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                            SCHEDULE 14A INFORMATION
                   Proxy Statement Pursuant to Section 14(a)
                     of the Securities Exchange Act of 1934


|X|      Filed by Registrant.
|_|      Filed by Party other than the Registrant

Check the appropriate box:
|X||_|      Preliminary Proxy Statement
|_|      Confidential, for Use of the Commission Only (as permitted by
         Rule 14a-6(e)(2))
|_||X|      Definitive Proxy Statement
|_|      Definitive Additional Materials
|_|      Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12


                          BLACK WARRIOR WIRELINE CORP.
----------------------------- --------------------------------------------------------------------------------
                (Name of Registrant as Specified in Its Charter)

                                 NOT APPLICABLE
----------------------------- --------------------------------------------------------------------------------
       (Name of Person(s) Filing Proxy Statement if other than Registrant)


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         __________________________

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         5)  Total Fee Paid:

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                          BLACK WARRIOR WIRELINE CORP.
                               3748 Highway #45 North100 Rosecrest Lane
                           Columbus, Mississippi 39701

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                               JULY 8, 1999SEPTEMBER 23, 2002


         Notice is hereby given that the Annual Meeting of Stockholders of Black
Warrior Wireline Corp. (the "Company") will be held at the offices  of the
Company at 3748 Highway #45 North,Wingate Inn, 129
Brickerton Street, Columbus, Mississippi, 39701,  on Thursday,
July 8, 1999Monday, September 23, 2002 at 10:9:00
AM local time, for the following purposes:

         1.       To elect three (3) directors of the Company to hold office
         until the next Annual Meeting of Stockholders in 2000 and until their
         successors are elected and qualified; 2. To consider  and

         vote on a proposal to approve an  amendment  to the
         Company's 1997 Omnibus  Incentive Plan to increase the number of shares
         reserved for the grant of options  thereunder  from  600,000  shares to
         1,000,000 shares;

         3. To consider  and vote on a proposal to approve an  amendment  to the
         Company's 1997 Non-Employee Stock Option Plan to increase the number of
         shares reserved for the grant of options thereunder from 100,000 shares
         to 300,000 shares;

         4. To consider  and vote on a proposal  to approve the  adoption of the
         Company's 1999 Stock Incentive Plan pursuant to which 3,000,000  shares
         will be reserved for the grant of options thereunder;

         5. To  consider  and vote on a  proposal  to amend the  Certificate  of
         Incorporation  of the  Company to  increase  the  authorized  shares of
         Common Stock,  par value $.0005 per share,  from  12,500,000  shares to
         75,000,000 shares; and

         6.2.       To transact such other business as may properly come before
         the meeting or any adjournments thereof.

         Information with respect to the above is set forth in the Proxy
Statement which accompanies this Notice. Only stockholders of record at the
close of business on May 27, 1999August 14, 2002 are entitled to notice of and to vote at
the Meeting.

         We hope that all of our Stockholders who can conveniently do so will
attend the Meeting. Stockholders who do not expect to be able to attend the
Meeting are requested to mark, date and sign the enclosed Proxy and return the
same in the enclosed addressed envelope which requires no postage and is
intended for your convenience.


Dated:  June 4, 1999August 21, 2002                                 Allen R. Neel, Secretary





                          BLACK WARRIOR WIRELINE CORP.

                                 PROXY STATEMENT
                         ANNUAL MEETING OF STOCKHOLDERS


         The enclosed Proxy is solicited by the Board of Directors of Black
Warrior Wireline Corp. (the "Company"), from the holders of shares of Common
Stock, $.0005 par value, to be voted at the Annual Meeting of Stockholders (the
"Meeting") to be held at the offices of the Company at 3748  Highway #45 North,Wingate Inn, 129 Brickerton Street, Columbus,
Mississippi, 39701, on Thursday,  July 8, 1999Monday, September 23, 2002 at 10:9:00AM local time, and at any
adjournments thereof.

         The only business which the Board of Directors intends to present or
knows that others will present at the Meeting is (i) the election of three (3)
Directors of the Company to hold office until the next Annual Meeting of
Stockholders in 2000 and until their successors have been elected and qualified,
(ii) to consider and vote on a proposal to approve an amendment to the Company's
1997 Omnibus  Incentive  Plan to increase the number of shares  reserved for the
grant of options  thereunder from 600,000 shares to 1,000,000  shares,  (iii) to
consider and vote on a proposal to approve an amendment  to the  Company's  1997
Non-Employee Stock Option Plan to increase the number of shares reserved for the
grant of options  thereunder  from  100,000  shares to 300,000  shares,  (iv) to
consider  and vote on a proposal to approve the adoption of the  Company's  1999
Stock Incentive Plan pursuant to which 3,000,000 shares will be reserved for the
grant of options thereunder, and (v) to consider and vote on a proposal to amend
the  Certificate  of  Incorporation  of the Company to increase  the  authorized
shares of Common Stock from 12,500,000 shares to 75,000,000  shares.qualified.
Management does not know of any other business to be brought before the Meeting,
but it is intended that as to any other business, a vote may be cast pursuant to
the Proxy in accordance with the judgment of the person or persons acting
thereunder. Any stockholder giving a Proxy has the power to revoke it at any
time before the Proxy is voted by revoking it in writing, by executing a later
dated Proxy, or appearing at the Meeting and voting in person. Any writing
revoking a Proxy should be addressed to Allen R. Neel, Secretary, at the address
set forth below.

         The Directors to be elected at the Meeting will be elected by a
plurality of the votes cast by the stockholders present in person or by proxy
and entitled to vote. Each of the other  matters to be  submitted to a vote of
stockholders  will require the affirmative  vote of a majority of the votes cast
at the Meeting on the proposal except that the proposal to amend the Certificate
of Incorporation  will require the affirmative vote of the holders of a majority
of the  outstanding  shares of Common  Stock.  With  regard to the  election  of
Directors,  votesVotes may be cast for or withheld from the nominees. Votes
that are withheld will have no effect on the outcome of the election because the
Directors will be elected by a plurality of votes cast.
         Abstentions   may  be  specified  on  all  proposals   submitted  to  a
stockholder  vote other than the  election  of  Directors.  Abstentions  will be
counted as  present  for  purposes  of  determining  the  existence  of a quorum
regarding the proposal on which the abstention is noted. However, abstentions on
any of the Company's proposals will have no effect on the outcome of the vote on
such proposal where the outcome  requires the affirmative  vote of a majority of
votes  cast at the  Meeting  and will  have the  effect  of a vote  against  the
proposal to amend the Company's Certificate of Incorporation.

         Under the rules of the New York Stock Exchange, brokers who hold shares
in street name have the authority to vote on certain routine matters on which
they have not received instructions from beneficial owners. Brokers holding
shares of the Company's Common Stock in street name who do not receive
instructions are entitled to vote on the election of Directors. Under applicable
Delaware law, "broker non-votes" on any such proposal (where a broker submits a
proxy but does not vote a customer's shares on such proposal) will be considered
not entitled to vote on that proposal and thus will not be counted in
determining the outcome of such vote. Likewise, where authority to vote for the
election of Directors is withheld by a stockholder, such shares will not be
counted in determining the outcome of such vote. Therefore, broker non-votes
with respect to the election of Directors and stockholders who mark their
proxies to withhold authority to vote their shares will have no effect on the
outcome of such proposal, although broker non-votes and proxies submitted where
the vote for the election of Directors is withheld are counted in determining
the existence of a quorum.


         Only stockholders of record as of the close of business on May 27, 1999August 14,
2002 are entitled to notice of and to vote at the Meeting or any adjournments
thereof. On such date, the Company



had outstanding voting securities consisting of 3,947,45112,496,408 shares of Common
Stock, $.0005 par value, each of which shares is entitled to one vote.

         The Company's principal executive office address is 3748 Highway #45
North,100 Rosecrest Lane,
Columbus, Mississippi 39701, and the telephone number is (601)(662) 329-1047. This
Proxy Statement and the enclosed Form of Proxy will be mailed to the Company's
stockholders on or about June 4, 1999.

1.August 21, 2002.


                              ELECTION OF DIRECTORS

         At the Meeting, it is proposed to elect three (3) Directors to hold
office until the next Annual Meeting of Stockholders  in 2000, and until their respective
successors are elected and qualified. It is intended that, unless otherwise
indicated, the shares of Common Stock represented by proxies solicited by the
Board of Directors will be voted for the election as


                                       2

 Directors of the three (3)
nominees hereinafter named. If, for any reason, any of said nominees shall
become unavailable for election, which is not now anticipated, the proxies will
be voted for the other nominees and may be voted for a substitute nominee
designated by the Board of Directors. Each nominee has indicated that he is
willing and able to serve as a Director if elected, and, accordingly, the Board
of Directors does not have in mind any substitute. Each nominee is presently a
Director of the Company and except for Mr.  Underbrink,
was elected a Director at the 19972001 Annual Meeting of
Stockholders.Stockholders held in October, 2001.

         The nominees for Director and their ages are as follows:

                        NAME                                     AGE
                  ----                          ---
                  William L. Jenkins                              4649
                  Charles E. Underbrink                           4447
                  John L. Thompson                                3942


         William L. Jenkins has been President, Chief OperatingExecutive Officer and a
Director of the Company since March 1989. From 1973 until 1980, Mr. Jenkins held
a variety of field engineering and training positions with Welex - A Halliburton
Company, in the South and Southwest. From 1980 until March 1989, Mr. Jenkins
worked with Triad Oil & Gas, Inc., as a consultant, providing services to a
number of oil and gas companies. During that time, Mr. Jenkins was involved in
the organization of a number of drilling and oil field service companies,
including a predecessor of the Company, of which he served as
Secretary/Treasurer until 1988. Mr. Jenkins has over twentytwenty-five years'
experience in the oil field service business. Mr. Jenkins is Mr. Thornton's brother-in-law.the brother-in-law
of Danny Ray Thornton, the Company's Vice President-Operations.



                                      -2-



         Charles E. Underbrink was elected a Director on April 1, 1998. He has
been,  sinceFrom
July 1995 to March 2001, Mr. Underbrink served as the Chief Executive Officer
and Chairman of St. James Capital Corp. and SJMB, L.L.C., a Houston basedHouston-based merchant
banking firmfirms. He continues to serve as Chairman of St. James Capital Corp. and
SJMB, L.L.C. Mr. Underbrink is also a Director of Somerset House Publishing,
HUB, Inc. and Imperial Credit Industries, Inc.

         John L. Thompson was elected a Director in June 1997. Since July 1995,
he has served as a Director and President of St. James Capital Corp. and SJMB,
L.L.C., Houston-based merchant banking firms. Since March 1, 2001, Mr. Thompson
has also served as the Chief Executive Officer of St. James Capital Corp. and
SJMB, L.L.C. St. James Capital Corp. also serves as the general partner of St.
James Capital Partners, L.P. He has also been,  since January 1998,  Chief
Executive Officer and Chairman of SJMB, L.L.C., a Houston based merchant banking
firm, and serves as the general partner of
SJMB, L.P. Mr.  Underbrink has been,  from August
1996 to the present,  a principal of HUB, Inc. a lender to small  capitalization
businesses and the operator of mini-storage  facilities located, investment limited partnerships, specializing in Minnesota and
Wisconsin.

         John L. Thompson has been, since July 1995, a Director and President of
St. James Capital Corp.,  a Houston based merchant banking
firm and the general
partner of St. James  Capital  Partners,  L.P. He has also been,  since  January
1998,  President and a manager of SJMB, L.L.C., a Houston based merchant banking
firm and general partner of SJMB, L.P. Additionally, he is Chairman of the Board
of CDI Holdings,  Inc., a holding  company  engaged in energy

                                       3


services  and is a  Director  of  Industrial  Holdings,  Inc.,  a  publicly-held
company.related investments. Prior to co-founding St. James Capital Corp. and SJMB,
L.L.C., Mr. Thompson served as a Managing Director of Corporate Finance at
Harris Webb & Garrison, a regional investment
bankinginvestment-banking firm with a focus on
mergers and acquisitions, financial restructuring and private placements of debt
and equity issues. Mr. Thompson has been
nominated for electionwas elected to the Company's Board of Directors
in June 1997 pursuant to the terms of Agreements between the Company and St.
James Capital Partners, L.P. See "Certain Transactions" for a description of the
transactions.


EXECUTIVE OFFICERS

         The current executive officers of the Company are the following:

         NAME                                          POSITION

----                        --------
         William L. Jenkins                       President, Chief Executive Officer and
                                         Chief Operating Officer
Allen R. Neel                            Executive Vice-PresidentVice President and Secretary
Danny RayR. Thornton                        Vice-President/OperationsVice President-Operations



         Mr. Jenkins' employment background is described above.

         Allen R. Neel is the Executive Vice-President and Secretary of the
Company and has been employed by the Company since August 1990. He is currently
in charge ofoversees the Company's directional drilling activities.operations, as well as
administration and legal matters. In 1981, Mr. Neel received his BS Degree in
Petroleum Engineering from the University of Alabama. From 1981 to 1987, Mr.



                                      -3-


Neel worked in engineering and sales for Halliburton Services. From 1987 to
1989, he worked as a District Manager for Graves Well Drilling Co. When the
Company acquired the assets of Graves in 1990, Mr. Neel assumed a position with
the Company.

         Danny RayR. Thornton is a Vice-President of the Company and has been
employed by the Company since March 1989. From 1982 to March 1989, Mr. Thornton
was the president and a principal stockholder of Black Warrior Mississippi, the
Company's operational predecessor. Mr. Thornton has been engaged in the oil and
gas services industry in various capacities since 1978. His principal duties
with the Company include supervising and consulting on wireline and workover
operations. Mr.
Thornton is Mr. Jenkins' brother-in-law.

                                       4



EXECUTIVE COMPENSATION - GENERAL

         The following table sets forth the compensation paid or awarded to the
President and Chief Executive Officer of the Company and each other executive
officer of the Company who received compensation exceeding $100,000 during 19982001
for all services rendered to the Company in each of the years 1998,  19972001, 2000 and
1996.1999.


                                                   SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ----------------------------------------- ------------------------------ BONUS/ANNUAL SECURITIES LONG-TERM NAME AND INCENTIVE UNDERLYING INCENTIVE ALL OTHER PRINCIPAL POSITION YEAR SALARY AWARD OPTIONS PAYOUTS COMPENSATION ------------------ ---- ------ ----- ------- ------- ------------- -------------------------------------------------------------------------------------------------------------------- William L. Jenkins 1998 $146,275 -0- 200,0002001 $225,000 $123,376 -- -0- $1,216(1) President 1997 $110,000 -0- -0-2000 $195,650 $77,726 -- -0- $1,216(1) 1996 $95,000 -0- -0-1999 $87,548 $48,376 -- -0- $1,216(1) Allen R. Neel 1998 $131,3342001 $139,000 -0- -- -0- -0- $8,400(2)$9,000(2) Executive Vice President 1997 $78,5002000 $119,000 -0- 80,000-- -0- $8,400(2) 1999 $85,000 -0- 1996 $60,500-- -0- $8,400(2) Danny R. Thornton 2001 $100,208 $41,025 -- -0- $3,500(2) Vice President 2000 $79,500 $6,576 -- -0- $7,000(2) 1999 $77,813 $19,693 -- -0- -0-
- ---------------------------------------------- (1) Includes the premiums paid by the Company on a $1,000,000 insurance policy on the life of Mr. Jenkins which names his wife as beneficiary and owner of the policy. (2) Automobile allowance paid to Mr. Neel.Neel and Mr. Thornton. -4- OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1998.2001 - --------------------------------------------- The following table provides information with respect to the above named executive officers regarding options granted to such persons during the Company's year ended December 31, 1998.2001.
% OF TOTAL OPTIONS/ MARKET NUMBER OF OPTIONS/ PRICE PER SECURITIES SARS GRANTED TO EXERCISE OR PRICESHARE ON UNDERLYING SARS/ EMPLOYEES IN BASE PRICE EXPIRATION DATE OF NAME OPTIONS GRANTED (#)(1) FISCAL YEAR ($/SHARE) DATE GRANT ---- ------------------- ----------- --------- ---- ------ ---------------------------------------------------------------------------------------------------------------------- William L. Jenkins 200,000(1) 37% $6.69 1/1/03 $6.69 - -----------------4,000,000 23.9% $0.75 Feb. 2010 $0.37 Allen R. Neel 1,050,000 6.3% $0.75 Feb. 2010 $0.37 Danny R. Thornton 1,250,000 7.5% $0.75 Feb. 2010 $0.37
- -------------------------- (1) OfRepresents shares of Common Stock. On February 9, 2001, the Company's stockholders approved the adoption of the Company's 2000 Stock Incentive Plan pursuant to which 100,00017,500,000 shares are exercisable onreserved for the grant of options. At December 31, 2001, options to purchase 16,686,000 shares have been granted to 159 employees under the option2000 Stock Incentive Plan. On February 9, 2001, the Company's stockholders approved an amendment to the 1997 Omnibus Incentive Plan increasing the number of shares reserved for the grant of options to 1,000,000 and an amendment to the remaining1997 Non-Employee Stock Option Plan increasing the number of shares become exercisable on January 1, 2000reserved for the grant of options to 300,000. As of December 31, 2001, options to purchase 315,000 shares and January 1, 2001. 5300,000 shares, respectively, were outstanding under those plans. -5- STOCK OPTION EXERCISES AND HOLDINGS AT DECEMBER 31, 1998.2001. - --------------------------------------------------------- The following table provides information with respect to the above named executive officers regarding Company options held atexercised during the end of the Company's year ended December 31, 19982001 and options held at December 31, 2001 (such officers did not exercise any options during the most recent fiscal year).
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT DECEMBER 31,199831,2001 AT DECEMBER 31, 19982001 (1) -------------------------------- --------------------------------SHARES ACQUIRED ON VALUE NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- -------------- ---------------------------------------------------------------------------------------------------------------------- William L. Jenkins 100,000 100,000-0- -0- 4,000,000 -0- -0- -0- Allen R. Neel 60,000 20,000-0- -0- 1,050,000 -0- -0- -0- Danny R. Thornton -0- -0- 1,250,000 -0- -0- -0-
- --------------------------------------- (1) Based on the closing sales price on December 31,199831, 2001 of $1.00. EMPLOYMENT AGREEMENTS$0.40. OTHER PLANS The Company has entered into an Employment Agreement, dated January 1, 1998, with William L.not adopted any other long-term incentive plans or defined benefit or actuarial pension plans. EMPLOYMENT AGREEMENTS Mr. Jenkins to serveserves as itsthe Company's President, Chief Executive Officer and a Director of the Company. The Employment Agreement, which terminatespursuant to an employment agreement, as amended effective January 1, 2002, expiring on December 31, 2001, provides for an annual base salary of $225,000. Mr. Jenkins has agreed to a reduction in his salary to $85,000 as a consequence of the decline in oil and gas prices and the impact on the Company's operations. The Employment Agreement provides for certain increases in Mr. Jenkins base compensation in the years 1999, 2000 and 2001 if the Company meets certain performance objectives. Pursuant to2005. Under the agreement, Mr. Jenkins was grantedreceives a ten-year optionbase salary of not less than $350,000 per year. If the Company achieves, during any calendar quarter beginning January 1, 2002, a ratio of EBITDA to purchase 200,000 sharessales of 20% or more, Mr. Jenkins will be paid a bonus for the quarter of 1% of the Company's EBITDA during the quarter. As an incentive to retain Mr. Jenkins' services, the Company agreed to loan Mr. Jenkins the sum of $190,000, bearing interest at the applicable federal rate, to be repaid at the rate of one-third of the principal, plus accrued interest, on October 1 of each of the years 2002, 2003 and 2004. If Mr. Jenkins remains employed by the Company on September 30 preceding the date annual principal and interest is due on the loan, the sum due and owing the following day is forgiven. In the event of a Change of Control, as defined, the death or permanent disability of Mr. Jenkins or in the event his employment is terminated without cause, the entire amount owing by Mr. Jenkins is forgiven. In -6- the event of a Change of Control, as defined, the Company agrees that the employment agreement will terminate and Mr. Jenkins will be paid a sum equal to three times the compensation paid to Mr. Jenkins during the twelve months preceding the Change of Control. A Change of Control is defined in the agreement as any person or group of persons acquiring 20% or more of the outstanding shares of voting capital stock of the Company, the sale of more than 25% of the assets of the Company in a single or series of related transactions, a merger of the Company with any other person or firm, a change, during any period of twelve consecutive calendar months, in the individuals who were Directors at the beginning of such period (including Directors whose election or nomination for election was approved by at least two-thirds of the Directors then in office who were Directors at the beginning of the period or whose election was so approved) and such persons cease for any reason other than death or disability to constitute a majority of the Directors then in office, or St. James Capital Corp. ceases to be the general partner, managing partner or otherwise ceases to control St. James Capital Partners, L.P. or SJMB, L.P. The Company also agreed to issue to Mr. Jenkins a five-year common stock purchase warrant to purchase 2.5 million shares of stock exercisable at an exercise price$0.75 per share. In the event of $6.6875 per share,Mr. Jenkins' death, subject to any restrictions contained in the Company's agreement with General Electric Capital Corporation (GECC), the Company agreed to repurchase the shares and options held by Mr. Jenkins at the fair market value of the stock on January 1, 1998,shares, as to shares repurchased, and the datedifference between the fair market value and the option was granted. With certain exceptions,exercise price, as to options repurchased. Under the agreement, restrictsthe fair market value is the average of the mid-point between the bid and asked prices for the Company's common stock for the twenty trading days preceding death. The Company also confirmed the prior agreement to pay to Mr. Jenkins from engagingin the event of a sale of the Company, a sum equal to 1% of the gross sale proceeds or gross value of any stock received, subject to a maximum payment of $500,000. The amended employment agreement further provides that while in the employ of the Company and thereafter Mr. Jenkins will not divulge or use any confidential information of the Company and during the term of his employment will not engage in activities in competition with the Company during the term of his employment and, in the event Mr. Jenkins terminates the agreement prior to its termination date, for a period of eighteen (18) months thereafter and also in the event he terminates the agreement, from soliciting for employment any employee of the Company for a period of two years after termination.Company. The Company has entered into two-yearfive-year employment agreements terminating on April 1, 2000March 31, 2006 with each of Allen R. Neel, Executive Vice- 6 President,Vice-President and Danny RayR. Thornton, Vice-President, Operations, of the Company. Mr. Neel is to receivereceives base compensation of $135,000 per year; however, he has agreed to a reduction to $85,000$139,000 per year. Mr. Thornton receives base compensation of $75,000$115,000 per year. On each anniversary date of the agreements, the Company and the employee agree to renegotiate the base salary taking into account the rate of inflation, overall profitability and the cash position of the Company, the performance and profitability of the areas for which the employee is responsible and other factors. The agreements contain restrictions on such persons engaging in activities in competition with the Company during the term of their employment and for a period of two years thereafter. -7- DIRECTORS' COMPENSATION REPORT The Company's full Board of Directors acts on matters involving the compensation of the Company's executive officers and employees and the grant of options under the Company's option plans other than the 2000 Stock Incentive Plan. At the present time, a compensation committee of the Board of Directors has not been appointed. Messrs. Jenkins and Thompson have been appointed to the option committee under the 2000 Stock Incentive Plan. Executive officers who are Directors whose compensation is being considered do not participate in board or committee actions regarding their compensation. The Board of Directors seeks to assure that the Company's executive officers are adequately and fairly compensated and that their compensation is competitive with other similar-sized companies in the oilfield service industry and, at the same time, reflecting their individual performance and responsibilities within the Company. Historically, the Board has compensated executive officers primarily through the payment of salaries. In addition,recent years, the agreements provideCompany's ability to pay salaries has been impacted by its limited financial resources. Mr. Jenkins, the Company's chief executive officer, is employed pursuant to an employment agreement, as amended effective January 1, 2002, whereby he is to receive a base salary of not less than $350,000 per year. If the Company achieves, during any calendar quarter beginning January 1, 2002, a ratio of EBITDA to sales of 20% or more, Mr. Jenkins will be paid a bonus for the grant to such employeesquarter of options to purchase 50,000 shares1% of the Company's EBITDA during the quarter. This employment agreement is more fully described above. PERFORMANCE GRAPH The following graph compares the yearly percentage change in the Company's (BWWC) cumulative total stockholder return on its Common Stock with the cumulative total return on the published Standard & Poor's 500 Stock Index (S&P 500) and the cumulative total return on Standard & Poor's 500 Oil and Gas Equipment and Services Index (S&P 500 O&G) over the preceding five-year period. The following graph is presented as required by SEC rules. -8- [GRAPHIC OMITTED] --------------------------------------------------- 1996 1997 1998 1999 2000 2001 --------------------------------------------------- S&P 500 100 133.3 171.3 207.4 188.5 166.2 - ------------------------------------------------------------------------ S&P 500 O&G 100 153.3 87.81 117.8 156.1 102.5 - ------------------------------------------------------------------------ BWWC 100 174.3 24.27 15.05 8.98 9.7 - ------------------------------------------------------------------------ The comparison of total return on investment (change in year-end stock price plus reinvested dividends) assumes that $100 was invested on December 31, 1996 in the Company's Common Stock, on executionthe S&P 500 Index and the S&P 500 Oil and Gas Equipment and Services Index. It includes the reinvestment of any dividends. The Company has never paid any cash dividends. The Report of the agreementsCompensation Committee or Executive Compensation and 10,000 shares on eachthe Performance Graph are not deemed to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or incorporated by reference in any documents so filed. COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS Board of Directors. The Company's Board of Directors held four meetings during the year ended December 31, 2001. Each of the first three anniversary datesCompany's Directors participated in all of the agreements, provided such persons continuemeetings of the Board and of each committee of the board of which he is a member, except that Mr. Alan W. Mann, a Director until September, 2001, and Mr. Thompson each missed attending one meeting of the Board of Directors. -9- Audit Committee. Messrs. Jenkins, Underbrink and Thompson, constituting all of the Company's Directors, also constitute the Audit Committee of the Company's Board of Directors. The Audit Committee, among other things, meets with the Company's independent accountants to review the Company's accounting policies, internal controls and other accounting and auditing matters; makes recommendations as to the engagement of independent accountants; and reviews the letter of engagement and statement of fees relating to the scope of the annual audit and special audit work which may be recommended or required by the independent accountants. Each of Messrs. Underbrink and Thompson is, in the opinion of the Company's Board of Directors, an "independent director," as that term is defined under the Rules relating to the NASDAQ Stock Market. As an employee of the Company, Mr. Jenkins is not an "independent director" as defined in the Rules. His presence on the Audit Committee has been considered required in the best interests of the Company because of his knowledge and familiarity with the Company. In the year 2000, the Securities and Exchange Commission adopted new rules relating to the disclosure of information about companies' audit committees. The new rules require that the Company's proxy statement contain a report of the audit committee addressing specific matters and that a company's audit committee charter be included as an attachment to the proxy statement at least once every three years. The audit committee charter was included as an exhibit to the Company's proxy statement dated September 14, 2001. The Audit Committee's Report follows. Audit Committee Report The Audit Committee has reviewed and discussed the Company's audited consolidated financial statements with management. Further, the Audit Committee has discussed with the independent public accountants the matters required to be employeddiscussed by the Statement on Auditing Standards No. 61 (SAS 61 - Communication with Audit Committees), as amended, relating to the accountants' judgment about the quality of the Company's accounting principles, judgments and estimates, as applied in its financial reporting. The Audit Committee also has received the written disclosures and the letter from the independent public accountants required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) that relates to the accountants' independence from the Company and its subsidiaries and has discussed with the independent public accountants their independence. Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, for filing with the Securities and Exchange Commission. -10- Audit Committee Charles E. Underbrink, Chairman John L. Thompson William L. Jenkins Other Committees. The Company's Board of Directors has not appointed either a compensation committee or a nominating committee. Messrs. Underbrink, Thompson and Jenkins constitute the Executive Committee of the Board of Directors. -11- 2001 AUDIT AND RELATED FEES The following sets forth fees incurred by the Company exercisable at a price of $2.625 per share. CERTAIN TRANSACTIONS On March 9, 1998,during the Messr. Danny Ray Thornton, Allen R. Neel and Reese James, officers and employees of the Company, agreed to release their lien on the Company's receivables in exchange for confirmation by the Company of certain obligations to such persons which consist of (i) reimbursement of such persons for their legal fees and expenses incurred in connection with their efforts to recover from Monetary Advancement International Inc., and (ii) the agreement to make such persons whole by issuing stock of the Company having a value of $240,000, based on the bid price at the date of issuance, less any recovery from MAII. In March 1995, the Company received a letter from the District Director of the Internal Revenue Service (the "IRS") in which he formally notified the Company that the IRS had preliminarily calculated deficiencies of $35,057 and $541,727 in federal taxes for the yearsyear ended December 31, 19892001 for services provided by PricewaterhouseCoopers LLP, the Company's independent public accountant:
Financial Information Financial Statement Systems Design and All Other Fees Implementation Fees Fees - ------------------------------------- ------------------------------------------ ------------------------ $364,245 $-0- $28,354
The Company's Board of Directors believes that the provision of the services during the year ended December 31, 1990, respectively. The adjustments proposed by2001 other than those relating to Financial Statement Fees is compatible with maintaining the IRS included the valuationindependence of bonus stock compensation to William L. Jenkins, President of the Company, as well as certain other items. The Company agreed to pay whatever personal tax liability was determined to be owing by Mr. Jenkins related to the bonus stock resulting from an unfavorable resolution of the IRS' proposed adjustment. In June 1996, the Company settled this matter with the IRS on terms which, among other things, resulted in an additional tax liability to Mr. Jenkins in the amount of $98,524 for taxes, penalties and interest related to the bonus stock. The Company reimbursed Mr. Jenkins for this sum on January 23, 1997 and has agreed to further reimburse Mr. Jenkins for the tax liability resulting from this payment and any further tax reimbursement payments made to Mr. Jenkins in future years. 7 PricewaterhouseCoopers LLP CERTAIN TRANSACTIONS Commencing in June 1997 through February, 18, 1999,2000, the Company entered into a series of transactions withwhereby it sold to St. James Capital Partners, L.P., SJMB, L.P. and affiliated entitiestheir affiliates (collectively referred to as "St. James") whereby the Company sold to St. James on the following dates for an aggregate purchase price of $19.4$26.4 million the following securities: DATE SECURITY PRINCIPAL AMOUNT ---- -------- ---------------- June 6, 1997 9%principal amounts of 15% Convertible Promissory Note $2.0 million (1) October 9, 1997 7% Convertible Promissory Note $2.9 million (2) January 23, 1998 8% Convertible Promissory Note $10.0 million(3) October 30, 1998 10% Convertible Promissory Note $2.0 million (4) February 18, 1999 10% Convertible Promissory Note $2.5 million (5) DATE NUMBER OF WARRANTS (6)(7) EXPIRATION DATE ---- ------------------------- --------------- June 6, 1997 1,221,000 June 5, 2002 October 9, 1997 2,239,138 October 10, 2002 January 23,1998 9,000,000 January 23, 2003 October 30, 1998 2,000,000 October 30, 2003 February 18, 1999 2,075,000 February 18,Notes and common stock purchase warrants, all expiring on December 31, 2004, to purchase the number of shares stated as follows:
DATE PRINCIPAL AMOUNT OF NOTES(1) NUMBER OF WARRANTS (5) --------------------------- ------------------------------ ------------------------ June 6, 1997 $2.0 million(2) 2,442,000 October 9, 1997 $2.9 million 4,478,277 January 23, 1998 $10.0 million(3) 18,000,000 October 30, 1998 $2.0 million 4,000,000 February 18, 1999 $2.5 million 4,150,000 December 17, 1999 $3.5 million 14,350,000 February 14, 2000 $3.5 million(4) 14,350,000
- -------------------------------------- (1) Convertible at a current conversion price of $1.50$0.75 per share, as adjusted through February 18,December 17, 1999 pursuant to anti-dilution adjustments, subject to further possible adjustment as provided in the terms of the warrants. (2) Excludes an additional $3.0 million borrowed in June 1997 that was repaid in October 1997. -12- (3) On December 14, 2000 $1,750,000 of this note was converted into 2,333,333 shares of Common Stock, leaving a remaining principal balance of $8,250,000 convertible into an aggregate of 1,333,333 shares of Common Stock. (2) Convertible at a current conversion price of $1.50 per share, as adjusted through February 18, 1999 pursuant to anti-dilution adjustments, into an aggregate of 1,933,333 shares of Common Stock. (3) Convertible at an exercise price of $1.50 per share, as adjusted through February 18, 1999 pursuant to anti-dilution adjustments, into an aggregate of 6,666,66711,000,000 shares of Common Stock. (4) Convertible atOn September 14, 2001, $83,118 of this principal balance was repaid, leaving a current conversion priceremaining principal balance of $1.50 per share, as adjusted through February 18, 1999 pursuant to anti-dilution adjustments,$3,416,882 convertible into an aggregate of 1,333,3334,555,843 shares of Common Stock. (5) Convertible at a current conversion price of $1.50 per share, subject to anti-dilution adjustments, into an aggregate of 1,666,667 shares of Common Stock. (6) Each warrant represents the right to purchase one share of Common Stock at $1.50$0.75 per share, subject to possible further anti-dilution adjustments. (7) As adjusted and subject to further anti-dilution adjustment. On eachIn March 2002, in connection with the extension of June 6 and October 9, 1997, January 23 and October 30, 1998, and February 18, 1999the maturity date of $17.7 million indebtedness, the Company entered into Purchase Agreements, and related notes,agreed to extend the expiration date of all these warrants and security documents (the "Agreements") with St. James or certain affiliated entities regarding the purchase of the securities described in the tables above.to December 31, 2004. Except for those terms relating to the amounts of securities purchased, maturity and expiration dates, interest rates, and conversion and exercise prices, each of such Agreementstransactions contained substantially identical terms and conditions 8 relating to the purchase of the securities involved. Payment of principal and interest on all the notes is collateralized by substantially all the assets of the Company, subordinated as of March 31, 1999, to the senior secured borrowings ofby the Company from Fleet Capital Corporation ("Fleet")GECC in the maximum aggregate amount of $11.5$40.0 million. The notes are convertible into shares of the Company's Common Stock at the conversion prices set forth in the tables above,above. The conversion price of the Notes and the exercise price of the Warrants is subject to anti-dilution adjustments for certain issuances of securities by the Company at prices per share of Common Stock less than the conversion or exercise price then in effect in which event the conversion price isand exercise price are reduced to the lower price at which such shares were issued. PursuantAs a consequence of several transactions involving the Company and St. James, the conversion and exercise prices have been reduced pursuant to the Agreements, the Company agreedanti-dilution adjustments to issue to St. James for nominal consideration warrants to purchase shares of Common Stock of the Company exercisable at the prices set forth in the tables above, subject to anti-dilution adjustment for certain issuances of securities by the Company at prices$0.75 per share of Common Stock less than the exercise prices then in effect in which event the exercise price is reduced to the lower price at which such shares were issued.share. The shares issuable on conversion of the notes and exercise of the warrants have demand and piggy-back registration rights under the Securities Act of 1933. The Company agreed that one person designated by St. James willwould be nominated for election to the Company's Board of Directors. Mr. John L. Thompson, currently a Director of the Company, serves in this capacity. The Agreements grant St. James certain preferential rights to provide future financings to the Company, subject to certain exceptions. The notes also contain various affirmative and negative covenants, including a prohibition against the Company consolidating, merging or entering into a share exchange with another person, with certain exceptions, without the consent of St. James. Events of default under the notes include, among other events, (i) a default in the payment of principal or interest; (ii) a default under any of the notes and the failure to cure such default for five days, which will constitute a cross default under each of the other notes; (iii) a breach of the Company's covenants, representations and warranties under any of the Agreements; (iv) a breach under any of the Agreements between the Company and St. James, subject to certain exceptions; (v) any person or group of persons acquiring 40% or more of the voting power of the Company's outstanding shares who was not the owner thereof as of October 30, 1998, a merger of the Company with another person, its dissolution or liquidation or a sale of all or substantially all its assets; and (vi) certain events of bankruptcy. In the event of a default under any of the notes, subject to the terms of an agreement between St. James and Fleet,GECC, St. James could seek to foreclose against the collateral for the notes. In the October 1997 and January 1998 agreements,-13- On December 14, 2000, St. James agreed to convert its $2.0 million convertibleconverted $1,750,000 principal amount of a note dated June 5, 1997 and its $2.9 million convertible note dated October 10, 1997 into shares$2,013,111 of the Company's Common Stock at such time as the Company has filed a registration statement under the Securities Act of 1933 relating to the shares issuableaccrued interest on conversion of such notes and on exercise of the warrants issued to St. James and such registration statement has been declared effective. 9 In March 1998, St. James agreed to certain amendments to its agreements with the Company in connection with the Company's borrowings from Fleet to finance the completion of the acquisition of assets from Phoenix Drilling Services, Inc. Among other things, these amendments required St. James to extend the maturity date of $10.0 million of indebtedness owing to it from maturing in 18 months to maturing in 36 months, required St. James to fully subordinate the payment of principal and interest on the indebtedness owing to it to the prior payment in full of the Company's indebtedness to Fleet, and required St. James to refrain from selling shares of Common Stock of the Company below certain percentage levels of the Company's shares outstanding so long as the indebtedness remains owing to Fleet. In consideration for these amendments, the Company agreed to reduce the exercise and conversion prices of the common stock purchase warrants and note issued to St. James in January 1998 to $5.50 per share and to provide that in the event shares are issued by the Company thereafter at a price less than $5.50 per share such exercise and conversion prices will be reduced to a price equal to the price at which the shares are issued. The $5.50 price was based on a price at which the Company issued shares of Common Stock in a private placement in March 1998, at the time St. James agreed to the amendments to its agreements. At June 30, 1998, the Company was not in compliance with certain financial covenants of its Loan and Security Agreement with Fleet. Under the terms of the loan agreement, the breach of these covenants constituted events of default and at the option of Fleet, the obligations of the Company to Fleet were subject to being declared by Fleet to be immediately due and payable. On October 30, 1998, the Company entered into an Amended and Restated Loan Agreement with Fleet pursuant to which, among other things, Fleet waived any and all defaults which existed under the prior loan agreement. Under the Amended and Restated Loan Agreement, Fleet agreed to loan to the Company up to an additional $1.2 million, subject however to the Company borrowing an additional $1.5 million subordinated to the Company's borrowings from Fleet and an additional $500,000 borrowed by the Company from St. James in July 1998 being converted into a loan subordinated to the Company's indebtedness owing to Fleet. In order to obtain the additional $1.5 million of subordinated borrowings necessary to complete the closing of the Company's Amended and Restated Loan Agreement with Fleet, on October 30, 1998, the Company entered into an agreement with SJMB, L.P. ("SJMB"), an affiliate of St. James, whereby SJMB agreed to purchase up to $2.0 million principal amount of the Company's convertible promissory note due on March 16, 2001. Such amount included a refinancing of the $500,000 loaned in July 1998 and provided $750,000 to the Company on October 30, 1998 to close the amended loan agreement with Fleet. Subject to the Company 10 meeting certain conditions, SJMB agreed to loan an additional $750,000 to the Company, which funds were loaned on December 1, 1998. The note issued to SJMB was originally convertible into5,017,481 shares of the Company's Common Stock at a conversion price of $2.25$0.75 per share. In February, 2000, Hub, Inc., a corporation of which Mr. Underbrink is a Director, purchased for $500,000 an $800,000 note of the Company payable to Fleet Capital Corporation, the Company's previous senior secured lender. Hub, Inc. agreed to accept $500,000 from the Company in payment of the note. Hub, Inc. was paid $500,000 in February, 2000. In February 2001, the Company issued to Mr. Underbrink and St. James five-year warrants to purchase 700,000 and 400,000 shares, respectively, of the Company's Common Stock at exercise prices of $0.75 per share. The warrants were issued in consideration of guarantees extended to the Company by Mr. Underbrink and St. James in connection with the Company's borrowings from Coast Business Credit in 2000. The holders of the warrants have the right to include the shares issuable on exercise included in any registration statement filed by the Company under the Securities Act of 1933, as amended, subject to certain limitations. On June 17, 1999, the Company sold for $200,000 approximately $329,000 of trade accounts receivable, which was fully reserved due to the customer declaring bankruptcy, to RJ Air, LLC, an entity partially owned by John L. Thompson, a member of the Company's Board of Director's. As of December 31, 2000, the Company has collected $100,000 of the sale price. The remaining $100,000 is represented by an unsecured promissory note executed by Mr. Thompson dated March 1, 2002 in the principal amount of $100,000 bearing interest at the rate of 6% per annum from the inception of sale of the accounts receivable with $50,000, plus one-half of the interest then accrued, due on December 31, 2002 and the balance of principal and interest due on June 30, 2003. In connection with the GECC refinancing, the Company agreed with the holders to extend the maturity date of $6.9 million of the $7.0 million principal amount of promissory notes due on June 30, 2001 to December 31, 2004. The remainder of the outstanding principal notes was repaid. The notes bear interest at 15% per annum and are convertible into shares of the Company's common stock at a conversion price of $0.75 per share, subject to an anti-dilution adjustment for certain issuances of securities by the Company at prices per share of Common Stockcommon stock less than the conversion price then in effect, in which event the conversion price is reduced to the lower price at which the shares were issued. As a condition to extend the maturity date, holders of the notes are to receive additional five-year common stock purchase warrants exercisable at $0.75 per share to such shares areholders if the Company has not entered into a purchase or merger agreement on or before certain dates. Because such an agreement was not entered into by December 31, 2001, the Company became obligated to issue approximately 2.4 million additional warrants. In the event such an agreement is not entered into by December 31, 2002 with a closing by March 31, 2003, the Company will be obligated to issue approximately 5.2 -14- million additional warrants and if such agreement is not entered into by December 31, 2003 with a closing by March 31, 2004, the Company will be obligated to issue approximately 10.4 million additional warrants. Under the terms of the note extensions, in the event that the Company has not entered into a purchase or merger agreement by December 31, 2003 with a closing date no later than March 31, 2004, an aggregate of 18.2 million additional warrants will have been issued. The Company also agreed to issue to SJMB warrants to purchase shares of Common Stock exercisable at aexercise price of $2.25 per share,the warrants that are to be issued are subject to anti-dilution adjustmentadjustments for certain issuances of securities by the Company at prices per share of Common Stockcommon stock less than the exercise price then in effect in which event the exercise price is reduced to the lower price at which such shares are issued and the number of shares issuable is adjusted upward. Under the agreement with SJMB, warrants to purchase 1,333,333 shares of Common Stock were issued. On February 18, 1999, at a time whenThe Company also extended until December 31, 2004 the Company was not in compliance with the terms of its Amended and Restated Loan Agreement with Fleet and was seekingpromissory notes totaling $17.7 million owing to enter into a Forbearance Agreement and Amendment to Loan and Security Agreement (the "Forbearance Agreement") with Fleet, as a condition to Fleet entering into the Forbearance Agreement, the Company entered into an agreement with two affiliates of St. James to purchase up to $2.5 million principal amount of the Company's convertible promissory note due onwhich matured in March, 16, 2001. The note isnotes bear interest at 15% per annum and are convertible into shares of the Company's Common Stockcommon stock at a conversion price of $1.50$0.75 per share, subject to an anti-dilution adjustment for certain issuances of securities by the Company at prices per share of Common Stockcommon stock less than the conversion price then in effect, in which event the conversion price is reduced to the lower price at which suchthe shares arewere issued. The Company also issued warrants to purchase 2,075,000 shares of Common Stock exercisable at a price of $1.50 per share, subject to anti-dilution adjustment for certain issuances of securities byIn connection with the Company at prices per share of Common Stock less than the exercise price then in effect, in which event the exercise price is reduced to the lower price at which such shares are issued and the number of shares issuable is adjusted upward. As a consequenceextension of the issuancematurity date of the convertible note$6.9 million and warrant to SJMB in October 1998 with conversion and exercise prices$17.7 million of $2.25, under the terms of the anti-dilution provisions of the outstanding convertible notes and warrants held by St. James, including certain of its affiliates and assignees, the conversion prices and exercise prices of those securities were reduced to $2.25 per share with the total number of shares issuable on conversion and exercise being adjusted upward to 16,040,092 shares. As a consequence of the issuance of the convertible note and warrant to SJMB in February 1999 with conversion and exercise prices of $1.50, under the terms of the anti-dilution provisions of the outstanding convertible notes and warrants held by St. James, including certain of its affiliates and assignees, the conversion prices and exercise 11 prices of those securities were reduced to $1.50 per share with the total number of shares issuable on conversion and exercise being adjusted upward to 29,468,471 shares. Because the Company's Certificate of Incorporation currently provides thatindebtedness described above, the Company can issue up to 12,500,000 shares of Common Stock, the warrants and notes held by St. James and SJMB, L.P. and their limited partners will not be fully exercisable in the event the stockholders of the Company do not approve the amendment of the Company's Certificate of Incorporation described in Proposal 4. The Company's loan agreement dated February 18, 1999 with SJMB provides that the Company shall, at or before the earlier of June 30, 1999 or its next annual meeting of shareholders, secure an amendment to its Certificate of Incorporation to increase the number of shares that the Company is authorized to issue to a number sufficient to authorize the issuance of its current outstanding shares and all shares that are issuable upon conversion of the Company's outstanding shares and all shares that are issuable upon conversion of the Company's outstanding convertible notes and exercise of any warrants or options to purchase Common Stock. SJMB has agreed to extend the date by which the amendment must be secured to July 31, 1999. Pursuant to the forgoing, the Company is submitting to a vote of its shareholders at the Meeting a proposal to increase the number of shares of Common Stock authorized to 75,000,000 shares. The failure of the shareholders of the Company to approve the amendment of the Certificate of Incorporation will constitute a breach of the Company's agreement with SJMB and, if such default remains uncured for 45 days, constitute an Event of Default under the Company's $2.5 million promissory note held by SJMB. Under those circumstances, the principal of the note and all accrued interest would become automatically immediately due and payable. Such default would also constitute a default under all of the Company's other indebtedness owing to St. James and its affiliates, aggregating $16.9 million as of March 31, 1999, as well as a default under the Company's borrowings from Fleet. Accordingly, an aggregate of $29.7 million of the Company's indebtedness would be in default and would entitle the creditors to foreclose on substantially all of the Company's assets, subject to the terms of an Amended and Restated Subordination Agreement between St. James and its affiliates and Fleet whereby St. James agreed to subordinate the payment of the Company's indebtedness owing to it to the prior payment of the Company's indebtedness owing to Fleet. During the year ended December 31, 1998, the Company paid $902,012 to St. James Capital Corp. for consulting fees. 12 2. AMENDMENT TO 1997 OMNIBUS INCENTIVE PLAN On May 27, 1998 and January 11, 1999 the Company's Board of Directors adopted, subject to stockholder approval, proposed amendments to the 1997 Omnibus Incentive Plan (the "Omnibus Plan") to increase the number of shares reserved for the grant of options thereunder from 600,000 shares to 1,000,000 shares. Stockholders are being asked to approve the amendments to the Omnibus Plan at the Meeting. A general description of the Omnibus Plan is set forth below. MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2 General Description. The Omnibus Plan provides for compensatory awards (each an "Award") representing or corresponding to up to, as proposed to be amended, 1,000,000 shares of Common Stock of the Company. Awards may be granted for no consideration and consist of stock options, stock awards, stock appreciation rights ("SARs"), dividend equivalents, other stock-based awards (such as phantom stock) and performance awards consisting of any combination of the foregoing. The Omnibus Plan is designed to provide an incentive to the officers and certain other key employees of the Company by making available to them an opportunity to acquire a proprietary interest or to increase their proprietary interest in the Company. Any Award issued under the Omnibus Plan which is forfeited, expires or terminates prior to vesting or exercise will again be available for Award under the Omnibus Plan. The Directors or a Compensation Committee of the Board of Directors administers the Omnibus Plan. The Directors or, if appointed, Compensation Committee has the full power and authority, subject to the provisions of the Omnibus Plan, to designate participants, grant Awards and determine the terms of all Awards. The Directors or, if appointed, Compensation Committee has the right to make adjustments with respect to Awards granted under the Omnibus Plan in order to prevent dilution of the rights of any holder. Members of the Compensation Committee, if appointed, are not eligible to receive Awards under the Omnibus Plan. Stock Awards. The Directors or, if appointed, Compensation Committee has the right to grant Awards of shares of Common Stock which are subject to such restrictions (including restrictions on transferability and limitations on the right to vote or receive dividends with respect to the restricted shares) and such terms regarding the lapse of restrictions as are deemed appropriate. Generally, upon termination of employment for any reason during the restriction period, restricted shares shall be forfeited to the Company. 13 SARs. An Award may consist of SARs. Upon exercising a SAR, the holder will be paid by the Company an amount in cash equal to the difference between the fair market value of the shares of Common Stock on theexpiration date of exercise, and the fair market value of the shares of Common Stock on the date of the grant of the SAR, less applicable withholding of Federal and State taxes. In no event may (i) an aggregate payment by the Company during any fiscal year upon the exercise of SARs exceed $250,000 without board approval, or (ii) a holder of a SAR, who is also an employee of the Company, exercise an SAR if the aggregate amount to be received as a result of his or her exercise of SARs in the preceding twelve month period exceeds such employee's current base salary. Options Issued Under Omnibus Plan. The terms of specific options will be determined by the Directors or, if appointed, Compensation Committee. Generally, options will be granted at an exercise price equal to the lower of (i) 100% of fair market value of the shares of Common Stock on the date of grant or (ii) 85% of the fair market value of the shares of Common Stock on the date of exercise. Each option will be exercisable after the period or periods specified in the option agreement, which will generally not exceed 10 years from the date of grant. Options may be issued in tandem with SARs ("Tandem Options") as a performance award. Shares of Common Stock received upon exercise of options are not transferable for a period of six months following exercise (other than in the case of death). In the event the employment of an optionee is terminated during such period (other than in the case of death or disability), the Company shall have the right to repurchase shares during such six month period in exchange for the payment of an amount equal to the exercise price. Upon the exercise of an option, the option holder shall pay to the Company the exercise price plus the amount of the required Federal and State withholding taxes, if any. The unexercised portion of any option granted under the Omnibus Plan will generally be terminated (a) thirty (30) days after the date on which the optionee's employment is terminated for any reason other than (i) Cause (as defined in the Omnibus Plan), (ii) mental or physical disability, or (iii) death; (b) immediately upon the termination of the optionee's employment for Cause; (c) three months after the date on which the optionee's employment is terminated by reason of retirement or mental or physical disability; or (d)(i) 12 months after the date on which the optionee's employment is terminated by reason of the death of the employee, or (ii) three months after the date on which the optionee shall die if such death shall occur during the three-month period following the termination of the optionee's employment by reason of retirement or mental or physical disability. Performance Awards Consisting of Options and SARs Issued in Tandem Under Omnibus Plan. Upon exercise of a Tandem Option, the optionee will be entitled to a credit toward the exercise price equal to the value of the SARs issued in tandem with the option exercised, but not to exceed the amount of the Federal income tax deduction allowed to the Company in respect of 14 such SAR and not in an amount which would reduce the amount of payment by the optionee below the par value of the shares being purchased. Upon exercise of a Tandem Option, the related SAR shall terminate, the value being limited to the credit which can be applied only toward the purchase price of shares of Common Stock. In all cases, full payment of the net purchase price of the shares must be made in cash or its equivalent at the time the Tandem Option is exercised, together with the amount of the required Federal and State withholding taxes, if any. When a SAR issued as part of a Tandem Option is exercised, the option to which it relates will cease to be exercisable to the extent of the number of shares with respect to which the SAR was exercised, and that number of shares will thereafter be available for issuance as an Award under the Omnibus Plan. Other Performance Awards Issued Under the Omnibus Plan. The Omnibus Plan authorizes the Directors or, if appointed, Compensation Committee to grant, to the extent permitted under Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934 and applicable law, other Awards that are denominated or payable in, valued by reference to, or otherwise based on or related to shares of Common Stock of the Company. Furthermore, the amount or terms of an Award may be related to the performance of the Company or to such other criteria or measure of performance as the Directors or, if appointed, Compensation Committee may determine. As of May 27, 1999, subject to shareholder approval of the adoption of the amendment to the Omnibus Plan, options to purchase an aggregate of 912,750 shares of Common Stock at exercise prices ranging from $2.50 to $8.01 per share had been granted to 36 employees under the Omnibus Plan. Included among such options are options to purchase 200,000 shares granted in January 1998 to Mr. Jenkins and options to purchase 80,000 shares granted to each of Messrs. Danny Ray Thornton and Allen Neel. In the event proposal number 5, the proposal to increase the number of shares of Common Stock the Company is authorized to issue, is not approved by stockholders, proposal number 2 will be withdrawn from consideration by stockholders. ADOPTION OF THE PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE VOTES CAST AT THE MEETING. 3. AMENDMENT TO 1997 NON-EMPLOYEE STOCK OPTION PLAN. On May 27, 1998 and January 11, 1999, the Company's Board of Directors adopted, subject to stockholder approval, proposed amendments to the 1997 Non-Employee Stock Option 15 Plan (the "Non-Employee Plan") to increase the number of shares reserved for the grant of options thereunder from 100,000 shares to 300,000 shares. Stockholders are being asked to approve the amendment to the Non-Employee Plan at the Meeting. A general description of the Non-Employee Plan is set forth below. MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3 General Description. The Non-Employee Plan provides a means by which non-employee directors of the Company and consultants to the Company can be given an opportunity to purchase stock in the Company, thus assisting the Company to retain the services of non-employee directors and consultants, to secure and retain the services of persons capable of serving in such positions and to provide incentives for such persons to exert maximum efforts for the success of the Company. The stock options granted under the Non-Employee Plan will not be eligible for the tax treatment accorded "incentive stock options" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The Plan provides that, as proposed to be amended, a total of 300,000 shares of the Company's Common Stock may be issued pursuant to options granted under the Non-Employee Plan, subject to certain adjustments described below. If options granted under the Non-Employee Plan expire or otherwise terminate without being exercised in full, the stock not purchased pursuant to such options again becomes available for issuance pursuant to exercises of options granted under the Non-Employee Plan. Eligibility for Grant of Options. Options may be granted under the Non-Employee Plan only to non-employee directors of the Company and consultants to the Company. Grants. As of May 27, 1999, subject to shareholder approval of the adoption of the amendment to the Non-Employee Plan, options to purchase an aggregate of 185,000 shares of Common Stock have been granted to 21 persons under the Non-Employee Plan exercisable at prices ranging form $2.63 to $4.63 per share, including 20,000 shares to each of John McNiff and Michael Brod. Messrs. McNiff and Brod are former Directors of the Company and serve as consultants to the Company under two-year agreements dated June 12, 1998. Terms of Options. The exercise price for each option granted under the Non-Employee Plan will be not less than the fair market value of the Common Stock underlying the option on the date of grant. The purchase price of stock acquired pursuant to options granted under the Non-Employee Plan must be paid either: (i) in cash, (ii) by delivery to the Company of other Common Stock of the Company that has been held for the requisite period necessary to avoid a 16 charge to the Company's reported earnings and valued at the fair market value on the date of exercise or (iii) by a combination of such methods of payment. Each option granted under the Non-Employee Plan will become exercisable upon the date of grant, provided that as of each vesting date and during the exercise period the option holder remains a director, employee or consultant to the Company. The term of each option granted under the Non-Employee Plan is 10 years after the date of grant. Options granted under the Non-Employee Plan may not be transferred except by will or by the laws of descent and distribution, and may be exercised during the lifetime of the person to whom the option is granted only by such person. Adjustment Provision. The Non-Employee Plan provides that, if there is any change in the stock subject to the Plan or subject to any option granted under the Non-Employee Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure, or otherwise), then the Non-Employee Plan and options outstanding thereunder will be appropriately adjusted as to the class(es) and the maximum number of shares subject to the Non-Employee Plan, and the class(es), number of shares and price per share of stock subject to such outstanding options. Effects of Certain Corporate Events. The Non-Employee Plan provides that, in the event of a dissolution or liquidation of the Company, specified type of merger or other corporate reorganization, any outstanding options under the Non-Employee Plan will terminate unless the Board of Directors determines in its sole discretion that: (i) another corporation will assume such options or substitute similar options therefor; or (ii) such options will continue in full force and effect. Administration. The Non-Employee Plan is administered by the Board of Directors of the Company. The Board has the power to construe and interpret the Non-Employee Plan. The Board of Directors may delegate administration of the Non-Employee Plan to a committee composed of not fewer than three members of the Board. The Board may abolish any such committee at any time and re-vest in the Board the administration of the Non-Employee Plan. Duration, Amendment and Termination. The Board may suspend or terminate the Non-Employee Plan without stockholder approval or ratification at any time or from time to time. Unless sooner terminated, the Non-Employee Plan will terminate in April 2007. 17 The Board may also amend the Non-Employee Plan at any time or from time to time. However, no amendment will be effective unless approved by the stockholders of the Company within twelve months before or after its adoption by the Board if the amendment would: (i) increase the number of shares reserved for issuance under the Non-Employee Plan; or (ii) modify the requirements as to eligibility for participation in the Non-Employee Plan, to the extent that such modification requires stockholder approval under Rule 16b-3; or (iii) modify the Non-Employee Plan in any other way to the extent that such modification requires stockholder approval under Rule 16b-3. Federal Income Tax Information. Options granted under the Plan are "non-statutory stock options" for federal income tax purposes. There are no tax consequences to the optionee or the Company by reason of the grant of a non-statutory stock option. Upon exercise of a non-statutory stock option, the optionee normally will recognize taxable ordinary income equal to the excess of the stock's fair market value on the date of exercise over the option exercise price. Subject to the requirement of reasonableness and the satisfaction of any withholding obligation, the Company will be entitled to a business expense deduction equal to the taxable ordinary income realized by the optionee. Upon disposition of the stock, the optionee will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any amount recognized as ordinary income upon exercise of the option. Such gain or loss will be long or short term depending on whether the stock was held for more than one year. As a result of the promulgation of regulations in 1991 under Section 16 of the Securities Exchange Act of 1934, as amended, and under Section 83 of the Code, shares acquired upon the exercise of a non-statutory stock option by an optionee subject to Section 16(b) will be deemed to be subject to a risk of forfeiture only if the option is exercised within six months of the date of grant of the option. Generally, if shares are subject to a substantial risk of forfeiture, the date on which ordinary income is measured and recognized is delayed until the risk of forfeiture lapses, unless, within 30 days of exercise, the optionee elects otherwise. Because options granted under the Plan generally can be exercised earlier than six months after the date of grant, shares acquired under the Plan could be treated as being subject to a risk of forfeiture. Although it is unclear, it appears that the Internal Revenue Service takes the position that shares acquired more than six months after the option is granted are not treated as subject to a risk of forfeiture even if the shares cannot be sold immediately, due to a prior "purchase" under Section 16(b). The foregoing discussion is not intended to be a complete description of the federal income tax aspects of options granted under the Plan. In addition, the administrative and judicial interpretations of the application of the federal income tax laws are subject to change. Furthermore, no information is given with respect to state or local taxes that may be applicable. 18 In the event proposal number 5, the proposal to increase the number of shares of Common Stock the Company is authorized to issue, is not approved by stockholders, proposal number 3 will be withdrawn from consideration by stockholders. ADOPTION OF THE PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE VOTES CAST AT THE MEETING. 4. PROPOSAL TO ADOPT THE 1999 STOCK INCENTIVE PLAN On January 11, 1999 the Company's Board of Directors adopted, subject to stockholder approval, the 1999 Stock Incentive Plan (the"1999 Plan") pursuant to which 3,000,000 shares of Common Stock would be reserved for the issuance of options to be granted under the 1999 Plan. A general description of the 1999 Plan is set forth below. MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4 Under the 1999 Plan, 3,000,000 shares of Common Stock have been reserved for issuance on exercise of options that may be granted under the 1999 Plan. In no event, however, may any one participant in the 1999 Plan receive option grants, separately exercisable stock appreciation rights or direct stock issuances for more than 150,000 shares of Common Stock in the aggregate per calendar year. The 1999 Plan is divided into five separate components: (i) the Discretionary Option Grant Program under which eligible individuals in the Company's employ or service (including officers and consultants) may, at the discretion of the 1999 Plan Administrator, be granted options to purchase shares of Common Stock at an exercise price equal to not less than the fair market value of the Common Stock on the date of grant, (ii) the Stock Issuance Program under which such individuals may, in the 1999 Plan Administrator's discretion, be issued shares of Common Stock directly, through the purchase of such shares at a price not less than their fair market value at the time of issuance or as a bonus tied to the performance of services, (iii) the Salary Investment Option Grant Program which may, in the 1999 Plan Administrator's sole discretion, be activated for one or more calendar years and, if so activated, will allow executive officers and other highly compensated employees the opportunity to apply a portion of their base salary to the acquisition of special below-market stock option grants, (iv) the Automatic Option Grant Program under which option grants will automatically be made at periodic intervals to eligible, non-employee members of the Board of Directors to purchase shares of Common Stock 19 at an exercise price equal to their fair market value on the grant date and (v) the Director Fee Option Grant Program which may, in the 1999 Plan Administrator's sole discretion, be activated for one or more calendar years and, if so activated, will allow non-employee Board members the opportunity to apply a portion of any annual retainer fee otherwise payable to them in cash each year to the acquisition of special below-market option grants. The Discretionary Option Grant Program and the Stock Issuance Program initially will be administered by the Board of Directors. The Board of Directors, as 1999 Plan Administrator, will have the discretion to determine which eligible individuals are to receive option grants or stock issuances under those programs, the time or times when such option grants or stock issuances are to be made, the number of shares subject to each such grant or issuance, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding. The Board of Directors will also have the authority to select the executive officers and other highly compensated employees who may participate in the Salary Investment Option Grant Program in the event that program is activated for one or more calendar years, but the Board of Directors will not exercise any administrative discretion with respect to option grants made under the Salary Investment Option Grant Program or under the Automatic Option Grant Program or Director Fee Option Grant Program for the non-employee Board members. All grants under those three latter programs will be made in strict compliance with the express provisions of each such program. The exercise price for the shares of Common Stock subject to option grants made under the 1999 Plan may be paid in cash or in shares of Common Stock valued at fair market value on the exercise date. The option may also be exercised through a same-day sale program without any cash outlay by the optionee. In addition, the 1999 Plan Administrator may provide financial assistance to one or more optionees in the exercise of their outstanding options or the purchase of their unvested shares by allowing such individuals to deliver a full-recourse, interest-bearing promissory note in payment of the exercise price and any associated withholding taxes incurred in connection with such exercise or purchase. Stock appreciation rights are authorized for issuance under the Discretionary Option Grant Program which provide the holders with the election to surrender their outstanding options for an appreciation distribution from the Company equal to the excess of (i) the fair market value of the vested shares of Common Stock subject to the surrendered option over (ii) the aggregate exercise price payable for such shares. Such appreciation distribution may be made in cash or in shares of Common Stock. 20 In the event that the Company is acquired by merger or sale of substantially all of its assets or securities possessing more than 50% of the total combined voting power of the Company's outstanding securities, each outstanding option under the Discretionary Option Grant Program which is not to be assumed by the successor corporation or otherwise continued in effect will automatically accelerate in full, and all unvested shares under the Discretionary Option Grant and Stock Issuance Programs will immediately vest, except to the extent the Company's repurchase rights with respect to those shares are assigned to the successor corporation or otherwise continued in effect. The 1999 Plan Administrator will have complete discretion to grant one or more options under the Discretionary Option Grant Program which will become exercisable on an accelerated basis for all of the option shares upon (i) an acquisition or other change in control of the Company, whether or not those options are assumed or continued in effect, or (ii) the termination of the optionee's service within a designated period (not to exceed 18 months) following an acquisition or other change in control in which those options are assumed or continued in effect. The vesting of outstanding shares under the Stock Issuance Program may be accelerated upon similar terms and conditions. The 1999 Plan Administrator is also authorized under the Discretionary Option Grant and Stock Issuance Programs to grant options and to structure repurchase rights so that the shares subject to those options or repurchase rights will immediately vest in connection with a change in the majority of the Board of Directors of the Company by reason of one or more contested elections for Board membership, with such vesting to occur either at the time of such change in control or upon the subsequent termination of the individual's service within a designated period following such change in control. In the event the 1999 Plan Administrator elects to activate the Salary Investment Option Grant Program for one or more calendar years, each executive officer and other highly compensated employees of the Company selected for participation may elect, prior to the start of the calendar year, to reduce his or her base salary for that calendar year by a specified dollar amount not less than $12,000 nor more than $60,000. If such election is approved by the 1999 Plan Administrator, the individual will automatically be granted, on the first trading day in January of the calendar year for which that salary reduction is to be in effect, a non-statutory option to purchase that number of shares of Common Stock determined by dividing the salary reduction amount by two-thirds of the fair market value per share of Common Stock on the grant date. The option will be exercisable at a price per share equal to one-third of the fair market value of the option shares on the grant date. As a result, the total spread on the option shares at the time of grant (the fair market value of the option shares on the grant date less the aggregate exercise price payable for those shares) will be equal to the amount of salary invested in that option. The option will become exercisable for the option shares in a series of 12 equal monthly installments over the calendar year for which the salary reduction is to be in effect and will be subject to full and immediate vesting upon certain changes in the ownership or control of the Company. 21 Under the Automatic Option Grant Program, each individual who first becomes a non-employee Board member at any time after the January 1, 1999, whether by appointment by the Board of Directors or election of the stockholders, will automatically receive an option grant for 50,000 shares as of the date such individual joins the Board, provided such individual has not been in the prior employ of the Company. In addition, on the date of each Annual Stockholders Meeting of the Company held after the 1999 Plan Effective Date, each non-employee Board member who is to continue to serve as a non-employee Board member will automatically be granted an option to purchase 5,000 shares of Common Stock, provided such individual has served on the Board for at least six months. Each automatic grant for the non-employee Board members will have a term of 5 years, subject to earlier termination following the optionee's cessation of Board service. Each automatic option will be immediately exercisable for all of the option shares; however, any unvested shares purchased under the option will be subject to repurchase by the Company, at the exercise price paid per share, should the optionee cease Board service prior to vesting in those shares. The shares subject to each initial 50,000-share automatic option grant will vest over a three-year period in successive equal annual installments upon the individual's completion of each year of Board service measured from the option grant date. Each 5,000-share automatic option grant will vest upon the individual's completion of one year of Board service measured from the option grant date. However, the shares subject to each automatic grant will immediately vest in full upon certain changes in control or ownership of the Company or upon the optionee's death or disability while a Board member. Should the Director Fee Option Grant Program be activated in the future, each non-employee Board member will have the opportunity to apply all or a portion of any annual retainer fee otherwise payable in cash to the acquisition of a below-market option grant. The option grant will automatically be made on the first trading day in January in the year for which the retainer fee would otherwise be payable in cash. The option will have an exercise price per share equal to one-third of the fair market value of the option shares on the grant date, and the number of shares subject to the option will be determined by dividing the amount of the retainer fee applied to the program by two-thirds of the fair market value per share of Common Stock on the grant date. As a result, the total spread on the option (the fair market value of the option shares on the grant date less the aggregate exercise price payable for those shares) will be equal to the portion of the retainer fee invested in that option. The option will become exercisable for the option shares in a series of 12 equal monthly installments over the calendar year for which the election is to be in effect. However, the option will become immediately exercisable for all the option shares upon (i) certain changes in the ownership or control of the Company or (ii) the death or disability of the optionee while serving as a Board member. 22 The shares subject to each option under the Salary Investment Option Grant and Automatic Option Grant and Director Fee Option Grant Programs will immediately vest upon (i) an acquisition of the Company by merger or asset sale, (ii) the successful completion of a tender offer for more than 50% of the Company's outstanding voting stock or (iii) a change in the majority of the Board effected through one or more contested elections for Board membership. Limited stock appreciation rights will automatically be included as part of each grant made under the Automatic Option Grant, Salary Investment Option Grant and Director Fee Option Grant Programs and may be granted to one or more officers of the Company as part of their option grants under the Discretionary Option Grant Program. Options with such a limited stock appreciation right may be surrendered to the Company upon the successful completion of a hostile tender offer for more than 50% of the Company's outstanding voting stock. In return for the surrendered option, the optionee will be entitled to a cash distribution from the Company in an amount per surrendered option share equal to the excess of (i) the highest price per share of Common Stock paid in connection with the tender offer over (ii) the exercise price payable for such share. The Board of Directors of the Company may amend or modify the 1999 Plan at any time, subject to any required stockholder approval. The 1999 Plan will terminate on the earliest of (i) 10 years after the 1999 Plan Effective Date, (ii) the date on which all shares available for issuance under the 1999 Plan have been issued as fully-vested shares or (iii) the termination of all outstanding options in connection with certain changes in control or ownership of the Company. As of May 27, 1999, subject to shareholder approval of the adoption of the 1999 Plan, options to purchase an aggregate of 1,399,800 shares of Common Stock at an exercise price of $1.31 per share have been granted to 58 employees and non-employee consultants, including options to purchase 300,000 shares granted to Mr. Neel and 200,000 shares granted to Mr. Thornton. In the event proposal number 5, the proposal to increase the number of shares of Common Stock the Company is authorized to issue, is not approved by stockholders, proposal number 4 will be withdrawn from consideration by stockholders. ADOPTION OF THE PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE VOTES CAST AT THE MEETING. 23 5. PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK. The Board of Directors of the Company has recommended an amendment to the Certificate of Incorporation of the Company to increase the number of authorized shares of Common Stock, $.0005 par value, from 12,500,000 shares to 75,000,000 shares. The proposed form of the Certificate of Amendment respecting the amendment to the Certificate of Incorporation to increase the number of shares of Common Stock authorized is attached hereto as Exhibit A. MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 5. The amendment has received the unanimous approval of the Company's Board of Directors and shall be adopted by shareholders upon receiving the affirmative vote of a majority of the outstanding stock entitled to vote thereon at the Meeting. The Company is currently authorized to issue 12,500,000 shares of Common Stock, of which 3,947,451 shares were outstanding at the close of business on May 27, 1999. Also at May 27, 1999, the Company had both reserved for issuance and was contractually committed to reserve for issuance an additional 32,550,580 shares under the terms of outstanding options, warrants and convertible securities, after reflecting all adjustments required to be made to the exercise and conversion prices and numbers of shares issuable under the terms of the anti-dilution provisions of such securities and including options granted subject to shareholder approval of amendments to the plans or adoption of the plan under which they were granted. Accordingly, at May 27, 1999, the number of shares of Common Stock reserved for issuance and which the Company was contractually committed to reserve for issuance, together with the number of shares outstanding on that date, exceeded the number of shares the Company is authorized to issue under its Certificate of Incorporation by 23,998,031 shares. In addition, the Company is seeking at the Meeting stockholder approval of proposals to increase the number of shares of Common Stock reserved under the terms of its 1997 Omnibus Incentive Plan and 1997 Non-Employee Stock Option Plan and to approve the adoption of the 1999 Stock Incentive Plan all of which will result in an additional 3,400,000 shares to be reserved under those plans. In order for the Company to fulfill its commitments regarding the reservation of shares under outstanding options, warrants and convertible securities, to make available a sufficient number of shares for issuance on exercise of options that may be granted under the amended terms of its 1997 Omnibus Incentive Plan, the 1997 Non-Employees Stock Option Plan and the 1999 Stock Incentive Plan proposed to be approved, as well to have approximately 35,101,969 shares 24 unreserved and available for issuance for other corporate purposes, the Company is seeking stockholder approval of an amendment to its Certificate of Incorporation to increase the number of shares of Common Stock the Company is authorized to issue to 75,000,000 shares from 12,500,000 shares. Background At December 31, 1997, the Company had outstanding 2,990,254 shares of Common Stock, and had reserved an aggregated of 3,737,256 shares for issuance on exercise of outstanding warrants, options and convertible securities and under the terms of the 1997 Omnibus Incentive Plan and 1997 Non-Employee Stock Option Plan, including 2,744,256 shares issuable on exercise or conversion of warrants and notes held by St. James. On January 23, 1998, the Company entered into an agreement with St. James pursuant to which it sold its $10.0 million principal amount of its 8% convertible note and warrants to purchase 2,000,000 shares of common stock. The per share conversion price of the note and the exercise price of the warrants initially was $7.00 and $6.75, respectively. Accordingly, an aggregate of 3,428,571 shares were reserved in January 1998 for issuance on exercise and conversion of the note and warrants. On March 16, 1998, the Company entered into a Loan and Security Agreement with Fleet pursuant to which the Company was able to borrow up to an aggregate of $19.0 million, subject to certain conditions. Fleet conditioned its agreement to lending the money to the Company on St. James agreeing to certain amendments to the terms of the convertible notes of the Company issued to St. James. Among other things, these amendments required St. James to extend the maturity date of $10.0 million of indebtedness owing to it from maturing in 18 months to maturing in 36 months, required St. James to fully subordinate the payment of principal and interest on the indebtedness owing to it to the prior payment in full of the Company's indebtedness to Fleet, and required St. James and its affiliates to refrain from selling shares of Common Stock of the Company below certain percentage levels of the Company's shares outstanding so long as the indebtedness remains owing to Fleet. In consideration for these amendments, the Company agreed to reduce the exercise and conversion prices of the common stock purchase warrants and note issued to St. James in January 1998 to $5.50 per share and to provide that in the event shares of Common Stock were issued by the Company thereafter at a price less than $5.50 per share such exercise and conversion prices would be reduced to a price equal to the price at which the shares were issued. The $5.50 price was based on a price at which the Company issued shares of Common Stock in a private placement in March 1998, at the time St. James agreed to the amendments to its agreements. 25 In order to obtain the additional $1.5 million of subordinated borrowings necessary to complete the closing of the Company's Amended and Restated Loan Agreement with Fleet, in October 1998, the Company entered into an agreement with SJMB, whereby SJMB agreed to purchase up to $2.0 million principal amount of the Company's convertible promissory note due on March 16, 2001. The note issued to SJMB was originally convertible into shares of the Company's Common Stock at a conversion price of $2.25 per share, subject to anti-dilution adjustment for certain issuances of securities by the Company at prices per share of Common Stock less than the conversion price then in effect, in which event the conversion price is reduced to the lower price at which such shares are issued. The Company also agreed to issue to SJMB warrants to purchase an aggregate of 1,333,33333,070,277 shares of Common Stock exercisable atthe Company's common stock to December 31, 2004. The Company has agreed to pay to SJMB, L.P. a pricefee of $2.25 per share. Such warrants are subjectapproximately $274,000 in consideration of SJMB, L.P. providing cash collateral of $8.2 million deposited to anti-dilution adjustment for certain issuances of securities bysecure the Company at prices per share of Common Stock less than the exercise price then in effect, in which event the exercise price is reduced to the lower price at which such shares are issued and the number of shares issuable is adjusted upward. As a consequenceperformance of the issuance on October 30, 1998continuing guaranty extended by SJMB, L.P. of the convertible note and warrant toCompany's borrowing from Coast. In addition, SJMB, L.L.C. received a fee in September, 2001 of $200,000 for services provided by SJMB, L.L.C. in connection with conversion and exercise prices of $2.25, underthe Company's borrowing from GE Capital. Under the terms of the amended anti-dilution provisionsCredit Facility, the Company is restricted from paying any further sums to either of SJMB, L.P. or SJMB, L.L.C. unless the other convertible notesCompany's quarterly report on Form 10-Q reflects that the Company had EBITDA of at least $7.0 million for the quarter ended September 30, 2001 and warrants held by St. James, including certainthe amount of its affiliatessuch payment is limited to no more than $150,000. The EBITDA sum was not met and assignees, the conversion prices and exercise prices of those securities were reduced to $2.25 per share with the total number of shares issuable on conversion and exercise being adjusted to 13,817,870 shares from 6,562,440 shares. In February 1999, in order to enter into the Forbearance Agreement with Fleet,$274,000 balance due SJMB, L.P. is deferred. On November 20, 2000, the Company entered into an agreementequipment lease with two affiliatesBig Foot Rental Tool Service, L.L.C., a Louisiana limited liability company of St. James, to purchase up to $2.5 million principal amount of the Company's convertible promissory note due on March 16, 2001. The notewhich Mr. Neel is convertible into shares of the Company's Common Stock at an original conversion price of $1.50 per share, subject to anti-dilution adjustment for certain issuances of securities by the Company at prices per share of Common Stock less than the conversion price then in effect, in which event the conversion price is reduced to the lower price at which such shares are issued.approximately 20% owner. The Company also issued warrants to purchase 2,075,000 sharesleased for a term of Common Stock exercisable at a price of $1.50 per share, subject to anti-dilution adjustment for certain issuances of securities by the Company at prices per share of Common Stock less than the exercise price then in effect, in which event the exercise price is reduced to the lower price at which such shares are issued and the number of shares issuable is adjusted upward. As a consequence of the issuance of the convertible note and warrant to SJMB in February 1999 with conversion and exercise prices of $1.50, under the terms of the anti-dilution 26 provisions of the outstanding convertible notes and warrants held by St. James, including certain of its affiliates and assignees, the conversion prices and exercise prices of those securities were reduced to $1.50 per share with the total number of shares issuable on conversion and exercise being adjusted upward to 29,468,471 shares. On December 15, 1998, the Company entered into a joint operation and option agreement with Measurement Specialists, Inc. ("MSI"), which is engaged in thetwenty-four months oil and gas well servicing business, resulting inservice equipment with an original cost of approximately $539,000 for a monthly rental of approximately $24,200 over the operation byterm of the lease. At the expiration of the lease, the Company of MSI's assets. The option relates to the acquisition of MSI's assets. In consideration forhad the option to purchase the Company has issued to MSI 50,000 shares of Common Stock and has agreed to issue to MSI an additional 94,445 shares. The Company's Board of Directors has authorized the issuance of an aggregate of 772,727 shares to certain persons who purchased shares of the Company's Common Stock at a price of $5.50 per share in private sales of the Company's securities which occurred in March and April 1998. Such persons assert that excessive delays were encountered in effecting the registration of their shares under the Securities Act of 1933, as amended, and that therefore such persons were unable to liquidate their securities.equipment for approximately $54,000. The Company disagreesentered into the lease with these assertions but has agreedBig Foot Rental Tool Service, L.L.C. to provide needed well service equipment at times when other sources of financing to acquire the issuance of the shares to resolve any claims, subject to the release by such persons of these claims. An offering of shares of Common Stock of the Company to such personsequipment was unavailable. The rental agreement was terminated in accordance with the foregoing expired on May 28, 1999September 2001 and the Company is obligated to issue an aggregate of 744,644 shares topurchased the persons who accepted the offer. Other than as described above, the Company has no present plans to issue any additional shares of its Common Stock or other options, warrants or convertible securities requiring the issuance, on exercise or conversion, any additional shares of Common Stock. Reasonsequipment for the Proposed Increase in Authorized Shares. The Board of Directors recommends an increase in the number of authorized shares of the Company's Common Stock from 12,500,000, to 75,000,000. The Board of Directors believes it is desirable to increase the authorized shares of Common Stock in order to meet its existing contractual obligations under outstanding options, warrants and convertible securities, to make a sufficient number of shares available for exercise of options that may be granted under the amended terms of its 1997 Omnibus Incentive Plan and 1997 Non-Employee Stock Option Plan, and its newly adopted 1999 Stock Incentive Plan, as well as for future use for acquisitions, financings, stock dividends or other corporate purposes. The Board of Directors generally will have the power to issue the additional authorized shares without shareholder approval. All newly authorized shares would have the same rights as the presently authorized shares, including the right to cast one vote 27$393,000. -15- per share and to participate in dividends when and to the extent declared and paid. Under the Company's Certificate of Incorporation, stockholders do not and will not have preemptive rights. Accordingly, the issuance of additional shares of Common Stock might dilute, under certain circumstances, the ownership interest and voting rights of existing shareholders. The Company believes that it may be required to issue or reserve for issuance additional shares of Common Stock in connection with raising additional capital so as to meet obligations in the future to lenders and others. The Company does not at present have under consideration any specific plans or proposals to issue any additional shares of Common Stock for this purpose. However, the Company believes it prudent to have shares authorized for issuance if the need to issue or reserve shares for issuance for this purpose materializes. Except for the additional shares proposed to be reserved under the amended terms of the 1997 Omnibus Incentive Plan and the 1997 Omnibus Non-Employee Plan and the 1999 Stock Incentive Plan, the Company has no other plans to issue or reserve for issuance any additional shares of Common Stock. Management of the Company believes that having 75,000,000 shares of Common Stock authorized should be adequate to meet the Company's needs to raise additional capital and for other purposes in the foreseeable future. Possible Consequences Of Failure to Approve the Proposal. The Company's loan agreement dated February 18, 1999 with SJMB provides that the Company shall, at or before the earlier of June 30, 1999 or its next annual meeting of shareholders, secure an amendment to its Certificate of Incorporation to increase the number of shares that the Company is authorized to issue to a number sufficient to authorize the issuance of its current outstanding shares and all shares that are issuable upon conversion of the Company's outstanding shares and all shares that are issuable upon conversion of the Company's outstanding convertible notes and exercise of any warrants or options to purchase Common Stock. SJMB has agreed to extend the date by which the amendment must be secured to July 31, 1999. Pursuant to the forgoing, the Company is submitting to a vote of its shareholders at the Meeting a proposal to increase the number of shares of Common Stock authorized to 75,000,000 shares. The failure of the shareholders of the Company to approve the amendment of the Certificate of Incorporation will constitute a breach of the Company's agreement with SJMB and, if such default remains uncured for 45 days, constitute an Event of Default under the Company's $2.5 million promissory note held by SJMB. Under those circumstances, the principal of the note and all accrued interest would become automatically immediately due and payable. Such default would also constitute a default under all of the Company's other indebtedness owing to St. James and its affiliates, aggregating $16.9 million as of March 31, 28 1999, as well as a default under the Company's borrowings from Fleet. Accordingly, an aggregate of $29.7 of the Company's indebtedness would be in default and would entitle the creditors to foreclose on substantially all of the Company's assets, subject to the terms of an Amended and Restated Subordination Agreement between St. James and its affiliates and Fleet whereby St. James agreed to subordinate the payment of the Company's indebtedness owing to it to the prior payment of the Company's indebtedness owing to Fleet. ADOPTION OF THE PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK. PRINCIPAL AND OTHER STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of May 27, 1999August 14, 2002 (a) by each person who is known by the Company to own beneficially more than five percent (5%) of the Company's Common Stock, (b) by each of the Company's Directors and officers, and (c) by all Directors and officers as a group. As of May 27, 1999,August 14, 2002, the Company had 3,947,45112,496,408 shares of Common Stock outstanding.
PERCENTAGE OF NUMBER OF SHARES OUTSTANDINGPERCENTAGE OF NAME AND ADDRESS (1)(2) OWNED OUTSTANDING SHARES(3) ------------------------------------------- ------------------------- ----------------------- ----- --------- William L. Jenkins 410,000 (4) 9.8%6,710,000(4) 34.9% Danny RayR. Thornton 280,666 (5)(6) 6.6%1,250,666(5) 9.1% Allen R. Neel 380,000 (5)(7) 8.8%1,443,261(6) 10.4% Charles E. Underbrink 113,259,378(7) 93.8% c/o St. James Capital Partners, L.P. 4295 San Felipe Suite 200 Houston, TX 77027 John L. Thompson 108,916,938(8) 93.6% c/o St. James Capital Partners, L.P. 4295 San Felipe - Suite 200 Houston, TX 77027 St. James Capital Partners, L.P. 106,937,077(9) 93.5% ("SJCP"), SJMB, L.P. ("SJMB"), and affiliates 777 Post Oak Boulevard4295 San Felipe - Suite 950200 Houston, Texas 77056 29,468,471(8) 88.2%77027 Bendover Corp. (9)(10) 3,814,235 30.5% Alan W. Mann (10) M. Dale Jowers 13843 Highway 105 West - Suite 212 Conroe, Texas 77304 647,569 16.4%1053 The Cliffs Blvd. Montgomery, TX 77356 All Directors and Officers as a Group (5 persons including the above) 30,539,137 (11) 88.6%persons) 122,663,305 94.4%
29 - ---------- (1) This tabular information is intended to conform with Rule 13d-3 promulgated under the Securities Exchange Act of 1934 relating to the determination of beneficial ownership of securities. The tabular information gives effect to the exercise of warrants or options exercisable within 60 days of the date of this table owned in each case by the person or group whose percentage ownership is set forth opposite the respective percentage and is based on the assumption that no other person or group exercise their option. -16- (2) Unless otherwise indicated, the address for each of the above is c/o Black Warrior Wireline Corp., 3748 Highway #45 North,100 Rosecrest Lane, Columbus, Mississippi 39701. (3) The percentage of outstanding shares calculation is based upon 3,942,83112,496,408 shares outstanding as of May 27, 1999,August 14, 2002, except as otherwise noted. (4) Includes 200,0006,500,000 shares issuable on exercise of options. (5) Includes 1,250,000 shares issuable on exercise of an option, of which the option is presently exercisable with respect to 100,000 shares. (5)option. (6) Includes 80,0001,050,000 shares issuable on exercise of an option at a priceoption. Also includes an aggregate of $2.625 per share,393,261 shares issuable on exercise of which 62,500 shares are immediately exercisablewarrants and an additional 12,500 shares will become exercisable on April 1, 1999conversion of notes and each anniversary thereafter, provided, the employee remains employed by the Company. (6) Includes an option to purchase 200,000 shares at an exercise price of $1.31 per share, subject to shareholder approval of the adoption of the 1999 Stock Incentive Plan, of which 66,666 shares are immediately exercisable and the remaining shares become exercisable over two years.accrued interest through August 14, 2002. (7) Includes an option to purchase 300,000aggregate of 106,937,077 shares atheld directly by SJCP, SJMB and their affiliates and shares issuable on exercise of warrants and conversion of notes and accrued interest through August 14, 2002 deemed held beneficially by Messrs. Underbrink and Thompson because of their relationships with SJCP and SJMB. Also includes an aggregate of 6,322,301 shares issuable on exercise price of $1.31 per share, subject to shareholder approvalwarrants and conversion of the adoptionnotes and accrued interest through August 14, 2002 held directly by Mr. Underbrink and shares issuable on conversion of the 1999 Stock Incentive Plan,notes and accrued interest through August 14, 2002 held jointly by Messrs. Underbrink and Thompson. (8) Includes an aggregate of which 100,000106,937,077 shares are immediately exercisableheld directly by SJCP, SJMB and the remainingtheir affiliates and shares become exercisable over two years. (8)issuable on exercise of warrants and conversion of notes and accrued interest through August 14, 2002 deemed held beneficially by Messrs. Underbrink and Thompson because of their relationships with SJCP and SJMB. Also includes an aggregate of 1,979,861 shares issuable on exercise of warrants and conversion of notes and accrued interest through August 14, 2002 held directly by Mr. Thompson and shares issuable on conversion of notes and accrued interest through August 14, 2002 held jointly by Messrs. Underbrink and Thompson. (9) Includes shares issuable to St. James Capital Partners, LP and itsSt. James Merchant Bankers L.P. and their affiliates on conversion of notes and accrued interest through August 14, 2002 and exercise of warrants. See "Election of Directors - Certain"Certain Transactions." (9)(10) Based on information contained in the Schedule 13D dated October 9, 1997. On October 9, 1997, the Company issued 647,569 shares and paid $586,000 in cash to purchase substantially all the assets of Diamondback Directional, Inc. (which corporation subsequently changed its name to Bendover Corp.). As of December 22, 1999, the Company issued an additional 2,666,667 shares to Bendover Corp. as part of the consideration paid to resolve certain litigation. Messrs. Mann and Jowers each own approximately 42.5% of the outstanding capital stock of Bendover Corp. (10) Mr. Mann also holds directly 784 shares of Common Stock in additionCERTIFYING ACCOUNTANT No principal accountant has been selected or is being recommended to the 647,569 shares held by Bendover Corp. in which he has an indirect beneficial interest. (11) Also includes the shares held by St. James and the shares issuable on exercise of the options held by Messrs. Jenkins, Thornton and Neel. CHANGE OF CONTROL Commencing in June 1997, St. James and affiliated entities entered into a series of transactions with the Company to purchase an aggregate of $19.4 million of convertible promissory notes and warrants. See "Election of Directors - - Certain Transactions" for a description of the Company's transactions with St. James and its affiliated entities. In addition, two of the three nomineessecurity holders for election, as a Director of the Company are affiliates of St. James. Although St. James does not, as of May 27, 1999, hold directly any voting securities of the Company,approval or ratification in the event it, its affiliated entities and certain of its limited partners should convert all of their notes and exercise all of their warrants, St. James, its affiliated entities and its limited partners would then hold 29,468,471shares of Common Stock. Subject to shareholder approval of the Certificate of Incorporation to increase the number of shares of Common Stock authorized, this would constitute approximately 88.2% of the shares outstanding, without giving effect to the issuance of any shares on conversion or exercise of any other outstanding convertible securities, warrants or options.current year. The ability of St. James, its affiliated entities and its limited partners to exercise and convert in full the warrants and notes is dependent upon the adoption of the 30 amendment to the Company's Certificate of Incorporation described in Proposal 5. Accordingly, by virtue of the foregoing transactions with St. James and the election of Messrs. Thompson and Underbrink as Directors of the Company, a change of control of the Company may be deemed to have occurred. CERTIFYING ACCOUNTANT The Board of Directors has selected PricewaterhouseCoopers L.L.P. as the Company's independent auditors for 1999.not completed its selection procedures. The Company expects a representative of PricewaterhouseCoopers L.L.P.LLP to be present at the Meeting and to be available to respond to appropriate questions or make a statement if they desire to do so. SUBMISSION OF STOCKHOLDERS' PROPOSALS FOR 20002003 ANNUAL MEETING Any proposals which Stockholders intend to present for a vote of Stockholders at the Company's 20002003 Annual Meeting, and which such Stockholders desire to have included in the Company's Proxy Statement and Form of Proxy relating to that Meeting, must be sent to the Company's executive office and received by the Company a reasonable timeon or before the meeting. 31April 23, 2003. -17- GENERAL The cost of soliciting proxies will be borne by the Company. In addition to solicitation by use of the mails, certain officers and regular employees may solicit proxies personally and by telephone, and the Company will request banks, brokerage houses and nominees and fiduciaries to forward soliciting material to their principals and will reimburse them for their reasonable out-of-pocket expenses. The Company's Annual Report to Stockholdersannual report on Form 10-K for the year ended December 31, 1998,2001, including financial statements, isand its quarterly report on Form 10-Q for the quarter and six months ended June 30, 2002 are being mailed to Stockholders herewith. Such reports are not, however, a part of this proxy statement. By Order of the Board of Directors Dated: June 4, 1999August 21, 2002 Allen R. Neel, Secretary 32 Exhibit "A" RESOLVED, that Article Fourth of the Certificate of Incorporation of this corporation be hereby amended to read in its entirety as follows: FOURTH. The total number of shares of capital stock of all classes which the Corporation shall have authority to issue is Seventy-Seven Million Five Hundred Thousand (77,500,000) shares, of which Seventy-Five Million (75,000,000) shares, of a par value of $.0005 per share, shall be designated "Common Stock," and Two Million Five Hundred Thousand (2,500,000) shares, of a par value of $.01 per share, shall be designated "Preferred Stock."-18- APPENDIX: FORM OF PROXY BLACK WARRIOR WIRELINE CORP. 3748 Highway #45 North100 Rosecrest Lane Columbus, Mississippi 39701 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints William L. Jenkins and Danny Ray Thornton, and each of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and vote, as designated below, all the shares of common stock of Black Warrior Wireline Corp. held of record by the undersigned on May 27, 1999August 14, 2002 at the Annual Meeting of Shareholders to be held on July [__], 1999September 23, 2002 or any adjournment thereof. 1. Election of Directors |_| For all nominees listed below (except as marked to contrary below) |_| Withhold Authority to vote for all nominees listed below INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW. William L. Jenkins Charles E. Underbrink John L. Thompson 2. In Favor of |_| Against |_| Abstain |_| A proposal to approve an amendment to the Company's 1997 Omnibus Incentive Plan to increase the number of shares reserved for the grant of options thereunder from 600,000 shares to 1,000,000 shares. 3. In Favor of |_| Against |_| Abstain |_| A proposal to approve an amendment to the Company's 1997 Non-Employee Stock Option Plan to increase the number of shares reserved for the grant of options thereunder from 100,000 shares to 300,000 shares. 4. In Favor of |_| Against |_| Abstain |_| A proposal to approve the adoption of the 1999 Stock Incentive Plan. 5. In Favor of |_| Against |_| Abstain |_| A proposal to amend the Company's Certificate of Incorporation to Increase the Number of Authorized Shares of Common Stock from 12,500,000 to 75,000,000. 6. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS.DIRECTORS. PLEASE SIGN EXACTLY AS NAME APPEARS BELOW. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, AS EXECUTOR, ADMINISTRATOR, TRUSTEE, OR GUARDIAN, PLEASE GIVE FULL TITLE AS -19- SUCH. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. Dated: _______________, 1999 ____________________________________, 2002 -------------- ------------------------------------- Signature Title (if required) ____________________________________------------------------------------- Signature (if held jointly) -20-