<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
NORTON DRILLING SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the 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)(1) 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:
------------------------------------------------------------------------
<PAGE> 2
NORTON DRILLING SERVICES, INC.
5211 BROWNFIELD HIGHWAY, SUITE 230
LUBBOCK, TEXAS 79407
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JANUARY 29, 1999
------------------------
TO THE STOCKHOLDERS OF NORTON DRILLING SERVICES, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of Norton
Drilling Services, Inc. (the "Company") will be held at the Holiday Inn Plaza,
3201 South Loop 289, Lubbock, Texas, on Friday, January 29, 1999 at 10:00 A.M.,
local time, for the following purposes:
1. To elect directors;
2. To approve a one-for-five reverse stock split, pursuant to which every
five shares of the Company's common stock issued and outstanding will
become and be exchanged for one share of the Company's common stock;
3. To ratify the selection of Robinson Burdette Martin & Cowan LLP as
independent auditors of the Company for the fiscal year commencing
December 1, 1998; and
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business on December 15, 1998
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting or any adjournments thereof.
Management requests all stockholders to sign and date the enclosed form of
proxy and return it in the postage paid, self-addressed envelope provided for
your convenience. Please do this whether or not you plan to attend the meeting.
Should you attend, you may, if you wish, withdraw your proxy and vote your
shares in person.
By Order of the Board of Directors,
Sherman H. Norton, Jr.
Chairman of the Board
Lubbock, Texas
, 199
<PAGE> 3
PRELIMINARY COPIES
NORTON DRILLING SERVICES, INC.
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FRIDAY, JANUARY 29, 1999
------------------------
This Proxy Statement is furnished by the Board of Directors of Norton
Drilling Services, Inc. (the "Company") in connection with the solicitation of
proxies to be voted at the Annual Meeting of Stockholders, which will be held at
the Holiday Inn Plaza, 3201 South Loop 289, Lubbock, Texas, on January 29, 1999,
at 10:00 A.M., local time, and at all adjournments thereof.
Any stockholder giving a proxy will have the right to revoke it at any time
prior to the time it is voted. A proxy may be revoked by written notice to the
Company, Attention: Secretary, by execution of a subsequent proxy or by
attendance and voting in person at the Annual Meeting of Stockholders.
Attendance at the meeting will not automatically revoke the proxy. All shares
represented by effective proxies will be voted at the Annual Meeting of
Stockholders, or at any adjournment thereof. Unless otherwise specified in the
proxy, shares represented by proxies will be voted (i) FOR the election of the
nominees for director listed below, (ii) FOR the reverse stock split, and (iii)
FOR the ratification of the selection of the independent auditors.
The Company's executive offices are located at 5211 Brownfield Highway,
Suite 230, Lubbock, Texas 79407-3501, and its phone number is (806) 785-8400. On
or about , 199 , this Proxy Statement and the accompanying form
of proxy, together with a copy of the Annual Report on Form 10-K of the Company
for the fiscal year ended November 30, 1997, including financial statements, are
to be mailed to each stockholder of record at the close of business on December
15, 1998 (the "Record Date").
VOTING SECURITIES
Only stockholders of record at the close of business on the Record Date are
entitled to vote at the meeting. As of the Record Date, the Company had issued
and outstanding and entitled to vote 24,671,601 shares of common stock, par
value $0.01 per share (the "Common Stock"), the Company's only class of voting
securities outstanding. Each share of Common Stock entitles the holder thereof
to one vote. A majority of the outstanding shares of Common Stock constitutes a
quorum. If a share is represented for any purpose at the meeting, it is deemed
to be present for all other matters. Abstentions and shares held of record by a
broker or its nominee ("Broker Shares") that are voted on any matter are
included in determining the number of votes present. Broker Shares that are not
voted on any matter will not be included in determining whether a quorum is
present. The election of each nominee for director, as set forth in Proposal No.
1 below, the approval of the reverse stock split, as set forth in Proposal No.
2, and the ratification of the selection of Robinson Burdette Martin & Cowan LLP
as independent accountants, as set forth in Proposal No. 3 below, each requires
the affirmative vote of a majority of the shares entitled to vote present in
person or by proxy.
<PAGE> 4
The following table sets forth certain information with respect to those
persons or groups known to the Company who beneficially own more than 5% of the
Company's Common Stock, all directors and nominees of the Company, each of the
executive officers of the Company listed in the Summary Compensation Table
below, and all directors and executive officers as a group:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENTAGE
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS (2)
---------------- ------------------------ ------------
<S> <C> <C>
Sherman H. Norton, Jr....................................... 2,744,359 11.1%
5211 Brownfield Highway, Suite 230
Lubbock, Texas 79407-3501
John W. Norton.............................................. 1,042,496(3) 4.2%
S. Howard Norton, III....................................... 1,025,096(4) 4.2%
Kevin E. Lewis.............................................. 35,000(5) *
Carl C. Beach............................................... 30,000(5) *
H. Larry Adkins............................................. 30,000(6) *
All directors and executive officers as a group (7
persons).................................................. 4,938,441(7) 20.0%
</TABLE>
- ---------------
* Less than 1%
(1) All information is as of December 4, 1998 and was determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, based
upon information furnished by the persons listed or contained in filings
made by them with the Securities and Exchange Commission (the "Commission")
or otherwise known to the Company. Unless otherwise indicated, beneficial
ownership disclosed consists of sole voting and dispositive power. Shares of
Common Stock subject to options currently exercisable, or exercisable within
sixty days, are deemed outstanding for computing the percentage of ownership
of the person holding the options, but are not deemed outstanding for
computing the percentage of ownership of any other person. Sherman H.
Norton, Jr. is the father of S. Howard Norton, III and John W. Norton, all
of whom are directors of the Company.
(2) These percentages are based on the 24,671,601 shares of Common Stock
outstanding as of the Record Date.
(3) Includes warrants to purchase 229,075 shares of Common Stock at exercises
prices ranging from $0.50 to $0.78125 per share, which expire at various
times from April 1, 2002 to February 24, 2004.
(4) Includes warrants to purchase 229,074 shares of Common Stock at exercises
prices ranging from $0.50 to $0.78125 per share, which expire at various
times from April 1, 2002 to February 24, 2004.
(5) Includes an option to purchase 10,000 shares of Common Stock at an exercise
price of $0.63 per share, which expires on March 31, 2007, and an option to
purchase 20,000 shares of Common Stock at an exercise price of $1.20 per
share, which expires on April 15, 2008.
(6) Includes an option to purchase 20,000 shares of Common Stock at an exercise
price of $1.20 per share, which expires on April 15, 2008.
(7) Includes the securities described above in footnotes (2) through (6). Also
includes 21,300 shares of Common Stock held of record by David W. Ridley,
the Company's Chief Financial Officer, 4,190 shares of Common Stock held of
record by Mr. Ridley's wife (of which Mr. Ridley disclaims beneficial
ownership) and 6,000 shares of Common Stock held of record by Mr. Ridley's
minor child.
2
<PAGE> 5
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Company's Board of Directors consists of six members. All six directors
are to be elected at the Annual Meeting to constitute the Board of Directors of
the Company, to hold office until the next Annual Meeting of Stockholders and
until the election and qualification of their respective successors. If no other
choice is specified in the accompanying proxy, the persons named therein have
advised management that it is their present intention to vote the proxy for the
election of the nominees set forth below. Each of the nominees is presently a
director of the Company. Should any of such nominees become unable to accept
nomination or election, it is intended that the persons named in the
accompanying proxy will vote for the election of such other person as management
may recommend in the place of such nominee.
Set forth below for each nominee is his name, age, the year in which he
became a director of the Company, his principal occupations during the last five
years and any additional directorships in publicly-held companies. The
information is as of December 4, 1998.
SHERMAN H. NORTON, JR., age 68, has been a Director of the Company since
October 1991 and Chairman of the Board of the Company since August 1993. He was
Chief Executive Officer and President of the Company from May 1995 to November
1997. He was President of the Company's subsidiary, Norton Drilling Company
("NDC"), and its predecessor corporation from 1976 to November 1997. Sherman H.
Norton, Jr. received his Bachelor of Science degree in Petroleum Engineering
from the University of Oklahoma.
S. HOWARD NORTON, III, age 41, has been a Director of the Company since
October 1991 and the President and Chief Executive Officer of the Company since
November 1997. Mr. Norton has been a sales representative with NDC and its
predecessor corporation since 1982. S. Howard Norton, III received his Bachelor
of Business Administration degree from Texas A&M University.
JOHN W. NORTON, age 38, has been a Director of the Company since October
1991 and the Vice President in charge of operations since November 1997. Mr.
Norton has been a drilling engineer for NDC and its predecessor corporation
since 1987. From 1986 to 1987, John W. Norton was self-employed as a drilling
engineer consultant. John W. Norton received his Bachelor of Science degree in
Petroleum Engineering from Texas A&M University.
H. LARRY ADKINS, age 51, has been a Director of the Company since June
1996. Mr. Adkins is an Executive Vice President with and the Chief Operating
Officer of Marine Drilling Companies, Inc., a position he has held since January
1998. Prior to that, Mr. Adkins was a Senior Vice President and Operations
Manager with Marine Drilling Companies, Inc. since 1993. Mr. Adkins received his
Bachelor of Science degree in Broad Field Sciences from Texas Tech University.
CARL C. BEACH, age 46, has been a Director of the Company since April 1997.
Mr. Beach worked as a landman and served as Vice President and Chief Executive
Officer for Beach Exploration, Inc. from 1974 to 1989. In 1989, Mr. Beach formed
his own oil and gas exploration company in Corpus Christi, Texas. In 1993, his
company was merged with an electric utility for which Mr. Beach then served as
President. Mr. Beach currently works for Southstar Corporation, an oil and gas
exploration company which he formed. Mr. Beach graduated from West Texas State
University in 1974.
KEVIN E. LEWIS, age 33, has been a Director of the Company since April
1997. Mr. Lewis is a Vice President in the Global Mergers & Acquisitions Group
of Lehman Brothers in New York. He served as Chairman of the Board of
Furr's/Bishop's, Inc. from June 1993 to May 1998 and served as President and
Chief Executive Officer of Furr's/Bishop's, Inc. from July 1994 to December
1996. Prior thereto, Mr. Lewis was a Managing Director in the New York office of
Houlihan, Lokey, Howard and Zukin, Inc., a specialty investment banking firm.
The Board of Directors has no standing nominating committee or committees
performing similar functions, but does have a Stock Option Committee, consisting
of Larry Adkins, Carl Beach and Kevin Lewis, which oversees the Company's stock
option plans. The Board of Directors has an Audit Committee consisting of Larry
Adkins and Kevin Lewis. The function of the Audit Committee is to review and
report to the Board
3
<PAGE> 6
of Directors with respect to various auditing and accounting matters, including
the nomination of the Company's independent public accountants, the scope of
audit procedures, general accounting policy matters and the performance of the
Company's independent public accountants.
During the past fiscal year, the Company's Board of Directors held eight
meetings. The Board of Directors' Stock Option Committee met twice during the
past fiscal year. The Audit Committee did not meet during the past fiscal year.
No incumbent director failed to participate in at least 75% of all meetings of
the Board of Directors and the committees on which he served during the past
fiscal year. The Company has agreed to compensate each director who is not also
an employee of the Company by granting to each such outside director stock
options to purchase 20,000 shares of Common stock at an exercise price equal to
the closing price of the Company's Common Stock on the date of grant. No
additional amounts are payable for committee participation or special
assignments.
EXECUTIVE OFFICERS
In addition to the nominees set forth above, the only other executive
officer of the Company is David W. Ridley. Mr. Ridley, age 42, became the
Company's Chief Financial Officer, Vice President and Treasurer on October 16,
1993 and performs similar duties for the Company's subsidiaries, NDC and Lobell
Corporation.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding all compensation paid
by the Company during the fiscal years indicated to the Company's chief
executive officer and the other executive officers of the Company (the "Named
Executive Officers") whose compensation exceeded $100,000 in the fiscal year
ended November 30, 1998 ("Fiscal 1998"):
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------------------- ------------
OTHER ANNUAL SECURITIES
FISCAL SALARY BONUS COMPENSATION UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) (1) OPTIONS(#) COMPENSATION
- --------------------------- ------ -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SHERMAN H. NORTON, JR. ............ 1998 $153,500 0 -- 0 $ 0
Director and Chairman 1997 $141,250 0 -- 0 61,768(2)
of the Board 1996 $104,500 0 -- 0 0
S. HOWARD NORTON, III.............. 1998 $104,500 0 -- 180,000 $ 0
Director, President and Chief 1997 $104,500 0 -- 0 24,451(2)
Executive Officer; President of NDC 1996 $104,500 0 -- 0 0
JOHN W. NORTON..................... 1998 $104,500 0 -- 180,000 $ 0
Director, Secretary and Chief 1997 $104,500 0 -- 0 31,759(2)
Operating Officer; Vice President 1996 $104,500 0 -- 0 0
of NDC
</TABLE>
- ---------------
(1) The Company has concluded that the aggregate amount of perquisites and other
personal benefits paid to each of the Named Executive Officers did not
exceed the lesser of ten percent (10%) of such officer's annual salary and
bonus for each fiscal year indicated or $50,000.
(2) Sherman H. Norton, Jr., S. Howard Norton, III and John W. Norton received
147,067, 58,217 and 75,616 shares of Common Stock, respectively, in partial
satisfaction of unpaid compensation from fiscal years 1991 through 1995.
Such shares were valued at $0.42 per share at the time of grant by an
independent valuation expert. See "Certain Relationships and Related
Transactions."
4
<PAGE> 7
OPTION GRANTS IN FISCAL YEAR 1998
The following stock options were granted to the Named Executive Officers
during Fiscal 1998. These grants are also reflected on the Summary Compensation
Table above. In accordance with Commission rules, the hypothetical gains or
"option spreads" for each option grant are shown based on compound annual rates
of stock price appreciation of 5% and 10% from the date of grant to the
expiration date. The assumed rates of growth are prescribed by the Commission
and are for illustrative purposes only; they are not intended to predict future
stock prices, which will depend upon market conditions and the Company's future
performance. The Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN PRICE PER OPTION TERM
OPTIONS FISCAL YEAR SHARE EXPIRATION ----------------------
NAME GRANTED(#) 1998(1) ($/SH)(2) DATE(3) 5%($) 10%($)
- ---- ---------- ------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sherman H. Norton, Jr. .... 0 0 -- -- -- --
S. Howard Norton, III...... 180,000 21.6% $1.50 2/6/2008 $178,200 $444,600
John W. Norton............. 180,000 21.6% $1.50 2/6/2008 $178,200 $444,600
</TABLE>
- ---------------
(1) During Fiscal 1998, the Company granted options to purchase an aggregate of
832,200 shares of Common Stock to its employees.
(2) The exercise price of the options granted was equal to the fair market value
of the underlying stock on the date of grant.
(3) Grants become exercisable in equal installments on the first three
anniversaries of the date of grant.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND 1998 FISCAL YEAR-END OPTION
VALUES
The following table sets forth information relating to the exercise of
options during Fiscal 1998 by each Named Executive Officer and the fiscal
year-end value of unexercised options on an aggregated basis:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS AT FISCAL
ACQUIRED AT FISCAL YEAR-END(#) YEAR-END ($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ---- ------------ ------------ ---------------------- -----------------
<S> <C> <C> <C> <C>
Sherman H. Norton, Jr.......... -- -- 0/0 $0/0
S. Howard Norton, III.......... -- -- 0/180,000 $0/0
John W. Norton................. -- -- 0/180,000 $0/0
</TABLE>
- ---------------
(1) Options are "in-the-money" if the market price of the Common Stock on
November 30, 1998 ($0.50) exceeded the exercise price of such options. The
value of such options is calculated by determining the difference between
the aggregate market price of the Common Stock underlying the options on
November 30, 1998 and the aggregate exercise price of such options.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On December 1, 1995, the Company, through its subsidiary, NDC, entered into
five-year employment agreements with Sherman H. Norton, Jr., S. Howard Norton,
III and John W. Norton. The contracts provide for annual salaries of $104,500 to
each of these employees. Pursuant to these employment agreements, the employees
agreed not to compete with NDC for a period of five years.
On March 1, 1997, NDC entered into a new five-year employment agreement
with Sherman H. Norton, Jr., which contains the same terms as the prior
agreement with Mr. Norton other than an increase in his annual salary to
$153,500.
5
<PAGE> 8
REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's Chief Executive Officer and its other
executive officers is determined under employment agreements entered into with
such executive officers, as described above, and by the Company's entire Board
of Directors whose names are listed below at the end of this report.
Numerous factors are reviewed in determining compensation levels. These
factors include: the compensation levels of executive officers at comparable
companies, individual and Company performance, past compensation levels, years
of service, performance of the Company's stock, and other relevant
considerations.
Options are granted under the Company's 1989 Stock Option Plan and the
Company's 1997 Stock Option Plan on a discretionary basis to employees, officers
and directors of the Company (including officers and directors who are not also
employees) and consultants to the Company as a reward for past services rendered
and/or as an incentive for future services to be rendered.
The Company's goal is to set cash compensation at levels consistent with
that of comparable companies and to encourage stock ownership by such officers.
This approach is designed to more closely align total executive compensation
with the long-term performance of the Company and enable key employees of the
Company to participate in the Company's growth. Through stock ownership, the
executive is rewarded if the Company's stockholders receive the benefit of
appreciation of the price of the Company's Common Stock.
BOARD OF DIRECTORS:
Sherman H. Norton, Jr.
S. Howard Norton, III
John W. Norton
Larry Adkins
Carl Beach
Kevin Lewis
MARKET PRICE OF THE COMMON STOCK
The Company's Common Stock is quoted for trading on The Nasdaq Stock
Market's SmallCap Market ("Nasdaq") under the symbol "NORT." The following table
sets forth the high and low bid prices for the Common Stock in each quarterly
period during the last two fiscal years as reported on Nasdaq. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commissions
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ---- ----
<S> <C> <C>
December 1, 1996 -- February 28, 1997....................... 0.75 0.44
March 1, 1997 -- May 31, 1997............................... 0.69 0.44
June 1, 1997 -- August 31, 1997............................. 1.56 0.59
September 1, 1997 -- November 30, 1997...................... 4.94 1.27
December 1, 1997 -- February 28, 1998....................... 3.00 1.06
March 1, 1998 -- May 31, 1998............................... 1.84 0.97
June 1, 1998 -- August 31, 1998............................. 1.22 0.47
September 1, 1998 -- November 30, 1998...................... 1.03 0.53
December 1, 1998 -- December 11, 1998....................... 0.50 0.44
</TABLE>
As of December 11, 1998, there were approximately 282 holders of record of
Common Stock. Since its inception, the Company has not declared or paid any cash
dividends on the Common Stock. The Company intends to retain future earnings, if
any, that may be generated from the Company's operations to help finance the
Company and, accordingly, does not plan for the foreseeable future to pay cash
dividends to holders of Common Stock. Any decision as to the future payment of
dividends will depend on the earnings and financial position of the Company and
such other factors as the Company's Board of Directors deem relevant.
6
<PAGE> 9
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder returns
(assuming reinvestment of dividends) on $100 invested on November 30, 1993 in
the Company's Common Stock, the Nasdaq Composite (U.S.) Stock Index, and the
Nasdaq Non-Financial Stocks Index. The stock price performance shown on the
graph below reflects historical data provided by the National Association of
Securities Dealers, Inc. and is not necessarily indicative of future price
performance.
[Line Graph]
<TABLE>
<CAPTION> Nasdaq Non-
Nasdaq Composite Financial Stocks Norton Drilling
(U.S.) Stock Index Index Services
<S> <C> <C> <C>
Nov-93 100.00 100.00 100.00
Nov-94 100.20 98.90 18.75
Nov-95 142.87 139.64 12.50
Nov-96 174.91 168.26 150.00
Nov-97 217.89 203.60 487.50
Nov-98 N/A N/A 106.25
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During May 1993, Johnie Rose, a former officer of NDC, and Sherman H.
Norton, Jr. advanced $500,000 ($90,000 and $410,000, respectively) to NDC in the
form of unsecured demand notes, bearing interest equal to NDC's primary lending
institution's prime rate. Interest charged to operations on the notes payable
was $40,241, $41,651, $49,116 and $35,579 in the fiscal years ended November 30,
1997, 1996, 1995 and 1994, respectively. The notes were convertible into Common
Stock at $0.44 per share for an aggregate 1,136,364 shares of Common Stock. On
November 12, 1997, Messrs. Rose and Norton exercised their rights to convert the
notes into Common Stock.
In the fiscal year ended November 30, 1995, Sherman H. Norton, Jr., S.
Howard Norton, III, a corporation owned by John W. Norton, and Johnie Rose
(collectively, the "Joint Venture Participants"), along with NDC, participated
in a joint venture in three wells. The joint venture contracted with NDC to
drill, equip, and operate the three wells and the joint venture incurred costs
totaling approximately $58,000, $83,000 and $716,000 for fiscal years 1997, 1996
and 1995, respectively.
In April 1996, NDC sold substantially all of its interest in the joint
venture to a corporation (the "Rose Equipment Company") in which the Joint
Venture Participants are stockholders. The sales price of the interest sold was
$200,000 and NDC realized a gain on the sale of the interest of approximately
$117,000.
Each participant in the joint venture is liable for its pro rata share of
the costs incurred. NDC's share was approximately $1,000, $17,000 and $200,000
for fiscal years 1997, 1996 and 1995, respectively. The aggregate costs to be
borne by the Joint Venture Participants and the Rose Equipment Company was
approximately
7
<PAGE> 10
$24,000, $19,000 and $79,000 for fiscal years 1997, 1996 and 1995, respectively,
of which approximately $1,000, $1,000 and $11,000 was due at November 30, 1997,
1996 and 1995, respectively.
At a meeting held on February 23, 1997, the Board of Directors of the
Company authorized the issuance of an aggregate of $166,350 worth of Common
Stock (valued by an independent valuation expert) to Sherman H. Norton, Jr., S.
Howard Norton, III, John W. Norton, and one other employee of NDC, which
resulted in the issuance of 147,067, 58,217, 75,616 and 115,171 shares of Common
Stock to these four individuals, respectively, as partial satisfaction of an
aggregate of $266,350 in unpaid compensation.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Common Stock and any subsequent changes in that ownership to the Commission.
Specific due dates for these reports have been established, and the Company is
required to disclose in this Proxy Statement any failure to file by these dates.
All of these filing requirements with respect to the Company's past fiscal year
were satisfied on a timely basis. In making these disclosures, the Company has
relied solely on written representations of its directors and executive officers
and copies of the reports that they have filed with the Commission.
REVERSE STOCK SPLIT
(PROPOSAL NO. 2)
The Board of Directors has approved and directed that the proposed reverse
stock split be submitted to the Company's stockholders for consideration and
action. If this proposal is approved by the Company's stockholders, every five
shares of the Company's Common Stock issued and outstanding immediately prior
thereto (the "Old Common Stock") will be reclassified as and changed into one
share of the Company's Common Stock (the "New Common Stock"), subject to the
treatment of fractional share interests as described below. In the event this
proposal is approved, the Company will send transmittal forms to the holders of
the Old Common Stock to be used in forwarding their certificates representing
shares of Old Common Stock for surrender and exchange for certificates
representing whole shares of New Common Stock. Until so surrendered, each
current certificate representing shares of Old Common Stock will be deemed for
all corporate purposes after the effectiveness of the reverse stock split to
evidence ownership of New Common Stock in appropriate whole number shares.
No certificates or scrip representing fractional share interests in the New
Common Stock will be issued, and no such fractional share interest will entitle
the holder thereof to vote, or to any rights as a stockholder of the Company.
All fractional shares of one-half share or more will be increased to the next
higher whole number of shares and all fractional shares of less than one-half
share will be decreased to the next lower whole number of shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE REVERSE
STOCK SPLIT. APPROVAL OF THE REVERSE STOCK SPLIT REQUIRES THE AFFIRMATIVE VOTE
OF THE HOLDERS OF A MAJORITY OF THE SHARES OF THE COMPANY'S COMMON STOCK
PRESENT, OR REPRESENTED, AND ENTITLED TO VOTE AT THE ANNUAL MEETING.
The Board of Directors believes that a reverse stock split may be necessary
in order to increase the trading price of the Company's Common Stock to levels
acceptable to Nasdaq, and may be necessitated in order to maintain the listing
of the Common Stock on Nasdaq. The Board of Directors believes that a decrease
in the number of shares of the Common Stock outstanding without any material
alteration of the proportionate economic interest in the Company represented by
individual shareholdings may increase the trading price of such shares to a
price more appropriate for an exchange-listed security, although no assurance
can be given that the market price of the Company's Common Stock will rise in
proportion to the reduction in the number of outstanding shares resulting from
any reverse stock split.
8
<PAGE> 11
In addition, the Board of Directors also believes that the current per
share price of the Common Stock is too low. Many brokerage firms and
institutional investors tend to be reluctant to recommend lower-priced stocks to
their clients or to hold them in their own portfolios. Certain policies and
practices of the securities industry may tend to discourage individual brokers
within those firms from dealing in lower-priced stocks. Some of those policies
and practices involve time-consuming procedures that make the handling of lower
priced stocks economically unattractive. The brokerage commission on a sale of
lower-priced stock may also represent a higher percentage of the sale price than
the brokerage commission on a higher-priced issue.
The reverse stock split will not reduce or otherwise affect the authorized
capital stock of the Company. Proportionate voting rights and other rights of
the Company's stockholders will not be altered by any reverse stock split.
Dissenting stockholders have no appraisal rights under Delaware law or under the
Company's Certificate of Incorporation, as amended, and Bylaws in connection
with the reverse stock split.
The par value of the Common Stock will remain at $0.01 per share following
the reverse stock split, and the number of shares of the Common Stock
outstanding will be reduced. As a consequence, the aggregate par value of the
Common Stock will be reduced, while the aggregate capital in excess of par value
attributable to the outstanding shares of the Common Stock for statutory and
accounting purposes will be correspondingly increased.
As of December 1, 1998, the Company had outstanding options to purchase
852,200 shares of Common Stock pursuant to the Company's stock option plans,
with exercise prices ranging from $0.63 to $1.50 per share. Upon the
effectiveness of the reverse stock split, the Board of Directors will make a
proportional downward adjustment in the number of shares underlying the
outstanding options and a corresponding upward adjustment in the per share
exercise prices to reflect such split.
FEDERAL INCOME TAX CONSEQUENCES OF REVERSE STOCK SPLIT
The following summary of the federal income tax consequences of the reverse
stock split is based on current law, including the Internal Revenue Code of
1986, as amended (the "Code"), and is for general information only. The tax
treatment of a stockholder may vary depending upon the particular facts and
circumstances of such stockholder. Certain stockholders, including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
non-resident aliens, foreign corporations and persons who do not hold the
Company's Common Stock as a capital asset, may be subject to special rules not
discussed below. ACCORDINGLY, EACH STOCKHOLDER SHOULD CONSULT HIS OR HER TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE
REVERSE STOCK SPLIT, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE OR
FOREIGN INCOME TAX AND OTHER LAWS.
The receipt of shares of New Common Stock in the reverse stock split should
be a nontaxable transaction under the Code for federal income tax purposes.
Consequently, a stockholder receiving shares of New Common Stock should not
recognize either gain or loss, or any other type of income, with respect to
whole shares of New Common Stock received as a result of the split. In addition,
the tax basis of such stockholder's shares of Old Common Stock prior to the
split will carry over as the tax basis of the stockholder's shares of New Common
Stock. Each of the Company's stockholder will be required to allocate his or her
basis in his or her shares of Old Common Stock ratably among the total number of
shares of New Common Stock owned following the split. The holding period of the
shares of New Common Stock will also include the holding period during which the
stockholder held the Old Common Stock, provided that such Old Common Stock was
held by the stockholder as a capital asset on the date of the Annual Meeting.
9
<PAGE> 12
INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NO. 3)
THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION OF THE SELECTION OF THE
INDEPENDENT ACCOUNTING FIRM OF ROBINSON BURDETTE MARTIN & COWAN LLP AS AUDITORS
OF THE COMPANY FOR THE FISCAL YEAR COMMENCING DECEMBER 1, 1998. THE RATIFICATION
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF THE
COMPANY'S COMMON STOCK PRESENT, OR REPRESENTED, AND ENTITLED TO VOTE AT THE
ANNUAL MEETING. A representative of Robinson Burdette Martin & Cowan LLP is
expected to attend the meeting, will have the opportunity to make a statement
should he desire to do so, and is expected to be available to respond to
appropriate questions.
GENERAL AND OTHER MATTERS
Management knows of no matter other than the matters described above that
will be presented to the meeting. However, if any other matters properly come
before the meeting, or any of its adjournments, the person or persons voting the
proxies will vote them in accordance with his or their best judgment on such
matters.
SOLICITATION OF PROXIES
The cost of proxy solicitations will be borne by the Company. In addition
to solicitations of proxies by use of the mails, some officers or employees of
the Company, without additional remuneration, may solicit proxies personally or
by telephone. The Company will also request brokers, dealers, banks and their
nominees to solicit proxies from their clients, where appropriate, and will
reimburse them for reasonable expenses related thereto.
2000 STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal for action at the
Company's 2000 Annual Meeting of Stockholders, must comply with and meet the
requirements of Regulation 14a-8 of the Securities and Exchange Commission.
Regulation 14a-8 requires, among other things, that any proposal be received by
the Company at its principal executive office, 5211 Brownfield Highway, Suite
230, Lubbock, Texas 79407-3501 by , 1999.
10
<PAGE> 13
PRELIMINARY COPIES
NORTON DRILLING SERVICES, INC.
ANNUAL MEETING OF STOCKHOLDERS
------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Sherman H. Norton, Jr. and David W. Ridley,
and each of them, with full power of substitution and resubstitution, to vote
all shares of common stock of Norton Drilling Services, Inc. (the "Company")
that the undersigned is entitled to vote at the Company's Annual Meeting of
Stockholders to be held at the Holiday Inn Plaza, 3201 South Loop 289, Lubbeck,
Texas, on the 29th day of January, 1999, at 10:00 a.m. local time, and at any
adjournment or postponement thereof, hereby ratifying all that said proxies or
their substitutes or resubstitutes may do by virtue hereof, and the undersigned
authorizes and instructs said proxies to vote as follows:
1. ELECTION OF DIRECTORS: To elect Sherman H. Norton, Jr., S. Howard Norton,
III, John W. Norton, H. Larry Adkins, Carl C. Beach and Kevin E. Lewis to the
Board of Directors of the Company.
FOR all nominees listed (except as marked to the contrary above) [ ]
WITHHOLD AUTHORITY to vote for all nominees [ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME ABOVE)
2. APPROVAL OF THE REVERSE STOCK SPLIT: To approve a one-for-five reverse stock
split, pursuant to which every five shares of the Company's common stock
issued and outstanding will become and be exchanged for one share of the
Company's common stock.
<TABLE>
<S> <C> <C>
FOR [ AGAINST [ ABSTAIN [
] ] ]
</TABLE>
3. RATIFICATION OF THE SELECTION OF ACCOUNTANTS: To ratify the selection by the
Board of Directors of Robinson Burdette Martin & Cowan LLP as independent
public accountants for the Company for the fiscal year commencing December 1,
1998.
<TABLE>
<S> <C> <C>
FOR [ AGAINST [ ABSTAIN [
] ] ]
</TABLE>
and in his discretion, upon any other matters that may properly come before
the meeting or any adjournment or postponement thereof.
(Continued and to be dated and signed on the other side.)
<PAGE> 14
(Continued from other side.)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 AND 3.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
RECEIPT OF THE NOTICE OF ANNUAL MEETING AND OF THE PROXY STATEMENT AND ANNUAL
REPORT ON FORM 10-K OF THE COMPANY ANNEXED TO THE SAME IS HEREBY ACKNOWLEDGED.
Dated: -----------------------, 199--
-------------------------------------
(SIGNATURE OF STOCKHOLDER)
-------------------------------------
(SIGNATURE OF STOCKHOLDER)
Your signature should appear the
same as your name appears herein. If
signing as attorney, executor,
administrator, trustee or guardian,
please indicate the capacity in which
signing. When signing as joint
tenants, all parties to the joint
tenancy must sign. When the proxy is
given by a corporation, it should be
signed by an authorized officer.
