<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 Rule 14a-11(c) or Rule 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
(CLIFFS DRILLING COMPANY LOGO)
April 8, 1998
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 13, 1998, 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,
/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 STOCKHOLDERS
TO BE HELD MAY 13, 1998
TO THE STOCKHOLDERS OF CLIFFS DRILLING COMPANY:
The 1998 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 13, 1998, at 9:00 a.m. local
time, for the following purposes, as set forth in the accompanying proxy
statement.
1. To elect three directors to hold office until the 2001 Annual Meeting of
Stockholders or until their successors are duly elected and qualified;
2. To approve a proposal to adopt the Company's 1998 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 1998; 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 3, 1998 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
/s/ CINDY B. TAYLOR
CINDY B. TAYLOR
Vice President -- Controller and
Secretary
April 8, 1998
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 8, 1998
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 13, 1998, 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 adopt the 1998 Incentive Equity Plan 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 1998.
This proxy material is being mailed to stockholders beginning on or about
April 17, 1998, accompanied by the Company's Annual Report for the year ended
December 31, 1997.
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 3, 1998 (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 15,914,903 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 three-year terms.
The following information describes the Company's 7 directors as of April
8, 1998.
<TABLE>
<CAPTION>
TERM DIRECTOR
NAME AGE EXPIRES SINCE
- ---- --- ------- --------
<S> <C> <C> <C>
H. Robert Hirsch............................ 64 1998 1993
Donald W. Keller............................ 62 1998 1997
Joseph E. Reid.............................. 69 1998 1988
Robert M. McInnes........................... 67 1999 1993
Douglas E. Swanson.......................... 59 1999 1988
Michael M. Cone............................. 60 2000 1988
John D. Weil................................ 57 2000 1989
</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. Mr. Hirsch is Chairman of the Audit Committee and a member of the
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. Mr. Keller is a member of
the Audit, Compensation and Nominating Committees.
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 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 Western Gas
Resources, Inc. Mr. Reid is a member of the Audit, 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 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 Compensation Committee and a member of
the Audit and Nominating 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 currently serves as a director of Tuboscope, Inc. Mr. Swanson
is a member of the Nominating Committee.
2
<PAGE> 6
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 Chairman of the
Nominating Committee and a member of the Audit and Compensation 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, a director of Todd Shipyards Corporation and Southern Investors
Services since 1993 and a director of Baldwin & Lyons, Inc., Allied Health Care
Products, Inc., and Summit Global Management since 1997. Mr. Weil has served as
a director of the Company since August 8, 1989 and is a member of the Audit,
Compensation and Nominating Committees.
Messrs. Hirsch, Keller and Reid 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. Hirsch,
Keller and Reid. Should Mr. Hirsch, Keller or Reid 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
1997, Messrs. Hirsch (current Chairman of the Audit Committee), Cone, Keller
(subsequent to March 5, 1997), McInnes, Reid and Weil were members of the Audit
Committee. The Audit Committee met one time during 1997.
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 1997, the
members of this Committee were Messrs. McInnes (current Chairman of the
Compensation Committee), Cone, Hirsch, Keller (subsequent to March 5, 1997),
Reid and Weil. The Compensation Committee met three times during 1997.
The Nominating Committee is constituted to provide a mechanism for
identifying successors for directors and executive officers when a vacancy
exists and 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. The Nominating Committee
will consider nominees recommended by stockholders. Any stockholder wishing to
recommend a nominee should write to the Secretary of the Company, specifying the
name and qualifications of the nominee. During 1997, the Nominating Committee
members included Messrs. Cone (current Chairman of the Nominating Committee),
Hirsch, Keller (subsequent to March 5, 1997), McInnes, Reid, Swanson and Weil.
There being no business to be addressed, the Nominating Committee did not meet
during 1997.
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 1997, all committee meetings were held on the same day as a Board
meeting. Directors and members of
3
<PAGE> 7
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.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During 1997, all of the directors of the Company attended at least 75%, and
four directors of the Company attended 100%, of the meetings of the Board and
the committees on which they served either in person or by teleconference. The
Board held five meetings during the year 1997.
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..................... 59 President, Chief Executive Officer 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...................... 53 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....................... 47 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........................... 41 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........................ 36 Vice President -- Controller and Secretary
1997 -- Present: Vice President -- Controller and
Secretary of the Company; 1996 -- 1997: 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
Jim R. Wise............................ 54 Vice President -- Domestic Drilling Operations
1997 -- Present: Vice President -- Domestic
Drilling Operations of the Company; 1993 -- 1997:
Executive Vice President of Southwestern Offshore
Corporation
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the number of shares of the Company's Common
Stock beneficially owned as of April 8, 1998 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>
Douglas E. Swanson..................................... 35,224(1,2) *
Michael M. Cone........................................ 20,000 *
Joseph E. Reid......................................... 4,000(3) *
Donald W. Keller....................................... 3,000 *
John D. Weil........................................... 2,005(4) *
H. Robert Hirsch....................................... 2,000 *
Robert M. McInnes...................................... 1,000 *
Edward A. Guthrie...................................... 33,500(1,2) *
Gary W. Owen........................................... 16,500(1,2) *
Charles M. McCall...................................... 11,500(1,2) *
Jim R. Wise............................................ 11,500(1,2) *
All directors and executive officers as a group (13
persons)............................................. 185,429(1,5) 1.2%
</TABLE>
- ---------------
* less than 1.0% of class
(1) 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 9,835, 5,370,
2,587, 6,670 and 222 shares for Messrs. Swanson, Guthrie, Owen, McCall and
Wise, respectively, and 31,605 shares for the directors and executive
officers as a group (13 persons), as of December 31, 1997.
(2) Includes 24,000, 27,500, 4,500, 7,500 and 11,500 shares which may be
acquired upon the exercise of options granted to Messrs. Swanson, Guthrie,
Owen, McCall and Wise, respectively.
(3) Represents 4,000 shares of Common Stock which may be acquired upon the
exercise of options granted to Mr. Reid.
(4) The information shown above was obtained from a Form 5 dated March 9, 1998,
as filed with the Securities and Exchange Commission (the "Commission") by
John D. Weil.
(5) In addition to the options specifically described in the foregoing
footnotes, includes 34,000 shares which may be acquired upon the exercise of
options granted to two officers excluding those named.
5
<PAGE> 9
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 (pre-split) of Common Stock subject to adjustment for future
stock dividends, stock splits, recapitalizations and similar events. The plan
expires during 1998. The grants to date under the Plan have utilized all but
59,050 shares available for grant under such plan. The Board has unanimously
approved the 1998 Incentive Equity Plan, and such plan is being submitted for
the approval of stockholders at the Annual Meeting.
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 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 1997 calendar year dollar maximum of $9,500, as required
by the Internal Revenue Code of 1986, as amended (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 five years of service with
the Company or a qualified affiliate. Distributions from the 401(k) Plan are
made
6
<PAGE> 10
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.
DEFERRED COMPENSATION PLAN
The Company adopted the Cliffs Drilling Company Deferred Compensation Plan
(the "Deferral Plan") effective January 1, 1998. Eligibility for plan
participation is determined by the plan's administrative committee which
consists of Messrs. Swanson, Guthrie and McInnes (current Chairman of the
Compensation Committee). At April 8, 1998, 27 of the Company's management
employees and directors were eligible to participate in the Deferral Plan, of
which all but 5 were actively participating.
Under the Deferral Plan, the participating employees and directors may
elect to defer (i) up to 50% of salary after reaching the annual deferral
limitations applicable to the Company's 401(k) Plan, (ii) up to 100% of annual
bonuses awarded, (iii) any shares of Common Stock issuable upon exercise of
stock options, (iv) any shares of restricted or deferred stock, (v) any excess
Company matching contributions refunded by the Company's 401(k) Plan, and (vi)
up to 100% of directors' fees, as applicable. All participant deferrals are
segregated in individual accounts monitored by a fund manager, and become
general obligations of the Company. The individual account balances grow at
varying rates depending upon individual participant investment elections.
Participant deferrals may be invested in any of the six investment options
currently provided by the Company's 401(k) Plan or in an account that accrues
interest at a per annum rate of prime plus 2%. The Deferral Plan is unfunded and
all benefits payable thereunder are to be derived from the Company's then
current operating funds.
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
7
<PAGE> 11
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.
EXECUTIVE AGREEMENTS
The Company has entered into executive agreements ("Executive Agreements" )
with Messrs. Swanson, Guthrie, McCall 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, McCall 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, McCall 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.
8
<PAGE> 12
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 4
other most highly paid executive officers for services rendered in all
capacities during the fiscal years 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
AWARDS PAYOUTS
ANNUAL ----------------------- -------
COMPENSATION(1) RESTRICTED SECURITIES
----------------- STOCK UNDERLYING LTIP ALL OTHER
FISCAL SALARY BONUS AWARDS OPTIONS PAYOUTS COMPENSATION
YEAR ($) ($) ($)(2,3) (#) ($)(4) ($)(5)
------ ------- ------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas E. Swanson..................... 1997 366,667 500,000 -- 20,000 269,325 16,574
President and Chief 1996 295,000 350,000 -- 56,000 -- 17,927
Executive Officer 1995 251,667 130,000 -- -- -- 14,877
Charles M. McCall...................... 1997 170,417 120,000 -- 10,000 119,700 11,248
Senior Vice President -- 1996 131,500 76,380 -- 10,000 -- 10,099
Drilling Operations 1995 123,833 52,000 -- -- -- 8,813
Edward A. Guthrie...................... 1997 162,708 125,000 -- 10,000 119,700 12,117
Vice President -- Finance 1996 139,792 90,000 -- 30,000 -- 11,726
and Chief Financial Officer 1995 117,000 55,000 -- -- -- 9,088
Gary W. Owen........................... 1997 140,000 145,000 -- 4,000 -- 9,133
Vice President -- 1996 123,500 60,000 -- 10,000 -- 8,124
Engineering Services 1995 115,833 35,000 -- -- -- 7,645
Jim R. Wise(6)......................... 1997 170,433 90,000 -- 3,000 -- 3,691
Vice President -- 1996 99,108 30,060 -- 40,000 -- 2,051
Domestic Drilling Operations
</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 Deferred
Compensation and 401(k) Plans. The bonuses shown above for 1997, 1996 and
1995 were earned for those years, but were paid in the first quarter of the
following year (except that $100,000 of Mr. Swanson's 1996 bonus was paid in
May, 1996 and $40,000 of Mr. Owen's 1997 bonus was paid in July, 1997).
(2) A total of 17,000 shares of restricted stock (as adjusted to reflect the
stock split) with an aggregate value of $735,250 as of December 31, 1997,
net of consideration paid, were issued to these executive officers (other
than Messrs. Owen and Wise) effective December 31, 1992, in consideration
for full-recourse interest bearing promissory notes of that same date,
payable to the Company by the respective executive officers. The amount of
each promissory note was equal to 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, in tandem with the
restricted stock awarded. See also footnote (4) below.
(3) 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) Long-term incentive awards in the form of deferred stock were granted on
December 31, 1992 and were subject to the attainment of performance
conditions. Such deferred stock awards allowed the holder to receive varying
percentages of a specified number of shares of Common Stock at the end of
the five-year
9
<PAGE> 13
period ended 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 provided that if the book value per share (defined
as consolidated stockholders' equity divided by the number of outstanding
shares of Common Stock) increased by less than ten percent (10%) compounded
annually for five years, then no portion of the deferred stock was earned
and all such deferred stock was forfeited. If the book value per share
increased 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 was earned and the balance was forfeited. One hundred percent
(100%) of the deferred stock awarded was earned if the book value per share
increased by at least fifteen percent (15%) compounded annually for five
years. Deferred stock awards were earned at the 60% rate, and a total of
10,200 shares of deferred stock (as adjusted to reflect the stock split)
with an aggregate value of $508,725 as of December 31, 1997 were issued to
the above executive officers (other than Messrs. Owen and Wise).
(5) The amounts shown in this column for the last fiscal year are comprised of
the following: an aggregate of $40,591 of Company payments to the Company's
401(k) Plan, consisting of $9,500, $9,500, $9,500, $8,400 and $3,691 on
behalf of Messrs. Swanson, McCall, Guthrie, Owen and Wise, respectively, and
an aggregate of $12,172 of deemed compensation resulting from Company paid
split dollar life insurance premiums in the amount of $7,074, $1,748, $2,617
and $733 on behalf of Messrs. Swanson, McCall, Guthrie and Owen,
respectively.
(6) Amounts shown above for Mr. Wise are for his period of employment with the
Company commencing May 24, 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table presents the total number of the Company's Common Stock
options granted to the reportable executive officers on May 21, 1997. No SAR
grants were awarded during fiscal year 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#)(1,2) YEAR ($/SH)(3) DATE 5%($) 10%($)
- ---- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Douglas E. Swanson.............. 20,000 23.1% 32.75 5/20/2007 411,923 1,043,900
Charles M. McCall............... 10,000 11.6% 32.75 5/20/2007 205,961 521,950
Edward A Guthrie................ 10,000 11.6% 32.75 5/20/2007 205,961 521,950
Gary W. Owen.................... 4,000 4.6% 32.75 5/20/2007 82,385 208,780
Jim R. Wise..................... 3,000 3.5% 32.75 5/20/2007 61,788 156,585
</TABLE>
- ---------------
(1) Stock options granted in 1997 are exercisable in increments of 50%, 25% and
25%, respectively, commencing one, two and three years after the grant date.
The stock options were granted for a term of 10 years, subject to earlier
termination in certain events relating to cessation of employment.
(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 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.
10
<PAGE> 14
AGGREGATED OPTION/SAR EXERCISES 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, 1997, 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 VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
SHARES YEAR-END(#) YEAR-END($)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Douglas E. Swanson............. 67,200 2,904,056 --/48,000 --/1,347,000
Charles M. McCall.............. 27,000 1,361,305 --/15,000 --/350,625
Edward A. Guthrie.............. 22,000 1,090,656 15,000/25,000 538,125/709,375
Gary W. Owen................... 15,000 694,375 --/9,000 --/247,875
Jim R. Wise.................... 20,000 804,580 --/23,000 --/768,875
</TABLE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Six 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 certain long-term incentive compensation
associated with the 1988 Incentive Equity Plan, 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. To the extent
that long-term incentive compensation associated with the 1988 Incentive Equity
Plan qualifies as "performance-based," such compensation is not included in the
computation of amounts subject to the limit. 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 Company's policy is to qualify, to the extent
reasonable, its executive officers' compensation for deductibility
11
<PAGE> 15
under applicable tax laws. However, the Compensation Committee believes that its
primary responsibility is to provide a compensation program that will attract,
retain and reward the executive talent necessary to the Company's success.
Consequently, the Compensation Committee recognizes that the loss of a tax
deduction could occur in certain circumstances.
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
21, 1997, and there have been no increases in base salaries for the Chief
Executive Officer or the other named individuals since the May, 1997 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 February 18, 1998 the Compensation Committee granted a total of
$1,140,000 under the Incentive Bonus Plan to the Company's then seven (7)
executive officers, including awards to Messrs. Swanson, McCall, Guthrie, Owen
and Wise of $500,000, $120,000, $125,000, $105,000 and $90,000, respectively,
and a total of $877,950 to certain other key employees as a group. In 1998, the
Compensation Committee awarded bonuses to three non-executive officer employees
in excess of the per individual limit (150% of target bonus) provided for in the
Incentive Bonus Plan for extraordinary performance in 1997. All of the bonuses
awarded were paid in February, 1998, unless the recipient elected deferrals
under the Deferral Plan.
12
<PAGE> 16
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. During 1997, the Compensation Committee awarded options granting rights
to acquire a total of 86,500 shares (as adjusted to reflect the stock split) of
Common Stock, encompassing 55,000 shares of Common Stock awarded to the
Company's then seven (7) executive officers, including awards to Messrs.
Swanson, McCall, Guthrie, Owen and Wise of 20,000, 10,000, 10,000, 4,000 and
3,000 shares of Common Stock, respectively, and a total of 31,500 shares of
Common Stock to certain other key employees. During 1997, the Compensation
Committee also awarded 3,000 shares of restricted stock to two key employees and
a total of 87,600 shares in an award which covered most salaried employees of
the Company other than executive officers.
Chief Executive Officer
The Compensation Committee's intention is to link the compensation of the
Company's Chief Executive Officer with the Company's operating and financial
performance, as well as 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 1997
performance, particularly the Company's operational, financial and business
development accomplishments, the substantial increase in stockholder equity and
the consummation of several asset acquisitions. The Company, during fiscal year
1997, increased the market value of its Common Stock approximately 58%, recorded
an increase in net income of 224%, expanded its daywork drilling operations in
Venezuela and Trinidad and also entered into a new market, Brazil.
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 1997 compensation adequately reflects the
Company's compensation policies and practices.
COMPENSATION COMMITTEE
Robert M. McInnes, Chairman
Michael M. Cone
H. Robert Hirsch
Donald W. Keller
Joseph E. Reid
John D. Weil
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
COMMITTEE DECISIONS
During the Company's 1997 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.
13
<PAGE> 17
No member of the Compensation Committee of the Board of Directors of the
Company was, during the 1997 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 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 and the Company's peer
group index (Simmons & Company Offshore Drillers Index).
<TABLE>
<CAPTION>
Simmons &
Company Standard &
Measurement Period Cliffs Drilling Offshore Poor's 500
(Fiscal Year Covered) Company Drillers Index Stock Index
<S> <C> <C> <C>
1992 100 100 100
1993 103.1 167.9 107.1
1994 92.4 137.7 105.4
1995 117.0 265.4 141.4
1996 509.1 629.7 170.0
1997 802.9 809.3 222.7
</TABLE>
- ---------------
(1) The plot points shown in the performance graph and accompanying table above
are calculated as of December 31st of each fiscal year.
(2) The Standard & Poor's 500 Stock Index and the Simmons & Company Offshore
Drillers Index are calculated using total returns to common stock assuming
reinvestment of dividends.
(3) 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, Pride
International, Reading & Bates Corporation, Rowan Companies, Inc., Santa Fe
International, Smedvig a.s. and Transocean Offshore Drilling Inc.
14
<PAGE> 18
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning the number of
shares of Common Stock beneficially owned as of April 8, 1998 (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 beneficially own 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>
Pilgrim Baxter & Associates, Ltd.(1)
825 Duportail Road
Wayne, Pennsylvania 19087................................. 1,278,730 8.0%
Nicholas Applegate Capital Management(2)
600 West Broadway, 29th Floor
San Diego, CA 92101....................................... 986,614 6.2%
Cambridge Investments, Ltd.(3)
600 Montgomery Street, 43rd Floor
San Francisco, CA 94111................................... 980,200 6.2%
FMR Corp.(4)
82 Devonshire Street
Boston, MA 02109.......................................... 790,020 5.0%
</TABLE>
- ---------------
(1) The information shown above was obtained from the Schedule 13G (Amendment
No. 1) dated February 17, 1998 as filed with the Securities and Exchange
Commission (the "Commission") by Pilgrim Baxter & Associates, Ltd. Of the
shares reflected as beneficially owned, Pilgrim Baxter & Associates, Ltd.
has sole voting power over 1,085,130 shares of Common Stock and shared
voting power and sole dispositive power over 1,278,730 shares of Common
Stock, and the PBHG Growth Fund has sole voting and dispositive power with
respect to 883,000 shares of Common Stock.
(2) The information shown above was obtained from the Schedule 13G (Amendment
No. 1) dated February 3, 1998 as filed with the Commission by Nicholas
Applegate Capital Management. Of the shares reflected as beneficially owned,
Nicholas Applegate Capital Management has sole voting power over 781,456
shares of Common Stock, shared voting power over 3,266 shares of Common
Stock, and sole dispositive power over 986,614 shares of Common Stock.
(3) The information shown above was obtained from the Schedule 13D (Amendment
No. 2) dated January 16, 1998 as filed with the Commission by Cambridge
Investments, Ltd.
(4) The information shown above was obtained from the Schedule 13G (Amendment
No. 3) dated February 14, 1998, as filed with the Commission by FMR Corp.
("FMR"). Of the 790,020 shares reflected as beneficially owned, FMR has sole
voting power over 237,800 shares of Common Stock and sole dispositive power
over 790,020 shares of Common Stock, and Edward C. Johnson 3d and Abigail P.
Johnson each have sole dispositive power over 790,020 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
15
<PAGE> 19
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 five
reports covering an aggregate of ten transactions; Mr. Keller, a recently
elected director of the Company, and Mr. Wise, a recently appointed executive
officer of the Company , each made a late filing of one initial beneficial
ownership report; and Mr. Swanson, President and Chairman of the Board of the
Company, made a late filing of one report covering one transaction when the
filing was delayed by two days due to a delivery error.
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 ADOPTION OF THE 1998 INCENTIVE EQUITY PLAN
The Board has adopted the 1998 Incentive Equity Plan (the "1998 Plan")
subject to the approval of the Company's stockholders being solicited by this
proxy statement. A summary of the principal features of the 1998 Plan is set
forth below, but is qualified in its entirety by reference to the full text of
the 1998 Plan, a copy of which is attached to this Proxy Statement as Appendix
A. All defined terms used below have the meanings set forth in the 1998 Plan
unless otherwise indicated. The closing price of the Company's Common Stock on
April 7, 1998 as reported by the New York Stock Exchange was $40 3/4 per share.
SUMMARY OF THE 1998 INCENTIVE EQUITY PLAN
Permitted Awards; Eligibility. The 1998 Plan permits the granting of any or
all of the following types of awards ("Awards"): stock options to purchase
shares of the Company's Common Stock ("Options"), stock appreciation rights
("SARs"), restricted stock and deferred stock. All employees of the Company or
any related company, all individuals to whom a bona fide written offer of
employment has been extended by the Company or any related company, and all
non-employee directors of the Company are eligible to receive Awards pursuant to
the 1998 Plan. At the current time, approximately 750 employees and 6
non-employee directors are eligible to participate in the 1998 Plan.
Administration. The 1998 Plan is to be administered by the Compensation
Committee which shall consist of two or more members of the Board. The
Compensation Committee shall have the authority and discretion, subject to the
provisions of the 1998 Plan, to select from among the eligible participants
those persons who are to receive Awards; to determine the time of receipt, the
types of Awards and the number of shares covered by the Awards; to establish the
terms, conditions, restrictions and other provisions of such Awards; and to
cancel or suspend Awards.
The Compensation Committee has the authority to determine the extent to
which Awards will be structured to conform to the requirements applicable to
performance-based compensation as set forth in section 162(m) of the Code and to
establish performance goals and measurements based on specified levels of, or
growth in, one or more of the following business criteria: net income, pre-tax
income, earnings per share, revenues, return on investment, return on net
assets, return on equity, operating ratio, cash flow, stockholder return, market
capitalization, total equity, economic profit (defined as the difference between
(A) after-tax earnings and (B) the cost of capital multiplied by total capital
used), economic value added (defined as economic profit for the current year
minus economic profit for the prior year), quality improvements, market share,
strategic positioning, systems improvement or customer satisfaction.
The Compensation Committee is authorized to interpret the 1998 Plan and to
establish, amend and rescind rules and regulations as it may deem advisable for
administration of the 1998 Plan. All determinations made by the Compensation
Committee in connection with the 1998 Plan shall be final and binding.
Shares Subject to the 1998 Plan. The maximum number of shares of Common
Stock that may be delivered to participants and their beneficiaries pursuant to
the 1998 Plan is 1,000,000 shares of Common
16
<PAGE> 20
Stock, plus any shares remaining available for future awards under the 1988
Incentive Equity Plan and any shares that are represented by awards granted
under the 1988 Incentive Equity Plan which are forfeited, expire or are canceled
without delivery of shares of Common Stock. The maximum number of shares that
may be covered by Awards granted to any one individual pursuant to Stock Options
or SARs during any three consecutive calendar years pursuant to the 1998 Plan is
200,000 shares. The maximum number of shares that may be covered by Awards
granted to any one individual pursuant to restricted stock or deferred stock
during any three consecutive calendar years pursuant to the 1998 Plan is 100,000
shares.
To the extent any shares of Common Stock covered by an Award are not
delivered because the Award is forfeited, canceled or settled in cash, such
shares shall not be deemed to have been delivered for purposes of determining
the maximum number of shares of Common Stock available pursuant to the 1998
Plan. In the event of a corporate transaction affecting the capitalization of
the Company, the Compensation Committee may adjust (i) the number and kind of
shares which may be delivered under the 1998 Plan, (ii) the number and kind of
shares subject to outstanding Awards, and (iii) the exercise price of
outstanding Options.
Stock Options. The 1998 Plan permits the granting of Options that either
qualify as Incentive Stock Options ("ISOs") under Section 422 (b) of the Code,
or do not so qualify ("Non-Qualified Stock Options"). The 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.
The term of each option will be fixed by the Compensation Committee, but
may not exceed 10 years from the date of grant. 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.
In the event of termination of employment of an optionee by reason
retirement, disability or death, an Option may thereafter be exercised (to the
extent it was then exercisable) for various periods of up to three 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 retirement, disability or
death, his Options may be exercised, to the extent then exercisable, for three
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 1998 Plan).
The Compensation Committee may authorize all or a portion of any award of
Options (other than ISOs) to be granted on terms which permit transfer by the
participant to the spouse, parents, children, stepchildren, sisters, brothers or
grandchildren of the participant and to certain trusts, partnerships or limited
liability companies related to the participant. Except as set forth in the 1998
Plan and in the applicable agreement, no Awards shall be transferred, assigned,
sold, pledged, mortgaged or encumbered by the participant otherwise than by will
or by the laws of descent and distribution or pursuant to a qualifying domestic
relations order.
Stock Appreciation Rights. The Compensation Committee may also grant 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 exercise or termination of the related Option.
Restricted Stock. The Compensation Committee may also award restricted
stock subject to certain conditions set forth in the 1998 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 during the restriction
period established by the Compensation Committee. Unless otherwise provided in
the applicable agreement, upon termination of a participant's employment with
the Company or a related company for any reason during the restriction period,
all shares
17
<PAGE> 21
still subject to restriction shall be forfeited by the participant, although the
Compensation Committee may waive any such restrictions in the event of
termination of employment due to death or disability. Based on service,
performance or such other factors or criteria as the Compensation Committee may
determine, the Compensation Committee may, at or after grant, provide for the
lapse of such restrictions in installments or may accelerate or waive such
restrictions in whole or in part.
Deferred Stock. The Compensation Committee may also make deferred stock
awards under the 1998 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 or after grant, based on service, performance or such
other factors or criteria as the Compensation Committee may determine.
Dividend Deferrals under the 1998 Plan. The 1998 Plan provides for the
automatic deferral and deemed reinvestment of (i) dividends paid on restricted
stock awards under the 1998 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.
Settlement of Awards. Awards may be settled through cash payments, the
delivery of shares of Common Stock, the granting of replacement Awards, or any
combination thereof as the Compensation Committee shall determine. Any Award
settlement may be subject to such conditions, restrictions and contingencies as
the Compensation Committee shall determine.
Amendment and Termination. The Board may amend, alter or discontinue the
1998 Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a participant under an award then
outstanding under the 1998 Plan without the participant's consent, or which,
without the approval of the Company's stockholders, except as provided in the
1998 Plan, increase the number of shares reserved for grants under the 1998
Plan. The Compensation Committee may amend the terms of any outstanding award
therefore granted, retroactively or prospectively, but no such amendment shall
impair the rights of any holder without the holder's consent.
Change in Control Provisions. The 1998 Plan provides that in the event of a
"Change in Control" (as defined in the 1998 Plan) or a "Potential Change in
Control" (as defined in the 1998 Plan), the Board or the Compensation Committee
may provide that (i) any or all Options and related SARs (to the extent
outstanding for at least six 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 covered thereby 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.
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 1998 Plan. The
summary is not intended to be an exhaustive or 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
18
<PAGE> 22
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
Option 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. Upon 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.
The grant of Non-Qualified Stock Options will not result in any taxable
income to the optionee or a deduction for the Company. 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.
It is expected that the Company's tax deductions associated with the
exercise of Options pursuant to the 1998 Plan will not be limited by the $1
million deductibility limit imposed by Section 162(m) of the Code.
Automatic Stock Option Awards. The 1998 Plan provides for an automatic
grant of Non-Qualified Stock Options for a total of 4,000 shares of Common Stock
to each of the Company's non-employee directors on the date of their initial
election to the Board, and a total of 2,000 shares of Common Stock to each of
the Company's continuing or re-elected non-employee directors on the date of
each Annual Meeting of Stockholders. Each such option shall have an exercise
price equal to the fair market value of the stock on the date of grant and will
be 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 1998 Plan. No action by the Compensation
Committee is required to effect any such grants.
VOTE REQUIRED
Approval of the 1998 Incentive Equity Plan will require the affirmative
vote of the holders of a majority of the Common Stock present or represented at
the Annual Meeting.
The Board has unanimously approved the 1998 Incentive Equity Plan and
recommends a vote "FOR" the proposal.
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 1998. 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
19
<PAGE> 23
May 13, 1998, 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.
1999 STOCKHOLDER PROPOSALS
In order for stockholder proposals for the 1999 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 10, 1998.
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 1998 Incentive Equity Plan 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.
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. Although abstentions
and broker non-votes will not affect the outcome of the election of directors,
abstentions and broker non-votes will have the effect of a vote "against"
ratification of the selection of Ernst & Young LLP as independent auditors of
the Company and a vote "against" approval of the 1998 Incentive Equity Plan.
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
/s/ CINDY B. TAYLOR
CINDY B. TAYLOR
Vice President -- Controller and
Secretary
20
<PAGE> 24
CLIFFS DRILLING COMPANY
1998 INCENTIVE EQUITY PLAN
SECTION 1. PURPOSE.
This Cliffs Drilling Company 1998 Incentive Equity Plan is intended to
encourage Eligible Participants to become owners of Stock of Cliffs Drilling
Company in order to increase their interest in the Company's long-term success,
to provide incentive equity opportunities which are competitive with other
similarly situated corporations and to stimulate the efforts of Eligible
Participants by giving suitable recognition for services which contribute
materially to the Company's success.
SECTION 2. DEFINITIONS.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries which the Board designates as an "Affiliate" for the purposes of
this Plan.
(b) "Award" means any award or benefit granted to any Eligible Participant
pursuant to the Plan, including without limitation, any Stock Option, Stock
Appreciation Right, Restricted Stock or Deferred Stock.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means a felony conviction of a participant or the failure of a
participant to contest prosecution for a felony, or a participant's willful
misconduct or dishonesty, or a participant's failure to perform his work in
accordance with reasonable standards established by the Company, any of which is
directly and materially harmful to the business or reputation of the Company or
any Subsidiary or Affiliate.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
(f) "Committee" means the Committee referred to in Section 3 of the Plan.
If at any time a Committee shall not be in existence, then the functions of the
Committee specified in the Plan shall be exercised by the Board.
(g) "Company" means Cliffs Drilling Company, a corporation organized under
the laws of the State of Delaware, or any successor corporation.
(h) "Deferral Period" means the initial period of time during which shares
of Deferred Stock awarded pursuant to Section 8 are subject to deferral
limitations under Section 8(c).
(i) "Deferred Stock" means an Award made pursuant to Section 8 of the right
to receive Stock at the end of a specified deferral period.
(j) "Disability" means permanent and total disability as determined under
the Company's long-term disability program.
(k) "Eligible Participant" means (i) any employee of the Company or a
Subsidiary or Affiliate of the Company, (ii) any individual to whom a bona fide
written offer of employment from the Company or a Subsidiary or Affiliate of the
Company has been extended, and (iii) any Non-Employee Director of the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(m) "Fair Market Value" means, as of any given date, the closing price of
the Stock on such date as reported on the principal United States securities
exchange on which the Stock is listed, or if the Stock is not so listed, the
closing price as quoted on the NASDAQ National Market System, or if the Stock is
not so listed or quoted, the closing bid as quoted on the NASDAQ
over-the-counter market; provided, that if no such prices are so reported or
quoted on that date or if, in the discretion of the Committee, another means of
1
<PAGE> 25
determining the Fair Market Value of a share of Stock at such date is deemed
necessary or advisable, the Committee may provide for another means for
determining such Fair Market Value.
(n) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422(b)
of the Code.
(o) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(p) "Non-Employee Director" means any director of the Company who at the
time of his or her service is not an employee of the Company or any Subsidiary
or Affiliate of the Company.
(q) "Plan" means the Cliffs Drilling Company 1998 Incentive Equity Plan, as
hereafter amended from time to time.
(r) "Restriction Period" means the period of time during which shares of
Stock awarded to a participant pursuant to Sections 8(a) and (b) remain subject
to the restrictions referred to in Section 8(b).
(s) "Restricted Stock" means an award of shares of Stock that is subject to
restrictions under Section 8.
(t) "Retirement" means retirement from active employment or service with
the Company or any Subsidiary or Affiliate on or after the normal retirement
date specified in, or pursuant to the early retirement provisions of, such
employer's retirement policy.
(u) "Stock" means the shares of Common Stock, par value $.01 per share, of
the Company.
(v) "Stock Appreciation Right" means the right granted under Section 7 to
surrender to the Company all or a portion of a Stock Option in exchange for a
payment in cash or Stock.
(w) "Stock Option" or "Option" means any option (including Incentive Stock
Options and Non-Qualified Stock Options) to purchase shares of Stock granted
pursuant to Section 6.
(x) "Subsidiary" means any corporation (other than the Company) during any
period in which it is a "subsidiary corporation," as defined in Section 424(f)
of the Code, with respect to the Company.
In addition, the terms "Approval Date," "Change in Control," "Potential
Change in Control" and "Change in Control Price" shall have meanings set forth
in Section 9.
SECTION 3. ADMINISTRATION.
(a) The Plan shall be administered by the Compensation Committee of the
Board of Directors, which shall consist of two or more members of the Board of
Directors who are appointed by, and serve at the pleasure of, the Board.
(b) The Committee shall have the power and authority to grant Awards
pursuant to, and to manage and control the operation and administration of, the
Plan. In particular, the Committee shall have the authority:
(i) to select from among the Eligible Participants those persons to
whom Awards may from time to time be granted;
(ii) to determine whether, when, and to what extent Awards are
granted;
(iii) to determine the types of Awards and the number of shares to be
covered by each such Award;
(iv) to determine the terms and conditions, not inconsistent with the
terms hereof, of any Award (including, but not limited to, the share price
and any restriction or limitation on, or any vesting, acceleration or
forfeiture waiver regarding, any Award, based on such factors and criteria
as the Committee shall determine, in its sole discretion), and subject to
the terms hereof, to cancel or suspend Awards;
(v) to determine the extent to which Awards under the Plan will be
structured to conform to the requirements applicable to performance-based
compensation as described in Section 162(m) of the Code, and to take
action, establish such procedures, and impose such restrictions at the time
such Awards
2
<PAGE> 26
are granted as the Committee determines to be necessary or appropriate to
conform to such requirements; and
(vi) to determine the performance goals and measurements (based on
specified levels of, or growth in, one or more of the following business
criteria: net income, pre-tax income, earnings per share, revenues, return
on investment, return on net assets, return on equity, operating ratio,
cash flow, stockholder return, market capitalization, total equity,
economic profit (defined as the difference between (A) after-tax earnings
and (B) the cost of capital multiplied by total capital used), economic
value added (defined as economic profit for the current year minus economic
profit for the prior year), quality improvements, market share, strategic
positioning, systems improvement or customer satisfaction) applicable to
performance-based Awards and to adjust any such performance goals and
measurements to include or exclude the impact of extraordinary or unusual
items, events or circumstances, to reflect change in applicable tax or
accounting rules and other developments, or as otherwise deemed advisable
by the Committee;
(vii) to determine whether and under what circumstances an Award may
be settled in cash, Stock or otherwise pursuant to Section 12(g) of the
Plan.
(c) The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any Award and any agreements relating thereto; and to otherwise
supervise the administration of the Plan. All decisions made by the Committee
pursuant to the provisions hereof shall be made in the Committee's sole
discretion and shall be final and binding on all persons.
SECTION 4. ELIGIBILITY.
Eligible Participants may be granted Awards pursuant to the Plan, at the
discretion of the Committee. The individuals to whom Awards are granted under
the Plan shall be selected from time to time by the Committee, in its sole
discretion, from among the Eligible Participants.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) Subject to the following provisions of this Section 5, the maximum
number of shares of Stock that may be delivered pursuant to the Plan shall be
equal to the sum of (i) 1,000,000 shares, (ii) any shares remaining available
for future awards under the 1988 Incentive Equity Plan as of the effective date
of this Plan, and (iii) any shares that are represented by awards granted under
the 1988 Incentive Equity Plan which are forfeited, expire or are canceled
without delivery of shares of Stock or which result in the forfeiture of shares
back to the Company. Such shares may consist, in whole or in part, of authorized
and unissued shares or treasury shares.
(b) Any shares of Stock granted pursuant to the Plan that are forfeited
because of the failure to meet an Award contingency or condition shall again be
available for delivery pursuant to new Awards granted under the Plan. To the
extent any shares of Stock covered by an Award are not delivered to a
participant or beneficiary because the Award is forfeited or canceled, or the
shares of Stock are not delivered because the Award is settled in cash, such
shares shall not be deemed to have been delivered for purposes of determining
the maximum number of shares of Stock available for delivery pursuant to the
Plan.
(c) If the exercise price of any Stock Option or the withholding obligation
of the participant in connection with any Award granted pursuant to the Plan is
satisfied by tendering shares of Stock to the Company, only the number of shares
of Stock issued, net of the shares of Stock tendered, shall be deemed delivered
for purposes of determining the maximum number of shares of Stock available for
delivery pursuant to the Plan.
(d) Shares of Stock delivered under the Plan in settlement, assumption or
substitution of outstanding Awards (or obligations to grant future awards) under
the plans or arrangements of another entity shall not reduce the maximum number
of shares of Stock available for delivery under the Plan, to the extent that
such
3
<PAGE> 27
settlement, assumption or substitution is a result of the Company or any
Subsidiary or Affiliate acquiring another entity (or an interest in another
entity).
(e) In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, Stock split, split-up, spin-off, combination,
exchange of shares, or other change in corporate structure affecting the Stock,
a substitution or adjustment shall be made (i) in the aggregate number and kind
of shares which may be delivered pursuant to the Plan, (ii) in the number and
kind of shares subject to outstanding Awards granted pursuant to the Plan, and
(iii) in the exercise price of outstanding Stock Options granted pursuant to the
Plan, in each case as may be determined to be appropriate by the Board, provided
that the number of shares subject to any Award shall always be a whole number.
(f) Subject to the foregoing provisions of Section 5, the following
additional maximums are imposed under the Plan:
(i) The maximum aggregate number of shares of Stock that may be
covered by Stock Options and SARs granted to any one individual during any
three consecutive calendar years pursuant to the Plan shall be 200,000
shares.
(ii) The maximum aggregate number of shares of Restricted Stock and
Deferred Stock that may be granted to any one individual during any three
consecutive calendar years pursuant to the Plan shall be 100,000 shares.
SECTION 6. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other Awards granted
under the Plan. Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve, and the provisions of Stock Option
Awards need not be the same with respect to each optionee.
The Committee may grant Incentive Stock Options, Non-Qualified Stock
Options, or both types of Stock Options (in each case with or without Stock
Appreciation Rights) to any Eligible Participant; provided, however, that
Incentive Stock Options may be granted only to employees of the Company or its
Subsidiaries. To the extent that any Stock Option does not qualify as an
Incentive Stock Option, it shall constitute a separate Non-Qualified Stock
Option.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions not
inconsistent with the terms of the Plan, as the Committee deems appropriate:
(a) Exercise Price. The exercise price per share of Stock purchasable
under a Stock Option shall be not less than the Fair Market Value on the
day the Option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten years
after the date such Option is granted.
(c) Exercise of Options. Stock Options shall become exercisable at
such time or times and subject to such terms and conditions (including,
without limitation, installment exercise provisions) as shall be determined
by the Committee, provided, however, that, except as provided in Section
6(f) or (g) (in the case of Disability) and Section 9, unless otherwise
determined by the Committee at or after grant, no Stock Option shall be
exercisable prior to the first anniversary date of the granting of the
option. If the Committee provides that any Stock Option is exercisable only
in installments, the Committee may waive such installment exercise
provisions at any time in whole or in part based on performance and/or such
other factors as the Committee may determine.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part by giving written notice of exercise to the Company specifying the
number of shares to be purchased. Such notice shall be
4
<PAGE> 28
accompanied by payment in full of the purchase price. As determined by the
Committee, at or after grant, payment of the exercise price, in whole or in
part, may be made as follows:
(i) by certified or bank check;
(ii) by delivery to the Company of an executed irrevocable option
exercise form together with irrevocable instructions to a broker-dealer
to (A) sell a sufficient portion of the shares acquired upon exercise of
the Option and (B) remit directly to the Company a sufficient portion of
the sale proceeds to pay the entire exercise price and any tax
withholding resulting from such exercise;
(iii) by tendering shares of Stock (either by actual delivery or by
attestation), with such shares valued at Fair Market Value as of the
date of exercise, upon terms and conditions as determined by the
Committee; or
(iv) by such other instrument as may be permitted in accordance
with rules or procedures adopted by the Committee.
An optionee shall generally have the rights of a shareholder with respect
to shares subject to the Option only when the optionee has given written
notice of exercise, has paid in full for such shares and, if requested,
given the representation described in Section 12(a).
(e) Non-Transferability of Options. Except as set forth in this
Section 6(e) and in the applicable stock option agreement, no Stock Option
shall be transferable by the optionee otherwise than by will or by laws of
descent and distribution or pursuant to a "domestic relations order" as
defined in the Code or Title I of the Employee Retirement Income Security
Act (or the rules promulgated thereunder), and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee. At the
request of an optionee, Stock purchased upon exercise of an Option may be
issued or transferred into the name of the optionee and another person
jointly with rights of survivorship. The Committee may, in its discretion,
authorize all or a portion of any Non-Qualified Stock Options to be granted
on terms which permit transfer by the optionee to (i) the spouse, children,
stepchildren, siblings or grandchildren of the optionee, (ii) a trust or
trusts for the exclusive benefit of the spouse, children, stepchildren,
siblings or grandchildren of the optionee, or (iii) a partnership or
limited liability company in which the spouse, children, stepchildren,
siblings or grandchildren of the optionee are the only partners or members,
as applicable; provided in each case that (x) there may be no consideration
for any such transfer (other than in the case of Clause (iii), units in the
partnership or membership interests in the limited liability company), (y)
the stock option agreement pursuant to which such Stock Options are granted
must be approved by the Committee, and must expressly provide for
transferability in a manner consistent with this Section 6(e), and (z)
subsequent transfers of transferred options shall be prohibited except
those made in accordance with this Section 6(e) or by will or by the laws
of descent and distribution or pursuant to a "domestic relations order" as
defined in the Code or Title I of the Employee Retirement Income Security
Act (or the rules promulgated thereunder). Following transfer, any such
Stock Options shall continue to be subject to the same terms and conditions
as were applicable immediately prior to transfer. The provisions with
respect to expiration and termination of employment or service with the
Company set forth in subsections (f), (g) and (h) of this Section 6 shall
continue to apply with respect to the original optionee, in which event the
Stock Options shall be exercisable by the transferee only to the extent and
for the periods specified herein. The original optionee will remain subject
to withholding taxes upon exercise of any such Stock Option by the
transferee. The Company shall have no obligation whatsoever to provide
notice to any transferee of any matter, including without limitation, early
termination of a Stock Option on account of termination of the original
optionee's employment or service with the Company.
(f) Termination by Death. Subject to Section 6(i), if an optionee's
employment or service with the Company or any Subsidiary or Affiliate
terminates by reason of death, any Stock Option previously granted to such
optionee which remains unexercised may thereafter be exercised, to the
extent it was exercisable at the time of death or on such accelerated basis
as the Committee may determine at or after grant, for a period of one year
(or such other period up to three years as the Committee may specify)
5
<PAGE> 29
from the date of death or until the expiration of the stated term of such
Stock Option, whichever period is shorter.
(g) Termination by Reason of Disability or Retirement. Subject to
Section 6(i), if an optionee's employment or service with the Company or
any Subsidiary or Affiliate terminates by reason of Disability or
Retirement, any Stock Option previously granted to such optionee which
remains unexercised may thereafter be exercised, to the extent it was
exercisable at the time of such termination or on such accelerated basis as
the Committee may determine at or after grant, for a period of three years
(or such shorter period as the Committee may specify at grant) from the
date of such termination of employment or service or until the expiration
of the stated term of such Stock Option, whichever period is shorter,
provided, however, that, if the optionee dies within such three-year period
(or such shorter period), any unexercised Stock Option shall thereafter be
exercisable, to the extent it was exercisable at the time of death, for a
period of one year from the date of such death or until the expiration of
the stated term of such Stock Option, whichever period is the shorter.
(h) Other Termination of Employment or Service. Unless otherwise
determined by the Committee at or after grant, if an optionee's employment
or service with the Company or any Subsidiary or Affiliate terminates for
any reason other than death, Disability or Retirement, any Stock Option
previously granted to such optionee which remains unexercised may
thereafter be exercised, to the extent it was exercisable at the time of
such termination, for a period of three months from the date of such
termination of employment or service or until the expiration of the stated
term of such Stock Option, whichever period is shorter, except that, if the
termination was for Cause, any and all unexercised Stock Options previously
granted to such optionee shall be immediately canceled.
(i) Incentive Stock Option Limitations.
(i) To the extent that the aggregate Fair Market Value (determined
as of the time of grant) of the Stock with respect to which Incentive
Stock Options granted after 1986 are exercisable for the first time by
the optionee during any calendar year under the Plan and any other stock
option plan of the Company or any Subsidiary or Affiliate exceeds
$100,000, such Options shall be treated as Non-Qualified Stock Options,
to the extent required by Section 422 of the Code.
(ii) The Committee may provide at grant, to the extent permitted
under Section 422 of the Code, that, if (i) a participant's employment
or service with the Company or its Subsidiaries is terminated by reason
of death, Disability or Retirement and (ii) the portion of any Incentive
Stock Option that is otherwise exercisable during the post-termination
period specified under Section 6(f), (g) or (h), applied without regard
to this Section 6(i), is greater than the portion of such Option that is
exercisable as an "incentive stock option" during such post-termination
period under Section 422, such post-termination period shall
automatically be extended (but not beyond the original option term) to
the extent necessary to permit the optionee to exercise such Incentive
Stock Option either as an Incentive Stock Option or, if exercised after
the expiration of the applicable exercise periods under Section 422(a)
of the Code, as a Non-Qualified Stock Option. The Committee is also
authorized to provide at grant for a similar extension of the
post-termination exercise period in the event of a Change in Control or
a Potential Change in Control.
(iii) In the event of a participant's termination of employment or
service with the Company or its Subsidiaries by reason of death,
Disability or Retirement, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of
Section 422 of the Code, such Stock Option shall thereafter be treated
as a Non-Qualified Stock Option.
SECTION 7. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Stock Option. In the case of an Incentive
Stock Option,
6
<PAGE> 30
such rights may be granted only at the time of the grant of such Stock Option.
Stock Appreciation Rights are exercisable as follows:
(i) A Stock Appreciation Right may be exercised by surrendering the
applicable portion of the related Stock Option in accordance with
procedures established by the Committee for such purposes. Upon such
exercise and surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 7(b). Stock Options which
have been so surrendered shall no longer be exercisable to the extent the
related Stock Appreciation Rights have been exercised.
(ii) A Stock Appreciation Right or applicable portion thereof granted
with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option,
except that, unless otherwise determined by the Committee at the time of
grant, a Stock Appreciation Right granted with respect to less than the
full number of shares covered by a related Stock Option shall not be
reduced until the number of shares covered by an exercise or termination of
the related Stock Option exceeds the number of shares not covered by the
Stock Appreciation Right.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such times
and to the extent that the Stock Options to which they relate are
exercisable, in accordance with the provisions of Section 6 and this
Section 7 of the Plan, provided that a Stock Appreciation Right shall not
be exercisable during the first six months of its term by any optionee
except in the event of death or Disability of the optionee prior to the
expiration of the six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive an amount in cash and/or shares of Stock in
the aggregate equal in value to the excess of the Fair Market Value of one
share of Stock over the option price per share specified in the related
Stock Option multiplied by the number of shares in respect of which the
Stock Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when and to
the extent that the underlying Stock Option would be transferable under
Section 6(e) of the Plan.
(iv) The Committee may provide, at the time of grant, that such Stock
Appreciation Right can be exercised only in the event of a Change in
Control and/or a Potential Change in Control, subject to such terms and
conditions as the Committee may specify at grant.
SECTION 8. RESTRICTED STOCK AND DEFERRED STOCK.
(a) Authorization. Shares of Restricted Stock and/or Deferred Stock may be
issued either alone or in addition to other Awards granted under the Plan, and
upon terms and conditions established at the discretion of the Committee. The
provisions of Restricted Stock and Deferred Stock Awards need not be the same
with respect to each recipient.
(b) Restrictions and Conditions Applicable to Restricted Stock
Awards. Restricted Stock Awards shall be subject to the following restrictions
and conditions:
(i) The consideration for issuance of shares of Restricted Stock
pursuant to the Plan shall be not less than their par value, payable in
cash or in services performed to or for the benefit of the Company or its
Subsidiaries or Affiliates, in the discretion of the Committee.
(ii) Awards of Restricted Stock must be accepted within a period of 60
days (or such shorter periods as the Committee may specify at grant) after
the Award date, by executing a Restricted Stock Award Agreement and paying
whatever price (if any) is required under Section 8(b)(i). The prospective
recipient of an Award of Restricted Stock shall not have any rights with
respect to such Award, unless and until such recipient has executed an
agreement evidencing the Award and has delivered a fully
7
<PAGE> 31
executed copy thereof of the Company, and has otherwise complied with the
applicable terms and conditions of such Award.
(iii) Each participant receiving an Award of Restricted Stock shall be
issued a stock certificate in respect of such shares of Restricted Stock.
Such certificate shall be registered in the name of such participant, and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Cliffs Drilling Company 1988 Incentive Equity Plan
and an Agreement entered into between the registered owner of the shares
and Cliffs Drilling Company. Copies of such Plan and Agreement are on
file in the offices of Cliffs Drilling Company, Houston, Texas."
The Committee may require that the stock certificates evidencing such
shares be held in custody by the Company until the restrictions thereon
shall have lapsed, and that, as a condition of any Restricted Stock Award,
the participant shall have delivered a stock power, endorsed in blank,
relating to the Stock covered by such Award.
(iv) Subject to the provisions of this Plan and the applicable Award
agreement, during a period set by the Committee commencing with the date of
such Award (the "Restriction Period"), the participant shall not be
permitted to sell, transfer, pledge, assign or otherwise encumber shares of
Restricted Stock awarded under the Plan. Based on service, performance
and/or such other factors or criteria as the Committee may determine, the
Committee may, however, at or after grant, provide for the lapse of such
restrictions in installments and/or may accelerate or waive such
restrictions in whole or in part.
(v) Except as provided in this Section 8(b), the recipient shall have,
with respect to the shares of Restricted Stock covered by any Award, all of
the rights of a shareholder of the Company, including the right to vote the
shares, and the right to receive any dividends, provided, however, that
unless otherwise determined by the Committee, any dividends on such shares
shall be automatically deferred and reinvested in additional Restricted
Stock subject to the same restrictions as the underlying Award, to the
extent shares are available under Section 5.
(vi) Except as otherwise provided in this Section 8(b) and in the
applicable Award agreement, upon termination of a participant's employment
or service with the Company or any Subsidiary or Affiliate for any reason
during the Restriction Period for any given Award of Restricted Stock, all
shares still subject to restriction shall be forfeited by the participant,
provided, however, the Committee may provide for waiver of the restrictions
in the event of termination of employment or service due to death,
Disability or Retirement.
(vii) In the event of hardship or other special circumstances of a
participant whose employment or service with the Company or any Subsidiary
or Affiliate is involuntarily terminated (other than for Cause), the
Committee may waive in whole or in part any or all remaining restrictions
with respect to any or all of the participant's Restricted Stock, based on
such factors and criteria as the Committee may deem appropriate.
(viii) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
unrestricted certificates for such shares shall be delivered to the
participant.
(c) Terms and Conditions Applicable to Deferred Stock Awards. Deferred
Stock Awards shall be subject to the following terms and conditions:
(i) Each Award of Deferred Stock shall be confirmed by, and subject to
the terms of, a Deferred Stock agreement executed by the Company and the
participant.
8
<PAGE> 32
(ii) Subject to the provisions of this Plan and the applicable Award
agreement, the participant shall not be permitted to sell, transfer,
pledge, assign or otherwise encumber shares covered by an Award of Deferred
Stock during the period, commencing with the date of such Award, specified
by the Committee for purposes of such Award (the "Deferral Period"). Based
on service, performance and/or such other factors or criteria as the
Committee may determine, the Committee may, however, at or after grant,
accelerate the vesting of all or any part of any Deferred Stock Award
and/or waive the deferral limitations for all or any part of such Award.
(iii) Unless otherwise determined by the Committee, amounts equal to
any dividends that would have been payable during the Deferral Period with
respect to the number of shares covered by a Deferred Stock Award if such
shares had been outstanding shall be automatically deferred and deemed to
be reinvested in additional Deferred Stock, subject to the same deferral
limitations as the underlying Award.
(iv) Except to the extent otherwise provided in this Section 8(c) and
in the applicable Award agreement, upon termination of a participant's
employment or service with the Company or any Subsidiary or Affiliate for
any reason during the Deferral Period for a given Award, the Deferred Stock
covered by such Award shall be forfeited by the participant, provided,
however, the Committee may provide for accelerated vesting in the event of
termination of employment or service due to death, Disability or
Retirement.
(v) In the event of hardship or other special circumstances of a
participant whose employment or service with the Company or any Subsidiary
or Affiliate is involuntarily terminated (other than for Cause), the
Committee may waive in whole or in part any or all of the remaining
deferral limitations imposed hereunder with respect to any or all of the
participant's Deferred Stock, based on such factors and criteria as the
Committee deems appropriate.
(vi) At the expiration of the Deferral Period, share certificates
shall be delivered to the participant, or his legal representative, in a
number equal to the number of shares covered by the Award.
SECTION 9. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of:
(x) a "Change in Control" as defined in Section 9(b), or
(y) a "Potential Change in Control" as defined in Section 9(c),
the Committee or the Board may provide that one or more of the following
acceleration and valuation provisions shall apply:
(i) Any or all Stock Appreciation Rights outstanding for at least six
months on the date that such Change in Control or Potential Change in
Control is determined to have occurred and any or all Stock Options awarded
under this Plan not previously exercisable and vested shall become fully
exercisable and vested.
(ii) The restrictions and deferral limitations applicable to any or
all Restricted Stock and Deferred Stock Awards shall lapse and such shares
and Awards shall be fully vested.
(iii) The value of any or all outstanding Stock Options, Restricted
Stock and Deferred Stock Awards shall be cashed out on the basis of the
"Change in Control Price" as defined in Section 9(d) as of the date such
Change in Control or Potential Change in Control is determined to have
occurred or such other date as the Committee may determine prior to the
Change in Control.
(b) Definition of "Change in Control." For purposes of Section 9(a), a
"Change in Control" means the happening of any of the following:
(i) A tender offer is made and consummated for the ownership of 30% or
more of the outstanding voting securities of the Company;
9
<PAGE> 33
(ii) The Company shall merge or consolidate with another corporation
and as a result of such merger or consolidation less than 75% of the
outstanding voting securities of the surviving or resulting corporation
shall be owned in the aggregate by the former shareholders of the Company,
other than affiliates (within the meaning of the Exchange Act as in effect
on the date the Plan was first approved by the shareholders of the Company
(the "Approval Date")) of any party to such merger or consolidation, as the
same shall have existed immediately prior to such merger or consolidation;
(iii) The Company shall sell substantially all of its assets to
another corporation which is not a Subsidiary; or
(iv) A person, within the meaning of Section 3(a)(9) or of Section
13(d)(3) (as in effect on the Approval Date) of the Exchange Act, shall
acquire 30% or more of the outstanding voting securities of the Company
(whether directly, indirectly, beneficially or of record).
For purposes hereof, ownership of voting securities shall take into account
and shall include ownership as determined by applying the provisions of Rule
13d-3(d)(1)(i) (as in effect on the Approval Date) pursuant to the Exchange Act.
(c) Definition of "Potential Change in Control". For purposes of Section
9(a), a "Potential Change in Control" means the happening of any one of the
following:
(i) The entering into an agreement by the Company, the consummation of
which would result in a Change in Control of the Company as defined in
Section 9(b); or
(ii) The acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group (other than the Company or a Subsidiary or
any Company employee benefit plan) (including any trustee of such plan
acting as such trustee) of securities of the Company representing 5% or
more of the combined voting power of the Company's outstanding securities,
and the adoption by the Board of a resolution to the effect that a
"Potential Change in Control" of the Company has occurred for the purposes
of this Plan.
(d) Change in Control Price. For the purposes of this Section 9, "Change in
Control Price" means the highest price per share paid in any transaction
reported on the principal United States securities exchange, the NASDAQ National
Market System or other principal market on which the stock is traded, or paid or
offered in any bona fide transaction related to an actual or Potential Change in
Control of the Company, at the time during the preceding sixty-day period as
determined by the Committee, except that, in the case of Incentive Stock Options
and Stock Appreciation Rights relating to Incentive Stock Options, such price
shall be based only on transactions reported for the date as of which the
Committee decides to cashout such options.
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, including without
limitation, the automatic grant provisions set forth in Section 13 of the Plan,
at any time, but no amendment, alteration, or discontinuation shall be made
which would impair the rights of a participant under an Award theretofore
granted without the written consent of the affect participant (or if not then
living, the affected beneficiary), or which, without the approval of the
Company's stockholders, would, except as expressly provided in the Plan,
increase the total number of shares reserved for delivery pursuant to the Plan.
The Committee may amend the terms of any outstanding Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any holder without the holder's consent.
SECTION 11. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant by the Company, nothing contained herein shall give any such
participant any rights that are greater than those of a general creditor of the
Company. The
10
<PAGE> 34
Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Stock or payments hereunder
consistent with the foregoing.
SECTION 12. GENERAL PROVISIONS.
(a) Notwithstanding any other provision of the Plan, the Company shall have
no liability to deliver any shares of Stock pursuant to the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws (including without
limitation, the requirements of the Securities Act of 1933, as amended), and the
applicable requirements of any securities exchange or similar entity. The
Committee may require each person acquiring shares pursuant to an Award under
the Plan to represent to and agree with the Company in writing that such person
is acquiring the shares without a view to distribution thereof. The certificates
for such shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer. All certificates for shares of Stock or
other securities delivered under the Plan shall be subject to such stock
transfer orders and other restrictions as the Committee may deem advisable under
the rules, regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed and any
applicable Federal or state securities law, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions.
(b) Nothing contained in this Plan shall prevent the Company, a Subsidiary
or an Affiliate from adopting other or additional compensation arrangements for
its employees.
(c) The adoption of the Plan shall not confer upon any individual any right
to continued employment or service with the Company or a Subsidiary or
Affiliate, as the case may be, nor shall it interfere in any way with the right
of the Company or any Subsidiary or Affiliate to terminate the employment or
service of any individual at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of a participant for Federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the Company,
or make any arrangements satisfactory to the Committee regarding the payment of
any Federal, state or local taxes of any kind required by law to be withheld
with respect to such amount. Unless otherwise determined by the Company,
withholding obligations may be settled with Stock, including Stock that is part
of the Award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such payment or arrangements,
and the Company and its Subsidiaries or Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from the payment(s)
otherwise due to the participant.
(e) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable in the
event of the participant's death are to be paid.
(f) Subject to the overall limitation of the maximum number of shares of
Stock that may be delivered pursuant to the Plan, the Committee may use
available shares of Stock as the form of payment for compensation, grants or
rights earned or due under any other compensation plans or arrangements of the
Company or any Subsidiary or Affiliate, including the plans and arrangements of
the Company or any Subsidiary or Affiliate acquiring another entity (or any
interest in another entity).
(g) Awards may be settled through cash payments, the delivery of shares of
Stock, the granting of replacement Awards, or any combination thereof as the
Committee shall determine. Any Award settlement may be subject to such
conditions, restrictions and contingencies as the Committee shall determine.
SECTION 13. AUTOMATIC AWARD OF STOCK OPTIONS TO CERTAIN PERSONS.
Subject to stockholder approval of the Plan and subject to the availability
of a sufficient number of shares of Stock for delivery pursuant to the Plan, (a)
Non-Qualified Stock Options to purchase an aggregate of 4,000 shares of Stock
(subject to adjustment pursuant to Section 5) shall automatically be granted
pursuant to the Plan, without the need for any further any action by the
Committee, to each of the Company's Non-Employee Directors, on the date of their
initial election to the Board of Directors of the Company, and
11
<PAGE> 35
(b) Non-Qualified Stock Options to purchase an aggregate of 2,000 shares of
Stock (subject to adjustment pursuant to Section 5) shall automatically be
granted pursuant to the Plan, without the need for any further action by the
Committee, to each of the Company's continuing or re-elected Non-Employee
Directors, on the date of each annual meeting of shareholders of the Company; in
each case commencing with the election of directors at the annual meeting of
shareholders of the Company to be held in 1998. Each such Stock Option shall
have an exercise price equal to the Fair Market Value of the Stock on the date
of grant, and will be for a term of ten years from the date of grant, subject to
earlier termination as set forth in Sections 6(f), (g) and (h), with 50% of the
shares becoming exercisable after one year and 25% after each of the succeeding
two years; provided, however, that such options shall become immediately
exercisable upon a "Change of Control" or "Potential Change of Control" as and
to the extent provided in Section 9.
SECTION 14. EFFECTIVE DATE.
The Plan shall be effective on the date it is approved by the stockholders
of the Company.
12
<PAGE> 36
CLIFFS DRILLING COMPANY
PROXY SOLICITED BY BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD WEDNESDAY, MAY 13, 1998
P
The undersigned hereby appoints Michael M. Cone and Robert M. McInnes or
R either of them, proxies, with full power of substitution and with
discretionary authority, to vote all shares of Common Stock which the
O undersigned is entitled to vote at the Annual Meeting of Shareholders of
Cliffs Drilling Company (the "Company"), or any adjournments thereof. The
X undersigned instructs said proxies to vote as indicated below on each of
the following items proposed by the Board of Directors of the Company:
Y
1. ELECTION OF DIRECTORS
Nominees: H. Robert Hirsch, Donald
W. Keller and Joseph E. Reid
(change of address)
2. APPROVAL OF THE PROPOSAL TO
ADOPT THE COMPANY'S 1998 INCENTIVE ------------------------------
EQUITY PLAN
------------------------------
3. APPOINTMENT OF ERNST & YOUNG LLP
AS INDEPENDENT PUBLIC ACCOUNTANTS ------------------------------
FOR THE COMPANY FOR 1998
------------------------------
4. IN THEIR DISCRETION AS TO SUCH OTHER (If you have written in the
MATTERS AS MAY PROPERLY COME BEFORE above space, please mark the
THE MEETING 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 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 the Card.
------------
SEE REVERSE
SIDE
------------
<PAGE> 37
Please mark your
[X] 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 adopt the [ ] [ ] [ ]
Company's 1998 Incentive Equity Plan.
3. Appointment of Ernst & Young LLP as [ ] [ ] [ ]
independent public accountants for the
Company for 1998.
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.
