CLIFFS DRILLING CO, DEF 14A, 1994-04-19

CLIFFS DRILLING CO
DEF 14A, 1994-04-19
DRILLING OIL & GAS WELLS

Previous: AVONDALE INDUSTRIES INC, DEFA14A, 1994-04-19

Next: DEFINED ASSET FUNDS MUNICIPAL INVT TR FD MULTISTATE SER 5L, 497, 1994-04-19

<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 (AMENDMENT NO. )

Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12

CLIFFS DRILLING COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

CLIFFS DRILLING COMPANY
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:

- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)

- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------
/ / 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:

- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
[CLIFFS DRILLING COMPANY]

April 18, 1994

To the Shareholders of Cliffs Drilling Company:

Cliffs Drilling Company's Annual Meeting of Shareholders will be held at
the Doubletree Hotel at Allen Center, 400 Dallas Street at Bagby, Houston,
Texas, on Thursday, May 19, 1994, at 11:00 a.m. local time.

The directors and officers of the Company look forward to meeting you at
the Annual Meeting. There will be a report on operations and ample opportunity
for questions.

Information concerning matters to be voted on at the meeting is set forth
in the attached Notice of Annual Meeting of Shareholders and Proxy Statement.

WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE SIGN AND RETURN THE ACCOMPANYING
PROXY CARD IN THE POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE SO THAT YOUR SHARES
WILL BE REPRESENTED AT THE ANNUAL MEETING. If you then attend the meeting and
wish to vote your shares in person, you may withdraw your proxy at that time. It
is important that your shares be represented.

Sincerely,

M. M. CONE
Chairman of the Board
<PAGE> 3

CLIFFS DRILLING COMPANY
300 CITICORP CENTER
HOUSTON, TEXAS 77002

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 1994

TO THE SHAREHOLDERS OF CLIFFS DRILLING COMPANY:

The 1994 Annual Meeting of the Shareholders of Cliffs Drilling Company (the
"Company") will be held at the Doubletree Hotel at Allen Center, 400 Dallas
Street at Bagby, Houston, Texas, on Thursday, May 19, 1994, at 11:00 a.m. local
time, for the following purposes, as set forth in the accompanying proxy
statement.

1. To elect two directors to hold office until the 1997 Annual Meeting
of Shareholders or until their successors are duly elected and qualified;

2. To ratify the selection by the Board of Directors of Ernst & Young
as independent public accountants to examine the books, records and
accounts of the Company for the year 1994; and

3. To transact such other business as may properly come before the
meeting.

Only shareholders of record at the close of business on March 31, 1994, are
entitled to notice of and to vote at the meeting. A list of such shareholders
will be open for examination by any shareholder at the meeting and for a period
of ten days prior to the date of the meeting during ordinary business hours at
the office of the Company's Secretary, 300 Citicorp Center, Houston, Texas
77002.

By order of the Board of Directors

James E. Mitchell Jr.
Secretary

April 18, 1994

IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE
COMPLETED AND RETURNED PROMPTLY
<PAGE> 4

CLIFFS DRILLING COMPANY

300 CITICORP CENTER
HOUSTON, TEXAS 77002

April 18, 1994

PROXY STATEMENT

This statement is furnished in connection with the solicitation by the
Board of Directors of Cliffs Drilling Company, a Delaware corporation
(hereinafter called the "Company"), of proxies to be used at the Annual Meeting
of Shareholders of the Company to be held on Thursday, May 19, 1994, at 11:00
a.m. local time at The Doubletree Hotel at Allen Center, 400 Dallas Street at
Bagby, Houston, Texas, and at any adjournments thereof (the "Annual Meeting").

A form of proxy is enclosed for use at the meeting. The proxy may be
revoked by the shareholder at any time before it is voted. Unless contrary
instructions are indicated on the proxy, all shares represented by valid proxies
received pursuant to this solicitation (and not revoked before they are voted)
will be voted for the election of the nominees for director named on the
following pages and for the ratification of the selection by the Board of
Directors of Ernst & Young as independent public accountants to examine the
books, records and accounts of the Company for the year 1994.

This proxy material is being mailed to shareholders beginning on or about
April 18, 1994, accompanied by the Company's Annual Report for the year ended
December 31, 1993.

The Company has adopted a policy that all shareholder proxies, consents,
authorizations, ballots and tabulations that identify the particular vote of a
shareholder are to be maintained in confidence, and that the identity and vote
of any shareholder shall not be disclosed to any third party, except as may be
necessary to meet applicable legal requirements or to allow the inspectors of
election to certify the results of the shareholder vote.

The cost of soliciting proxies on behalf of the Board of Directors will be
borne by the Company. Proxies may be solicited by directors, officers or regular
employees of the Company in person or by telephone, telegraph or telex. In
addition, the Company will retain Georgeson & Company Inc., New York, New York,
to aid in the solicitation for an estimated cost of $6,500, plus out-of-pocket
expenses. The Company will also request persons, firms and corporations holding
shares in their names, or in the names of their nominees, which are beneficially
owned by others, to send or cause to be sent proxy material to, and obtain
proxies from, such beneficial owners and will reimburse such holders for their
reasonable expenses in so doing.

OUTSTANDING SHARES AND VOTING RIGHTS

Only shareholders of record at the close of business on March 31, 1994 will
be entitled to vote at the Annual Meeting. At the close of business on such
record date the Company had outstanding 4,268,104 shares of common stock, $.01
par value (the "Common Stock") and 1,150,000 shares of $2.3125 Convertible
Exchangeable Preferred Stock (the "Preferred Stock"). Each share of Common Stock
entitles the holder thereof to one vote. The holders of shares of Preferred
Stock have no right to vote in this election (although such holders have the
right to elect directors in certain circumstances).
<PAGE> 5

ELECTION OF DIRECTORS

The Company's Certificate of Incorporation and Bylaws, provide that the
number of directors shall be not more than 15 nor less than 3 as may be fixed by
the Company's Board of Directors (the "Board"), that the Board shall be divided
into 3 classes of directors, with the classes to be as nearly equal in number as
possible and that such directors shall be elected to serve 3-year terms.

The following information describes the Company's 7 directors as of April
14, 1994.

<TABLE>
<CAPTION>
TERM DIRECTOR
NAME AGE EXPIRES SINCE
---- --- ------- -----
<S> <C> <C> <C>
Robert M. McInnes........................................... 63 1996 1993
Douglas E. Swanson.......................................... 55 1996 1988
H. Robert Hirsch............................................ 60 1995 1993
Randolph Newcomer........................................... 58 1995 1992
Joseph E. Reid.............................................. 65 1995 1988
Michael M. Cone............................................. 56 1994 1988
John D. Weil................................................ 53 1994 1989
</TABLE>

Robert M. McInnes is a private business consultant, an attorney-at-law and
of counsel to the law firm of Arter & Hadden. Mr. McInnes is also a director of
Brush Wellman Inc. and Seaforth Mineral & Ore Co., Inc. Previously, Mr. McInnes
was a director of Moore McCormack Resources, Inc., Society National Bank of
Cleveland, MLX Corp. and Cleveland-Cliffs Inc. From 1987 to 1988 he was Group
Executive Vice President of Cleveland-Cliffs Inc where his responsibilities
among several divisions included the operations of the Company's predecessor
while it was a wholly-owned subsidiary of Cleveland-Cliffs Inc. From 1983 to
1986, he was President and Chief Executive Officer of Pickands Mather & Co. and
The Interlake Steamship Company after holding several senior positions. Mr.
McInnes formerly held the position of General Counsel and Treasurer,
respectively, with Diamond Shamrock Corporation during the period 1969 to 1970.
Mr. McInnes is a member of the Audit and Compensation Committees.

Douglas E. Swanson is President and Chief Executive Officer of the Company.
Mr. Swanson joined the Company in 1978 as Executive Vice President and served in
that office until his election as President, effective January 1, 1992.

H. Robert Hirsch is a consultant in the oil and gas industry and is
President of Sycamore Investment Company. From 1981 through 1990, Mr. Hirsch was
Chairman, President and Chief Executive Officer of Conquest Exploration Company.
He held several senior offices with the Superior Oil Company during the period
1976 through 1981, in addition to serving as a director during the period 1978
through 1981. Prior to this time, Mr. Hirsch held numerous technical and
managerial positions with Mobil Oil Corporation during his 22-year employment
commencing in 1953. Mr. Hirsch is a member of the Audit and Compensation
Committees.

Randolph Newcomer is Executive Vice President of the Company. Mr. Newcomer
joined the Company in 1979 as Vice President -- Operations and was elected
Senior Vice President -- Operations of the Company in 1986, serving in that
office until his election as Executive Vice President, effective January 1,
1992.

Joseph E. Reid is, and since 1984 has been, a director of Riverway Bank &
Trust and is currently a director of Edisto Resources Corporation and Great
Western Resources plc. In addition, Mr. Reid is, and from 1982 to 1984 was, a
private consultant in the oil and gas industry. From 1984 to 1986, he was
President and Chief Executive Officer of Meridian Oil, Inc. (which was a
division of Burlington Northern, Inc.). He has held a number of positions with
The Superior Oil Company during the period 1978 through 1981, including
Chairman, Chief Executive Officer and President, in addition to serving as a
director. Mr. Reid is Chairman of the Audit Committee and a member of the
Compensation Committee.

Michael M. Cone is Chairman of the Board of the Company and was President
of the Company from 1978 until his resignation from that office, effective
January 1, 1992. Mr. Cone is currently Chairman of the Board of Tri-C Resources
Inc. and is a member of the Audit and Compensation Committees.

2
<PAGE> 6

John D. Weil has been President of Clayton Management Co., a private
investment management company, since 1973, a director of Physicians Insurance
Co. of Ohio since 1987, a director of CleveTrust Realty since 1991, a director
of Oglebay Norton Company since 1992 and a director of Todd Shipyards
Corporation and Southern Investors since 1993. Mr. Weil has served as a director
of the Company since August 8, 1989 and is Chairman of the Compensation
Committee and a member of the Audit Committee.

Messrs. Cone and Weil stand for election this year and are the Company's
only nominees named in the proxy. Unless contrary instructions are set forth in
the proxies, it is intended that the persons named in the proxy will vote all
shares represented by proxies for the election of Messrs. Cone and Weil. Should
Messrs. Cone or Weil become unavailable, it is intended that shares represented
by valid proxies will be voted for a substitute nominee designated by the Board.

BOARD OF DIRECTORS AND CERTAIN COMMITTEES

The management of the Company is under the direction of its Board of
Directors. The Board has established an Audit Committee and a Compensation
Committee, and may in the future establish other committees to facilitate its
work. The Board does not have a standing nominating committee or other committee
performing a similar function.

The Audit Committee reviews the scope of the audit by the Company's
auditors and the independence of such firm from management of the Company, the
annual financial statements of the Company, the adequacy of the Company's
internal accounting controls, and such other matters with respect to the
accounting, auditing and financial reporting practices and procedures of the
Company as it may find appropriate or as may be brought to its attention. During
1993, Messrs. Reid (current Chairman), Weil (previous Chairman) and Cone were
members of the Audit Committee for all meetings. Messrs. Hirsch and McInnes were
members of the Audit Committee for one meeting and two previous directors,
Messrs. Carmichael and Wyper, were members of the Audit Committee for one
meeting. The Audit Committee met two times during 1993.

The Compensation Committee reviews executive salaries, administers the
Incentive Equity Plan and the Incentive Bonus Plan of the Company, and approves
the salaries and other benefits of the executive officers. In addition, this
Committee advises and consults with the Company's management regarding benefit
plans and compensation policies and practices of the Company. During 1993, the
members of this Committee were Messrs. Weil (current Chairman), Cone, Hirsch,
McInnes and Reid. The Compensation Committee met once during 1993.

DIRECTORS' FEES AND RELATED INFORMATION

Directors who are not employees of the Company currently receive an annual
retainer of $18,000, plus $750 per day for attendance at each meeting of the
Board. Directors who serve on committees of the Board also receive $750 per day
for committee meetings attended on a day other than a Board meeting day. During
1993, all committee meetings were held on the same day as a Board meeting.
Directors and members of committees of the Board who are employees of the
Company are not compensated for their Board and committee activities. Directors
are reimbursed for expenses incurred in attending Board and committee meetings.

For information on awards of stock options to Messrs. Reid and Weil see
"Incentive Equity Plan -- Automatic Stock Option Awards" below.

ATTENDANCE AT BOARD AND COMMITTEE MEETINGS

During 1993, all directors of the Company attended 100% of the meetings of
the Board and the committees on which they served either in person or by
teleconference. The Board held five meetings during the year 1993.

3
<PAGE> 7

EXECUTIVE OFFICERS

Set forth below are the names, ages, titles with the Company and present
and past positions of the current executive officers of the Company. All
officers serve at the pleasure of the Board of Directors and are appointed for
one-year terms.

<TABLE>
<CAPTION>
NAME AGE TITLE, EXPERIENCE AND COMPANY
- ------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Douglas E. Swanson....... 55 President and Director
1992 -- Present: President and Chief Executive Officer of
the Company; 1978 - 1991: Executive Vice President of the
Company
Randolph Newcomer........ 58 Executive Vice President and Director
1992 -- Present: Executive Vice President of the Company;
1986 -- 1991: Senior Vice President -- Operations of the
Company; 1979 -- 1986: Vice President -- Operations of the
Company
Edward A. Guthrie........ 49 Vice President -- Finance
1992 -- Present: Vice President -- Finance of the Company;
1991: Vice President -- Controller of the Company;
1983 -- 1990: Controller of the Company
Charles M. McCall........ 47 Vice President -- Drilling Operations
1991 -- Present: Vice President -- Drilling Operations of
the Company; 1989 -- 1990: General Manager -- Drilling
Operations of the Company; 1986 -- 1989:
Manager -- Operations of the Company
James P. Mitchen......... 43 Vice President -- Business Development
1992 -- Present: Vice President -- Business Development of
the Company; 1991: Vice President -- International
Business Development of the Company; 1989 -- 1990:
Consultant for Cliffs -- Neddrill Turnkey International;
1985 -- 1989: Vice President -- Finance of Bawden Drilling
Inc.
Ralph E. Niemi........... 45 Vice President -- MOPU Operations
1992 -- Present: Vice President -- MOPU Operations of the
Company; 1991 -- 1992: General Manager -- MOPU Operations;
1990 -- 1991: Manager -- Turnkey Operations; 1986 -- 1990:
Senior Drilling Engineer with the Company
Gary W. Owen............. 37 Vice President -- Turnkey Operations
1993 -- Present; Vice President -- Turnkey Operations of
the Company; 1991 -- 1993: Project Drilling Manager of
Conoco, Inc.; 1989 -- 1990: Drilling Superintendent of
Conoco, Inc.
Ed O. Davis.............. 36 Treasurer
1992 -- Present: Treasurer of the Company; 1992: Assistant
Treasurer of the Company; 1987 -- 1991:
Manager -- Administration of the Company
James E. Mitchell Jr..... 43 Secretary
1992 -- Present: Secretary of the Company; 1988 -- 1992:
Secretary and Treasurer of the Company; 1985 -- 1988:
Treasurer of the Company
Cindy B. Taylor.......... 32 Controller
1992 -- Present: Controller of the Company; 1990 -- 1992:
Senior Manager with Ernst & Young; 1988 -- 1990: Manager
with Ernst & Young
</TABLE>

4
<PAGE> 8

SECURITY OWNERSHIP OF MANAGEMENT

The following table shows the number of shares of the Company's Common and
Preferred Stock beneficially owned as of April 14, 1994 by each director, by
certain executive officers and by all directors and executive officers as a
group. Unless otherwise indicated in the footnotes to the table, to the
Company's knowledge each of the named persons and members of the group has sole
voting and investment power with respect to the shares shown.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------------------------------
AMOUNT PERCENTAGE
--------------------------- --------------------
NAME COMMON PREFERRED COMMON PREFERRED
---- ------ --------- ------ ---------
<S> <C> <C> <C> <C>
John D. Weil....................... 446,607(1,2) 115,900 10.1% 10.1%
Douglas E. Swanson................. 80,112(3,4,5,6,7) 1.9%
Randolph Newcomer.................. 59,130(3,4,5,6,7) 1.4%
Michael M. Cone.................... 41,901 1.0%
Joseph E. Reid..................... 2,000(4) *
H. Robert Hirsch................... 1,000 *
Robert M. McInnes.................. 500 *
Charles M. McCall.................. 19,500(3,4,5,6,7) *
Edward A. Guthrie.................. 17,750(3,4,5,6,7) *
James P. Mitchen................... 16,143(3,6,7,8) 1,000 * *
All directors and executive
officers as a group (15
persons)......................... 721,542(9) 116,900 15.8% 10.2%
</TABLE>

- ---------------

* less than 1.0% of class

(1) The information shown above was obtained from the Schedule 13D (Amendment
No. 5) dated April 8, 1994, as filed with the Securities and Exchange
Commission by John D. Weil. Of the 446,607 shares of Common Stock reflected
as beneficially owned, Mr. Weil has the right to acquire 219,507 of such
shares upon the conversion of 115,900 shares of Preferred Stock. Mr. Weil
has sole voting and dispositive power with respect to 202,227 shares of
Common Stock and shared voting and dispositive power with respect 11,681
shares of Common Stock. Mr. Weil disclaims beneficial ownership with respect
to 266,956 shares of Common Stock (including 141,856 shares which may be
acquired upon the conversion of 74,900 shares of Preferred Stock) and 74,900
shares of Preferred Stock.

(2) Includes 2,000 shares of Common Stock which may be acquired upon the
exercise of options granted to Mr. Weil, exercisable at $12.00 per share
since August 8, 1992.

(3) Includes 4,500, 3,500, 2,000, 2,000, and 2,000 shares of restricted stock
awarded to Messrs. Swanson, Newcomer, McCall, Guthrie and Mitchen,
respectively, pursuant to the Company's 1988 Incentive Equity Plan upon
which restrictions apply and may be subject to forfeiture.

(4) Includes 18,000, 12,900, 2,000, 4,000 and 4,000 shares of Common Stock which
may be acquired upon the exercise of options granted to Messrs. Swanson,
Newcomer, Reid, McCall and Guthrie, respectively, exercisable at $13.80 per
share since June 21, 1991.

(5) Includes 9,600, 8,000, 4,000 and 4,000 shares of Common Stock which may be
acquired upon the exercise of options granted to Messrs. Swanson, Newcomer,
McCall and Guthrie, respectively, exercisable at $14.25 per share since May
17, 1993.

(6) Includes 22,500, 11,250, 4,500, 3,750 and 2,250 shares of Common Stock which
may be acquired upon the exercise of options granted to Messrs. Swanson,
Newcomer, McCall, Guthrie and Mitchen, respectively, exercisable at $13.25
per share since December 12, 1993.

(7) Includes 6,000, 3,500, 2,500, 3,000 and 3,000 shares which may be acquired
upon the exercise of options granted to Messrs. Swanson, Newcomer, McCall,
Guthrie and Mitchen, respectively, exercisable at $12.875 per share at May
20, 1994.
(Notes continued on following page)

5
<PAGE> 9

(8) Includes 5,000 shares of Common Stock which may be acquired upon exercise of
options granted to Mr. Mitchen exercisable at $11.75 per share since
December 18, 1993.

(9) Includes 4,000 shares of Common Stock which may be acquired upon the
exercise of options granted to two officers, excluding those named,
exercisable at $13.80 per share since June 21, 1991, 7,500 shares which may
be acquired upon the exercise of options granted to three officers excluding
those named, exercisable at $14.25 per share since May 17, 1993, 2,250
shares which may be acquired upon exercise of options granted to one
officer, excluding those named, exercisable at $13.25 per share since
December 12, 1993, 2,500 shares which may be acquired upon exercise of
options granted to one officer, excluding those named, exercisable at $13.75
per share since July 29, 1993, and 8,500 shares which may be acquired upon
exercise of options granted to four officers, excluding those named,
exercisable at $12.875 per share at May 20, 1994. Also includes 9,500 shares
of restricted stock awarded to three officers, excluding those named,
pursuant to the Company's 1988 Incentive Equity Plan upon which restrictions
apply and may be subject to forfeiture. Of the 721,542 shares of Common
Stock reflected as beneficially owned, the directors and officers as a group
have the right to acquire 221,400 shares of Common Stock upon the conversion
of 116,900 shares of Preferred Stock.

INCENTIVE EQUITY PLAN

The Cliffs Drilling Company 1988 Incentive Equity Plan (the "Plan") is
designed to encourage employee ownership of the Company's Common Stock and to
assist the Company in attracting, retaining and rewarding key personnel. The
Plan authorizes the Compensation Committee to grant to eligible participants of
the Company and its subsidiaries and affiliates, during a period of 10 years
from the date of shareholder approval of the Plan, stock options, stock
appreciation rights ("SAR's") and restricted or deferred stock awards, currently
for up to 490,000 shares of Common Stock, subject to adjustment for future stock
dividends, stock splits, recapitalizations and similar events.

Officers and other key employees of the Company and its subsidiaries who
are responsible for or contribute to the management, growth and/or profitability
of the business of the Company and its subsidiaries are eligible for awards of
stock options, SAR's, restricted stock and deferred stock pursuant to the Plan.
At the present time, ten (10) executive officers and approximately fifteen (15)
key employees are eligible for participation under the Plan. In addition, each
of the first five (5) non-employee directors of the Company elected during the
2-year period following the Distribution were automatically granted
non-qualified stock options pursuant to the Plan covering 2,000 shares of Common
Stock. See "Automatic Stock Option Awards" below.

All awards of stock options, SAR's and restricted or deferred stock
pursuant to the Plan are made in consideration of the participant's contribution
to the management, growth and/or profitability of the Company and its
subsidiaries. As of April 14, 1994, the closing price of the NASDAQ National
Market System of the Common Stock which is the subject of such stock options,
SAR's and restricted or deferred stock was $12.25 per share.

Stock Options. The Plan permits the granting of non-transferable stock
options that either qualify as incentive stock options ("ISO's") under Section
422 (b) of the Internal Revenue Code of 1986, as amended (the "Code"), or do not
so qualify ("Non-Qualified Stock Options"). The option exercise price for each
share of Common Stock covered by an option shall be determined by the
Compensation Committee, but shall not be less than 100% of the fair market value
of such share on the date of grant; provided, however, that the option exercise
price for the Non-Qualified Stock Options which were granted to the Company's
officers and other key employees as of the public distribution of the Common
Stock of the Company to the shareholders of Cleveland-Cliffs Inc ("Cleveland")
as sole shareholder of the Company on June 21, 1988 (the "Distribution") was
$13.80 per share, which is the average for the 20 trading days following the
Distribution of the daily closing price of the Common Stock as quoted in the
NASDAQ National Market System.

The term of each option will be fixed by the Compensation Committee but may
not exceed 10 years from the date of grant in the case of an ISO or 10 years and
1 day from the date of grant in the case of a Non-

6
<PAGE> 10

Qualified Stock Option. The Compensation Committee will determine at which time
or times each option may be exercised; the exercisability of options may be
accelerated by the Compensation Committee.

The option exercise price must be paid by certified or bank check or other
instrument acceptable to the Compensation Committee or, if the Compensation
Committee so determines, by delivery of shares of Common Stock (or in the case
of non-qualified stock options only, in restricted stock or deferred stock)
valued at fair market value on the exercise date.

Under the Plan, in the event of termination of employment by reason of
normal retirement, approved early retirement, long-term disability or death, an
option may thereafter be exercised (to the extent it was then exercisable) for
various periods of up to 3 years (or such shorter period as the Compensation
Committee shall determine at grant), subject to the stated term of the option.
If an optionee's employment terminates voluntarily or involuntarily for any
reason other than normal retirement, approved early retirement, disability or
death, his options may be exercised, to the extent then exercisable, for 3
months following termination (unless otherwise determined by the Compensation
Committee), except that options cease to be exercisable upon termination for
"cause" (as defined in the Plan).

The Plan also permits the Compensation Committee to cash out options, at
the Compensation Committee's election, for cash or shares of Common Stock, and
to settle the spread value of an option, upon a cash out or exercise, in the
form of restricted or deferred stock.

Stock Appreciation Rights. The Compensation Committee may also grant
non-transferable SAR's in conjunction with options, entitling the holder upon
exercise to receive an amount in cash and/or shares of Common Stock (as
determined by the Compensation Committee) equal in value to the increase since
the date of grant in the fair market value of the Common Stock covered by such
right. Each SAR will terminate upon the termination or exercise of the related
option.

Restricted Stock. The Compensation Committee may also award restricted
stock subject to certain conditions set forth in the Plan and such other
conditions and restrictions as the Compensation Committee may determine, which
may include the attainment of performance goals and the payment of a purchase
price which shall be not less than par value. Prior to the lapse of restrictions
on shares of restricted stock, the participant will have all rights of a
shareholder with respect to such shares, including voting and dividend rights,
subject to the conditions and restrictions generally applicable to restricted
stock (and any dividends on such shares) or specifically set forth in the
participant's restricted stock award agreement.

Shares of restricted stock are non-transferable and the Compensation
Committee will have the right to provide, in the event that a participant who
holds shares of restricted stock terminates employment for any reason (including
death) prior to the lapse or waiver of the restrictions, for the forfeiture of
such restricted stock in exchange for the amount, if any, which the participant
paid for them.

Deferred Stock. The Compensation Committee may also make deferred stock
awards under the Plan, which involve the non-transferable right to receive
shares of Common Stock without any payment in cash or property in one or more
installments at a future date or dates, as determined by the Compensation
Committee. Receipt of deferred stock may be conditioned in such manner as the
Compensation Committee shall determine, including being conditioned on continued
employment or attainment of performance goals.

A recipient of a deferred stock award must enter into an agreement setting
forth the applicable provisions for deferral of the shares of Common Stock
covered by such award, as determined by the Compensation Committee. Except as
otherwise determined by the Compensation Committee, all such rights will
terminate upon the participant's termination of employment. Any deferral
restrictions under a deferred stock award may be accelerated or waived by the
Compensation Committee at any time prior to termination of employment. The
Compensation Committee may permit participants to make elections to defer
further receipt of a deferred stock award. Recipients of deferred stock awards
will be entitled to receive dividend equivalents, subject to the terms of the
award agreement.

Dividend Deferrals under the Plan. The Plan provides for the automatic
deferral and deemed reinvestment of (i) dividends paid on restricted stock
awards under the Plan and (ii) in the case of deferred stock

7
<PAGE> 11

awards, amounts equal to dividends which would have been paid if shares of
Common Stock subject to such award had been outstanding, in each case unless
otherwise determined by the Compensation Committee.

Amendment and Termination. The Board may terminate or suspend the Plan at
any time, but such termination or suspension shall not adversely affect any
stock options, SAR's or restricted or deferred stock awards then outstanding
under the Plan, without the participant's consent. The Board may amend the Plan,
but may not, without the prior approval of the shareholders, make any amendment
that would (i) except as provided under the Plan, increase the number of shares
reserved for grants under the Plan, (ii) change the class of employees eligible
to receive awards, (iii) extend the maximum term for options or (iv) materially
increase the benefits under the Plan. The Compensation Committee may amend the
term of any award or option theretofore granted, retroactively or prospectively,
but no such amendment shall impair the rights of any holder without the holder's
consent. The Compensation Committee may also substitute new stock options for
previously granted stock options, including previously granted stock options
having higher exercise prices.

Change in Control Provisions. The Plan provides that in the event of a
"Change in Control" (as defined in the Plan) or a "Potential Change in Control"
(as defined in the Plan), the Board or the Compensation Committee may provide
that (i) any or all stock options and related SAR's (to the extent outstanding
for at least 6 months) will become fully vested and immediately exercisable,
(ii) the restrictions and deferral limitations applicable to outstanding
restricted and deferred stock awards will lapse and the shares of Common Stock
in question will fully vest, and (iii) the value of any or all outstanding
options and restricted or deferred stock awards will be cashed out on the basis
of the highest price paid or offered for the Common Stock during the preceding
60-day period, or such other date as may be determined by the Compensation
Committee. In addition, at any time prior to or after a "Change in Control" or a
"Potential Change in Control", the Compensation Committee may accelerate awards
and waive conditions and restrictions on any awards to the extent it may
determine to be appropriate.

Automatic Stock Option Awards. The Plan provides for an automatic grant of
Non-Qualified Stock Options for a total of 2,000 shares of Common Stock to each
of the first 5 non-employee directors of the Company, elected during the 2-year
period following the Distribution (subject to anti-dilution adjustments under
the Plan to reflect stock dividends, stock splits and the like). Each such
option is for a term of 10 years, with 50% becoming exercisable after one year
and 25% after each of the succeeding 2 years. Such options become immediately
exercisable upon a "Change of Control" or "Potential Change of Control" as and
to the extent provided under the Plan. The price per share for such grant to Mr.
Reid is $13.80, which is the average for the 20 trading days following the
Distribution of the daily closing price of the Common Stock as quoted in the
NASDAQ National Market System. As to grants effective following the
Distribution, the Plan provides for an option price per share equal to the
closing price of the Common Stock on the NASDAQ National Market System on the
date of the grant. The price per share for the grant to Mr. Weil is $12.00. No
action by the Compensation Committee is required to effect any such grants.

INCENTIVE BONUS PLAN

Pursuant to the Company Incentive Bonus Plan ("Bonus Plan"), participants
are provided an opportunity to receive additional compensation based on their
performance and the performance of the Company. Eligible participants in the
Bonus Plan are those officers and other key employees determined on a calendar
year basis who by their individual contributions promote the interests of the
Company and its subsidiaries. During each year the Bonus Plan is in effect, a
target bonus for each eligible participant for such year is determined. At the
end of each year, the Compensation Committee gives consideration to the
Company's performance during such year in light of business conditions and
earnings opportunities. On the basis of such determination, the Compensation
Committee designates a percentage to be multiplied by the aggregate of such
target bonuses for the participants, and the product obtained constitutes a
general bonus pool from which individual bonuses are awarded.

Individual bonuses for executive officers, excluding the Chief Executive
Officer, are determined by the Compensation Committee after consulting with the
Chief Executive Officer, and individual bonuses for other participants are
determined by the Chief Executive Officer. The bonus for the Chief Executive
Officer is

8
<PAGE> 12

determined by the Compensation Committee. Individual bonuses are based on the
performance of a participant and of the business segment of the Company in which
the participant is involved. A bonus for an individual can vary from zero to
150% of the target bonus; however, the aggregate of all bonuses paid under the
Bonus Plan for any year cannot exceed such general bonus pool.

In addition to a general bonus pool, a special bonus pool is established in
an amount equal to 10% of the aggregate amount of such target bonuses. Bonus
awards may be made from such special bonus pool at the discretion of the Chief
Executive Officer to participants whether or not they have received an award
from the general bonus pool.

401(K) SAVINGS PLAN

Pursuant to the Cliffs Drilling Company 401(k) Savings Plan (the "401(k)
Plan"), any employee who has both reached age 21 and completed 90 days of
service can reduce his salary and have the Company contribute an equal amount on
his behalf to the 401(k) Plan. Employee contributions range in one percent
multiples up to 16% of salary, with a 1993 calendar year dollar maximum of
$8,994 (as required by the Code). In addition, the Company contributes on behalf
of each participant (or "matches") an amount equal to 100% of that portion of
each participant's contribution which does not exceed 6% of the participant's
annual salary. Both the employee and employer contributions for certain highly
compensated employees may be further limited through the operation of the
nondiscrimination requirements found in Sections 401(k) and 401(m) of the Code.

Employee contributions can be invested in any or all of six funds, at the
choice of the participant. Contributions can be split between funds in multiples
of 5%. Employer contributions are invested in Common Stock. Employee
contributions are 100% vested and nonforfeitable. Employer contributions are
subject to a graded vesting schedule, with participants being fully vested upon
completion of 5 years of service with the Company or a qualified affiliate.
Distributions from the 401(k) Plan are made upon retirement, death, disability
or separation from service. Contributions to the 401(k) Plan and earnings on
contributions are not included in a participant's gross income until distributed
to the participant.

In 1989, the 401(k) Plan was amended to include provisions wherein
participants are able to procure loans from their respective individual accounts
within the 401(k) Plan, not to exceed one-half of each participant's vested
balance in such accounts, limited to a maximum of $50,000. Repayments are
achieved through systematic payroll deductions. All loans are documented by
execution of promissory notes, secured by pledge of the participant's remaining
vested balance in the respective accounts and are subject to interest at
prevailing competitive rates. Other terms of the loans are governed by the
Company's policies, subject to the rules, regulations and pronouncements
promulgated by the Department of Labor, the Employee Retirement Income Security
Act of 1974 and any other agency or statutes having regulatory authority over
such matters.

RETENTION PLAN FOR SALARIED EMPLOYEES

The Cliffs Drilling Company Retention Plan for Salaried Employees (the
"Retention Plan") provides certain additional benefits to employees, effective
for a one-year period only upon the occurrence of certain events essentially
constituting a "Change of Control." Under the Retention Plan, an eligible
employee of the Company whose employment is terminated by the Company during the
one-year term of the Retention Plan (i.e., the one-year period following a
Change in Control) is entitled to receive a severance benefit equal to the
greater of 6 to 12 months continuation of base salary (depending upon such
employee's position) or the employee's weekly base salary times his or her
number of years of continuous service with the Company. Eligible employees also
are entitled to received continuation of health and life insurance benefits and
payment for unused vacation time accrued during the calendar year in which
employment was terminated. Additionally, certain management employees are
eligible for reimbursement of reasonable outplacement expenses in an amount up
to 15% of their final base salary. Eligible participants under the Retention
Plan may be reimbursed for legal fees and expenses incurred in enforcing their
respective rights under the Retention Plan. The Retention Plan is unfunded, and
all benefits payable thereunder are to be derived from the Company's then

9
<PAGE> 13

current operating funds. Any employees who have separate agreements with the
Company providing for severance or other salary continuation benefits are not
entitled to participate in the Retention Plan.

INDEMNIFICATION AGREEMENTS

The Company has entered into indemnification agreements ("Indemnification
Agreements") with each of its directors and officers. The Indemnification
Agreements provide indemnification for any amount which a director or officer is
or becomes obligated to pay relating to or arising out of any claim made against
such director or officer because of any act, failure to act or neglect or breach
of duty, including, without limitation, an actual or alleged error, misstatement
or misleading statement, which such director or officer commits, suffers,
permits or acquiesces in while acting as a director or officer of the Company.
The Indemnification Agreements are intended to provide benefits and protections
beyond those provided for by the Company's Certificate of Incorporation. The
Indemnification Agreements were approved by Cleveland-Cliffs Inc, as the sole
shareholder of the Company, prior to the Distribution, and subsequently have
been renewed and approved by the Board.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The Summary Compensation Table set forth below is intended to provide
shareholders a concise comprehensive overview of compensation awarded, earned or
paid during the reporting period. The Summary Compensation Table includes
individual compensation information on the Chief Executive Officer and the four
other most highly paid executive officers, for services rendered in all
capacities during the fiscal years 1993, 1992 and 1991.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
AWARDS
ANNUAL -------------------
COMPENSATION(1) RESTRICTED SECURITIES ALL
------------------ STOCK UNDERLYING OTHER
NAME AND FISCAL SALARY BONUS AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(2,3) (#) ($)(4)
- --------------------------------- ---- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Douglas E. Swanson............... 1993 223,333 105,000 -- 12,000 12,940
President and Chief 1992 200,000 100,000 --(2) -- 11,911
Executive Officer 1991 161,000 80,500 -- 30,000
Randolph Newcomer................ 1993 177,000 70,000 -- 7,000 12,969
Executive Vice President 1992 170,000 70,000 --(2) -- 10,869
1991 142,000 71,000 -- 15,000
Charles M. McCall................ 1993 114,667 60,000 -- 5,000 7,651
Vice President -- Drilling 1992 110,000 40,000 --(2) -- 7,235
Operations 1991 100,000 50,000 -- 6,000
James P. Mitchen................. 1993 105,833 55,000 -- 6,000 6,656
Vice President -- Business 1992 100,000 40,000 --(2) -- 6,173
Development 1991 85,000 40,000 26,480(3) 3,000
Edward A. Guthrie................ 1993 105,833 50,000 -- 6,000 7,098
Vice President -- Finance 1992 100,000 40,000 --(2) -- 6,594
1991 80,000 40,000 -- 5,000
</TABLE>

(See notes on following page)

10
<PAGE> 14

- ---------------

(1) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
executive officers relating to their participation in the Company's defined
contribution plan. The bonuses shown above for 1993 were earned for that
year, but were paid in March, 1994.

(2) Shares of restricted stock were issued to these executive officers effective
December 31, 1992, in consideration for full-recourse interest bearing
promissory notes of that same date, payable to the Company by the respective
executive officers. The amount of each promissory note equals the market
value of the restricted stock at the date of award. Such restricted stock
was issued in conjunction with long-term incentive awards in the form of
deferred stock granted December 31, 1992 under the Company's 1988 Incentive
Equity Plan (the "Plan"), in tandem with the restricted stock awarded. Such
deferred stock awards allow the holder to receive varying percentages of a
specified number of shares of Common Stock at the end of a five-year period
terminating December 31, 1997, based on the level of appreciation of the
Company's book value per share of Common Stock during said five-year period.
The terms of the awards provide that if the book value per share (defined as
consolidated shareholder's equity divided by the number of outstanding
shares of Common Stock) increases by less than ten percent (10%) compounded
annually for five years, then no portion of the deferred stock is earned and
all such deferred stock is forfeited. If the book value per share increases
by at least ten percent (10%), but less than fifteen percent (15%),
compounded annually for five years, then sixty percent (60%) of the deferred
stock is earned and the balance is forfeited. One hundred percent (100%) of
the deferred stock awarded is earned if the book value per share increases
by at least fifteen percent (15%) compounded annually for five years. Under
the terms of the Company's 1988 Incentive Equity Plan, the Compensation
Committee retains discretion, subject to Plan limits, to modify the terms of
outstanding awards to take into account the effect of unforeseen or
extraordinary events and accounting changes.

(3) A total of 2,000 shares of restricted stock were awarded December 12, 1991,
with restrictions lapsing ratably on each anniversary date over a four-year
period. At December 31, 1993, the named individual held an aggregate of
2,000 shares of restricted stock with a market value as of such date of
$25,000, without giving effect to the diminution of value attributable to
the restrictions on such stock. The amount reported in the table represents
the market value of the shares at the date of grant, net of consideration
paid by the named executive officer. The Plan provides for the automatic
deferral and deemed reinvestment of dividends paid on restricted stock
awards under the Plan. No dividends have been paid on any shares of
restricted stock.

(4) The amounts shown in this column for the last fiscal year are comprised of
the following: an aggregate of $37,423 of Company payments to the defined
contribution plan, consisting of $8,994, $8,850, $6,879, $6,350 and $6,350
on behalf of Messrs. Swanson, Newcomer, McCall, Mitchen and Guthrie,
respectively and an aggregate of $9,891 of Company paid adjustable life
insurance premiums in excess of the Company's basic benefits, consisting of
$3,946, $4,119, $772, $306 and $748 on behalf of Messrs. Swanson, Newcomer,
McCall, Mitchen and Guthrie, respectively. Information for fiscal year 1991
is not required to be disclosed in this column.
(See notes on following page)

11
<PAGE> 15

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table presents the total number of the Company's Common Stock
options granted to the reportable executive officers on May 20, 1993. No SAR
grants were awarded during fiscal year 1993.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
% OF
TOTAL POTENTIAL
OPTIONS REALIZABLE VALUE
NUMBER OF GRANTED AT ASSUMED ANNUAL
SECURITIES TO EXERCISE RATES OF STOCK
UNDERLYING EMPLOYEES OR PRICE APPRECIATION
OPTIONS IN BASE FOR OPTION TERM
GRANTED FISCAL PRICE EXPIRATION ------------------
NAME (#)(1,2,3) YEAR ($/SH) DATE 5%($) 10%($)
- -------------------------------- ------ ------ ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Douglas E. Swanson.............. 12,000 15.5% 12.875 5/20/2003 97,164 246,233
Randolph Newcomer............... 7,000 9.0% 12.875 5/20/2003 56,679 143,636
Edward A. Guthrie............... 6,000 7.7% 12.875 5/20/2003 48,582 123,117
James P. Mitchen................ 6,000 7.7% 12.875 5/20/2003 48,582 123,117
Charles M. McCall............... 5,000 6.5% 12.875 5/20/2003 40,485 102,597
</TABLE>

- ---------------

(1) Stock options granted in 1993 are exercisable in increments of 50%, 25% and
25%, respectively, commencing one, two and three years after the grant date.

(2) Under the terms of the Company's 1988 Incentive Equity Plan, the
Compensation Committee retains discretion subject to the Plan limitations,
to modify the terms of outstanding stock options and to reprice the stock
options.

(3) The stock options were granted for a term of 10 years, subject to earlier
termination in certain events relating to cessation of employment.

AGGREGATED OPTION/SAR GRANTS IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR
VALUES

The following table presents the total number of the Company's Common Stock
options held by the reportable executive officers at December 31, 1993, denoting
the exercisability of each option at that time.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES IN-
UNDERLYING THE-MONEY
UNEXERCISED OPTIONS/SAR'S
OPTIONS/SAR'S AT FISCAL
AT FISCAL YEAR-
SHARES YEAR-END(#) END($)
ACQUIRED ON VALUE ------------- ---------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- ------------------------------------- ----------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Douglas E. Swanson................... -- -- 50,100/19,500 --
Randolph Newcomer.................... -- -- 32,150/10,750 --
Charles M. McCall.................... -- -- 12,500/ 6,500 --
Edward A. Guthrie.................... -- -- 11,750/ 7,250 --
James P. Mitchen..................... -- -- 7,250/ 6,750 3,750/ --
</TABLE>

- ---------------

(1) Represents the difference between the market value of the Common Stock at
December 31, 1993 ($12.50 per share) and the exercise or base price of the
options.

12
<PAGE> 16

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Five non-employee directors comprise the Compensation Committee which is
responsible for setting and administering executive officers' salaries, annual
bonuses and the incentive plans that govern the compensation paid to all such
executives. In addition, the Compensation Committee advises and consults with
management regarding benefit plans and compensation policies and practices of
the Company.

Compensation Philosophy

The executive compensation program of the Company has been designed to
motivate, reward, attract and retain the management deemed essential to ensure
the success of the Company. The program seeks to align executive compensation
with Company objectives, business strategy and financial performance. In
applying these principles the Compensation Committee seeks to:

- Reward executives for long-term strategic management and the enhancement
of shareholder value;

- Support an environment that rewards performance with respect to Company
goals, as well as Company performance relative to industry competitors;

- Integrate compensation programs with both the Company's short and
long-term strategic plans;

- Attract and retain key executives critical to the long-term success of
the Company and each of its business segments; and

- Align the interests of executives with the long-term interests of
shareholders through award opportunities that can result in ownership of
Common Stock.

The executive compensation program is comprised of salary, annual cash
incentive opportunities, long-term incentive opportunities in the form of stock
options, restricted stock, deferred stock and stock appreciation rights, and
benefits typically offered to executives by major corporations.

As an executive's level of responsibility increases, a greater portion of
his or her potential total compensation opportunity is based upon performance
incentives and a lesser portion upon salary and employee benefits, causing
greater variability in the individual's absolute compensation level from year to
year. In addition, the higher that one rises in the Company, the greater the mix
of compensation shifts to reliance on the value of the Common Stock through
stock-based awards.

Base Salaries

Base salaries for executive officer positions are generally determined by
competitive factors. These competitive factors include primarily the base salary
of other top executives of drilling contractors and the oil service sector.
Salary reviews and market comparisons are conducted annually.

The Company has participated in drilling industry management compensation
surveys since 1983. Members of the Compensation Committee review the various
compensation surveys to determine comparable compensation provided by similar
companies. The Compensation Committee also considers business performance,
general economic conditions, and for those officers responsible for a particular
business segment, the financial and non-financial results of the applicable
business segment, including implementation and accomplishment of Company goals
and objectives.

The salaries of the Chief Executive Officer and the named executive
officers were established at the meeting of the Compensation Committee on May
20, 1993 and have not been reviewed subsequent to that meeting. There have been
no increases in base salaries for the Chief Executive Officer or the other named
individuals since the May, 1993 meeting.

Incentive Bonus Plan

The compensation policy of the Company dictates that a substantial portion
of the annual compensation of each officer relates to and must be contingent
upon the performance of the Company, as well as the

13
<PAGE> 17

individual contribution of each officer. As a result, much of an executive
officer's compensation is "at risk," with annual bonus compensation at target
levels amounting to approximately 50% of base salary.

Under the Company's Incentive Bonus Plan, bonuses are awarded annually
based on the executive's individual performance and the performance of the
business segment in relation to specific goals and objectives. In the case of
the Chief Executive Officer, the performance of the entire Company is evaluated
in relation to specific performance goals.

The performance goals for both executive officers and the Chief Executive
Officer include both financial and non-financial objectives, including the
achievement of certain financial targets in relation to internal budgets,
developing internal infra-structure and enhancing positions in certain markets.
The financial criteria include, among other things, controlling direct and
overhead expenses, increasing cash flow from operations and increasing net
income. The non-financial criteria include expansion of the Company's market
share in both the domestic and international markets, as well as developing
operations in identified strategic markets. Subsequent to the end of the year, a
review of the performance is made by the Compensation Committee against these
goals and annual incentive awards, if any, are approved and recommended by the
Compensation Committee to the Board.

On March 2, 1994 the Compensation Committee granted a total of $446,500
under the Incentive Bonus Plan to the Company's ten (10) executive officers,
including awards to Messrs. Swanson, Newcomer, McCall, Guthrie and Mitchen of
$105,000, $70,000, $60,000, $50,000 and $55,000, respectively, and a total of
$154,600 to certain other key employees as a group. Such bonuses awarded were
payable in March of 1994.

Incentive Equity Plan

The Incentive Equity Plan was established in 1988 to reward performance of
officers and key managers through the award of stock options, stock appreciation
rights and restricted or deferred stock awards. This plan reinforces the
long-term portion of the compensation plan available to each of the officers and
key employees and places emphasis on an increase in shareholder value either
through stock price appreciation and/or increases in book value per share.
During 1993 the Compensation Committee awarded options granting rights to
acquire a total of 77,500 shares of Common Stock, encompassing 63,000 shares of
Common Stock awarded to the Company's ten (10) executive officers, including
awards to Messrs. Swanson, Newcomer, McCall, Guthrie and Mitchen, of 12,000,
7,000, 5,000, 6,000 and 6,000 shares of Common Stock, respectively, and a total
of 14,500 shares of Common Stock to certain other key employees. At December 31,
1993, an aggregate of 413,875 shares of Common Stock had been awarded and
remained in effect in the form of restricted stock, stock options and deferred
stock to officers, directors and key management employees.

Chief Executive Officer

In the case of Mr. Swanson, the Compensation Committee desires to link the
compensation of its Chief Executive Officer with the enhancement of shareholder
value. In determining Mr. Swanson's award under the Incentive Bonus Plan, the
Committee was influenced by his leadership and corporate direction regarding the
Company's 1993 performance, particularly the Company's financial
accomplishments. Despite the continuing volatile economic environment faced by
the oilfield service industry, the Company posted records in net income ($.21
per share versus $.11 per share in 1992), operating income ($7.5 million versus
$.3 million in 1992) and cash flow from operations ($17.2 million versus $8.1
million in 1992). The Compensation Committee also recognized Mr. Swanson's
leadership in expanding the Company's international presence through turnkey
operations in Mexico and Venezuela, the divestiture of non-performing barge rig
assets, and the launching of a new business line of well engineering teams and
management services.

14
<PAGE> 18

Summary

The Compensation Committee believes the compensation philosophy of aligning
executive compensation with Company objectives, business strategy and financial
performance best links executive compensation with the long-term interest of
shareholders. In connection with performance reviews and the goals targeted to
enhance shareholder value, key officers and managers are rewarded accordingly.
The Compensation Committee believes 1993 compensation adequately reflects the
Company's compensation policies and practices.

COMPENSATION COMMITTEE
John D. Weil, Chairman
Michael M. Cone
H. Robert Hirsch
Robert M. McInnes
Joseph E. Reid

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
COMMITTEE DECISIONS

During the Company's 1993 fiscal year, no executive officer of the Company
served as (i) a member of the compensation committee (or other board committee
performing equivalent functions) of another entity, one of whose executive
officers served on the Compensation Committee of the Company, (ii) a director of
another entity, one of whose executive officers served on the Compensation
Committee of the Company, or (iii) a member of the compensation committee (or
other board committee performing equivalent functions) of another entity, one of
whose executive officers served as a director of the Company.

No member of the Compensation Committee of the Board of Directors of the
Company was, during the 1993 fiscal year, an officer or employee of the Company
or any of its subsidiaries, or was formerly an officer of the Company or any of
its subsidiaries, or had any relationship requiring disclosure according to
applicable rules and regulations of the Securities and Exchange Commission,
except Mr. Cone, a member of the Compensation Committee who was formerly an
executive officer of the Company.

15
<PAGE> 19

PERFORMANCE GRAPH

Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock, based on the market price of the Common
Stock and assuming reinvestment of dividends, with the cumulative total return
of companies on the NASDAQ Composite Index and the Company's peer group index
(Simmons & Company Offshore Drillers Index).

<TABLE>
<CAPTION>
Simmons &
Cliffs NASDAQ Company
Measurement Period Drilling Composite Offshore
(Fiscal Year Covered) Company Index Drillers Index
--------------------- -------- --------- --------------
<S> <C> <C> <C>
1988 100 100 100
1989 154.3 121.1 165.9
1990 125.7 103.1 138.6
1991 142.9 166.3 79.1
1992 138.6 194.1 82.0
1993 142.9 228.1 137.7
</TABLE>

- ---------------

(1) The plot points shown in the performance graph and accompanying table above
are calculated as of December 31st of each fiscal year.

(2) The NASDAQ Composite Index and the Simmons & Company Offshore Drillers Index
are calculated using total returns to common stock assuming reinvestment of
dividends. The Simmons & Company Offshore Drillers Index includes Arethusa
(Off-Shore) Ltd., Atwood Oceanics, Inc., Chiles Offshore Corporation, Cliffs
Drilling Company, Dual Drilling Company, Energy Service Company, Inc.,
Global Marine, Inc., Marine Drilling Company, Inc., Noble Drilling
Corporation, Reading & Bates Corporation, Rowan Companies, Inc. and Sonat
Offshore Drilling Inc.

16
<PAGE> 20

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information concerning the number of
shares of Common Stock and Preferred Stock owned beneficially as of April 14,
1994 (except as otherwise indicated) by each person or "group" (as that term is
used in the Securities Exchange Act of 1934) known to the Company to own
beneficially more than 5% of the outstanding shares of Common Stock or Preferred
Stock as of that date. Unless otherwise noted, to the Company's knowledge each
person listed below has sole voting and dispositive power with respect to the
shares listed.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
------------------------------------------
AMOUNT PERCENTAGE
-------------------- ----------------
NAME OF BENEFICIAL OWNER COMMON PREFERRED COMMON PREFERRED
- ---------------------------------------------------- ------- ------- ----- -----
<S> <C> <C> <C> <C>
Austin, Calvert & Flavin, Inc.
Edward H. Austin, Jr.
Ruth C. Austin Trust
Jonathan C. Calvert
Harry M. Flavin
112 E. Pecan, Suite 2800
San Antonio, TX 78205(1).......................... 578,711 171,500 12.8% 14.9%
John D. Weil
509 Olive Street
Suite 705
St. Louis, MO 63101(2)............................ 446,607 115,900 10.1% 10.1%
FMR Corp.
82 Devonshire Street
Boston, MA 02109(3)............................... 434,378 7,000 10.3% .6%
GHS Management, Inc.
G. Houston Hall
James C. Smith
c/o G. Houston Hall
8235 Douglas Avenue, Suite 420
Dallas, TX 75225(4)............................... 398,855 90,000 9.2% 7.8%
Wellington Management Company
75 State Street
Boston, MA 02109(5)............................... 370,200 -- 8.8% --
Merrill Lynch & Co., Inc.
Merrill Lynch Group, Inc.
Princeton Services, Inc.
World Financial Center, North Tower
250 Vesey Street
New York, NY 10281(6)............................. 244,623 29,000 5.8% 2.5%
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401(7)......................... 243,209 -- 5.8% --
State Street Research & Management Company
Metropolitan Life Insurance Company
One Financial Center, 38th Floor
Boston, MA 02111(8)............................... 234,000 -- 5.6% --
</TABLE>

(Table continued on following page)

17
<PAGE> 21

- ---------------

(1) The information shown above was obtained from two Schedule 13D's
(Amendments No. 3) both dated October 1, 1992, as filed with the Securities
and Exchange Commission (the "Commission") by Austin, Calvert & Flavin,
Inc. ("ACF") on behalf of itself and Messrs. Edward H. Austin, Jr.,
Jonathan C. Calvert and Harry M. Flavin who provide investment advice in
the ordinary course of business to clients possessing accounts with ACF.
The information shown above was supplemented by information from Form 4
reports filed with the Commission by Edward H. Austin, Jr. dated March 9,
1993 and May 7, 1993, respectively, and a Form 3 report filed with the
Commission by the Ruth C. Austin Trust dated March 9, 1993. Messrs. Austin,
Calvert and Flavin as officers, directors and shareholders of ACF may be
deemed to possess indirect beneficial ownership with respect to shares of
Common Stock and Preferred Stock beneficially owned by clients of ACF. In
addition, Mr. Austin may be deemed to possess indirect beneficial ownership
with respect to shares of Common Stock and Preferred Stock beneficially
owned by the Ruth C. Austin Trust of which Mr. Austin serves as Trustee.
ACF, the Ruth C. Austin Trust and Messrs. Austin, Calvert and Flavin are
collectively referred to hereinafter as the "related parties". Of the
578,711 shares of Common Stock reflected as beneficially owned by the
related parties, 313,825 of such shares result from ACF's right to acquire
such shares upon conversion of 165,700 shares of Preferred Stock, 3,409 of
such shares result from Mr. Austin's right to acquire such shares upon
conversion of 1,800 shares of Preferred Stock and 7,575 of such shares
result from the Ruth C. Austin Trust's right to acquire such shares upon
conversion of 4,000 shares of Preferred Stock. Mr. Austin has sole voting
and dispositive power with respect to 13,809 shares of Common Stock and
shared voting and dispositive power with respect to 564,900 shares of
Common Stock. ACF has shared voting and dispositive power with respect to
502,325 shares of Common Stock and Mr. Flavin has shared voting and
dispositive power with respect to 557,325 shares of Common Stock.

(2) The information shown above was obtained from the Schedule 13D (Amendment
No. 5) dated April 8, 1994, as filed with the Commission by John D. Weil.
Of the 446,607 shares of Common Stock reflected as beneficially owned, Mr.
Weil has the right to acquire 219,507 of such shares upon the conversion of
115,900 shares of Preferred Stock and 2,000 shares of Common Stock which
may be acquired upon the exercise of options granted to Mr. Weil,
exercisable at $12.00 per share. Mr. Weil has sole voting and dispositive
power with respect to 202,227 shares of Common Stock and shared voting and
dispositive power with respect 11,681 shares of Common Stock. Mr. Weil
disclaims beneficial ownership with respect to 266,956 shares of Common
Stock (including 141,856 shares which may be acquired upon the conversion
of 74,900 shares of Preferred Stock) and 74,900 shares of Preferred Stock.

(3) The information shown above was obtained from the Schedule 13G (Amendment
No. 2) dated February 11, 1994, as filed with the Commission by FMR Corp.
("FMR") on behalf of its wholly-owned subsidiaries, Fidelity Management &
Research Company ("Fidelity") and Fidelity Management Trust Company. Of the
434,378 shares of Common Stock reflected as beneficially owned by FMR,
13,257 of such shares result from Fidelity's right to acquire such shares
upon conversion of 7,000 shares of Preferred Stock. FMR may be deemed to
have sole voting and dispositive powers in regards to 67,900 shares of
Common Stock and FMR and Edward C. Johnson 3d may each be deemed to have
sole dispositive power with respect to 366,478 shares of Common Stock.
(Notes continued on following page)

18
<PAGE> 22

(4) The information shown above was obtained from the Schedule 13D dated
February 4, 1994 relating to Common Stock and the Schedule 13D dated
February 4, 1994 relating to Preferred Stock, as filed with the Commission
by GHS Management, Inc. ("GHS") on behalf of Falcon Fund, Ltd. ("Falcon")
and Quasar International Partners C.V. "Falcon" ("Quasar"), Mr. G. Houston
Hall and Mr. James C. Smith. GHS has sole voting and dispositive power with
respect to the shares of Common Stock and Preferred Stock held by Falcon
and Quasar. Messrs. G. Houston Hall and James C. Smith have shared voting
and dispositive power with respect to the 389,385 shares of Common Stock
and 85,000 shares of Preferred Stock beneficially owned by GHS. In
addition, Mr. Hall has sole voting and dispositive power with respect to
1,500 shares of Preferred Stock and Mr. Smith has sole voting and
dispositive power with respect to 3,500 shares of Preferred Stock. The
398,855 shares of Common Stock reflected as beneficially owned include
160,985, 2,841 and 6,629 shares of Common Stock that would be received upon
the conversion of 85,000, 1,500 and 3,500 shares of Preferred Stock
currently held by Falcon and Quasar (managed by GHS), Mr. Hall and Mr.
Smith, respectively. Included in the 90,000 shares of Preferred Stock
reflected as beneficially owned are the 85,000, 1,500 and 3,500 shares of
Preferred Stock currently held by Falcon and Quasar (managed by GHS), Mr.
Hall and Mr. Smith, respectively.

(5) The information shown above was obtained from the Schedule 13G (Amendment
No. 1) dated February 10, 1994, as filed with the Commission by Wellington
Management Company ("Wellington") on behalf of itself and its wholly-owned
subsidiary, Wellington Trust Company, N.A. Shared voting and dispositive
power may be deemed to be held by Wellington with respect to 180,200 and
370,200 shares of Common Stock, respectively.

(6) The information shown above was obtained from the Schedule 13G (Amendment
No. 1) dated February 14, 1994, as filed with the Commission by Merrill
Lynch & Co., Inc. ("ML & Co.") on behalf of its wholly-owned subsidiaries
Merrill Lynch Group, Inc. and Princeton Services, Inc. which collectively
with ML & Co. are hereinafter referred to as "Merrill Lynch". Of the
244,623 shares of Common Stock reflected as beneficially owned, Merrill
Lynch has the right to acquire 54,924 shares of Common Stock upon the
conversion of 29,000 shares of Preferred Stock. Merrill Lynch has shared
voting and dispositive power with respect to such shares.

(7) The information shown above was obtained from a Schedule 13G (Amendment No.
1) dated February 9, 1994, as filed with the Commission by Dimensional Fund
Advisors Inc. ("DFA"). Sole voting and dispositive power may be deemed to
be held by DFA with respect to 190,009 and 243,209 shares of Common Stock,
respectively.

(8) The information shown above was obtained from the Schedule 13G (Amendment
No. 1) dated February 10, 1994 as filed with the Commission by State Street
Research & Management Company ("State Street") and from the Schedule 13G
(Amendment No. 1) dated February 9, 1994 as filed with the Commission by
Metropolitan Life Insurance Company, the parent holding company of State
Street. State Street has sole voting and dispositive power with respect ot
160,000 shares and 234,000 shares of Common Stock, respectively.

(9) The information shown above was obtained from the Schedule 13G (Amendment
No. 1) dated February 8, 1994, as filed with the Commission by College
Retirement Equities Fund.

(10) The information shown above was obtained from the Schedule 13G (Amendment
No. 1) dated February 7, 1992, as filed with the Commission by Quest
Advisory Corp. Of the 162,878 shares of Common Stock reflected as
beneficially owned, Quest Advisory Corp. has the right to acquire all such
shares upon the conversion of 86,000 shares of Preferred Stock.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent (10%) shareholders are required
by the regulation to furnish the Company with copies of all Section 16(a) forms
they file.

19
<PAGE> 23

Based solely on the Company's review of the copies of such forms received
by it, or written representations from certain reporting persons that no Form 5
reports were required for those persons, the Company believes that all filing
requirements applicable to its officers, directors and greater-than-ten-percent
beneficial owners were complied with, except that the Initial Statement of
Beneficial Ownership on Form 3 was filed one day late by Mr. Owen; and the
Initial Statement of Beneficial Ownership on Form 3 was filed late by the Ruth
Campbell Austin Trust, a trust with an insider trustee.

CERTAIN TRANSACTIONS

There are no transactions or relationships between management and the
Company or others which are material and are required to be disclosed.

RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS

By resolution of the Board, the firm of Ernst & Young, Certified Public
Accountants, was chosen as the independent public accountants to examine the
books, records and accounts of the Company for the year 1994. In accordance with
that same resolution, this selection is being presented to the shareholders for
ratification. Ernst & Young have been the independent public accountants of the
Company since 1978. Representatives of Ernst & Young are expected to be present
at the Annual Meeting of Shareholders on May 19, 1994, with an opportunity to
make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions. If the shareholders do not ratify the
employment of Ernst & Young, the selection of independent public accountants
will be reconsidered by the Board of Directors.

1995 SHAREHOLDER PROPOSALS

In order for shareholder proposals for the 1995 Annual Meeting of
Shareholders to be eligible for inclusion in the Company's Proxy Statement, they
must be received by the Secretary of the Company at its principal office at 300
Citicorp Center, Houston, Texas 77002, no later than December 19, 1994.

VOTING PROCEDURES

All matters specified in this Proxy Statement that are to be voted on at
the Annual Meeting will be determined by written ballot. Directors shall be
elected by the affirmative vote of a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote in the election of directors. All shares represented by proxies
that reflect abstentions will be treated as shares that are present and entitled
to vote for purposes of determining the presence of a quorum and for purposes of
determining the outcome of any matter submitted to the shareholders for a vote.
Abstentions, however, do not constitute a vote "for" or "against" any matter and
thus will be disregarded in the calculation of a plurality or of "votes cast".

Shares referred to as "broker non-votes" (i.e. shares held by brokers or
nominees as to which instructions have not been received from the beneficial
owners or persons entitled to vote that the broker or nominee does not have
discretionary power to vote on a particular matter) will be treated as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum. However, for purposes of determining the outcome of any matter as
to which the broker has indicated on the proxy that it does not have
discretionary authority to vote, such shares will be treated as not present and
not entitled to vote with respect to that matter (even though such shares are
considered entitled to vote for quorum purposes and may be entitled to vote on
other matters).

20
<PAGE> 24

OTHER BUSINESS

The Board knows of no other business to be presented at the Annual Meeting,
but if other matters do properly come before the meeting, the persons named on
the enclosed proxy will have discretionary authority to vote all proxies in
accordance with their best judgment.

IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY AND THAT YOUR SHARES BE
REPRESENTED. SHAREHOLDERS ARE URGED TO VOTE, SIGN AND PROMPTLY RETURN THE
ACCOMPANYING FORM OF PROXY IN THE ENCLOSED ENVELOPE.

By order of the Board of Directors

James E. Mitchell Jr.
Secretary

21
<PAGE> 25

CLIFFS DRILLING COMPANY

NOTICE OF

ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD ON
MAY 19, 1994
AND
PROXY STATEMENT

[CLIFFS DRILLING COMPANY]

<PAGE> 26
CLIFFS DRILLING COMPANY
Proxy Solicited by Board of Directors for the Annual Meeting of
Shareholders to be Held Thursday, May 19, 1994

The undersigned hereby appoints H. Robert Hirsch and Robert M. McInnes
or either of them, proxies, with full power of substitution and with
discretionary authority, to vote all shares of Common Stock which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of Cliffs
Drilling Company (the "Company"), or any adjournments thereof. The undersigned
instructs said proxies to vote as follows:

1. ELECTION OF DIRECTORS
Nominees: Michael M. Cone and John D. Weil (change of address)

2. APPOINTMENT OF ERNST & YOUNG -----------------------
AS INDEPENDENT PUBLIC ACCOUNTANTS
OF THE COMPANY FOR 1994 -----------------------

3. IN THEIR DISCRETION AS TO SUCH OTHER -----------------------
MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING -----------------------
(If you have written in
the above space, please
mark the corresponding
box on the reverse side
of this card).

You are encouraged to specify your choices by marking the appropriate
boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxies cannot
vote your shares unless you sign and return this Card.

SEE REVERSE
SIDE
<PAGE> 27
/X/ Please mark your votes as in this example. SHARES IN YOUR NAME

1. Election of Directors (see reverse)

FOR WITHHELD

/ / / /

For, except vote withheld from the following nominee(s):

________________________________________________________

2. Appointment of Ernst & Young as independent public accountants of the
Company for 1994.

FOR AGAINST ABSTAIN

/ / / / / /

3. As such proxies may in their discretion determine upon such other matters
as may properly come before the meeting.

FOR AGAINST ABSTAIN

/ / / / / /

Change of Address / /

Attend Meeting / /

SIGNATURE(S) ________________________________________________ DATE ____________

NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If signer is a corporation,
please sign with the full corporate name by duly authorized officer or
officers. A partnership should sign in the partnership name by a partner.