<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:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) 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
(LOGO)
April 25, 1997
To the Stockholders of Cliffs Drilling Company:
Cliffs Drilling Company's Annual Meeting of Stockholders will be held at
the Doubletree Hotel at Allen Center, 400 Dallas Street at Bagby, Houston,
Texas, on Wednesday, May 21, 1997, 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 Stockholders 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,
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 STOCKHOLDERS
TO BE HELD MAY 21, 1997
TO THE STOCKHOLDERS OF CLIFFS DRILLING COMPANY:
The 1997 Annual Meeting of the Stockholders 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 21, 1997, 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 2000 Annual Meeting of
Stockholders or until their successors are duly elected and qualified;
2. To approve a proposal to increase the number of authorized shares of the
Company's common stock, $.01 par value;
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 1997; and
4. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on April 4, 1997 are
entitled to notice of and to vote at the meeting. A list of such stockholders
will be open for examination by any stockholder 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
JAMES E. MITCHELL JR.
Secretary
April 25, 1997
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 25, 1997
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 Stockholders of the Company to be held on Wednesday, May 21, 1997, 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 stockholder 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 proposal to increase the number of authorized shares of
the Company's common stock, $.01 par value to 30 million shares and for the
ratification of the selection by the Company's Board of Directors of Ernst &
Young LLP as independent public accountants to examine the books, records and
accounts of the Company for the year 1997.
This proxy material is being mailed to stockholders beginning on or about
April 26, 1997, accompanied by the Company's Annual Report for the year ended
December 31, 1996.
The Company has adopted a policy that all stockholder proxies, consents,
authorizations, ballots and tabulations that identify the particular vote of a
stockholder are to be maintained in confidence, and that the identity and vote
of any stockholder 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 stockholder 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 owned
beneficially 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 stockholders of record at the close of business on April 4, 1997 (the
"Record Date") will be entitled to vote at the Annual Meeting. At the close of
business on such Record Date the Company had outstanding 7,576,273 shares of
common stock, $.01 par value (the "Common Stock"). Each share of Common Stock
entitles the holder thereof to one vote.
<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
25, 1997.
<TABLE>
<CAPTION>
TERM DIRECTOR
NAME AGE EXPIRES SINCE
---- --- ------- --------
<S> <C> <C> <C>
Michael M. Cone......................... 59 1997 1988
John D. Weil............................ 56 1997 1989
H. Robert Hirsch........................ 63 1998 1993
Donald W. Keller........................ 61 1998 1997
Joseph E. Reid.......................... 68 1998 1988
Robert M. McInnes....................... 66 1999 1993
Douglas E. Swanson...................... 58 1999 1988
</TABLE>
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 PICO Holdings and its
predecessor, 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.
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. Mr. Hirsch is a member of the Audit, Compensation and Nominating
Committees.
Donald W. Keller is the founder of and serves as President and Chief
Executive Officer of Enerfin Resources Company ("Enerfin") which owns and
operates natural gas pipelines, processing plants and oil and gas properties.
Prior to founding Enerfin in 1991, Mr. Keller served as President and Chief
Executive Officer of Quintana Energy Corporation. Mr. Keller also served as Vice
President, Marketing & Finance and was a member of the Executive Operating
Committee of Quintana Petroleum Corporation. Mr. Keller was elected as a
director of the Company by the Board on March 5, 1997 to fill a vacancy created
by the death of such office's predecessor during 1996.
Joseph E. Reid is 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 currently serves as a director of Riverway Bank
& Trust and Western Gas Resources, Inc. Mr. Reid is Chairman of the Audit
Committee and a member of the Compensation 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. Previously, Mr. McInnes was a
director of Moore McCormack Resources, Inc., Society National Bank of Cleveland,
MLX Corp., Cleveland-Cliffs Inc and Seaforth Mineral & Ore Co., Inc. From 1987
to 1988 he was Group Executive Vice President of Cleveland-Cliffs Inc where his
responsibilities among several divisions included
2
<PAGE> 6
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 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. 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 and 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, Compensation Committee
and a Nominating 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
1996, Messrs. Reid (current Chairman of the Audit Committee), Cone, Hirsch,
McInnes and Weil were members of the Audit Committee. The Audit Committee met
two times during 1996.
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 1996, the
members of this Committee were Messrs. Weil (current Chairman of the
Compensation Committee), Cone, Hirsch, McInnes and Reid. The Compensation
Committee met three times during 1996.
The Nominating Committee is constituted 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, in the event of a
potential business combination involving the Company. 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 1996.
DIRECTORS' FEES AND RELATED INFORMATION
Directors who are not employees of the Company currently receive a monthly
retainer of $2,500, plus $1,000 per day for attendance at each meeting of the
Board. Directors who serve on committees of the Board also receive $1,000 per
day for committee meetings attended on a day other than a Board meeting day.
During 1996, 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 1996, all of the directors of the Company attended at least 75%, and
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 Board
held six meetings during the year 1996.
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..................... 58 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
Charles M. McCall...................... 51 Senior Vice President -- Drilling Operations
1997 -- Present: Senior Vice President -- Drilling
Operations of the Company; 1991 -- 1997: Vice
President -- Drilling Operations of the Company;
1989 -- 1990: General Manager -- Drilling Operations
of the Company; 1986 -- 1989: Manager -- Operations
of the Company
Edward A. Guthrie...................... 52 Vice President -- Finance and Chief Financial Officer
1996 -- Present: Vice President -- Finance and Chief
Financial Officer of the Company; 1992 -- 1996: Vice
President -- Finance of the Company; 1991: Vice
President -- Controller of the Company; 1983 --1990:
Controller of the Company
James P. Mitchen....................... 46 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.
Gary W. Owen........................... 40 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>
Cindy B. Taylor........................ 35 Vice President -- Controller
1996 -- Present: Vice President -- Controller of the
Company; 1992 -- 1996: Controller of the Company;
1990 -- 1992: Senior Manager with Ernst & Young;
1988 -- 1990: Manager with Ernst & Young
James E. Mitchell Jr................... 46 Secretary
1992 -- Present: Secretary of the Company;
1988 -- 1992: Secretary and Treasurer of the
Company; 1985 -- 1988: Treasurer of the Company
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the number of shares of the Company's Common
Stock owned beneficially as of April 25, 1997 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............................ 66,018(1) *
Douglas E. Swanson...................... 39,512(2,3,4,5,6) *
Michael M. Cone......................... 10,000 *
Joseph E. Reid.......................... 2,000(7) *
H. Robert Hirsch........................ 1,000 *
Donald W. Keller........................ 1,000 *
Robert M. McInnes....................... 500 *
Edward A. Guthrie....................... 21,500(2,3,4,5,6) *
James P. Mitchen........................ 16,000(2,3,4,5,6) *
Charles M. McCall....................... 15,500(2,3,4,5,6) *
All directors and executive officers as
a group (13 persons).................. 207,530(6,8) 2.7%
</TABLE>
- ---------------
* less than 1.0% of class
(1) The information shown above was obtained from a Form 4 dated January 7,
1997, as filed with the Securities and Exchange Commission (the
"Commission") by John D. Weil. Mr. Weil has sole voting and dispositive
power with respect to 1,840 shares of Common Stock and shared voting and
dispositive power with respect to 64,178 shares of Common Stock.
(2) Includes 4,500, 2,000, 2,000 and 2,000 shares of restricted stock awarded to
Messrs. Swanson, Guthrie, Mitchen and McCall, respectively, pursuant to the
Company's 1988 Incentive Equity Plan upon which restrictions apply and may
be subject to forfeiture.
(3) Includes 7,600, 5,000, 3,000 and 6,000 shares of Common Stock which may be
acquired upon the exercise of options granted to Messrs. Swanson, Guthrie,
Mitchen and McCall, respectively, exercisable at $13.25 per share.
(4) Includes 12,000, 6,000, 6,000 and 5,000 shares which may be acquired upon
the exercise of options granted to Messrs. Swanson, Guthrie, Mitchen and
McCall, respectively, exercisable at $12.875 per share.
5
<PAGE> 9
(5) Includes 14,000, 7,500, 5,000 and 2,500 shares which may be acquired upon
the exercise of options granted to Messrs. Swanson, Guthrie, Mitchen and
McCall, respectively, exercisable at $28.00 per share.
(6) Does not include shares of Common Stock owned by the Company's 401(k) Plan
for the benefit of employees of the Company, consisting of 4,814, 2,574,
2,045 and 3,216 shares for Messrs. Swanson, Guthrie, Mitchen and McCall,
respectively, and 19,241 shares for the directors and executive officers as
a group (13 persons), as of December 31, 1996.
(7) Includes 2,000 shares of Common Stock which may be acquired upon the
exercise of options granted to Mr. Reid, exercisable at $13.80 per share.
(8) In addition to the options specifically described in the foregoing
footnotes, includes 3,000 shares which may be acquired upon the exercise of
options granted to one officer excluding those named, exercisable at $14.25
per share, 3,000 shares which may be acquired upon exercise of options
granted to one officer, excluding those named, exercisable at $13.25 per
share, 6,000 shares which may be acquired upon exercise of options granted
to two officers, excluding those named, exercisable at $12.875 per share,
5,000 shares which may acquired upon exercise of options granted to one
officer, excluding those named, exercisable at $12.125 per share, and 8,500
shares which may be acquired upon exercise of options granted to three
officers, excluding those named, exercisable at $28.00 per share. Also
includes 1,500 shares of restricted stock awarded to one officer, excluding
those named, pursuant to the Company's 1988 Incentive Equity Plan upon which
restrictions apply and may be subject to forfeiture.
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 stockholder approval of the Plan, stock options, stock
appreciation rights ("SARs") and restricted or deferred stock awards, for up to
650,000 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, SARs, restricted stock and deferred stock pursuant to the Plan.
At the present time, seven (7) executive officers and approximately twenty (20)
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 stockholders of Cleveland-Cliffs Inc ("Cleveland") as sole
stockholder 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 24, 1997, the closing price on The New York Stock Exchange, Inc. of the
Common Stock which is the subject of such stock options, SARs and restricted or
deferred stock was $ 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 on The Nasdaq Stock Market.
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<PAGE> 10
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 (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
stockholder 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.
7
<PAGE> 11
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 stockholders, 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 therefore 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 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
8
<PAGE> 12
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.
Compensation deemed paid by the Company to its executive officers as a
result of stock option exercises is deductible by the Company (i) if such
compensation qualifies under the Code as "performance-based" or (ii) if other
than "performance based", then to the extent such compensation does not exceed
$1 million per covered individual per calendar year.
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 date of the grant on the market in which the Common Stock is then
traded. The price per share for the grant to Mr. Weil was $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
9
<PAGE> 13
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 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 1996 calendar year dollar maximum of $9,500 (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 non-forfeitable.
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 the lesser of (i) one-half of each
participant's vested balance in such accounts or (ii) the participant's
historical contributions and related accumulated earnings, both 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 outplacement 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
10
<PAGE> 14
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 sole
stockholder 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, 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. 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. 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
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<PAGE> 15
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.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table set forth below is intended to provide
stockholders 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 1996, 1995 and 1994.
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............................... 1996 295,000 350,000 -- 28,000 17,927
President and Chief 1995 251,667 130,000 -- -- 14,877
Executive Officer 1994 240,000 120,000 -- -- 14,026
Edward A. Guthrie................................ 1996 139,792 90,000 -- 15,000 11,726
Vice President -- Finance and Chief 1995 117,000 55,000 -- -- 9,088
Financial Officer 1994 110,000 50,000 -- -- 7,459
Charles M. McCall................................ 1996 131,500 76,380 -- 5,000 10,099
Vice President -- Drilling Operations 1995 123,833 52,000 -- -- 8,813
1994 118,000 65,000 -- -- 8,029
William E. Chiles(5)............................. 1996 126,271 70,000 -- 30,000(6) 6,792
Senior Vice President -- Drilling Operations 1995 -- -- -- -- --
1994 -- -- -- -- --
James P. Mitchen................................. 1996 123,500 75,000 -- 10,000 9,501
Vice President -- Business 1995 115,833 55,000 -- -- 8,167
Development 1994 110,000 55,000 -- -- 7,049
</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 401 (k)
Plan. The bonuses shown above for 1996, 1995 and 1994 were earned for those
years, but were paid in March, 1997 (except that $100,000 of Mr. Swanson's
bonus was paid in May, 1996), February, 1996 and March, 1995, respectively.
(2) A total of 10,500 shares of restricted stock with an aggregate value of
$525,000 as of December 31, 1996, net of consideration paid, were issued to
these executive officers (other than Mr. Chiles) 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 (2) to "SECURITY OWNERSHIP OF MANAGEMENT". The amount
of each promissory note equals the market value of
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<PAGE> 16
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 stockholders' 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) Restrictions have lapsed on all shares of restricted stock (other than
shares of restricted stock granted on December 31, 1992 described in
footnote (2) above) 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 $39,980 of Company payments to the Company's
401(k) Plan, consisting of $9,500, $8,388, $7,890, $6,792 and $7,410 on
behalf of Messrs. Swanson, Guthrie, McCall, Chiles, and Mitchen,
respectively, and an aggregate of $16,065 of deemed compensation resulting
from Company paid split dollar life insurance premiums in the amount of
$8,427, $3,338, $2,209 and $2,091 on behalf of Messrs. Swanson, Guthrie,
McCall and Mitchen, respectively.
(5) Amounts shown above for Mr. Chiles are for his period of employment with the
Company commencing May 24, 1996.
(6) All stock options awarded to Mr. Chiles have terminated due to their
non-exercisability at the time of his resignation from the Company in March,
1997.
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<PAGE> 17
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table presents the total number of the Company's Common Stock
options granted to the reportable executive officers on May 22, 1996. No SAR
grants were awarded during fiscal year 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME (#)(1,2,3) FISCAL YEAR ($/SH)(4) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Douglas E. Swanson...................... 28,000 15.2% 28.00 5/21/2006 493,050 1,249,492
Edward A. Guthrie....................... 15,000 8.2% 28.00 5/21/2006 264,134 669,371
Charles M. McCall....................... 5,000 2.7% 28.00 5/21/2006 88,045 223,124
William E. Chiles(5).................... 30,000 16.3% 28.00 5/21/2006 528,268 1,338,742
James P. Mitchen........................ 10,000 5.4% 28.00 5/21/2006 176,089 446,247
</TABLE>
- ---------------
(1) Stock options granted in 1996 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.
(4) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares or by offset of the underlying
shares, subject to certain conditions.
(5) All stock options awarded to Mr. Chiles have terminated due to their
non-exercisability at the time of his resignation from the Company in March,
1997.
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, 1996, 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>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT FISCAL THE-MONEY OPTIONS/SARS
SHARES YEAR-END(#) AT FISCAL YEAR-END($)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Douglas E. Swanson.......... 50,000 1,571,812 19,600/28,000 984,500/987,000
Edward A. Guthrie........... 8,000 276,800 11,000/15,000 552,250/528,750
Charles M. McCall........... 8,000 229,800 11,000/5,000 551,875/176,250
William E. Chiles........... -- -- -- /30,000 -- /1,057,500
James P. Mitchen............ 5,000 185,625 9,000/10,000 452,250/352,500
</TABLE>
- ---------------
(1) All stock options awarded to Mr. Chiles have terminated due to their
non-exercisability at the time of his resignation from the Company in March,
1997.
14
<PAGE> 18
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 stockholder 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
stockholders 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, excluding prospective stock option exercises, are
within the $1 million limitation on corporate tax deductions imposed by the
Omnibus Reconciliation Act of 1993 (the "Act") as codified under Section 162(m)
of the Code. The Compensation Committee cannot predict with certainty how or to
what extent the Company's executive compensation might be affected in the future
by the Act or regulations issued thereunder. However, the Compensation Committee
does intend to attempt to preserve the tax deductibility of all executive
compensation while maintaining the incentive oriented executive compensation
program described in this report.
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.
15
<PAGE> 19
The salaries of the Chief Executive Officer and the named executive
officers were established at the meeting of the Compensation Committee on May
22, 1996 and there have been no increases in base salaries for the Chief
Executive Officer or the other named individuals since the May, 1996 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.
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 May 22, 1996, the Compensation Committee granted a $100,000 bonus (under
the Incentive Bonus Plan) to Mr. Swanson. On March 5, 1997, the Compensation
Committee granted a total of $759,380 under the Incentive Bonus Plan to the
Company's then nine (9) executive officers, including awards to Messrs. Swanson,
Guthrie, McCall, Chiles and Mitchen of $250,000, $90,000, $76,380, $70,000 and
$75,000, respectively, and a total of $540,185 to certain other key employees as
a group. Such bonuses awarded were paid in March, 1997.
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 stockholder
value either through stock price appreciation and/or increases in book value per
share. During 1996, the Compensation Committee awarded options granting rights
to acquire a total of 184,000 shares of Common Stock, encompassing 110,000
shares of Common Stock awarded to the Company's then nine (9) executive
officers, including awards to Messrs. Swanson, Guthrie, McCall, Chiles and
Mitchen of 28,000, 15,000, 5,000, 30,000 and 10,000 shares of Common Stock,
respectively, and a total of 74,000 shares of Common Stock to certain other key
employees. The Compensation Committee also awarded during 1996, 5,000 shares of
restricted stock to one key employee. At December 31, 1996, an aggregate of
594,925 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 employees.
Chief Executive Officer
The Compensation Committee's intention is to link the compensation of the
Company's Chief Executive Officer with the enhancement of stockholder value. In
determining Mr. Swanson's award under the Incentive Bonus Plan, the Committee
was influenced by his strong leadership and corporate direction regarding the
Company's 1996 performance, particularly the Company's operational, financial
and business development accomplishments, the substantial increase in
stockholder equity and the timely acquisition of the assets of Southwestern
Offshore Corporation. The Company, during fiscal year 1996, increased the market
value of its
16
<PAGE> 20
Common Stock approximately 328%, recorded significant net income and strong cash
flow from operations, expanded its daywork drilling operations to the U.S. Gulf
of Mexico and Persian Gulf 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
stockholders. In connection with performance reviews and the goals targeted to
enhance stockholder value, key officers and employees are rewarded accordingly.
The Compensation Committee believes 1996 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 1996 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 1996 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.
17
<PAGE> 21
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
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 Standard & Poor's 500 Stock Index, the Nasdaq Stock Market
Composite Index and the Company's peer group index (Simmons & Company Offshore
Drillers Index).
<TABLE>
<CAPTION>
Nasdaq Stock Simmons &
Market Company Standard &
Measurement Period Cliffs Drilling Composite Offshore Poor's 500
(Fiscal Year Covered) Company Index Drillers Index Stock Index
<S> <C> <C> <C> <C>
1991 100 100 100 100
1992 97.0 116.4 103.7 104.5
1993 100.0 133.6 174.1 111.8
1994 94.0 130.6 142.8 110.1
1995 119.0 184.7 275.2 147.7
1996 506.0 227.1 652.9 177.6
</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) Listing and trading of the Common Stock was moved from The Nasdaq Stock
Market to The New York Stock Exchange, Inc. during April, 1997. Therefore,
the Company has chosen the Standard & Poor's 500 Stock Index as its broad
comparative index for inclusion in prospective performance graphs. Due to
this transition, both the Standard & Poor's 500 Stock Index and the Nasdaq
Stock Market Composite Index are displayed in the preceding performance
graph.
(3) The Standard & Poor's 500 Stock Index, 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 Atwood Oceanics, Inc., Cliffs
Drilling Company, Diamond Offshore Drilling, Inc., ENSCO International,
Inc., Falcon Drilling Company, Inc., Global Marine Inc., Marine Drilling
Company, Inc., Noble Drilling Corporation, Reading & Bates Corporation,
Rowan Companies, Inc., Smedvig a.s. and Transocean Offshore Drilling Inc.
18
<PAGE> 22
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning the number of
shares of Common Stock owned beneficially as of April 25, 1997 (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>
FMR Corp.(1)
82 Devonshire Street
Boston, MA 02109.......................................... 695,500 9.2%
Cambridge Investments Limited(2)
600 Montgomery Street, 27th Floor
San Francisco, CA 94111................................... 516,800 6.8%
Appaloosa Management L.P.(3)
David A. Tepper
51 John F. Kennedy Parkway
Short Hills, NJ 07078..................................... 409,500 5.4%
</TABLE>
- ---------------
(1) The information shown above was obtained from the Schedule 13G (Amendment
No. 2) dated March 7, 1997, as filed with the Securities and Exchange
Commission (the "Commission") by FMR Corp. ("FMR"), Edward C. Johnson 3d and
Abigail P. Johnson on behalf of FMR's wholly-owned subsidiaries, Fidelity
Management & Research Company ("Fidelity Research") and Fidelity Management
Trust Company ("Fidelity Trust"). Of the 695,500 shares reflected as owned
beneficially, Fidelity Research is the beneficial owner of 497,400 shares,
and Edward C. Johnson 3d and FMR, through control of Fidelity Research, each
have sole dispositive power with respect to 497,400 shares. Fidelity Trust
is the beneficial owner of 198,100 shares, and Edward C. Johnson 3d and FMR,
through control of Fidelity Trust, have sole voting and dispositive power
over 198,100 shares.
(2) The information shown above was obtained from the Schedule 13D (Amendment
No. 1) dated April 7, 1997 as filed with the Commission by Cambridge
Investments Limited.
(3) The information shown above was obtained from the Schedule 13D (Amendment
No. 4) dated March 12, 1997 as filed with the Commission by Appaloosa
Management L.P. ("Appaloosa") and Mr. David A. Tepper, the President of
Appaloosa. Appaloosa and Mr. Tepper each have sole voting and dispositive
power with respect to the 409,500 shares of Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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%) stockholders 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 applicable to its officers and directors and greater-than-ten-
percent beneficial owners were complied with except that Mr. Weil, a director of
the Company, made late filings of two reports covering an aggregate of eight
transactions.
19
<PAGE> 23
CERTAIN TRANSACTIONS
There are no transactions or relationships between management and the
Company or others which are material and are required to be disclosed.
PROPOSED INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
The Company's Certificate of Incorporation currently authorizes the Company
to issue up to fifteen million (15,000,000) shares of Common Stock and three
million (3,000,000) shares of preferred stock, no par value. The Company
proposes that its Certificate of Incorporation be amended to provide for thirty
million (30,000,000) authorized shares of Common Stock and three million
(3,000,000) shares of preferred stock, no par value.
The Board has unanimously approved a two-for-one stock split of Common
Stock, to be effected through a stock dividend payable following the
effectiveness of the proposed amendment to the Company's Certificate of
Incorporation increasing the authorized shares of Common Stock. Of the
15,000,000 shares of Common Stock currently authorized, at the Record Date there
were 7,576,273 shares of Common Stock outstanding and an aggregate of 290,725
shares of Common Stock reserved for issuance pursuant to the Company's 1988
Incentive Equity Plan.
Subject to stockholder approval of the proposed increase in the number of
authorized shares of Common Stock, the Board has authorized the issuance to
stockholders of record on May 22, 1997, of one additional share of Common Stock
as a dividend on each issued and outstanding share of Common Stock. The Board
believes that the stock split in the form of a stock dividend is in the best
interests of the stockholders. The stock split is intended to place the market
price of Common Stock in a range more attractive to a wider range of investors,
particularly individuals, and may result in a broader market and more widespread
ownership of Common Stock.
The increase in the number of authorized shares of Common Stock will be
effected through an amendment to the first paragraph of Article FOURTH of the
Company's Certificate of Incorporation. As amended, such paragraph would read as
follows:
"FOURTH. The total number of shares of stock which the
Corporation shall have authority to issue is 33 million, consisting of
3 million shares of Preferred Stock, without par value (hereinafter
called "Preferred Stock"), and 30 million shares of Common Stock, of
the par value $.01 per share (hereinafter called "Common Stock")."
Following the adoption of the amendment to the Company's Certificate of
Incorporation, the Company intends to effect a two-for-one stock split in the
form of a stock dividend, and a transfer of $0.01 for each additional share of
Common Stock issued, or approximately $76,000, will be made from the Company's
additional paid-in capital account to its Common Stock account as of May 22,
1997, the date on which stockholders of record will be entitled to the
additional shares, so that the additional shares to be issued will be fully
paid.
Following effectiveness of the increase of capital in the Common Stock
account, certificates representing the additional shares will be distributed by
the Company to stockholders of record as of May 22, 1997, without any further
action by the stockholders. The Company will list on the New York Stock Exchange
the additional shares of Common Stock to be issued. As a result of the proposed
stock split, brokerage commissions and transfer taxes on any subsequent trades
of Common Stock may increase.
In the opinion of counsel for the Company, the adoption of the proposed
amendment and the issuance of the additional shares in connection with the stock
split will result in no gain or loss or any other form of taxable income for
United States federal income tax purposes. The laws of jurisdictions other than
the United States may impose income taxes on the issuance of the additional
shares in connection with the stock split, and stockholders subject to those
laws are urged to consult their tax advisors.
20
<PAGE> 24
The proposed increase in the number of authorized shares of Common Stock is
required in order to effect, and is a condition to the effectiveness of, the
stock split authorized by the Board. In addition, the Board believes that it is
prudent to increase the authorized number of shares of Common Stock in order to
provide a reserve of shares available for issuance to meet business needs. Like
most corporations, the Company has historically maintained a substantial reserve
of authorized but unissued shares in order to avoid the time and expense of
seeking stockholder approval each time it needs to make a new issuance of Common
Stock.
The Board may deem it in the best interests of the stockholders to issue
Common Stock in the pursuant of establishing strategic relationships with
corporate partners, providing equity incentives to employees, officers or
directors, or effecting additional stock splits or dividends. The additional
shares of Common Stock authorized may also be used to acquire or invest in
complementary businesses or products. The Company has no present obligation to
issue additional shares of Common Stock except pursuant to the two-for-one stock
split if the proposed increase in authorized shares is approved, and pursuant to
employee stock incentive plans. However, the Company has and will continue to
evaluate and conduct discussions with third parties with respect to potential
acquisitions or investments. The probability that the Company will enter into
any such transaction is presently uncertain.
In addition, the Board could use authorized but unissued shares to create
impediments to a takeover or a transfer of control of the Company. The Board has
preliminarily approved adoption of a rights plan, subject to preparation of
appropriate documentation and obtaining bank consent and other required
approvals. Implementation of the operative provisions of a rights plan may,
under certain circumstances, require an increase in the number of authorized
shares of Common Stock. Accordingly, the increase in the number of authorized
shares of Common Stock may deter a future takeover attempt which holders of
Common Stock may deem to be in their best interest or in which holders of Common
Stock may be offered a premium for their shares over the market price. The Board
is not currently aware of any attempt to take over or acquire the Company. The
adoption of a rights plan and the proposed amendment to increase the authorized
number of shares of Common Stock is not prompted by any specific effort or
takeover threat currently perceived by management.
Approval of the increase in the number of authorized shares of Common Stock
would not affect the rights, privileges and preferences of the holders of
currently outstanding Common Stock of the Company, except for effects incidental
to increasing the number of shares of the Common Stock outstanding.
The Board may cause the issuance of additional shares of Common Stock
without further vote of the stockholders of the Company, except as provided
under Delaware law or under the rules of any national securities exchange on
which shares of Common Stock are then listed. Current holders of Common Stock
have no preemptive or like rights, which means that current stockholders do not
have a prior right to purchase any new issue of capital stock of the Company in
order to maintain their ownership interest therein.
Issuance of additional shares of Common Stock pursuant to the two-for-one
stock split will have no effect on the proportionate equity interest of the
Company's current stockholders. However, the issuance of other additional shares
of Common Stock would decrease the proportionate equity interest of the
Company's current stockholders and depending upon the price paid for such
additional shares, could result in dilution to the Company's current
stockholders.
VOTE REQUIRED
Approval of the increase in the number of authorized shares of Common Stock
under applicable Delaware law will require the affirmative vote of the majority
of outstanding shares of the Company on the Record Date entitled to vote on the
proposal. Accordingly, abstentions and "broker non-votes" will have the effect
of a vote "against" the proposal.
The Board recommends a vote "FOR" the increase in the number of authorized
shares of Common Stock.
21
<PAGE> 25
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 1997. In accordance with
that same resolution, this selection is being presented to the stockholders 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 Stockholders on May 21, 1997, 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 stockholders do not ratify
the employment of Ernst & Young LLP, the selection of independent public
accountants will be reconsidered by the Board.
1998 STOCKHOLDER PROPOSALS
In order for stockholder proposals for the 1998 Annual Meeting of
Stockholders 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 December 29, 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. Ratification of the selection of
Ernst & Young LLP as independent auditors of the Company will require the
affirmative vote of a majority of the shares of Common Stock present in person
or represented by proxy and entitled to vote at the Annual Meeting. Approval of
the proposed increase in the number of authorized shares of Common Stock will
require the affirmative vote of a majority of the outstanding shares of Common
Stock as of the Record Date. All shares represented by proxies that reflect
abstentions or "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 and for
purposes of determining the outcome of any matter submitted to the stockholders
for a vote. Abstentions and "broker non-votes", 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", although abstentions and "broker
non-votes" will have the effect of a vote "against" the proposed increase in
authorized shares.
22
<PAGE> 26
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. STOCKHOLDERS 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
JAMES E. MITCHELL JR.
Secretary
23
<PAGE> 27
CLIFFS DRILLING COMPANY
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD ON
MAY 21, 1997
AND
PROXY STATEMENT
[LOGO]
<PAGE> 28
CLIFFS DRILLING COMPANY
P PROXY SOLICITED BY BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
R SHAREHOLDERS TO BE HELD WEDNESDAY, MAY 21, 1997
O
X
Y
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 indicated below on each of the following items proposed by the Board
of Directors of the Company:
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS
Nominees: Michael M. Cone and John D. Weil (change of address)
2. APPROVAL OF THE PROPOSAL TO INCREASE THE
NUMBER OF AUTHORIZED SHARES ----------------------------------------
OF THE COMPANY'S COMMON STOCK
----------------------------------------
3. APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE COMPANY FOR 1997
----------------------------------------
4. 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.)
</TABLE>
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT IF NO CHOICE IS INDICATED, YOUR SHARES WILL BE VOTED FOR EACH
PROPOSAL IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES
CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
XXXXXX
----------------
SEE REVERSE
SIDE
----------------
<PAGE> 29
[X] Please mark your
votes as in this SHARES IN YOUR NAME
example.
FOR WITHHELD
1. Election of
Directors [ ] [ ]
(see reverse)
For, except vote withheld from the following nominee(s):
- ---------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of the proposal to increase
the number of authorized shares of the [ ] [ ] [ ]
Company's common stock.
3. Appointment of Ernst & Young LLP
as independent public accountants [ ] [ ] [ ]
for the Company for 1997.
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.
