1 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [ ] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 Ponder Industries, Inc. - - -------------------------------------------------------------------------------- (Name of Registrant as Specified in its Charter) - - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [ ] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11. (1) Title of each class of securities to which transaction applies: - - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): - - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - - -------------------------------------------------------------------------------- (5) Total fee paid: - - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: - - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - - -------------------------------------------------------------------------------- (3) Filing Party: - - -------------------------------------------------------------------------------- (4) Date Filed: - - -------------------------------------------------------------------------------- 2 PONDER INDUSTRIES, INC. 5005 Riverway Drive, Suite 550 Houston, Texas 77056 Telephone: (713) 965-0653 April 7, 1998 Dear Stockholder: On behalf of the Board of Directors, I cordially invite you to attend the 1998 Annual Meeting of the Stockholders of Ponder Industries, Inc. The Annual Meeting will be held Tuesday, May 12, 1998, at 10:00 a.m. C.S.T. at the Holiday Inn Crowne Plaza Hotel, 2222 West Loop South, Houston, Texas 77027. The formal Notice of Annual Meeting is set forth in the enclosed material. The matters expected to be acted upon at the meeting are described in the attached Proxy Statement. During the meeting, stockholders will have the opportunity to ask questions and comment on Ponder Industries, Inc.'s operations. It is important that your views be represented whether or not you are able to be present at the Annual Meeting. Please sign and return the enclosed proxy card promptly. We appreciate your investment in Ponder Industries, Inc. and urge you to return your proxy card as soon as possible. Sincerely, Eugene L. Butler President, Chief Executive Officer and Chairman of the Board 3 PONDER INDUSTRIES, INC. 5005 Riverway Drive, Suite 550 Houston, Texas 77056 Notice Of Annual Meeting Of Stockholders To Be Held May 12, 1998 To the Stockholders of Ponder Industries, Inc.: NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Ponder Industries, Inc., a Delaware corporation (the "Company"), will be held at the Holiday Inn Crowne Plaza Hotel, 2222 West Loop South, Houston, Texas 77027, on May 12, 1998, at 10:00 a.m. C.S.T., for the following purposes: (1) to elect eight directors to serve until the next annual meeting and until their respective successors shall be duly elected and qualified; (2) to consider and act upon a proposal to amend the Certificate of Incorporation of the Company that would increase the number of authorized shares of the Company's Common Stock from 50,000,000 shares to 150,000,000 shares; (3) to consider and act upon a proposal to amend the Certificate of Incorporation of the Company to authorize 10,000,000 shares of Preferred Stock; (4) to consider and act upon a proposal to amend the Certificate of Incorporation of the Company to provide for the limitation of liability of the directors of the Company to the fullest extent permitted by the Delaware General Corporation Law; (5) to ratify the appointment of Arthur Andersen LLP as independent public accountants for the Company for the fiscal year ending August 31, 1998; and (6) to transact such other business as may properly come before the Annual Meeting or any adjournment or adjournments thereof. The Board of Directors has fixed the close of business on March 30, 1998, as the record date for the determination of stockholders entitled to receive notice of and to vote at the Annual Meeting. A list of all stockholders entitled to vote at the meeting will be maintained at the principle offices of the Company, 5005 Riverway Drive, Suite 550, Houston, Texas, and will be available during ordinary business hours for a period of ten days prior to the meeting. The list will be open to the examination by any stockholder for any purpose germane to the meeting. The list will also be produced at the meeting and will be open for the whole time thereof. So that we may be sure your shares will be voted at the Annual Meeting, please date, sign and return the enclosed proxy promptly. For your convenience, a postpaid return envelope is enclosed for your use in returning your proxy. If you attend the meeting, you may revoke your proxy and vote in person. By Order of the Board of Directors, Eugene L. Butler President and Chief Executive Officer Houston, Texas April 7, 1998 --------------- YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. EVEN IF YOU PLAN TO BE PRESENT, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY. 4 PONDER INDUSTRIES, INC. 5005 Riverway Drive, Suite 550 Houston, Texas 77056 ------------------------- PROXY STATEMENT ------------------------- SOLICITATION OF PROXY, REVOCABILITY AND VOTING The enclosed proxy is solicited on behalf of the Board of Directors (the "Board") of Ponder Industries, Inc., a Delaware corporation (the "Company"), for use at the 1998 Annual Meeting of Stockholders (the "Annual Meeting") of the Company to be held on May 12, 1998, and at any adjournment or postponement thereof. The securities of the Company entitled to vote at the Annual Meeting consist of shares of common stock, $0.01 par value ("Common Stock"). At the close of business on March 30, 1998 (the "Record Date"), there were outstanding and entitled to vote __________ shares of Common Stock. The holders of record of Common Stock on the Record Date will be entitled to one vote per share. The Company's Certificate of Incorporation does not permit cumulative voting in the election of directors. The Annual Report to Stockholders for the year ended August 31, 1997, has been or is being furnished with this Proxy Statement, which is being mailed on or about April 7, 1998, to the holders of record of Common Stock on the Record Date. The Annual Report to Stockholders does not constitute a part of the proxy materials. VOTING AND PROXY PROCEDURES Properly executed proxies received in time for the Annual Meeting will be voted. Stockholders are urged to specify their choices on the proxy, but if no choice is specified, eligible shares will be voted for Proposal No. 2, Proposal No. 3, Proposal No. 4, Proposal No. 5, and the election of the eight nominees for director named herein. At the date of this Proxy Statement, management of the Company knows of no other matters which are likely to be brought before the Annual Meeting. However, if any other matters should properly come before the Annual Meeting, the persons named in the enclosed proxy will have discretionary authority to vote such proxy in accordance with their best judgment on such matters. If the enclosed form of proxy is executed and returned, it may nevertheless be revoked by a later-dated proxy or by written notice filed with the Secretary at the Company's executive offices at any time before the enclosed proxy is exercised. Stockholders attending the Annual Meeting may revoke their proxies and vote in person. The Company's executive offices are located at 5005 Riverway Drive, Suite 550, Houston, Texas 77056. The holders of a majority of the total shares of Common Stock issued and outstanding at the close of business on the Record Date, whether present in person or represented by proxy, will constitute a quorum for the transaction of business at the Annual Meeting. The affirmative vote of a plurality of the total shares of Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting is required for the election of directors, the affirmative vote of a majority of the total shares of Common Stock outstanding and entitled to vote at the Annual Meeting is required for the approval of each of Proposal No. 2, Proposal No. 3 and Proposal No. 4, and the affirmative vote of a majority of the total shares of Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting is required for the ratification of the appointment of Arthur Andersen LLP as independent public accountants and for any other matters which may come before the Annual Meeting. Abstentions are counted toward the calculation of a quorum but are not treated as either a vote for or against a proposal. An abstention has the same effect as a vote against the proposal. Any unvoted position in a brokerage account will be considered as not voted and will not be counted toward fulfillment of quorum requirements. 5 The cost of solicitation of proxies will be paid by the Company. In addition to solicitation by mail, proxies may be solicited by the directors, officers and employees of the Company, without additional compensation, by personal interview, telephone, telegram or otherwise. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who hold the voting securities of record for the forwarding of solicitation materials to the beneficial owners thereof. The Company will reimburse such brokers, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in connection therewith. The Company has hired Corporate Investor Communications, Inc. to assist in obtaining proxies. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information concerning any person who was the beneficial owner of five percent or more of the Company's outstanding Common Stock as of January 21, 1998. The table also shows information concerning beneficial ownership by all directors and nominees, by each of the executive officers named in the Summary Compensation Table and by all directors and executive officers as a group. For purposes of this Proxy Statement, beneficial ownership is defined in accordance with the rules of the Securities and Exchange Commission (the "Commission"), to mean generally the power to vote or dispose of shares, regardless of any economic interest therein. Unless otherwise indicated, each person has the sole dispositive and voting power (or shares such powers with his or her spouse) with respect to the shares set forth in the following table. AMOUNT AND NATURE OF PERCENT BENEFICIAL OWNERSHIP OF CLASS# -------------------- --------- White Owl Capital Partners (1)(2) . . . . . . . . . . . 17,330,000 36.55% 20 Pine Brook Road Bedford, New York 10506 Chen Capital Partners, L.P.(3) . . . . . . . . . . . . 2,559,500 5.77% 237 Park Avenue Ninth Floor New York, New York 10017 Steven A. Webster(1)(2) . . . . . . . . . . . . . . . . 17,330,000 36.55% William R. Ziegler (1)(2) . . . . . . . . . . . . . . . 17,080,000 36.02% Eugene L. Butler(4) . . . . . . . . . . . . . . . . . . 641,500 1.43% Frank J. Wall(5) . . . . . . . . . . . . . . . . . . . 77,054 * Rittie W. Milliman, Sr.(6) . . . . . . . . . . . . . . 16,500 * Joe R. Nemec(6) . . . . . . . . . . . . . . . . . . . . 156,043 * John Roane(6) . . . . . . . . . . . . . . . . . . . . . 55,767 * John M. Le Seelleur(7)(8) . . . . . . . . . . . . . . . 88,833 * All directors and executive officers as a group (11 persons)(2)(7)(9) . . . . . . . . . . . . . . . . 18,542,468 38.43% - - ------------------ (#) Based on 44,378,477 shares of Common Stock issued and outstanding as of January 21, 1998. (*) Represents less than one percent (footnotes on following page) 2 6 (1) White Owl Capital Partners ("White Owl") is a general partnership of Mr. Webster and Mr. Ziegler. Mr. Ziegler and Mr. Webster are also general partners of Somerset Capital Partners ("SCP"). (2) Includes (a) 10,000,000 shares of Common Stock held by White Owl Investors L.L.C., of which White Owl is the managing member, (b) 3,040,000 shares of Common Stock held by White Owl, (c) 1,000,000 shares of Common Stock held by SCP and (d) 3,040,000 shares of Common Stock issuable upon exercise of certain warrants held by White Owl. (3) Represents shares held by Chen Capital Partners, L.P., Chen Capital Overseas Ltd., and Common Sense Partners. Herbert Chen is a general partner of Chen Capital Partners, L.P. and the President of Chen Capital Management, LLC. Chen Capital Management, LLC is the investment manager of Chen Capital Overseas, Ltd. and Common Sense Partners. Henry Scholder exercises investment discretion with respect to Chen Capital Partners, L.P., Chen Capital Overseas, Ltd. and Common Sense Partners. (4) Represents 11,000 shares of Common Stock issuable upon exercise of options granted pursuant to the 1994 Directors' Stock Option Plan and 600,000 shares of Common Stock issuable upon exercise of options granted to Mr. Butler on September 30, 1997. (5) Includes 22,000 shares of Common Stock issuable upon exercise of options granted pursuant to the Company's 1994 Directors' Stock Option Plan, 10,000 shares of Common Stock issuable upon exercise of options granted to Mr. Wall on October 22, 1996, 40,000 shares of Common Stock issuable upon exercise of options granted to Mr. Wall on September 30, 1997, and 2,696 shares of Common Stock held in Mr. Wall's 401(k) Plan account as of the Record Date. (6) Includes 16,500 shares of Common Stock issuable upon exercise of options granted pursuant to the Company's 1994 Directors' Stock Option Plan. (7) Does not include 1,200,000 shares of the Company's Common Stock held by Panther Oil Tools, Ltd., a Jersey, Channel Islands corporation ("Panther"). Mr. Le Seelleur is the owner of 70% of the outstanding capital stock of Panther and may be deemed to be the beneficial owner of such shares. (8) Includes 5,500 shares of Common Stock issuable upon exercise of options held by Mr. Le Seelleur granted pursuant to the Company's 1994 Directors' Stock Option Plan. (9) Includes 836,000 shares of Common Stock issuable upon the exercise of options held by officers and directors, 3,040,000 shares of Common Stock issuable upon the exercise of warrants held by White Owl and 5,467 shares of Common Stock held in officers' 401(k) Plan accounts as of the Record Date. 3 7 MATTERS TO COME BEFORE THE ANNUAL MEETING PROPOSAL NO. 1: ELECTION OF DIRECTORS. At the Annual Meeting of Stockholders, eight directors are to be elected, each to hold office until the next annual meeting of stockholders and until his successor is elected and qualified. It is the intention of the persons named in the accompanying proxy that proxies will be voted for the election of the eight nominees named in the following table unless otherwise indicated thereon. Each of the nominees is now a Director of the Company and is standing for reelection. The Board has no reason to believe that any of the nominees will be unable to serve if elected to office and, to the knowledge of the Board, the nominees intend to serve the entire term for which election is sought. Should any nominee for the office of director named herein become unable or unwilling to accept nomination or election, the persons named in the proxy will vote for such other person as the Board may recommend. BOARD OF DIRECTOR NOMINEES Year First Name Age Became Director - - ---- --- --------------- Eugene L. Butler . . . . . . . . . . . . . . . . 56 1996 Rittie W. Milliman, Sr. . . . . . . . . . . . . . 44 1994 Frank J. Wall . . . . . . . . . . . . . . . . . . 42 1990 John M. Le Seelleur . . . . . . . . . . . . . . 47 1996 John Roane . . . . . . . . . . . . . . . . . . . 68 1985 Joe R. Nemec . . . . . . . . . . . . . . . . . . 54 1986 Steven A. Webster . . . . . . . . . . . . . . . . 46 1998 William R. Ziegler . . . . . . . . . . . . . . . 55 1998 The business of the Company is managed by or under the direction of the Board and its committees. The Board establishes corporate policies, approves major business decisions and monitors the performance of the Company's management. The day-to-day management functions and operating activities of the Company are performed by the Company's full-time officers and executive employees. COMMITTEES OF THE BOARD OF DIRECTORS During fiscal 1997, the Audit Committee of the Board was composed of two independent directors, Joe R. Nemec and John Le Seelleur. The Audit Committee recommends the selection of and confers with the Company's independent accountants regarding the scope and adequacy of annual audits, reviews reports from the independent accountants and meets with the independent accountants and with the Company's financial personnel to review the adequacy of the Company's accounting principles, financial controls and policies. The entire Board currently performs the nominating committee functions. When performing nominating committee functions, the Board's duties include developing a policy on the size and composition of the Board and criteria relating to candidate selection, and identifying candidates for Board membership. From September 1996 to October 1996, the entire Board performed the functions of the Compensation Committee. From October 1996 to April 1997, the Compensation Committee was composed of three independent directors, John Roane, Rittie W. Milliman, Sr. and Bill Van Meter. Since April 1997 the Compensation Committee has been composed of two independent directors, 4 8 John Roane and Rittie W. Milliman, Sr. Generally, the Compensation Committee reviews the Company's compensation philosophy and programs, exercises authority with respect to the payment of direct salaries and incentive compensation to officers of the Company and administers the Company's stock option plans. COMPENSATION OF DIRECTORS For the meeting of the Board of Directors held October 22, 1996, each director who attended received $200 compensation. During the remainder of fiscal 1997, non-employee directors received $500 compensation per meeting attended. In addition, directors are entitled to receive options to acquire 5,500 shares of the Company's Common Stock as of each annual stockholders' meeting date pursuant to the Company's 1994 Directors' Stock Option Plan. The Company's 1994 Directors' Stock Option Plan will expire as of the Annual Meeting. The Company also reimburses its directors for expenses incurred in attending each Board meeting. ATTENDANCE AT MEETINGS In fiscal 1997, the Board met seven (7) times and took action on two (2) occasions by unanimous written consent, the Audit Committee met one (1) time, and the Compensation Committee met one (1) time. All directors attended 75 percent or more of the aggregate number of meetings of the Board and of the respective committees of which they are members. The eight nominees receiving the highest number of affirmative votes of the shares present in person or represented by proxy and entitled to vote shall be elected as directors. All shares to be voted by proxy will be voted, or not voted, as specified on each proxy. THE BOARD UNANIMOUSLY RECOMMENDS THE STOCKHOLDERS VOTE FOR THE ELECTION OF THE NOMINEES PROPOSED. PROPOSAL NO. 2: PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK FROM 50,000,000 SHARES TO 150,000,000 SHARES. On November 24, 1997, the Board unanimously adopted a resolution declaring it advisable to amend the Company's Certificate of Incorporation to increase the number of shares of Common Stock that the Company has the authority to issue to 150,000,000 shares (the "Common Stock Amendment"). The Board of Directors further directed that the Common Stock Amendment be submitted for consideration by stockholders at the Company's Annual Meeting. In the event the Common Stock Amendment is approved by stockholders, the Company will thereafter amend the Certificate of Incorporation (sometimes referred to hereinafter as the "Certificate") with the Delaware State Secretary of State with a filing reflecting such Common Stock Amendment, which will become effective at the close of business on the date the Certificate is accepted for filing by the Secretary of State. The text of Article Fourth of the Certificate, as proposed to be amended, is set forth in Appendix A, on page 18 of this Proxy Statement. In the event stockholders approve the Common Stock Amendment, the Company will be authorized to amend Article Fourth of the Company's Certificate to increase the number of shares of Common Stock which the Company is authorized to issue from 50,000,000 to 150,000,000. As of January 21, 1998, there were 44,378,477 shares of Common Stock issued and outstanding. All of the remaining authorized but unissued shares have been reserved for issuance under Company option and other benefit plans for employees and directors or pursuant to warrants to purchase Common Stock granted by the Company. Holders of Common Stock do not have preemptive rights to subscribe to additional securities that may be issued by the Company, which means that current stockholders do not have a prior right to purchase any new issue of Common Stock of the Company in order to maintain their proportionate ownership interest. 5 9 The Board also believes that it is in the Company's best interests to increase the number of authorized but unissued shares of Common Stock in order to have additional shares available for issuance to meet the Company's future business needs as they arise. The Company's management has no present arrangements, agreements, understandings or plans for the issuance or use of the additional shares proposed to be authorized by the Amendment. The Board believes the availability of such additional shares will provide the Company with the flexibility to issue Common Stock for a variety of other proper corporate purposes as the Board may deem advisable without further action by the Company's stockholders, except as may be required by law, regulation or the rules of any national securities exchange or quotation system on which the shares of the Company's Common Stock are then listed. These purposes could include, among other things, the sale of stock to obtain additional capital funds, the purchase of property, the acquisition or merger into the Company of other companies, the use of additional shares for various equity compensation and other employee benefit plans, the declaration of stock dividends or distributions, and other bona fide corporate purposes. Were these situations to arise, the issuance of additional shares of Common Stock could have a dilutive effect on earnings per share, and, for a person who does not purchase additional shares to maintain his or her pro rata interest, on a stockholder's percentage voting power in the Company. Although an increase in the authorized shares of Common Stock could, under certain circumstances, also be construed as having an anti-takeover effect (for example, by diluting the stock ownership of a person seeking to effect a change in the composition of the Board of Directors or contemplating a tender offer or other transaction for the combination of the Company with another company), the current proposal to amend the Certificate to increase the number of authorized shares of Common Stock is not in response to any effort to accumulate the Company's stock or to obtain control of the Company by means of a merger, tender offer, solicitation in opposition to management or otherwise. In addition, the proposal is not part of any plan by management to recommend a series of similar amendments to the Board of Directors and the stockholders. Under the Delaware General Corporation Law, the affirmative vote of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Annual Meeting is required to adopt this Proposal No. 2. With respect to the proposal to amend the Company's Certificate of Incorporation to increase the number of authorized shares of the Company's Common Stock from 50,000,000 to 150,000,000 shares, all such shares will be voted FOR or AGAINST, or not voted, as specified on each proxy. If no choice is indicated, a proxy will be voted FOR the proposal to amend the Company's Certificate of Incorporation to increase the number of authorized shares of the Company's Common Stock from 50,000,000 to 150,000,000 shares. THE BOARD UNANIMOUSLY RECOMMENDS THE STOCKHOLDERS VOTE FOR THE ADOPTION OF THIS PROPOSAL. PROPOSAL NO. 3: PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO AUTHORIZE 10,000,000 SHARES OF PREFERRED STOCK. The Company's Certificate of Incorporation does not currently authorize the issuance by the Company of any shares of preferred stock. On November 24, 1997, the Board unanimously adopted a resolution declaring it advisable to amend the Certificate to create and authorize 10,000,000 shares of preferred stock, $.01 par value ("Preferred Stock"), of the Company (the "Preferred Stock Amendment"). The Board of Directors further directed that the Preferred Stock Amendment be submitted for consideration by stockholders at the Company's Annual Meeting. In the event the Preferred Stock Amendment is approved by stockholders, the Company will thereafter amend the Certificate of Incorporation (the "Certificate") with the Delaware State Secretary of State with a filing reflecting such Preferred Stock Amendment, which will become effective at the close of business on the date the Certificate is accepted for filing by the Secretary of State. The text of the proposed Article Fourth is set forth in Appendix A, on page 18 of this Proxy Statement. The proposed creation and authorization of Preferred Stock has been recommended by the Board to assure that an adequate supply of authorized and unissued shares of Preferred Stock is available for general corporate 6 10 needs. The availability of shares of Preferred Stock for issue, without the delay and expense of obtaining the approval of stockholders at a special meeting, will afford the Company greater flexibility in taking corporate action. If approved by the stockholders, the Preferred Stock will be available for issue from time to time for such purposes and consideration as the Board may authorize, without the necessity of further action or authorization by the Company's stockholders, except as provided under the Delaware General Corporation Law or the rules of any national securities exchange or quotation system on which the shares of the Company are at the time listed or quoted, in one or more series or classes. Such purposes might include, without limitation, issuance as part or all of the consideration required to be paid by the Company in the acquisition of other businesses or properties, or issuance in public or private sales as a means of obtaining additional capital for use in the Company's business and operations. The Board may fix by resolution the designations, relative rights, preferences and limitations of each such series or class. Each series or class of Preferred Stock could, as determined by the Board at the time of issuance, rank, with respect to dividends, sinking fund provisions and conversion, voting, redemption and liquidation rights, senior to the Common Stock. There are no transactions presently under review or contemplated by the Board which would require the issuance of Preferred Stock by the Company. It is not possible to state the precise effects of the authorization of shares of Preferred Stock upon the rights of the holders of the Company's Common Stock until the Board determines the respective preferences, limitations and relative rights of the holders of each class or series of the Preferred Stock. However, such effects might include: (a) reduction of the amount otherwise available for payment of dividends on the Common Stock; (b) restrictions on dividends on the Common Stock; (c) dilution of the voting power of the Common Stock to the extent that the Preferred Stock had voting rights; (d) conversion of the Preferred Stock into Common Stock at such prices as the Board determines, which could include issuance at below the fair market value or original issue price of Common Stock; and (e) the holders of Common Stock not being entitled to share in the Company's assets upon liquidation until satisfaction of any liquidation preference granted to holders of the Preferred Stock. Although the Board would authorize the issuance of Preferred Stock based on its judgment as to the best interests of the Company and its stockholders, the issuance of authorized Preferred Stock could have the effect of diluting the voting power per share and could have the effect of diluting the book value per share of the outstanding Common Stock. In addition, the issuance of shares of Preferred Stock could, in certain instances, render more difficult or discourage a merger, tender offer or proxy contest and thus potentially have an "anti-takeover" effect, especially if Preferred Stock were issued in response to a potential takeover. In addition, additional issuances of authorized Preferred Stock can be implemented, and have been implemented by some companies in recent years, with voting or conversion privileges intended to make acquisition of the Company more difficult or more costly. Such an issuance could deter the types of transactions that may be proposed or could discourage or limit the stockholders' participation in certain types of transactions that might be proposed (such as a tender offer), whether or not such transactions were favored by the majority of the stockholders, and could enhance the ability of officers and directors to retain their positions. Under the Delaware General Corporation Law, the affirmative vote of holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Annual Meeting is required to adopt the proposed amendment to the Company's Certificate of Incorporation to authorize 10,000,000 shares of Preferred Stock of the Company. If the amendment is not approved by the stockholders, the Company will have no Preferred Stock authorized. With respect to the proposal to amend the Company's Certificate of Incorporation to authorize 10,000,000 shares of Preferred Stock, all such shares will be voted FOR or AGAINST, or not voted, as specified on each proxy. If no choice is indicated, a proxy will be voted FOR the proposal to amend the Company's Certificate of Incorporation to authorize 10,000,000 shares of Preferred Stock. 7 11 THE BOARD UNANIMOUSLY RECOMMENDS THE STOCKHOLDERS VOTE FOR THE ADOPTION OF THIS PROPOSAL. PROPOSAL NO. 4: PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO ALLOW FOR LIMITATION OF LIABILITY OF THE COMPANY'S DIRECTORS. On November 24, 1997, the Board adopted a resolution declaring it advisable to amend the Certificate to add an Article Sixth which would, if approved by the stockholders, limit the personal liability of its directors to the Company or its stockholders for monetary damages for breach of their fiduciary duty to the fullest extent permitted by the Delaware General Corporation Law. The text of the proposed added Article Sixth to the Company's Certificate of Incorporation is set forth in Appendix A, on page 18 of this Proxy Statement. As permitted by the Delaware General Corporation Law and if approved by the Company's stockholders, the Certificate would include a provision that eliminates the personal liability of its directors to the Company or its stockholders for monetary damages for breach of their fiduciary duty to the maximum extent permitted by the Delaware General Corporation Law. The Delaware General Corporation Law does not permit liability to be eliminated (i) for any breach of a director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions, as provided in Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. Under the Delaware General Corporation Law, the affirmative vote of a majority of the shares of Common Stock outstanding and entitled to vote at the Annual Meeting is required to approve this Proposal No. 4. With respect to the proposal to amend the Company's Certificate of Incorporation to provide for limitation of liability of the Company's directors, all such shares will be voted FOR or AGAINST, or not voted, as specified on each proxy. If no choice is indicated, a proxy will be voted FOR the proposal to amend the Company's Certificate of Incorporation to provide for the limitation of liability of the Company's directors. THE BOARD UNANIMOUSLY RECOMMENDS THE STOCKHOLDERS VOTE FOR THE ADOPTION OF THIS PROPOSAL. CHANGES IN INDEPENDENT PUBLIC ACCOUNTANTS The firm of Hairston, Kemp, Sanders & Stich, P.C., certified public accountants ("Hairston") served as the independent auditors of the Company until January 8, 1996, at which time the Company replaced the firm now known as Kemp & Stich, P.C. with William B. Sanders, C.P.A. ("Sanders") as the principle accountant of the Company (See Form 8-K dated January 8, 1996). On April 10, 1996, Sanders was replaced by Arthur Andersen LLP ("Andersen"). The decision to change accountants was recommended by the Board. In connection with the audits of the fiscal year ended August 31, 1995, and the subsequent interim period through April 10, 1996, there were no disagreements with Hairston or Sanders on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement. On April 10, 1996, Arthur Andersen LLP was engaged to audit the financial statements of the Company for its fiscal year ended August 31, 1996. The Company has authorized Sanders to respond fully to inquiries of Arthur Andersen LLP. The Company did not contact Arthur Andersen LLP during the Company's two most recent fiscal years, or any subsequent interim period, regarding (1) any disagreement with Sanders or Hairston or (2) the application of accounting principles to a specified transaction or the type of audit opinion that might be rendered 8 12 on the Company's financial statements. Prior to its engagement, Arthur Andersen LLP was neither asked for, nor has it expressed any opinion on any accounting issues concerning the Company. Other than a qualification of opinion as to the Company's ability to continue as a going concern due to recurring losses from operations, negative working capital, an accumulated deficit and its limited access to capital contained in the independent auditor's report filed by Arthur Andersen LLP in connection with the Company's consolidated financial statements for the fiscal year ended August 31, 1997, the audit reports of Arthur Andersen LLP for the fiscal years ended August 31, 1997 and 1996, did not contain any adverse opinion or disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope or accounting principles. PROPOSAL NO. 5: PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS. The Board desires to obtain stockholders' ratification of the Board's appointment of Arthur Andersen LLP as the Company's independent public accountants to audit the financial statements of the Company for the year ending August 31, 1998. Representatives of Arthur Andersen LLP will be present at the meeting to respond to appropriate questions from stockholders and will be given the opportunity to make a statement should they desire to do so. The proposal will be approved if approved by the vote of a majority of the shares present in person or by proxy at the meeting, provided that the total shares present at the meeting constitute a quorum. With respect to the proposal to ratify the approval of Arthur Andersen LLP as the Company's independent accountants, all such shares will be voted FOR or AGAINST, or not voted, as specified on each proxy. If no choice is indicated, a proxy will be voted FOR the proposal to ratify the approval of Arthur Andersen LLP as the Company's independent accountants. THE BOARD UNANIMOUSLY RECOMMENDS THE STOCKHOLDERS VOTE FOR THE ADOPTION OF THIS PROPOSAL. 9 13 FURTHER INFORMATION BOARD OF DIRECTORS The following table sets forth certain information with respect to the nominees for director: DIRECTOR NAME AGE POSITION SINCE ---- --- -------- ----- Eugene L. Butler 56 President, Chief Executive Officer and 1996 Chairman of the Board Frank J. Wall 42 Senior Vice President of Operations and 1990 Director John M. Le Seelleur 47 Director 1996 Rittie W. Milliman, Sr. 44 Director 1994 Joe R. Nemec 54 Director 1986 John Roane 68 Director 1985 William R. Ziegler 55 Director 1998 Steven A. Webster 46 Director 1998 There are no family relationships among any director listed. In connection with the Company's acquisition of Panther Oil Tools, Ltd., Mr. Le Seelleur was elected to serve as a Director of the Company. In connection with the Securities Purchase Agreement between the Company, White Owl Capital Partners and others dated October 15, 1997, and the Securities Purchase and Exchange Agreement between the Company, White Owl Investors L.L.C. and others dated October 15, 1997, Messrs. Ziegler and Webster were elected to serve as directors. Except for Messrs. Le Seelleur, Ziegler and Webster, there are no arrangements or understandings pursuant to which any of the nominees were elected as directors. Officers are elected annually by the Board at its first meeting following the annual meeting of stockholders, each to hold office until the corresponding meeting of the Board in the next year or until his successor shall have been elected or shall have been qualified. EUGENE L. BUTLER joined the Company in February 1996, became Executive Vice President, Chief Financial Officer and Director in April 1996, and was elected President, Chief Executive Officer and Chairman of the Board in April 1997. Since 1991, Mr. Butler has also served as Chairman of the Board and Chief Executive Officer of Intercoastal Terminal, Inc., a company engaged in operating a petrochemical storage and terminal facility. Mr. Butler has served as a director of Powell Industries, Inc. since March 1990. From 1974 through 1991, Mr. Butler served in various executive capacities for Weatherford/Enterra, Inc., a multinational energy corporation, including director, president, chief executive officer and chief operating officer. Mr. Butler received his degree in accounting from Texas A&M University in 1963, and is a Certified Public Accountant. RITTIE W. MILLIMAN, SR. was elected a Director in August 1994. He is President of the Milliman Group, Inc., an oilfield services and equipment firm. From March 1992 to February 1996, Mr. Milliman served as the Company's Vice-President of Wireline Operations. From 1984 to 1993 he was an independent consultant and equipment supplier for wireline logging and perforating of wells. JOE R. NEMEC has been a Director of the Company since 1986 and is an original shareholder of the Company. Since September 1995, he has served as director of Norwest Bank Texas, Alice. From 1987 through 1995 Mr. Nemec served as Secretary of the Company. Mr. Nemec is a Certified Public Accountant and has owned his own accounting practice since 1972. JOHN ROANE has been a Director of the Company since March 1985. He was a fishing tool supervisor for the Company from 1981 until his retirement in 1996. Mr. Roane is an original shareholder of the Company. Prior to joining the Company in 1981, Mr. Roane was a fishing tool supervisor for Wilson Downhole. His experience includes all aspects of the drilling and production of oil and gas, as a consultant and drilling superintendent. 10 14 FRANK J. WALL has served as a Director of the Company since August 1990 and an officer since 1982. Mr. Wall has 19 years of experience in the fishing tool industry and has been with the Company since 1981. Since joining the Company, Mr. Wall has served in various executive capacities and now serves as Senior Vice President of Operations. JOHN M. LE SEELLEUR has been a Director of the Company since October 1996 and is the owner of Petresearch International, Inc., an oil exploration joint venture and farm-out advisory firm headquartered in Aberdeen, Scotland. Mr. Le Seelleur is the former chairman of Panther Oil Tools, Ltd., a wholly-owned subsidiary of the Company. Mr. Le Seelleur has over 21 years of experience in oilfield operations and management throughout the North Sea and Middle East. Mr. Le Seelleur holds a diploma in business studies from Kingston College, London. WILLIAM R. ZIEGLER has been a partner of the law firm of Parson & Brown LLP since June 1994. Prior to that time he was a partner in the law firm of Whitman Breed Abbott & Morgan and a predecessor firm for over five years. Mr. Ziegler is a director of R&B Falcon Corporation, a director and Vice Chairman of the Board of Grey Wolf, Inc., a director of Flotek Industries, Inc., and a director of Geokinetics, Inc., which provides 3-D seismic acquisition and geophysical services to the oil and gas industry. STEVEN A. WEBSTER has been the Chief Executive Officer of R&B Falcon Corporation, a marine oil and gas drilling contractor, since January 1, 1998, and prior to that was the Chairman of the Board and Chief Executive Officer of Falcon Drilling Company, Inc., which is now a wholly-owned subsidiary of R&B Falcon Corporation, since 1991. He serves as a director of Crown Resources Corporation, (a mining company), a director of Grey Wolf, Inc., Trust Manager of Camden Property Trust, Chairman of the Board of Carrizo Oil & Gas, Inc., an independent oil and gas exploration company, and a director of Geokinetics, Inc., which provides 3-D seismic acquisition and geophysical services to the oil and gas industry. 11 15 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth information for fiscal 1997, 1996 and 1995 with respect to the cash compensation awarded to, earned by, or paid to the Company's Chief Executive Officer and the remaining most highly compensated executive officers (the "named executive officers") of the Company whose total annual salary and bonus for the fiscal year ended August 31, 1997, was at least $100,000. Long-Term Compensation Awards Annual Compensation Other ------------ Name and --------------------- Annual Stock All Other Principal Position Year Salary Bonus Compensation Options(#) Compensation($) ------------------ ------ ------ ----- ------------ ------------ ----------------- Eugene L. Butler 1995 $ -- -- -- -- -- Chairman of the 1996 $ 30,000 -- $3,600(1) 5,500(2) $ 20,000(3) Board, Chief 1997 $128,333 $6,000 $6,800(1) 5,500(2) $ 5,200(4) Executive Officer and President Larry D. Armstrong(5) 1995 $ 15,185 -- $1,600(1) -- $186,604(5) Chairman of the 1996 $111,538 -- $8,406(1) 5,500(2) -- Board, Chief 1997 $ 90,000 $8,000 $3,800(1) 5,500(2) $ 43,333(6) Executive Officer and President Frank J. Wall 1995 $ 51,000 -- $7,100(1) 5,500(2) -- Senior Vice 1996 $ 80,039 -- $7,600(1) 5,500(2) -- President of 1997 $106,667 $6,500 $7,400(1) 55,500(7) $ 10,495(8) Operations and Director - - ---------------- (1) Includes vehicle allowance and director's fees. (2) Issued pursuant to the Company's 1994 Directors' Stock Option Plan. (3) Represents fees paid to Mr. Butler before his employment and not as an employee for consulting services for the Company. (4) Represents the Company's contribution to Mr. Butler's 401(k) Plan account. (5) Mr. Armstrong became President and Chief Operating Officer on June 26, 1995, and was made Chairman of the Board, President and Chief Executive Officer in April 1996. At the time of his election as President, Mr. Armstrong and the Company agreed to enter into a four year employment agreement to be effective September 1, 1995. Such agreement provided for an annual salary of $100,000 and the issuance of 459,333 shares of Common Stock, which had a value at the date of grant of $186,604. The closing market price of the Company's Common Stock on June 26, 1995 was $0.94. Mr. Armstrong resigned as Chairman of the Board, President and Chief Executive Officer of the Company in April 1997. (6) Represents $10,000 in relocation pay and $33,333 in severance pay. (7) Includes 5,500 options issued pursuant to the Company's 1994 Directors' Stock Option Plan. (8) Includes the Company's contribution to Mr. Wall's 401(k) Plan account in the amount of $2,162 and $8,333 in relocation pay. 12 16 OPTION GRANTS IN LAST FISCAL YEAR The following table provides information concerning grants of stock options by the Company to the named executive officers in fiscal 1997. The Company has not granted any stock appreciation rights. Individual Grants - - -------------------------------------------------------------------------------------- Potential Realizable Percentage Value at Assumed of Total Annual Rates of Stock Options Price Appreciation Granted to for the Option Term Options Employees in Exercise Expiration -------------------- Name Granted (#) Fiscal Year ($/Share) Date 5% 10% ---- ----------- ------------- ----------- ---------- ------ --------- Eugene L. Butler 5,500(1) 2% $1.0938 3/12/07 $3,783 $9,588 Frank J. Wall(2) 5,500(1) 2% $1.0938 3/12/07 $3,783 $9,588 Frank J. Wall(2) 50,000 15% $1.75 10/22/06 $55,025 $139,450 Larry D. Armstrong(3) 5,500(1) 2% $1.0938 3/12/07 $3,783 $9,588 - - -------------------- (1) Options were granted under the Company's 1994 Directors' Stock Option Plan and are fully exercisable. (2) Mr. Wall received an aggregate of 17% of Total Options granted to the Company's employees in fiscal 1997. (3) Mr. Armstrong resigned from his positions with the Company in April 1997. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table provides information on option exercises in fiscal 1997 by the named executive officers and the value of such officers' unexercised options at August 31, 1997. NUMBER OF UNEXERCISED VALUE OF UNEXERCISED SHARES OPTIONS/SARS IN-THE-MONEY ACQUIRED AT FISCAL YEAR-END (#) AT FISCAL YEAR-END(1) ON EXERCISE VALUE --------------------------- --------------------------- NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - - ---- ------------- -------- ----------- ------------- ----------- ------------- Eugene L. Butler -0- -0- 11,000 -0- -0- --- Frank J. Wall -0- -0- 22,000 50,000 $430 --- Larry D. Armstrong(2) -0- -0- 5,500 -0- -0- --- - - ---------------- (1) The "value" of any option set forth in the table above is determined by subtracting the amount which must be paid upon exercise of the options from the market value of the underlying Common Stock as of August 31, 1997 (based on the closing sales price as reported by the NASDAQ SmallCap Market). (2) Mr. Armstrong resigned from his positions with the Company in April 1997. 13 17 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION From September 1996 to October 1996, the entire Board performed the functions of the Compensation Committee. Mr. Butler and Mr. Wall are executive officers of the Company. From October 1996 through April 1997, the Compensation Committee was comprised of Mr. Van Meter, Mr. Roane and Mr. Milliman, none of whom were employed by the Company. Since April 1997, the Compensation Committee has been comprised of Mr. Roane and Mr. Milliman. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors, executive officers and holders of more than ten percent of the Common Stock to file with the Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. The Company believes that through the end of its fiscal year ended August 31, 1997, its officers, directors and holders of more than ten percent of the Common Stock complied with the Section 16(a) filing requirements with the following exceptions: Gerald A. Slaughter and Shirley Meyer each filed one Form 4 late, and Frank Wall filed three Form 4s late. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the following reports and the Performance Graph shall not be incorporated by reference into any such filings. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION During fiscal 1997, the Company had no formal compensation policies with respect to executive officers. Because there are no formal compensation policies in place, the compensation of executive officers was determined by the Compensation Committee based generally on the qualifications and prior experience of the executive officers. The following paragraphs set forth the basis of the compensation paid in fiscal 1997 to Eugene L. Butler and Larry D. Armstrong. In April 1997, the Board elected Eugene L. Butler as Chairman of the Board, President and Chief Executive Officer of the Company. At that time, the Board established Mr. Butler's salary at $130,000 per year for the remainder of fiscal 1997. The Board set Mr. Butler's compensation package based on the key role he was to hold within the Company and in view of competitive compensation packages offered to his peer group in the industry. For fiscal 1997, the Board set Mr. Armstrong's salary at $140,000 per year. The Board set Mr. Armstrong's compensation package based on the key role he was to hold within the Company and in view of competitive compensation packages offered to his peer group in the industry. Mr. Armstrong resigned from his positions with the Company in April 1997. COMPENSATION COMMITTEE Rittie W. Milliman, Sr. John Roane 14 18 PERFORMANCE GRAPH The following performance graph compares the performance of the Common Stock to the NASDAQ Stock Market (US Companies) and to a Peer Group of other public companies. The information was provided by Media General Services, Inc. The Peer Group Index is comprised of NASDAQ-listed Oil and Gas Field Service companies. The graph assumes that the value of the investment in the Common Stock and each Index was 100 at August 30, 1992, and that all dividends were reinvested. Total Returns Index For: 08/30/92 8/30/93 08/30/94 08/30/95 08/30/96 08/30/97 12/31/97 - - ------------------------ -------- ------- -------- -------- -------- -------- -------- Ponder Industries, Inc. 100.00 70.69 67.24 18.97 62.07 30.17 49.14 Peer Group 100.00 101.62 114.13 150.72 205.12 274.29 286.75 Nasdaq Stock Market (US 100.00 131.92 137.32 184.93 208.54 290.95 289.03 Companies) Notes: A. No trading activity was recorded for the Company from 01/23/93 to 01/26/93. B. The peer group is made up of securities of the following companies: 3-D Geophysical Inc., American Oilfield Divers, Ameristar Internat, Cal Dive Internat Inc., Cheniere Energy Inc., Computalog Ltd., Dailey Internat Inc., Dawson Geophysical Co., Dawson Production SVCS, Eagle Geophysical Inc., Energy Search Inc., ERC Industries Inc., Fountain Oil Inc., FX Energy Inc., Global Industries Ltd., ICO Inc., Lufkin Industries Inc., Marine Drilling Cos Inc., National Energy Group, Norton Drilling Srvc Inc., Patterson Energy Inc., Ponder Industries, Inc., Pool Energy Services Co., Royale Energy Inc., Sheridan Energy Inc., Southern Mineral Corp., Superior Energy Svcs Inc., Tesco Corp., TMBR/Sharp Drilling Inc., Trico Marine Services, Universal Seismic Assocs., Venture Seismic Ltd., Venus Exploration Inc., and Zydeco Energy Inc. 15 19 EMPLOYMENT AGREEMENTS The Company and Larry Armstrong entered into a four year employment agreement on September 1, 1995. Mr. Armstrong resigned as President, Chief Executive Officer and Chairman of the Board in April 1997. Under the agreement, Mr. Armstrong was to receive $100,000 per annum, and if the Company achieved certain financial criteria, stock options granting him the right to purchase up to $100,000 of Common Stock. The Company currently has no employment agreements with any of the named executive officers. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Ziegler and Mr. Webster are general partners of White Owl Capital Partners, a general partnership ("White Owl") and Somerset Capital Partners ("SCP"). White Owl is the managing member of White Owl Investors L.L.C. ("WOI"). The Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with White Owl and certain other individuals on October 15, 1997, pursuant to which the Company, for the aggregate consideration of $2,500,000, made convertible promissory notes in the amount of $2,500,000, which were convertible in the aggregate into 4,000,000 shares of Common Stock, (the "Convertible Notes"), and granted warrants to purchase an additional 4,000,000 shares of Common Stock. Pursuant to the terms of the agreement, White Owl received a convertible promissory note from the Company in the amount of $1,900,000 (the "White Owl Note"), which was convertible into 3,040,000 shares of Common Stock, and a warrant for the purchase of 3,040,000 shares of Common Stock. On January 12, 1998, the Company entered into a Securities Purchase and Exchange Agreement (the "Exchange Agreement") with WOI, SCP and certain other individuals, pursuant to which the Company sold 11,000,000 shares of Common Stock to WOI and SCP for an aggregate purchase price of $11,000,000, and the Convertible Notes, including the White Owl Note, were converted into an aggregate of 4,000,000 shares of Common Stock. Pursuant to the terms of the Securities Purchase Agreement and the Exchange Agreement, the Company agreed to elect three nominees selected by White Owl as directors of the Company, and to nominate such nominees for reelection at the Annual Meeting. White Owl partially exercised this right by nominating Mr. Ziegler and Mr. Webster as directors and the Company elected them as directors of the Company effective January 12, 1998. White Owl has not exercised its rights as to nominating a third director. In September 1995, the Company acquired Armstrong Tool, Inc. from Larry D. Armstrong and his spouse. Mr. Armstrong served as President, Chief Executive Officer and Chairman of the Board of the Company from April 1996 to April 1997. The consideration for the assets of Armstrong Tool, Inc. consisted of the issuance of a promissory note for $400,000 to Mr. Armstrong and the assumption by the Company of approximately $450,000 of liabilities. The Company entered into an agreement with Mr. Armstrong in May 1997 which adjusted the payment schedule of the promissory note. In August 1997, Mr. Armstrong agreed to cancel the balance of the promissory note, approximately $219,000, in exchange for approximately 280,000 shares of Common Stock, which had a fair market value at the time of issuance of $0.75 per share. STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING From time to time the stockholders of the Company submit proposals which they believe should be voted upon by the stockholders. The Commission has adopted regulations which govern the inclusion of such proposals in the Company's annual proxy materials. All such proposals must be submitted to the Secretary of the Company no later than October 10, 1998 in order to be considered for inclusion in the Company's 1998 proxy materials. 16 20 MATTERS NOT DETERMINED AT THE TIME OF SOLICITATION The Board is not aware of any matters to come before the meeting other than those set forth above. If any other matter should come before the meeting, then the persons named in the enclosed form of proxy will have discretionary authority to vote all proxies with respect thereto in accordance with their judgment. By Order of the Board of Directors EUGENE L. BUTLER Chairman of the Board of Directors Houston, Texas Dated: April 7, 1998 17 21 APPENDIX "A" FOURTH. The total number of shares of stock which the Corporation shall have authority to issue is 160,000,000 shares, of which 150,000,000 shares shall be common stock, $.01 par value per share, and 10,000,000 shares shall be preferred stock, $.01 par value per share. The designations, rights, preferences, privileges and voting powers of the preferred stock, and any restrictions and qualifications thereof, shall be determined by the Board of Directors. SIXTH. No director of the Corporation shall be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director; provided that this Article SIXTH shall not eliminate or limit the liability of a director of the Corporation; (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware hereafter is amended to authorize the further elimination or limitation of the liability of directors of the Corporation, then the liability of a director of the Corporation shall be limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended, and such limitation of liability shall be in addition to, and not in lieu of, the limitation on the liability of a director of the Corporation provided by the provisions of this Article SIXTH. Any repeal or modification of this Article SIXTH shall be prospective only and shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. 18 22 PROXY PONDER INDUSTRIES, INC. PROXY -- ANNUAL MEETING OF STOCKHOLDERS -- May 12, 1998 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS Please mark, sign, date and return in the enclosed envelope. The undersigned stockholder of Ponder Industries, Inc. (the "Company") hereby appoints Eugene L. Butler and Gerald A. Slaughter, or each of them, proxies of the undersigned with full power of substitution to vote at the Annual Meeting of Stockholders of the Company to be held on Tuesday, May 12, 1998, at 10:00 a.m., Central Standard Time, at the Holiday Inn Crowne Plaza Hotel, 2222 West Loop South, Houston, Texas, and at any adjournment thereof, the number of votes which the undersigned would be entitled to cast if personally present: (1) ELECTION OF DIRECTORS FOR [ ] WITHHOLD AUTHORITY [ ] all nominees listed below to vote for all nominees (except as marked below) listed below William R. Ziegler Eugene L. Butler Frank J. Wall John M. Le Seelleur Steven A. Webster Rittie W. Milliman, Sr. Joe R. Nemec John Roane INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, DRAW A LINE THROUGH OR STRIKE OUT THAT NOMINEE'S NAME AS SET FORTH ABOVE. (2) Proposal to amend the Certificate of Incorporation of the Company to increase the number of authorized shares of the Company's Common Stock from 50,000,000 shares to 150,000,000 [ ] FOR [ ] AGAINST [ ] ABSTAIN 23 (3) Proposal to amend the Certificate of Incorporation of the Company to authorize 10,000,000 shares of Preferred Stock [ ] FOR [ ] AGAINST [ ] ABSTAIN (4) Proposal to amend the Certificate of Incorporation of the Company to provide for the limitation of liability of the directors of the Company to the fullest extent permitted by the Delaware General Corporation Law [ ] FOR [ ] AGAINST [ ] ABSTAIN (5) Proposal to ratify the appointment of Arthur Andersen LLP as the Company's Independent Public Accountants for the fiscal year ending August 31, 1998 [ ] FOR [ ] AGAINST [ ] ABSTAIN (6) To consider and act upon any other matter which may properly come before the meeting or any adjournment thereof; all as more particularly described in the Proxy Statement dated March 3, 1998, relating to such meeting, receipt of which is hereby acknowledged. This proxy when properly executed will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this proxy will be voted FOR the nominees listed in Proposal 1, FOR Proposal 2, FOR Proposal 3, FOR Proposal 4 and FOR Proposal 5. ----------------------------------------- ---------------------------------------- Signature of Stockholder(s) Please sign your name exactly as it appears hereon. Joint owners must each sign. When signing as attorney, executor, administrator, trustee or guardian, please give your full title as it appears hereon. Dated __________________________, 1998.