Directors--Nominees for
Director" and "Election of Directors--Ownership by Management" for information
regarding beneficial ownership of Company directors and executive officers.
18
<PAGE> 20
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AT MARCH ___, 1999
---------------------------------------------
NAME AND ADDRESS OF BENEFICIAL
OWNER, IDENTITY OF GROUP NUMBER PERCENT
- ---------------------------------------------------------------------- ------------------------ ---------------
<S> <C> <C>
The Somerset Group(1)................................................. 30,052,978(2),(3),(4) 18.2%
Somerset Capital Partners.......................................... 29,896,978(4) 18.2%
Thomas H. O'Neill, Jr.............................................. 29,896,978(4) 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(5) 9.78%
James E. Crabbe
121 SW Morrison, Suite 1400
Portland, Oregon 97204
</TABLE>
(1) Includes shares owned of record and shares underlying outstanding options
owned by Messrs. Ziegler and Webster. See notes 3, 6 and 11 under the
caption "Election of Directors--Nominees for Director."
(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 are of
the Somerset Group.
(3) Includes shares of Common Stock underlying outstanding options granted to
Company directors who are members of the named group. See note 1 above and
notes 3 and 5 under the caption "Election of Directors --Nominees for
Director."
(4) 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.
(5) 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 APPEARS HERE]
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Grey Wolf, Inc. $100.00 $80.00 $ 80.00 $300.00 $580.00 $ 80.00
Peer Group (1) $100.00 $87.00 $124.00 $218.00 $332.00 $139.00
AMEX Market Value $100.00 $91.00 $115.00 $122.00 $148.00 $151.00
</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.
20
<PAGE> 22
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 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, 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.
21
<PAGE> 23
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.
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.
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