<PAGE>   1

                                                                   EXHIBIT 10.32


                              EMPLOYMENT AGREEMENT


         EMPLOYMENT AGREEMENT, dated as of January 16, 1999, between GREY WOLF,
INC., Inc. a Texas corporation (the "Company"), and Edward S. Jacob, III (the
"Executive").

         The Company desires to employ the Executive and the Executive desires
to accept employment with the Company, on the terms and conditions of this
Agreement.

         Accordingly, the parties agree as follows:

         1. EMPLOYMENT, DUTIES AND ACCEPTANCE.

                  1.1      Employment by the Company; Duties. The Company hereby
                           agrees to employ the Executive for a term commencing
                           on January 16, 1999, and expiring at the end of the
                           day on January 15, 2000 (such date, or later date to
                           which this Agreement is extended in accordance with
                           the terms hereof, the "Termination Date"), unless
                           earlier terminated as provided in Article 4 or unless
                           extended as provided herein (the "Term"). The Term
                           shall automatically be extended on the Termination
                           Date and each anniversary thereof for successive
                           one-year periods unless either party notifies the
                           other on or before the date 90 days prior to the
                           Termination Date that he or it desires to terminate
                           the Agreement. During the Term, the Executive shall
                           initially serve in the capacity of Vice President
                           Marketing of the Company and shall also serve in
                           those offices and directorships of subsidiary
                           corporations or entities of the Company to which he
                           may from time to time be appointed or elected. During
                           the Term, the Executive shall devote all reasonable
                           efforts and all of his business time and services to
                           the Company, subject to the direction of the Board.
                           The Executive shall not engage in any other business
                           activities except for passive investments in
                           corporations or partnerships not engaged in the oil
                           or gas drilling or well servicing business.

                  1.2      Acceptance of Employment by the Executive. The
                           Executive hereby accepts such employment and shall
                           render the services and perform the duties described
                           above.

         2. COMPENSATION AND OTHER BENEFITS.

                  2.1      Annual Salary. The Company shall pay to the Executive
                           an annual salary at a rate of not less than $150,000
                           per year (the "Annual Salary"), subject to increase
                           at the sole discretion of the Board of Directors of
                           the Company (the "Board"). The Annual Salary shall


<PAGE>   2

                           be payable in accordance with the payroll policies of
                           the Company as from time to time in effect, but in no
                           event less frequently than once each month, less such
                           deductions as shall be required to be withheld by
                           applicable law and regulations.

                  2.2      Bonuses. The Executive may receive, at the sole
                           discretion of the Board, an incentive bonus with
                           respect to the fiscal years ending during the term
                           hereof (the "Incentive Bonus"), provided that an
                           Incentive Bonus, payable in respect of a fiscal year,
                           shall not exceed one-half of the Annual Salary for
                           such fiscal year.

                  2.3      Grant of Option. The Company agrees to grant the
                           Executive, pursuant to the terms of its existing
                           stock option plan or new or amended stock option
                           plans, options to acquire 100,000 shares of the
                           Company's common stock, at an exercise price equal
                           to the fair market value of such stock on the date of
                           grant. Any such stock options shall vest in five
                           equal increments over a five-year period commencing
                           on the date of grant, and shall expire ten years
                           after the date of grant. One fifth of the ISOs shall
                           vest on January 16, 2000, and on each subsequent
                           anniversary of the date of grant until the fifth
                           anniversary at which time the options shall be fully
                           vested.

                  2.4      Vacation Policy. The Executive shall be entitled to a
                           paid vacation of three weeks during each year of the
                           Term.

                  2.5      Participation in Employee Benefit Plans. The Company
                           agrees to permit the Executive during the Term, if
                           and to the extent eligible, to participate in any
                           group life, hospitalization or disability insurance
                           plan, health program, pension plan, similar benefit
                           plan or other so-called "fringe benefits" of the
                           Company (collectively, "Benefits") which may be
                           available to other senior executives of the Company
                           on terms no less favorable to the Executive than the
                           terms offered to such other executives. The Company
                           agrees to use its best efforts to obtain immediate
                           coverage for the Executive upon the commencement of
                           the Term under its existing or newly adopted medical
                           expense and hospitalization plan for employees
                           without premium surcharge and without exclusions for
                           disclosed preexisting conditions. The Executive shall
                           cooperate with the Company in applying for such
                           coverage, including submitting to a physical exam and
                           providing all relevant health and personal data.

                  2.6      General Business Expenses. The Company shall pay or
                           reimburse the Executive for all expenses reasonably
                           and necessarily incurred by the Executive during the
                           Term in the performance of the Executive's services
                           under this Agreement. Such payment shall be made upon



                                      -2-
<PAGE>   3

                           presentation of such documentation as the Company
                           customarily requires of its senior executive
                           employees prior to making such payments or
                           reimbursements.

                  2.7      Company Car, Cellular Telephone. The Company shall
                           provide an automobile, of the Executive's choice, to
                           be used by the Executive during the Term hereof or
                           until his employment hereunder is terminated. The
                           purchase price of the automobile shall not exceed
                           $35,000 unless increased by the Board. If requested
                           by the Executive, the Company will replace the
                           automobile with a new automobile no less frequently
                           than every three years during the Term hereof. The
                           Company shall, at its expense, pay any and all
                           expenses associated with the operation of such
                           company car, including but not limited to, collision
                           and liability insurance, maintenance and repair
                           costs, replacement parts, tires, fuel and oil. The
                           Executive may use the automobile for personal
                           purposes and, to the extent of the value of such
                           personal usage, the value thereof shall be deemed to
                           be additional compensation.

                  2.8      The Company shall also furnish the Executive with
                           a cellular telephone of his choice and the Company
                           shall pay all charges in connection with the use
                           thereof, other than charges for calls not related to
                           Executive's duties hereunder.

         3. NON-COMPETITION.

                  3.1      Covenants Against Competition. The Executive
                           acknowledges that (i) the Company is currently
                           engaged in the business of owning, managing and
                           operating onshore drilling and workover rigs for its
                           own account or for others which are contracted or
                           hired for the purpose of drilling and/or workover of
                           oil or natural gas wells and from time to time
                           acquiring working or carried interests in oil and gas
                           wells in connection with, or incident to, such
                           drilling or workover activities (the "Company
                           Business"); (ii) his work for the Company will give
                           him access to trade secrets of and confidential
                           information concerning the Company; and (iii) the
                           agreements and covenants contained in this Agreement
                           are essential to protect the business and goodwill of
                           the Company. Accordingly, the Executive covenants and
                           agrees as follows:

                           3.1.1 Non-Compete. The Executive shall not during the
                           Restricted Period (as defined below) in the United
                           States or any other place where the Company and its
                           affiliates conduct operations related to the Company
                           Business, directly or indirectly (except in the
                           Executive's capacity as an officer of the Company),
                           (i) engage or participate in the Company Business;
                           (ii) enter the employ of, or render any other
                           services to, any person engaged in the Company
                           Business except as permitted hereunder; or (iii)
                           become interested in any such person in



                                      -3-
<PAGE>   4


                           any capacity, including, without limitation, as an
                           individual, partner, shareholder, lender, officer,
                           director, principal, agent or trustee except as
                           permitted hereunder; provided, however, that the
                           Executive may own, directly or indirectly, solely as
                           an investment, securities of any person traded on any
                           national securities exchange or listed on the
                           National Association of Securities Dealers Automated
                           Quotation System if the Executive is not a
                           controlling person of, or a member of a group which
                           controls, such person and the Executive does not,
                           directly or indirectly, own 1% or more of any class
                           of equity securities, or securities convertible into
                           or exercisable or exchangeable for 1% or more of any
                           class of equity securities, of such person. As used
                           herein, the "Restricted Period" shall mean a period
                           commencing on the date hereof and terminating upon
                           the first to occur of (a) the date on which the
                           Company terminates or is deemed to terminate the
                           Executive's employment without Cause, (b) the date
                           the Executive terminates or is deemed to terminate
                           his employment pursuant to Section 4.6 hereof, or (c)
                           the date of termination of this Agreement; provided,
                           however, that if the Company shall have terminated
                           the Executive's employment for Cause and such Cause
                           in fact exists or if the Executive shall have
                           terminated his employment with the Company in breach
                           of the terms of this Agreement, the Restricted Period
                           shall end twelve months following the termination of
                           the Executive's employment hereunder.

                           3.1.2 Confidential Information; Personal
                           Relationships. The Executive acknowledges that the
                           Company has a legitimate and continuing proprietary
                           interest in the protection of its confidential
                           information and that it has invested substantial sums
                           and will continue to invest substantial sums to
                           develop, maintain and protect confidential
                           information. The Executive agrees that, during and
                           after the Restricted Period, the Executive shall keep
                           secret and retain in strictest confidence, and shall
                           not use for the benefit of himself or others all
                           confidential matters directly relating to the Company
                           Business including, without limitation, financial
                           information, trade secrets, customer lists, details
                           of client or consultant contracts, pricing policies,
                           operational methods, marketing plans or strategies,
                           product development techniques or plans, business
                           acquisition plans, new personnel acquisition plans,
                           technical processes, designs and design projects,
                           inventions and research projects of the Company, its
                           affiliates, or any other entity which may hereafter
                           become an affiliate thereof, learned by the Executive
                           heretofore or hereafter unless otherwise in the
                           public domain other than as a result of disclosure by
                           the Executive or unless independently obtained from
                           third parties not under disclosure restrictions in
                           favor of the Company.



                                      -4-
<PAGE>   5


                           3.1.3 Property of the Company. All memoranda, notes,
                           lists, records, engineering drawings, technical
                           specifications and related documents and other
                           documents or papers (and all copies thereof) relating
                           to the Company, including such items stored in
                           computer memories, microfiche or by any other means,
                           made or compiled by or on behalf of the Executive
                           after the date hereof, or made available to the
                           Executive after the date hereof relating to the
                           Company, its affiliates or any entity which may
                           hereafter become an affiliate thereof, shall be the
                           property of the Company, and shall be delivered to
                           the Company promptly upon the termination of the
                           Executive's employment with the Company or at any
                           other time upon request; provided, however, that
                           Executive's address books, diaries, chronological
                           correspondence files and rolodex files shall be
                           deemed to be property of the Executive.

                           3.1.4 Original Material. The Executive agrees that
                           any inventions, discoveries, improvements, ideas,
                           concepts or original works of authorship relating
                           directly to the Company Business, including without
                           limitation computer systems, programs and
                           manufacturing techniques, whether or not protectable
                           by patent or copyright, that have been originated,
                           developed or reduced to practice by the Executive
                           alone or jointly with others during the Executive's
                           employment with the Company shall be the property of
                           and belong exclusively to the Company. The Executive
                           shall promptly and fully disclose to the Company the
                           origination or development by the Executive of any
                           such material and shall provide the Company with any
                           information that it may reasonably request about such
                           material.

                           3.1.5 Employees of the Company and its Affiliates.
                           During the Restricted Period, the Executive shall
                           not, directly or indirectly, hire or solicit, or
                           cause others to hire or solicit, for employment by
                           any person other than the Company or any affiliate or
                           successor thereof, any employee of the Company and
                           its affiliates or successors or encourage any such
                           employee to leave his employment.

                           3.1.6 Customers of the Company. During the Restricted
                           Period, the Executive shall not, except by reason of
                           and in his capacity as an officer of the Company,
                           directly or indirectly, request or advise a customer
                           of the Company or its subsidiaries to curtail or
                           cancel such customer's business relationship with the
                           Company.

               3.2  Rights and Remedies Upon Breach. If the Executive breaches,
                    or threatens to commit a breach of, any of the provisions
                    contained in Section 3.1 of this Agreement (the "Restrictive
                    Covenants"), the Company shall have the



                                      -5-
<PAGE>   6


                    following rights and remedies, each of which rights and
                    remedies shall be independent of the others and severally
                    enforceable, and each of which is in addition to, and not in
                    lieu of, any other rights and remedies available to the
                    Company under law or in equity:

                           3.2.1 Specific Performance. The right and remedy to
                           have the Restrictive Covenants specifically enforced
                           by any court of competent jurisdiction, it being
                           agreed that any breach or threatened breach of the
                           Restrictive Covenants would cause irreparable injury
                           to the Company and that money damages would not
                           provide an adequate remedy to the Company.

                           3.2.2 Accounting. The right and remedy to require the
                           Executive to account for and pay over to the Company
                           all compensation, profits, monies, accruals,
                           increments or other benefits derived or received by
                           the Executive as the result of any action
                           constituting a breach of the Restrictive Covenants.

                  3.3      Severability of Covenants. The Executive acknowledges
                           and agrees that the Restrictive Covenants are
                           reasonable and valid in duration and geographical
                           scope and in all other respects. If any court
                           determines that any of the Restrictive Covenants, or
                           any part thereof, is invalid or unenforceable, the
                           remainder of the Restrictive Covenants shall not
                           thereby be affected and shall be given full effect
                           without regard to the invalid portions.

                  3.4      Blue-Pencilling. If any court determines that any of
                           the Restrictive Covenants, or any part thereof, is
                           unenforceable because of the duration or geographical
                           scope of such provision, such court shall have the
                           power to reduce the duration or scope of such
                           provision, as the case may be, and, in its reduced
                           form, such provision shall then be enforceable.

                  3.5      Enforceability in Jurisdictions. The Company and the
                           Executive intend to and hereby confer jurisdiction to
                           enforce the Restrictive Covenants upon the courts of
                           any jurisdiction within the geographical scope of
                           such Restrictive Covenants. If the courts of any one
                           or more of such jurisdictions hold the Restrictive
                           Covenants unenforceable by reason of the breadth of
                           such scope or otherwise, it is the intention of the
                           Company that such determination not bar or in any way
                           affect the right of the Company to the relief
                           provided above in the courts of any other
                           jurisdiction within the geographical scope of such
                           Restrictive Covenants, as to breaches of such
                           Restrictive Covenants in such other respective
                           jurisdictions, such Restrictive Covenants as they
                           relate to each jurisdiction being, for this purpose,
                           severable into diverse and independent covenants.



                                      -6-
<PAGE>   7


         4. TERMINATION.

                  4.1      Termination Upon Death. If the Executive dies during
                           the Term, this Employment Agreement shall terminate,
                           provided, however, that in any such event, the
                           Company shall pay to the Executive, or to his estate,
                           any portion of the Annual Salary that shall have been
                           earned by the Executive prior to the termination but
                           not yet paid, any Benefits that have vested in the
                           Executive at the time of such termination as a result
                           of his participation in any of the Company's benefit
                           plans shall be paid to the Executive, or to his
                           estate or designated beneficiary, in accordance with
                           the provisions of such plan; and the Company shall
                           reimburse the Executive, or his estate, for any
                           expenses with respect to which the Executive is
                           entitled to reimbursement pursuant to Section 2.6 of
                           this Agreement, and the Executive's right to
                           indemnification, payment or reimbursement pursuant to
                           Section 6 of this Agreement shall not be affected by
                           such termination and shall continue in full force and
                           effect, both with respect to proceedings that are
                           threatened, pending or completed at the date of such
                           termination and with respect to proceedings that are
                           threatened, pending or completed after that date.

                  4.2      Termination With Cause. The Company has the right, at
                           any time during the Term, subject to all of the
                           provisions hereof, exercisable by serving notice,
                           effective on or after the date of service of such
                           notice as specified therein, to terminate the
                           Executive's employment under this Agreement and
                           discharge the Executive with Cause. If such right is
                           exercised, the Company's obligation to the Executive
                           shall be limited solely to the payment of unpaid
                           Annual Salary accrued, together with unpaid Incentive
                           Bonus, if any, and Benefits vested up to the
                           effective date specified in the Company's notice of
                           termination. As used in 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 Company and the
                           Executive, (ii) an act of proven fraud or dishonesty
                           on the part of the Executive with respect to the
                           Company or its subsidiaries; (iii) knowing and
                           material failure by the Executive to comply with
                           material applicable laws and regulations relating to
                           the business of the Company or its subsidiaries; (iv)
                           the Executive's material and continuing failure to
                           perform (as opposed to unsatisfactory performance)
                           his duties hereunder or a material breach by the
                           Executive of this Agreement except, in each case,
                           where such failure or breach is caused by the illness
                           or other similar incapacity or disability of the
                           Executive; 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



                                      -7-
<PAGE>   8


                           Executive shall be given 30 days' prior notice from
                           the Board specifically identifying the reasons which
                           are alleged to constitute cause for any termination
                           hereunder and an opportunity to be heard by the Board
                           in the event Executive disputes such allegations.

                  4.3      Termination Without Cause. The Company has the right,
                           at any time during the Term, subject to all of the
                           provisions hereof, exercisable by serving notice,
                           effective on or after the date of service of such
                           notice as specified therein, to terminate the
                           Executive's employment under this Agreement and
                           discharge the Executive without Cause. If the
                           Executive is terminated during the Term without Cause
                           (including any termination which is deemed to be a
                           constructive termination without Cause under Section
                           4.6 hereof), the Company's obligation to the
                           Executive shall be limited solely to the payment, at
                           the times and upon the terms provided for herein, of
                           the greater of (i) the Executive's Annual Salary and
                           Incentive Bonus for the number of full months
                           remaining in the Term of this Agreement (assuming no
                           automatic extension of the Term) had the Executive
                           not been so terminated and (ii) the Executive's
                           Annual Salary for a period of twelve months, in each
                           case based on the Annual Salary of the Executive in
                           effect on the date of termination (or, if the Company
                           has reduced the Executive's Annual Salary in breach
                           of this Agreement, the Executive's Annual Salary
                           before such reduction) and, in the case of clause
                           (i), the average Incentive Bonus received by the
                           Executive for the immediately preceding two fiscal
                           years, together with all unpaid Incentive Bonus and
                           Benefits awarded or accrued up to the date of
                           termination. If the Executive is terminated after he
                           has received one Incentive Bonus but before he has
                           received two, the Incentive Bonus in clause (i) shall
                           be based on the amount of that one Incentive Bonus;
                           if he has not yet received an Incentive Bonus, it
                           shall be based on the maximum Incentive Bonus (i.e.,
                           one half of the Annual Salary). In the event of a
                           termination by the Company without Cause within 180
                           days after a Change of Control (as hereinafter
                           defined), including a constructive termination
                           without Cause pursuant to Section 4.6, the amounts
                           due to the Executive pursuant to this Section 4.3
                           shall be due and payable in one lump-sum payment
                           within 60 days after such termination. In all other
                           cases, any amounts due to the Executive pursuant to
                           this Section 4.3 shall be due and payable as and when
                           they would have become due and payable absent such
                           termination.

                  4.4      Termination by the Executive. Any termination of this
                           Agreement by the Executive during the Term, except
                           such termination as is deemed to be a constructive
                           termination without Cause by the Company under
                           Section 4.6 of this Agreement, shall be deemed to be
                           a breach of the



                                      -8-
<PAGE>   9


                           terms of this Agreement for the purposes of Section
                           3.1.1 hereof and shall entitle the Company to
                           discontinue payment of all Annual Salary, Incentive
                           Bonuses and Benefits accruing from and after the date
                           of such termination.

                  4.5      Termination upon Disability. If during the Term the
                           Executive becomes physically or mentally disabled,
                           whether totally or partially, as evidenced by the
                           written statement of a competent physician licensed
                           to practice medicine in the United States who is
                           mutually acceptable to the Company and the Executive
                           or his closest relative if he is not then able to
                           make such a choice, so that the Executive is unable
                           substantially to perform his services hereunder for
                           (i) a period of four consecutive months, or (ii) for
                           shorter periods aggregating six months during any
                           twelve-month period, the Company may at any time
                           after the last day of the four consecutive months of
                           disability or the day on which the shorter periods of
                           disability equal an aggregate of six months, by
                           written notice to the Executive, terminate the
                           Executive's employment hereunder and discontinue
                           payments of the Annual Salary, Incentive Bonuses and
                           Benefits accruing from and after the date of such
                           termination. The Executive shall be entitled to the
                           full compensation payable to him hereunder for
                           periods of disability shorter than the periods
                           specified in clauses (i) and (ii) of the previous
                           sentence.

                  4.6      Constructive Termination Without Cause.
                           Notwithstanding any other provision of this
                           Agreement, the Executive's employment under this
                           Agreement may be terminated during the Term by the
                           Executive, which shall be deemed to be constructive
                           termination by the Company without Cause, if one of
                           the following events shall occur without the consent
                           of the Executive: (i) a failure to elect or reelect
                           or to appoint or reappoint the Executive to the
                           office of Vice President of Marketing of the Company
                           or other material change by the Company of the
                           Executive's functions, duties or responsibilities
                           which change would reduce the ranking or level,
                           dignity, responsibility, importance or scope of the
                           Executive's position with the Company from the
                           position and attributes thereof described in Section
                           1 above; (ii) the assignment or reassignment by the
                           Company of the Executive to another place of
                           employment more than 50 miles from the Executive's
                           principal place of residence in the Houston, Texas,
                           metropolitan area; (iii) the liquidation,
                           dissolution, consolidation or merger of the Company,
                           or transfer of all or substantially all of its
                           assets, other than a transaction in which a successor
                           corporation with a net worth at least equal to that
                           of the Company assumes this Agreement and all
                           obligations and undertakings of the Company
                           hereunder; (iv) a reduction in the Executive's fixed
                           salary; (v) a Change of Control as hereinafter
                           defined; (vi) the failure of the Company to continue
                           to provide the Executive with office space, related
                           facilities and secretarial assistance that are
                           commensurate with



                                      -9-
<PAGE>   10


                           the Executive's responsibilities to and position with
                           the Company; (vii) the notification by the Company of
                           the Company's intention not to observe or perform one
                           or more of the obligations of the Company under this
                           Agreement; (viii) the failure by the Company to
                           indemnify, pay or reimburse the Executive at the time
                           and under the circumstances required by Section 6 of
                           this Agreement; (ix) the occurrence of any other
                           material breach of this Agreement by the Company or
                           any of its subsidiaries; or (x) the delivery of
                           notice by the Company in accordance with Section 1.1
                           hereof that it desires to terminate the Agreement,
                           but only if such notice is given before the Term has
                           been automatically extended three times. Any such
                           termination shall be made by written notice to the
                           Company, specifying the event relied upon for such
                           termination and given within 60 days after such
                           event. Any constructive termination shall be
                           effective 60 days after the date the Company has been
                           given such written notice setting forth the grounds
                           for such termination with specificity; provided,
                           however, that Executive shall not be entitled to
                           terminate this Agreement in respect of any of the
                           grounds set forth above if within 60 days after such
                           notice the action constituting such ground for
                           termination is no longer continuing. A constructive
                           termination by the Company without Cause shall
                           terminate the Restrictive Period hereunder.

                  4.7      For the purposes hereof, a "Change of Control of the
                           Company" shall be deemed to have occurred if after
                           the effective date (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, of securities of the
                           Company representing 50% or more of the combined
                           voting power of the Company's then outstanding
                           securities without the prior approval of at least a
                           majority of the members of the Board in office
                           immediately prior to such person attaining such
                           percentage interest; (ii) there occurs a proxy
                           contest or a consent solicitation, or the Company is
                           a party to a merger, consolidation, sale of assets,
                           plan of liquidation or other reorganization not
                           approved by at least a majority of the members of the
                           Board in office, as a consequence of which members of
                           the Board in office immediately prior to such
                           transaction or event constitute less than a majority
                           of the Board thereafter; or (iii) during any period
                           of two consecutive years, other than as a result of
                           an event described in clause (ii) of this Section
                           4.7, individuals who at the beginning of such period
                           constituted the Board (including for this purpose any
                           new director whose election or nomination for
                           election by the Company'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.



                                      -10-
<PAGE>   11


                  5.       INSURANCE.

                           The Company may, from time to time, apply for and
                           take out, in its own name and at its own expense,
                           naming itself or one or more of its affiliates as the
                           designated beneficiary (which it may change from time
                           to time), policies for life, health, accident,
                           disability or other insurance upon the Executive in
                           any amount or amounts that it may deem necessary or
                           appropriate to protect its interest. The Executive
                           agrees to aid the Company in procuring such insurance
                           by submitting to medical examinations and by filling
                           out, executing and delivering such applications and
                           other instruments in writing as may reasonably be
                           required by an insurance company or companies to
                           which any application or applications for insurance
                           may be made by or for the Company.

                  6.       INDEMNIFICATION.

                           6.1      The Company shall, to the extent not
                                    prohibited by law, indemnify the Executive
                                    if he is made, or threatened to be made, a
                                    party to any threatened, pending or
                                    completed action, suit or proceeding,
                                    whether civil, criminal, administrative or
                                    investigative, including an action by or in
                                    the right of the Company to procure a
                                    judgment in its favor (hereinafter a
                                    "Proceeding"), by reason of the fact that
                                    the Executive is or was a director or
                                    officer of the Company, or is or was serving
                                    in any capacity at the request of the
                                    Company for any other corporation,
                                    partnership, joint venture, trust, employee
                                    benefit plan or other enterprise, against
                                    judgments, fines, penalties, excise taxes,
                                    amounts paid in settlement and costs,
                                    charges and expenses (including attorneys'
                                    fees and disbursements) paid or incurred in
                                    connection with any such Proceeding.

                                    6.2 The Company shall, from time to time,
                                    reimburse or advance to the executive the
                                    funds necessary for payment of expenses,
                                    including attorneys' fees and disbursements,
                                    incurred in connection with any Proceeding
                                    in advance of the final disposition of such
                                    Proceeding; provided, however, that, if
                                    required by the Texas Business Corporation
                                    Act, such expenses incurred by or on behalf
                                    of the Executive may be paid in advance of
                                    the final disposition of a Proceeding only
                                    upon receipt by the Company of an
                                    undertaking, by or on behalf of the
                                    Executive, to repay any such amount so
                                    advanced if it shall ultimately be
                                    determined by final judicial decision from
                                    which there is no further right of appeal
                                    that the Executive is not entitled to be
                                    indemnified for such expenses.

                           6.3      The right to indemnification and
                                    reimbursement or advancement of expenses
                                    provided by, or granted pursuant to, this
                                    Article 6 shall not be



                                      -11-
<PAGE>   12


                                    deemed exclusive of any other rights which
                                    the Executive may now or hereafter have
                                    under any law, by-law, agreement, vote of
                                    stockholders or disinterested directors or
                                    otherwise, both as to action in his official
                                    capacity and as to action in another
                                    capacity while holding such office.

                           6.4      The right to indemnification and
                                    reimbursement or advancement of expenses
                                    provided by, or granted pursuant to, this
                                    Article 6 shall continue as to the Executive
                                    after he has ceased to be a director or
                                    officer and shall inure to the benefit of
                                    the heirs, executors and administrators of
                                    the Executive.

                           6.5      The Company shall purchase and maintain
                                    director and officer liability insurance on
                                    such terms and providing such coverage as
                                    the Board determines is appropriate, and the
                                    Executive shall be covered by such insurance
                                    on the same basis as the other directors and
                                    executive officers of the Company.

                           6.6      The right to indemnification and
                                    reimbursement or advancement of expenses
                                    provided by, or granted pursuant to, this
                                    Article 6 shall be enforceable by the
                                    Executive in any court of competent
                                    jurisdiction. The burden of proving that
                                    such indemnification or reimbursement or
                                    advancement of expenses is not appropriate
                                    shall be on the Company. Neither the failure
                                    of the Company (including its board of
                                    directors, independent legal counsel, or its
                                    stockholders) to have made a determination
                                    prior to the commencement of such action
                                    that such indemnification or reimbursement
                                    or advancement of expenses is proper in the
                                    circumstances nor an actual determination by
                                    the Company (including its board of
                                    directors, independent legal counsel, or its
                                    stockholders) that the Executive is not
                                    entitled to such indemnification or
                                    reimbursement or advancement of expenses
                                    shall constitute a defense to the action or
                                    create a presumption that the Executive is
                                    not so entitled. The Executive shall also be
                                    indemnified for any expenses incurred in
                                    connection with successfully establishing
                                    his right to such indemnification or
                                    reimbursement or advancement of expenses, in
                                    whole or in part, in any such proceeding.

                           6.7      If the Executive serves (1) another
                                    corporation of which a majority of the
                                    shares entitled to vote in the election of
                                    its directors is held by the Company, or (2)
                                    any employee benefit plan of the Company or
                                    any corporation referred to in clause (1),
                                    in any capacity, then he shall be deemed to
                                    be doing so at the request of the Company.

                           6.8      The right to indemnification or
                                    reimbursement or advancement of expenses
                                    shall be interpreted on the basis of the
                                    applicable law in effect at the time of the
                                    occurrence of the event or events giving
                                    rise to the applicable Proceeding.



                                      -12-
<PAGE>   13


         7. OTHER PROVISIONS.

                           7.1      Certain Definitions. As used in this
                                    Agreement, the following terms have the
                                    following meanings unless the context
                                    otherwise requires:

                                    (i)      "affiliate" with respect to the
                                             Company means any other person
                                             controlled by or under common
                                             control with the Company but shall
                                             not include any stockholder or
                                             director of the Company, as such.

                                    (ii)     "person" means any individual,
                                             corporation, partnership, firm,
                                             joint Company, association,
                                             joint-stock company, trust,
                                             unincorporated organization,
                                             governmental or regulatory body or
                                             other entity.

                                    (iii)    "subsidiary" means any corporation
                                             50% or more of the voting
                                             securities of which are owned
                                             directly or indirectly by the
                                             Company.

                           7.2      Notices. Any notice or other communication
                                    required or permitted hereunder shall be in
                                    writing and shall be delivered personally,
                                    telegraphed, telexed, sent by facsimile
                                    transmission or sent by certified,
                                    registered or express mail, postage prepaid.
                                    Any such notice shall be deemed given when
                                    so delivered personally, telegraphed,
                                    telexed or sent by facsimile transmission
                                    or, if mailed, on the date of actual receipt
                                    thereof, as follows:


                           (i)      if to the Company, to:
                                    Grey Wolf, Inc.
                                    10370 Richmond Avenue, Suite 600
                                    Houston, Texas 77042


                                    with a copy to:
                                    Garderer Wynn Sewell & Riggs L.L.P.
                                    333 Clay Avenue, Suite 800
                                    Houston, Texas  77002-4086
                                    Attention:  Frank Putman, Esq.



                                      -13-
<PAGE>   14


                           (ii)     if to the Executive, to:


Any party may change its address for notice hereunder by notice to the other
party hereto.

                           7.3      Entire Agreement. This Agreement contains
                                    the entire agreement between the parties
                                    with respect to the subject matter hereof
                                    and supersedes all prior agreements, written
                                    or oral, with respect thereto.

                           7.4      Waivers and Amendments. This Agreement may
                                    be amended, superseded, canceled, renewed or
                                    extended, and the terms and conditions
                                    hereof may be waived, only by a written
                                    instrument signed by the parties or, in the
                                    case of a waiver, by the party waiving
                                    compliance. No delay on the part of any
                                    party in exercising any right, power or
                                    privilege hereunder shall operate as a
                                    waiver thereof. Nor shall any waiver on the
                                    part of any party of any such right, power
                                    or privilege hereunder, nor any single or
                                    partial exercise of any right, power or
                                    privilege hereunder, preclude any other or
                                    further exercise thereof or the exercise of
                                    any other right, power or privilege
                                    hereunder.

                           7.5      Governing Law. This Agreement shall be
                                    governed by and construed in accordance with
                                    the laws of the State of Texas (without
                                    giving effect to the choice of law
                                    provisions thereof) where the employment of
                                    the Executive shall be deemed, in part, to
                                    be performed and enforcement of this
                                    Agreement or any action taken or held with
                                    respect to this Agreement shall be taken in
                                    the courts of appropriate jurisdiction in
                                    Houston, Texas.

                           7.6      Assignment. This Agreement, and any rights
                                    and obligations hereunder, may not be
                                    assigned by the Executive and may be
                                    assigned by the Company (subject to Section
                                    4.6 (iii) hereof) only to a successor by
                                    merger or purchasers of substantially all of
                                    the assets of the Company.

                           7.7      Counterparts. This Agreement may be executed
                                    in separate counterparts, each of which when
                                    so executed and delivered shall be deemed an
                                    original, but all of which together shall
                                    constitute one and the same instrument.

                           7.8      Headings. The headings in this Agreement are
                                    for reference purposes only and shall not in
                                    any way affect the meaning or interpretation
                                    of this Agreement.




                                      -14-
<PAGE>   15


                           7.9      No Presumption Against Interest. This
                                    Agreement has been negotiated. drafted,
                                    edited and reviewed by the respective
                                    parties, and therefore, no provision arising
                                    directly or indirectly herefrom shall be
                                    construed against any party as being drafted
                                    by said party.

                           7.10     Validity Contest. The Company shall promptly
                                    pay any and all legal fees and expenses
                                    incurred by the Executive from time to time
                                    as a direct result of the Company's
                                    contesting the due execution, authorization,
                                    validity or enforceability of this
                                    Agreement.

                           7.11     Binding Agreement. This Agreement shall
                                    inure to the benefit of and be binding upon
                                    the Company and its respective successors
                                    and assigns and the Executive and his legal
                                    representatives.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                            GREY WOLF, INC.


                                            By    /s/ T. P. RICHARDS
                                               ---------------------------------
                                               Name:  T. P. Richards
                                               Title: President and CEO



                                            EXECUTIVE

                                               /s/ EDWARD S. JACOB III
                                               ---------------------------------




                                      -15-