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                                                                    EXHIBIT 4.2

                                 1996 EMPLOYEE
                          STOCK OPTION PLAN AMENDMENT

      The 1996 Employee Stock Option Plan (the "Plan") of Grey Wolf, Inc. (the
"Company") is hereby amended as follows effective August 26, 1998.

      1.    Section II is amended to add a new paragraph (d) to read as follows
in its entirety:

                  (d) Notwithstanding the foregoing, the Optionee may exercise
            the Option as to all of the Option Shares (whether previously
            exercisable or not) on or before one (1) year after the termination
            of Optionee's employment if (i) a Change of Control of the
            Corporation shall be deemed to have occurred and (ii) within one
            (1) year of the date a Change of Control of the Corporation shall
            be deemed to have occurred, Optionee's employment with the
            Corporation is terminated for any reason other than (a) voluntary
            resignation or retirement, (b) death or permanent and total
            disability, or (c) Cause.

                  For the purposes of this Agreement, a "Change of Control of
            the Corporation" shall be deemed to have occurred if after the
            effective date of this Agreement (i) any "person" (as such term is
            used in Sections 13(d) and 14(d) of the Act) is or becomes the
            "beneficial owner" (as defined in Rule 13d-3 under the Securities
            Exchange Act of 1934 [the "Act"]), directly or indirectly, or
            securities of the Corporation representing 50% or more of the
            combined voting power of the Corporation's then outstanding
            securities; (ii) there occurs a proxy contest or a consent
            solicitation, or the Corporation is a party to a merger,
            consolidation, sale of assets, plan of liquidation or other
            reorganization as a consequence of which members of the Board of
            Directors in office immediately prior to such transaction or event
            constitute less than a majority of the Board of Directors
            thereafter; or (iii) during any period of two consecutive years,
            other than as a result of an event described in clause (ii) of this
            paragraph, individuals who at the beginning of such period
            constituted the Board of Directors (including for this purpose any
            new director whose election or nomination for election by the
            Corporation's stockholders was approved by a vote of at least a
            majority of the directors then still in office who were directors
            at the beginning of such period) cease for any reason to constitute
            at least a majority of the Board of Directors.

                  For purposes of this Agreement, the term "Cause" shall mean
            and include (i) chronic alcoholism or controlled substance abuse as
            determined by a doctor mutually acceptable to the Corporation and
            the Optionee, (ii) an act of proven fraud or dishonesty on the part
            of the Optionee with respect to the Corporation or its
            subsidiaries; (iii) knowing and material failure by the Optionee to
            comply with material applicable laws and regulations relating to
            the business of the Company or its subsidiaries; (iv) the
            Optionee's material and continuing failure to perform (as opposed
            to unsatisfactory performance) his duties to the Corporation
            except, in each case, where such failure or breach is caused by the
            illness or other similar incapacity or disability of the Optionee;
            or (v) conviction of a misdemeanor involving moral turpitude or a
            felony. Prior to the effectiveness of termination for Cause under
            subclause (i), (ii), (iii) or (iv) above, the Optionee shall be
            given 30 days' prior notice from the Board specifically identifying
            the reasons which are alleged to constitute Cause hereunder and an
            opportunity to be heard by the Board in the event Optionee disputes
            such allegations.

      2.    The last paragraph of Section 11 is amended to read as follows in
its entirety:

                  Nothing in (a), (b), (c) or (d) shall extend the time for
            exercising the Option granted pursuant to this Agreement beyond the
            Expiration Date.