<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 / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CLIFFS DRILLING COMPANY
- --------------------------------------------------------------------------------
(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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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
[CLIFFS DRILLING COMPANY LOGO]
April 29, 1996
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 Wednesday, May 22, 1996, at 9:00 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, DATE 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,
/s/ DOUGLAS E. SWANSON
DOUGLAS E. SWANSON
Chairman of the Board
<PAGE> 3
CLIFFS DRILLING COMPANY
1200 SMITH STREET, SUITE 300
HOUSTON, TEXAS 77002
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 1996
TO THE SHAREHOLDERS OF CLIFFS DRILLING COMPANY:
The 1996 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 Wednesday, May 22, 1996, at 9:00 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 1999 Annual Meeting
of Shareholders or until their successors are duly elected and qualified;
2. To approve a proposed amendment to the Company's 1988 Incentive
Equity Plan;
3. To ratify the selection by the Board of Directors of Ernst & Young
LLP as independent public accountants to examine the books, records and
accounts of the Company for the year 1996; and
4. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on March 28, 1996 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, 1200 Smith Street, Suite 300, Houston,
Texas 77002.
By order of the Board of Directors
/s/ JAMES E. MITCHELL JR.
JAMES E. MITCHELL JR.
Secretary
April 29, 1996
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE
COMPLETED AND RETURNED PROMPTLY
<PAGE> 4
CLIFFS DRILLING COMPANY
1200 SMITH STREET, SUITE 300
HOUSTON, TEXAS 77002
April 29, 1996
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 Wednesday, May 22, 1996, at 9:00
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, for the proposed amendment to the Company's 1988 Incentive
Equity Plan and for the ratification of the selection by the Board of Directors
of Ernst & Young LLP as independent public accountants to examine the books,
records and accounts of the Company for the year 1996.
This proxy material is being mailed to shareholders beginning on or about
April 29, 1996, accompanied by the Company's Annual Report for the year ended
December 31, 1995.
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 28, 1996 will
be entitled to vote at the Annual Meeting. At the close of business on such
record date the Company had outstanding 6,189,930 shares of common stock, $.01
par value (the "Common Stock"). Each share of Common Stock entitles the holder
thereof to one vote.
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.
<PAGE> 5
The following information describes the Company's 7 directors as of April
26, 1996.
<TABLE>
<CAPTION>
TERM DIRECTOR
NAME AGE EXPIRES SINCE
------------------------------------------------------------ --- ------- ---------
<S> <C> <C> <C>
H. Robert Hirsch............................................ 62 1998 1993
Randolph Newcomer........................................... 60 1998 1992
Joseph E. Reid.............................................. 67 1998 1988
Michael M. Cone............................................. 58 1997 1988
John D. Weil................................................ 55 1997 1989
Robert M. McInnes........................................... 65 1996 1993
Douglas E. Swanson.......................................... 57 1996 1988
</TABLE>
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, Compensation and
Nominating 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, and since 1994 has been, a director of Western Gas Resources, Inc.
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 and Nominating Committees.
Michael M. Cone was President of the Company from 1978 until his
resignation from that office effective January 1, 1992. Mr. Cone served as
Chairman of the Board of the Company from 1988 until May 19, 1994. Mr. Cone is
currently Chairman of the Board of Tri-C Resources Inc. and is a member of the
Audit, Compensation and Nominating Committees.
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 Investors since 1991, a
director of Oglebay Norton Company since 1992 and a director of Todd Shipyards
Corporation and Southern Investors Services 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 and Nominating Committees.
Robert M. McInnes is a private business consultant, an attorney-at-law and
until October, 1994, was 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 positions of General Counsel and later
Treasurer with Diamond Shamrock Corporation during the period 1969
2
<PAGE> 6
to 1970. Mr. McInnes is Chairman of the Nominating Committee and a member of the
Audit and Compensation Committees.
Douglas E. Swanson is President and Chief Executive Officer of the Company.
Mr. Swanson was also elected Chairman of the Board of the Company effective May
19, 1994. 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. Mr. Swanson is a member of the Nominating Committee.
Messrs. McInnes and Swanson 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. McInnes and
Swanson. Should Messrs. McInnes and Swanson 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, Nominating Committee
and a Compensation Committee, and may in the future establish other committees
to facilitate its work.
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
1995, Messrs. Reid (current Chairman of the Audit Committee), Cone, Hirsch,
McInnes and Weil were members of the Audit Committee. The Audit Committee met
once during 1995.
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 1995, the
members of this Committee were Messrs. Weil (current Chairman of the
Compensation Committee), Cone, Hirsch, McInnes and Reid. The Compensation
Committee met two times during 1995.
The Nominating Committee was constituted during the fiscal year to provide
a pre-established mechanism for nominating a slate of directors and executive
officers, which would be proposed on behalf of the Company's interest, as a
result of a potential business combination involving the Company. The Nominating
Committee will generally not consider nominees by shareholders. Since its
inception in May, 1995, the Nominating Committee members included Messrs.
McInnes (current Chairman of the Nominating Committee), Cone, Hirsch, Reid,
Swanson and Weil. There being no business to be addressed, the Nominating
Committee did not meet during 1995.
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
1995, 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".
3
<PAGE> 7
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During 1995, six 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 remaining director of the Company attended 75% of the
meetings of the Board. The Board held eight meetings during the year 1995.
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....... 57 President and Director
1994 -- Present: President, Chief Executive Officer and
Chairman of the Board of the Company; 1992 -- 1994:
President and Chief Executive Officer of the Company;
1978 -- 1991: Executive Vice President of the Company
Randolph Newcomer........ 60 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........ 51 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........ 50 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......... 45 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........... 47 Vice President -- MOPU Operations
1992 -- Present: Vice President -- MOPU Operations of the
Company; 1991 -- 1992: General Manager -- MOPU
Operations of the Company; 1990 -- 1991:
Manager -- Turnkey Operations of the Company;
1986 -- 1990: Senior Drilling Engineer with the Company
Gary W. Owen............. 39 Vice President -- Engineering Services
1994 -- Present: Vice President -- Engineering Services
of the Company; 1993 -- 1994: Vice President -- Turnkey
Operations of the Company; 1991 -- 1993: Project
Drilling Manager of Conoco, Inc.; 1989 -- 1990: Drilling
Superintendent of Conoco, Inc.
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
NAME AGE TITLE, EXPERIENCE AND COMPANY
- ------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Ed O. Davis.............. 38 Treasurer
1992 -- Present: Treasurer of the Company; 1992:
Assistant Treasurer of the Company; 1987 -- 1991:
Manager -- Administration of the Company
James E. Mitchell Jr..... 45 Secretary
1992 -- Present: Secretary of the Company; 1988 -- 1992:
Secretary and Treasurer of the Company; 1985 -- 1988:
Treasurer of the Company
Cindy B. Taylor.......... 34 Controller
1992 -- Present: Controller of the Company; 1990 -- 1992:
Senior Manager with Ernst & Young; 1988 -- 1990: Manager
with Ernst & Young
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the number of shares of the Company's Common
Stock beneficially owned as of April 26, 1996 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 (dispositive) power with respect to the shares shown.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON
STOCK
----------------------------------
NAME AMOUNT PERCENTAGE
---------------------------------------------------- ------- ----------
<S> <C> <C>
John D. Weil........................................ 547,466(1,2) 8.8%
Douglas E. Swanson.................................. 93,612(3,4,5,6,7) 1.5%
Randolph Newcomer................................... 66,380(3,4,5,6,7) 1.1%
Michael M. Cone..................................... 41,901 *
Joseph E. Reid...................................... 2,000(4) *
H. Robert Hirsch.................................... 1,000 *
Robert M. McInnes................................... 500 *
Charles M. McCall................................... 23,500(3,4,5,6,7) *
Edward A. Guthrie................................... 22,000(3,4,5,6,7) *
James P. Mitchen.................................... 19,893(3,6,7,8) *
All directors and executive officers
as a group (15 persons)........................... 874,401(9) 14.1%
</TABLE>
- ---------------
* less than 1.0% of class
(1) The information shown above was obtained from the Schedule 13D (Amendment
No. 7) dated January 20, 1995 and a Form 4 dated September 26, 1995, both as
filed with the Securities and Exchange Commission (the "Commission") by John
D. Weil, and Forms 144 dated April 11, 1996, all as filed with the
Commission by Mr. Weil and his siblings, Paula K. Weil and Richard K. Weil,
Jr. Mr. Weil has sole voting and dispositive power with respect to 250,015
shares of Common Stock and shared voting and dispositive power with respect
to 11,681 shares of Common Stock. Mr. Weil disclaims beneficial ownership
with respect to 330,240 shares of Common 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.
5
<PAGE> 9
(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 30,000, 15,000, 6,000, 5,000 and 3,000 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, 1994.
(7) Includes 12,000, 7,000, 5,000, 6,000 and 6,000 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, 1996.
(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, 3,000
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, 1994, 5,000 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, 1995, 17,000 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, 1996, and 7,500 shares which may
acquired upon exercise of options granted to one officer, excluding those
named, exercisable at $12.125 per share since September 15, 1995. Also
includes 6,500 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.
PROPOSED AMENDMENT TO THE INCENTIVE EQUITY PLAN
On June 9, 1988, the Board of Directors of the Company adopted the Cliffs
Drilling Company 1988 Incentive Equity Plan (the "Plan"), effective as of June
21, 1988. By written consent dated June 16, 1988, the sole shareholder of the
Company approved the adoption of the Plan. The Plan provides for the number of
shares of Common Stock reserved and available for distribution pursuant to
awards of stock options, stock appreciation rights, restricted stock or deferred
stock thereunder. As of April 26, 1996, of the 490,000 shares of Common Stock
authorized under the Plan, 302,875 shares have been awarded in the form of stock
options, restricted stock and deferred stock which are still subject to
forfeiture or restrictions, 108,675 shares have been awarded in the form of
restricted stock no longer subject to restrictions and 1,500 shares have been
awarded as stock options which have been exercised. As a result, a balance of
76,950 shares of Common Stock is available for awards under the provisions of
the Plan.
On April 24, 1996, the Board of Directors approved an amendment to the
Plan, subject to shareholder approval, to increase the previously amended and
authorized number of shares of Common Stock reserved and available for
distribution pursuant to the Plan, by 160,000 shares. The Board adopted this
amendment to ensure that the Company will continue to be able to grant stock
options, stock appreciation rights and restricted or deferred stock awards to
officers, directors and key employees of the Company, as well as to new
employees to be added as a result of the Company's intended and announced
acquisition of ten jackup drilling rigs. The Board adopted this amendment at the
recommendation of the Compensation Committee of the Board of Directors (the
"Compensation Committee"), which is composed entirely of non-employee directors.
At the Annual Meeting, the shareholders are being requested to consider and
approve the proposed amendment to the Plan, thereby increasing the number of
shares of Common Stock reserved and available for distribution thereunder by
160,000 shares. The affirmative vote of the holders of a majority of the shares
6
<PAGE> 10
present or represented by proxy and entitled to vote at the Annual Meeting will
be required to approve the proposed amendment to the Plan.
The Board of Directors recommends a vote FOR this proposal. The principal
features of the Plan are described below under "Incentive Equity Plan."
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 ("SARs") and restricted or deferred stock awards 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, SARs, restricted stock and deferred stock pursuant to the Plan.
At the present time, ten (10) executive officers and approximately fourteen (14)
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 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"), were
automatically granted non-qualified stock options pursuant to the Plan covering
2,000 shares of Common Stock. See "Automatic Stock Option Awards".
All awards of stock options, SARs 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 26, 1996, the closing price on The Nasdaq Stock Market of the Common
Stock which is the subject of such stock options, SARs and restricted or
deferred stock was $24.375 per share.
Stock Options. The Plan permits the granting of non-transferable stock
options that either qualify as incentive stock options ("ISOs") 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 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 Stock Market.
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 one day from the date of grant in the case of a Non-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
7
<PAGE> 11
(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 SARs 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 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, SARs 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.
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<PAGE> 12
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 SARs (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.
Federal Income Tax Consequences. The following summary is a description of
the Federal income tax consequences to the recipient and the Company of the
issuance and exercise of stock options granted pursuant to the Plan. The summary
is not intended to be exhaustive and does not attempt to be a comprehensive
description of all possible tax effects.
The grant of an ISO will not be treated as taxable income to the optionee
for federal tax purposes, and will not result in a deduction for the Company for
tax purposes. On exercise of an ISO, the optionee will not recognize any taxable
income, and the Company will not be entitled to a deduction for tax purposes,
although exercise of an ISO may give rise to liability under the alternative
minimum tax provisions of the Code. The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of disposition.
For federal income tax purposes, dispositions are either qualifying or
disqualifying. The optionee will make a qualifying disposition of the purchased
shares if the sale or other disposition of such shares is made after the
optionee has held the shares for more than two years after the grant date of the
options and more than one year after the exercise date. If the optionee fails to
satisfy either of these two holding periods prior to the sale or other
disposition of the purchased shares, then a disqualifying disposition will
result.
Upon a qualifying disposition of the shares, the optionee will recognize
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares, over (ii) the exercise
price paid for such shares. If there is a disqualifying disposition of the
shares, the optionee will recognize ordinary income (and the Company will be
entitled to a deduction for tax purposes) in an amount equal to the lesser of
(a) the excess of (i) the fair market value of those shares on the date the
option was exercised, over (ii) the exercise price paid for the shares, or (b)
the gain on sale. Any gain of the optionee making a disqualifying disposition in
excess of (a) above will be treated as a capital gain. However, a disqualifying
disposition in the year of exercise will generally avoid the alternative minimum
tax consequences of the exercise of an ISO. To the extent the optionee must
recognize ordinary income on the sale or other disposition of purchased shares,
the Company will be entitled to a corresponding deduction for tax purposes of
the same amount.
No income is realized by the optionee at the time a Non-Qualified Stock
Option is granted. Upon exercise, the amount by which the fair market value of
the purchased shares on the exercise date exceeds the option price will
generally be taxable to the optionee as compensation income and deductible by
the Company for tax purposes. Upon disposition of the shares, appreciation or
depreciation after the exercise date is treated as a short-term or long-term
capital gain or loss to the optionee and will not result in any deduction by the
Company.
The Company anticipates that any compensation deemed paid by the Company to
its executive officers as a result of stock options will remain deductible by
the Company and will either (a) not have to be taken into account for purposes
of the $1 million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company, or (b) will not
cause such limit to be exceeded.
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<PAGE> 13
The granting of SAR's will not result in income to the optionee or a
deduction for tax purposes for the Company at the time of the grant. Upon
exercise, the amount of cash and/or the value of the stock received will be
treated as compensation income to the optionee and deductible by the Company for
tax purposes.
In general, the recipient of a restricted stock award will recognize
ordinary income in the amount of any cash received plus the market value of the
shares on the date when the shares are no longer subject to a substantial risk
of forfeiture (as such term is defined in the Code) less any amount paid for the
shares, and the Company will be entitled to a deduction for tax purposes in the
same amount. If the recipient of a restricted stock award makes a timely
election under Section 83(b) of the Code to have the tax liability determined at
the time of the grant rather than when the restrictions lapse, the recipient
will recognize compensation income and the Company shall be entitled to a
deduction at that time, in an amount equal to the fair market value of the
shares on the grant date.
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 on The
Nasdaq Stock Market. 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 Stock Market 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 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 may be
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 reached age 21 and completed 90 days of service may
reduce his salary and have the Company contribute
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<PAGE> 14
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 1995 calendar year dollar
maximum of $9,240 (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 may be invested in any or all of six investment
options, at the choice of the participant. Contributions may be split between
investment options 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 Amended and Restated Retention Plan for
Salaried Employees (the "Retention Plan"), effective through May 19, 1999,
provides certain additional benefits to employees only upon the occurrence of
certain events essentially constituting a change of control as defined in the
Retention Plan. Under the provisions of the Retention Plan, an eligible employee
of the Company whose employment is terminated by the Company during the term of
the Retention Plan 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 receive 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 out-placement expenses in an amount up
to 15% of their final annual 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 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
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<PAGE> 15
sole shareholder of the Company, prior to the Distribution, and subsequently
have been renewed and approved by the Board.
EXECUTIVE AGREEMENTS
The Company has entered into executive agreements ("Executive Agreements")
with Messrs. Swanson, Newcomer, Guthrie and Mitchen regarding employment and
benefits due to such executive officers upon a change of control. The purposes
of the Executive Agreements are (i) to assure that the Company will have the
continued dedication of the executive, notwithstanding the possibility, threat
or occurrence of a change of control, (ii) to diminish the inevitable
distraction of the executive resulting from the uncertainties and risks created
by a pending or threatened change of control and (iii) to provide the executive
with compensation and benefits arrangements upon a change of control that are
competitive with those of other corporations.
The Executive Agreement for Mr. Swanson has an initial term of three years,
and the Executive Agreements for Messrs. Newcomer, Guthrie and Mitchen have
initial terms of two years. The operative provisions of each Executive Agreement
remain dormant until a change of control occurs. During this dormant period, the
Executive Agreement is automatically renewed for successive three-year or
two-year terms (as the case may be) upon each anniversary of the date of the
Executive Agreement, unless the Company affirmatively takes action to cease such
renewals. Benefits are triggered in two stages: (i) the operative provisions
take effect upon a change of control and (ii) severance benefits become payable
upon termination of employment thereafter.
Change of Control Provisions. The definition for change of control ("Change
of Control") in the Executive Agreements is identical to that used in the
Company's Incentive Equity Plan and the Retention Plan. Upon a Change of
Control, the executive is provided with an employment agreement for a three-year
term (with respect only to Mr. Swanson) or a two-year term (with respect to
Messrs. Newcomer, Guthrie and Mitchen). The Executive Agreements provide that
during the term of employment following a Change of Control, the executive's
duties, responsibilities, compensation and benefits will continue on
substantially the same terms and conditions as prior to the Change of Control.
Severance Benefits upon Termination of Employment Following a Change of
Control. The Executive Agreements specify the severance benefits due to the
executive upon termination of the executive's employment during the employment
period following a Change of Control of the Company. Such termination may be by
the Company for cause (as defined in the Executive Agreements) or without cause,
or by the voluntary termination by the executive for good reason (as defined in
the Executive Agreements) or without good reason, or by reason of the death or
disability of the executive. Upon termination of employment by the executive
with good reason or by the Company without cause, the executive becomes entitled
to a lump-sum severance package equivalent to all compensation and benefits he
would have received for the remainder of the employment period, as though no
termination occurred, as well as the immediate vesting of stock options, SARs
and other fringe benefits (out-placement services, etc.). Termination by the
executive without good reason or by the Company for cause shall operate to
reduce the severance benefits available. The Company is obligated to "gross-up"
any severance compensation payments in order to cover excise taxes, interest or
penalties, if any, imposed under the Code.
Miscellaneous. The Executive Agreements are not intended to supplant or
modify any other agreements, plans or policies to which the executive is a party
or which cover the executive, except that to the extent the executive is
entitled to benefits under both the Retention Plan and the Executive Agreement,
the executive waives all rights, claims, benefits or payments arising out of the
Retention Plan. Finally, the executive agrees that, except as otherwise provided
in any other agreement between the executive and the Company, the executive's
employment is "at will" and may be terminated by the executive or the Company
prior to the occurrence of a Change of Control without triggering the benefits
provided under the Executive Agreement.
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<PAGE> 16
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 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------
AWARDS
ANNUAL -------------------------
COMPENSATION(1) RESTRICTED SECURITIES
----------------- STOCK UNDERLYING ALL 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.................. 1995 251,667 130,000 -- -- 14,877
President and Chief 1994 240,000 120,000 -- -- 14,026
Executive Officer 1993 223,333 105,000 -- 12,000 12,940
Randolph Newcomer................... 1995 188,417 65,000 -- -- 13,833
Executive Vice President 1994 182,000 80,000 -- -- 13,620
1993 177,000 70,000 -- 7,000 12,969
Charles M. McCall................... 1995 123,833 52,000 -- -- 8,813
Vice President-Drilling 1994 118,000 65,000 -- -- 8,029
Operations 1993 114,667 60,000 -- 5,000 7,651
Edward A. Guthrie................... 1995 117,000 55,000 -- -- 9,088
Vice President -- Finance 1994 110,000 50,000 -- -- 7,459
1993 105,833 50,000 -- 6,000 7,098
James P. Mitchen.................... 1995 115,833 55,000 -- -- 8,167
Vice President -- Business 1994 110,000 55,000 -- -- 7,049
Development 1993 105,833 55,000 -- 6,000 6,656
</TABLE>
- ---------------
(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 1995 and 1994 were earned for
those years, but were paid in February, 1996 and March, 1995, respectively.
(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. See footnote (3) to "SECURITY OWNERSHIP OF MANAGEMENT".
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
shareholders' 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
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<PAGE> 17
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) Other than the restricted stock granted on December 31, 1992 as described
above, restrictions have lapsed on all shares of restricted stock previously
awarded to the named executive officers. 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 to date 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 $39,880 of Company payments to the defined
contribution plan, consisting of $9,240, $9,240, $7,430, $7,020 and $6,950
on behalf of Messrs. Swanson, Newcomer, McCall, Guthrie and Mitchen,
respectively, an aggregate of $5,833 of Company paid universal life
insurance premiums in excess of the Company's basic benefits for the last
fiscal year in the amount of $4,593 on behalf of Mr. Newcomer, and for a
portion of the last fiscal year, $852, $183, $159 and $46 on behalf of
Messrs. Swanson, McCall, Guthrie and Mitchen, respectively, and an aggregate
of $9,065 of deemed compensation resulting from Company paid split dollar
life insurance premiums on behalf of Messrs. Swanson, Guthrie, McCall and
Mitchen in the amount of $4,785, $1,909, $1,200 and $1,171, respectively.
AGGREGATED OPTION/SAR GRANTS IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR
VALUES
The following table presents the total number of the Company's Common Stock
options held by the reportable executive officers at December 31, 1995, denoting
the exercisability of each option at that time.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED ON VALUE ----------------------- -------------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- -------- ----------------------- -------------------
<S> <C> <C> <C> <C>
Douglas E. Swanson.............. -- -- 66,600/3,000 83,775/5,625
Randolph Newcomer............... -- -- 41,150/1,750 48,599/3,281
Charles M. McCall............... -- -- 17,750/1,250 21,831/2,344
Edward A. Guthrie............... -- -- 17,500/1,500 21,738/2,813
James P. Mitchen................ -- -- 12,500/1,500 27,938/2,813
</TABLE>
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
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<PAGE> 18
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 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. The Company's
current compensation levels are well within the $1 million limitation on
corporate tax deductions under Section 162(m) of the Internal Revenue Code of
1986, as amended, and the Company intends to take the necessary steps in
subsequent years to ensure that the Company's future compensation packages will
comply with such limits on compensation deductibility.
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
18, 1995 and there have been no increases in base salaries for the Chief
Executive Officer or the other named individuals since the May, 1995 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 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 associated with such executive 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.
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<PAGE> 19
The performance goals for the Chief Executive Officer and the other
executive officers include both financial and non-financial objectives,
including achieving 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 February 27, 1996 the Compensation Committee granted a total of $495,500
under the Incentive Bonus Plan to the Company's ten (10) executive officers,
including awards to Messrs. Swanson, Newcomer, McCall, Guthrie and Mitchen of
$130,000, $65,000, $52,000, $55,000 and $55,000, respectively, and a total of
$214,500 to certain other key employees as a group. Such bonuses awarded were
paid in February, 1996.
Incentive Equity Plan
The Incentive Equity Plan was established in 1988 to reward performance of
officers and key employees 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. No awards under the Incentive Equity Plan were made during the 1995
fiscal year. As of April 26, 1996, the current executive officers of the Company
as a group have received stock options granting the right to acquire 211,000
shares of Common Stock in the aggregate and all employees other than the current
executive officers have received stock options granting the right to acquire
49,875 shares of Common Stock in the aggregate.
Chief Executive Officer
The Compensation Committee desires to link the compensation of the
Company's 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
1995 performance, particularly the Company's financial and business development
accomplishments. Despite the continuing volatile economic environment faced by
the oilfield service industry during fiscal year 1995, the Company increased the
market value of its Common Stock approximately 25%, recorded significant net
income and strong cash flow from operations, expanded its engineering services
and daywork drilling operations in the Republic of Venezuela, eliminated losses
generated from oil and gas operations and continued its development as an
innovator in solving the needs of oil and gas operators in domestic and
international markets.
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 employees are rewarded accordingly.
The Compensation Committee believes 1995 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
16
<PAGE> 20
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
COMMITTEE DECISIONS
During the Company's 1995 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 1995 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.
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 Stock Market Composite Index and the Company's peer
group index (Simmons & Company Offshore Drillers Index).
[GRAPH]
<TABLE>
<CAPTION>
Simmons &
Compan y
Cliffs Nasdaq Stock Offshore
Measurement Period Drilling Market Com- Drillers
(Fiscal Year Covered) Company posite Index Index
<S> <C> <C> <C>
1990 100.00 100.00 100.00
1991 113.6 160.5 57.1
1992 110.2 186.9 59.2
1993 113.6 214.5 99.3
1994 106.8 209.7 81.5
1995 135.2 296.5 157.0
</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 Stock Market 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., Cliffs Drilling
Company, Diamond Offshore Drilling, Inc., Dual Drilling Company, ENSCO
International, Inc., Falcon Drilling Company, Inc., Global Marine Inc.,
Marine Drilling Company, Inc., Noble Drilling Corporation, Reading & Bates
Corporation, Rowan Companies, Inc. and Sonat Offshore Drilling Inc.
17
<PAGE> 21
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the number of
shares of Common Stock owned beneficially as of April 26, 1996 (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 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
OF
COMMON STOCK
----------------------
NAME OF BENEFICIAL OWNER AMOUNT PERCENTAGE
- ------------------------------------------------------------------------ ------- ----------
<S> <C> <C>
Heartland Advisors, Inc.(1)
790 North Milwaukee Street
Milwaukee, WI 53202................................................... 746,900 12.1%
Ryback Management Corporation(2)
Lindner Dividend Fund
7711 Carondelet Avenue
Box 16900
St. Louis, MO 63105................................................... 578,586 9.3%
John D. Weil(3)
200 North Broadway
Suite 825
St. Louis, MO 63102................................................... 547,466 8.8%
Quest Advisory Corp.(4)
Quest Management Company
Charles M. Royce
1414 Avenue of the Americas
New York, NY 10019.................................................... 443,600 7.2%
Wellington Management Company(5)
75 State Street
Boston, MA 02109...................................................... 399,000 6.4%
</TABLE>
- ---------------
(1) The information shown above was obtained from the Schedule 13G (Amendment
No. 2) dated February 9, 1996, as filed with the Securities and Exchange
Commission (the "Commission") by Heartland Advisors, Inc. ("Heartland").
Heartland has sole voting and dispositive power in regards to 609,900 and
746,900 shares of Common Stock, respectively.
(2) The information shown above was taken from the Schedule 13G (Amendment No.
1) dated January 25, 1996, as filed with the Commission by Ryback Management
Corporation in its fiduciary capacity on behalf of Lindner Dividend Fund.
(3) The information shown above was obtained from the Schedule 13D (Amendment
No. 7) dated January 20, 1995 and a Form 4 dated September 26, 1995, both as
filed with the Commission by John D. Weil, and Forms 144 dated April 11,
1996, all as filed with the Commission by Mr. Weil and his siblings, Paula
K. Weil and Richard K. Weil, Jr. Mr. Weil has sole voting and dispositive
power with respect to 250,015 shares of Common Stock and shared voting and
dispositive power with respect to 11,861 shares of Common Stock. Mr. Weil
disclaims beneficial ownership with respect to 330,240 shares of Common
Stock.
(4) The information shown above was obtained from the Schedule 13G (Amendment
No. 2) dated February 14, 1996, as filed with the Commission by Quest
Advisory Corp. ("Quest") on behalf of itself, Quest Management Company
("QMC") and Mr. Charles M. Royce. Quest and QMC may be deemed to have sole
voting and dispositive power in regards to 414,000 and 29,600 shares,
respectively, of Common Stock. As a controlling person of Quest and QMC, Mr.
Royce may be deemed to own beneficially such shares, but Mr. Royce disclaims
beneficial ownership of such shares.
18
<PAGE> 22
(5) The information shown above was obtained from the Schedule 13G (Amendment
No. 3) dated January 27, 1996, as filed with the Commission by Wellington
Management Company ("Wellington") on behalf of itself and its wholly-owned
subsidiary, Wellington Trust Company, N. A. Wellington may be deemed to hold
shared voting power with respect to 179,000 shares of Common Stock and
shared dispositive power with respect to 399,000 shares of Common Stock,
respectively.
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.
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 were complied with applicable to its officers, directors and
greater-than-ten-percent beneficial owners.
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 LLP, Certified Public
Accountants, was chosen as the independent public accountants to examine the
books, records and accounts of the Company for the year 1996. In accordance with
that same resolution, this selection is being presented to the shareholders for
ratification. Ernst & Young LLP have been the independent public accountants of
the Company since 1978. Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting of Shareholders on May 22, 1996, 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 LLP, the selection of independent public
accountants will be reconsidered by the Board of Directors.
1997 SHAREHOLDER PROPOSALS
In order for shareholder proposals for the 1997 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 1200
Smith Street, Suite 300, Houston, Texas 77002, no later than January 2, 1997.
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
19
<PAGE> 23
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).
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, DATE AND PROMPTLY RETURN THE
ACCOMPANYING FORM OF PROXY IN THE ENCLOSED ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JAMES E. MITCHELL JR.
JAMES E. MITCHELL JR.
Secretary
20
<PAGE> 24
CLIFFS DRILLING COMPANY
NOTICE OF
ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD ON
MAY 22, 1996
AND
PROXY STATEMENT
[CLIFFS DRILLING COMPANY LOGO]
<PAGE> 25
CLIFFS DRILLING COMPANY
PROXY SOLICITED BY BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
P SHAREHOLDERS TO BE HELD WEDNESDAY, MAY 22, 1996.
R The undersigned hereby appoints H. Robert Hirsch and Joseph E. Reid or
either of them, proxies, with full power of substitution and with
O discretionary authority, to vote all shares of Common Stock which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of
X Cliffs Drilling Company (the "Company"), or any adjournments thereof. The
undersigned instructs said proxies to vote as follows:
Y
1. ELECTION OF DIRECTORS (change of address)
Nominees: Robert M. McInnes and _____________________________________
Douglas E. Swanson
2. APPROVAL OF PROPOSED AMENDMENT ______________________________________
TO THE COMPANY'S 1988 INCENTIVE
EQUITY PLAN
3. APPOINTMENT OF ERNST & YOUNG LLP ______________________________________
AS INDEPENDENT PUBLIC ACCOUNTANTS
OF THE COMPANY FOR 1996
4. IN THEIR DISCRETION AS TO SUCH ______________________________________
OTHER MATTERS AS MAY PROPERLY (If you have written in the above
COME BEFORE THE MEETING 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
-----------
<PAGE> 26
/X/ Please mark your SHARES IN YOUR NAME |
votes as in this |
example. |_______
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approval of proposed / / / / / /
Directors amendment to the
(see reverse) Company's 1988
Incentive Equity Plan.
For, except vote withheld from 3. Appointment of Ernst & / / / / / /
the following nominee(s): Young LLP as independent
public accountants of
the Company for 1996.
4. As such proxies may in / / / / / /
their discretion
determine upon such
other matters as may
properly come before the
meeting.
Change / /
of
Address
Attend / /
Meeting
SIGNATURE(S)________________________________________ DATE ____________
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.
<PAGE> 27
APPENDIX B
AMENDMENT NO. 3
TO THE
CLIFFS DRILLING COMPANY
1988 INCENTIVE EQUITY PLAN
Pursuant to the terms and provisions of Section 10 of the Cliffs
Drilling Company 1988 Incentive Equity Plan (the "Plan"), Cliffs Drilling
Company, a Delaware corporation (the "Company"), hereby adopts the following
Amendment No. 3 to the Plan (the "Amendment No. 3").
4.
The first sentence of Section 5 of the Plan is hereby amended in its
entirety by substituting the following therefor:
"The total number of shares of Stock reserved and
available for distribution pursuant to Stock Options or other
awards hereunder shall be 650,000 shares. Such shares may
consist, in whole or in part, of authorized and unissued shares
or treasury shares."
5.
Each amendment made by this Amendment No. 3 to the Plan has been
effected in conformity with the provisions of the Plan. This Amendment No. 3
was adopted by the Compensation Committee of the Board of Directors of the
Company on April 24, 1996 and approved by the shareholders of the Company on
May __, 1996.
6.
At the time of the adoption of this Amendment No. 3 to the Plan,
__________ shares of the Company's common stock, $0.01 par value per share,
were outstanding and entitled to vote, ____________ were represented in person
or by proxy, of which ____________ shares were voted for this Amendment No. 3
and ___________ shares were voted against this Amendment No. 3.
Dated: May __, 1996.
CLIFFS DRILLING COMPANY
BY:______________________
James E. Mitchell, Jr.,
Secretary
