DAILEY CORP, S-1, 1996-05-24

DAILEY CORP
S-1, 1996-05-24

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996

REGISTRATION NUMBER 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

DAILEY CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 1389 76-0503351
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
or organization)

</TABLE>

2507 NORTH FRAZIER
P.O. BOX 1863
CONROE, TEXAS 77305
(713) 350-3399

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

WILLIAM D. SUTTON
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
DAILEY CORPORATION
2507 NORTH FRAZIER
P.O. BOX 1863
CONROE, TEXAS 77305
(713) 350-3399

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies to:

<TABLE>
<S> <C>
ROBERT F. GRAY, JR. NICK D. NICHOLAS
FULBRIGHT & JAWORSKI L.L.P. PORTER & HEDGES, L.L.P.
1301 MCKINNEY, SUITE 5100 700 LOUISIANA, 35TH FLOOR
HOUSTON, TEXAS 77010-3095 HOUSTON, TEXAS 77002-2764
(713) 651-5151 (713) 226-0600
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. / / _____

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / / ______

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED PER SHARE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, $.01 par
value per share.............. $46,000,000 $15,863
=================================================================================
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) of the Securities Act of 1933.

---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
===============================================================================
<PAGE> 2

DAILEY CORPORATION
---------------------

CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
---------------------

<TABLE>
<CAPTION>
FORM S-1 ITEM AND CAPTION LOCATION OR PROSPECTUS CAPTION
------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Facing page of Registration Statement;
Cross Reference Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front Cover and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors.......... Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds............................ Use of Proceeds; Management's Discussion
and Analysis of Financial Condition and
Results of Operations
5. Determination of Offering Price............ Underwriting
6. Dilution................................... Risk Factors; Dilution
7. Selling Security Holders................... *
8. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to Be
Registered.............................. The Offering; Description of Capital Stock
Registered
10. Interests of Named Experts and Counsel..... Experts; Legal Matters
11. Information with Respect to the
Registrant.............................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Dividend
Policy; Capitalization; Selected
Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business and Properties;
Management; Certain Relationships and
Related Transactions; Security Ownership
of Management and Principal Stockholder;
Description of Capital Stock; Shares
Eligible for Future Sale; Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities......................... *
</TABLE>

- ---------------

* Item is omitted either because it is inapplicable or the answer thereto is
negative.
<PAGE> 3

***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************

SUBJECT TO COMPLETION, DATED MAY 24, 1996

PROSPECTUS
4,000,000 SHARES

[LOGO]

CLASS A COMMON STOCK
---------------------
All of the shares of Class A Common Stock, par value $.01 per share ("Class
A Common Stock"), offered hereby (the "Offering") are being sold by Dailey
Corporation ("Dailey" or the "Company"). Prior to the Offering, there has been
no public market for the Class A Common Stock. The Company has applied for
listing of the Class A Common Stock on the Nasdaq National Market under the
symbol "DALY", subject to official notice of issuance. It is currently
anticipated that the initial public offering price will be between $
and $ per share. See "Underwriting" for factors to be considered in
determining the initial public offering price.

The Company's authorized capital stock includes Class A Common Stock and
Class B Common Stock, par value $.01 per share ("Class B Common Stock" and,
collectively with the Class A Common Stock, the "Common Stock"). The Class A
Common Stock is substantially identical to the Class B Common Stock, except with
respect to voting rights. The Class A Common Stock is entitled to one vote per
share and the Class B Common Stock is entitled five votes per share. See
"Description of Capital Stock".
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
---------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
Total (3)......................... $ $ $
</TABLE>

- ---------------

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting".

(2) Before deducting expenses payable by the Company, estimated to be
$ .

(3) The Company has granted the several Underwriters a 30-day option to purchase
up to an aggregate of 600,000 additional shares of Class A Common Stock on
the same terms and conditions as set forth above solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount, and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting".

The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale when, as and if issued to and accepted by the
Underwriters. The Underwriters reserve the right to reject orders in whole or
part. It is expected that delivery of the shares of Class A Common Stock will be
made against payment therefor in New York, New York on or about ,
1996.
---------------------
JEFFERIES & COMPANY, INC. SOUTHCOAST CAPITAL
CORPORATION

, 1996
<PAGE> 4

(GRAPHICS TO BE PROVIDED)

Prior to the Offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements reported on by independent
public accountants following the end of each fiscal year and such interim
reports as it may determine to be necessary or desirable.

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. References in this Prospectus to the
"Company" or "Dailey" shall mean Dailey Corporation, its predecessors and its
and their subsidiaries, unless the context otherwise requires. Unless otherwise
noted herein, the information contained in this Prospectus gives effect to the
Reorganization and a 5,000-for-one exchange of the Class B Common Stock (the
"Stock Split") that will be effected immediately prior to the closing of the
Offering and assumes the Underwriters' over-allotment option will not be
exercised.

THE COMPANY

Dailey Corporation provides directional drilling services and designs,
manufactures and rents technologically-advanced downhole tools for oil and gas
drilling and workover applications. Founded in 1945 as a rental tool Company,
the Company began offering directional drilling services in 1984 and currently
provides such services in the Gulf of Mexico, the United States Gulf Coast
region, and most recently, Venezuela and the Austin Chalk formation in Texas and
Louisiana. The Company's directional drilling services include computer-aided
planning of optimum well path and drilling procedures, on-site supervision,
measurement-while-drilling ("MWD") services and sourcing and supply of MWD
equipment and related drilling tools.

The Company offers an array of downhole tools, which it selectively markets
in every major oil and gas exploration and production region in the world.
Dailey introduced the first drilling jar to the oil and gas industry and
currently is the leading supplier of drilling jars to the rental tool market
worldwide. In addition to drilling jars, the Company's other downhole tools
include hydraulic fishing jars, coiled tubing jars, MWD equipment, downhole
drilling motors, thrusters for directional drilling and drilling shock
absorbers. The Company manufactures certain of its tools, purchases others, and
obtains others through third-party rentals.

Recent advances in directional drilling technologies combined with advances
in the identification and location of oil and gas reserves have made many
marginal or otherwise uneconomical reservoirs economically feasible to produce.
In many oilfield applications, directional drilling techniques, which include
directional and horizontal drilling, extended-reach drilling and short-radius
drilling, offer significant economic advantages over conventional drilling, such
as reduced drilling time and expense, accelerated production rates and enhanced
reservoir recovery. The Company offers drilling services for directional and
horizontal applications and offers its downhole tools for all advanced drilling
techniques. The Company responds to its customers' needs by providing quality
drilling services and highly-reliable downhole tools capable of improving
drilling efficiency, reducing the risk that expensive drilling components will
be lost downhole and enhancing overall exploration and development economics.

The Company believes that its reputation for quality and reliability has
resulted in worldwide industry recognition of the Dailey(R) name. In addition,
the proprietary designs of many of the Company's principal products, its ability
to attract and retain highly-qualified and experienced personnel, and its
ability to design, develop and market new and complementary products and
services are believed by the Company to be important competitive advantages.

3
<PAGE> 6

STRATEGY

The Company's strategy is to accelerate its transition into an integrated
provider of downhole tools and related services. The Company believes this
strategy is responsive to its customers' preferences to purchase as many
products and services as possible from a single provider. The Company intends to
implement this strategy by (i) expanding its directional drilling services and
related product offerings, (ii) marketing products and services directly to the
end-user, (iii) introducing new products and services through technological
innovation and (iv) acquiring complementary businesses and assets.

Expand Directional Drilling Services and Related Product Offerings. The
Company's immediate strategy is to implement a significant expansion of its
directional drilling business, both in the geographic scope and in types of
drilling services it offers. Directional drilling services have been
increasingly important to the Company's business because a growing percentage of
the Company's downhole tools is rented in connection with providing such
services.

Market Products and Services Directly to the End-User. Dailey traditionally
has marketed its downhole tools directly to the end-user through its direct
sales force and agents, rather than rely on third-party distribution of its
products and subcontracting of its services. The Company believes this strategy
has resulted in higher profit margins and intends to continue this marketing
strategy.

Introduce New Products and Services through Technological Innovation. The
Company believes that its emphasis on distribution of its downhole tools
directly to its customers has enhanced its ability to identify, design, develop
and market to these customers new products and improved products that are
responsive to its customers' needs. Dailey will continue to emphasize direct
interaction with its customers as a method of identifying new product
opportunities to keep pace with changing drilling technology trends and as a
means of refining its existing downhole tools to protect and expand its
reputation for quality downhole tools and directional drilling services.

Acquire Complementary Businesses and Assets. The Company is actively
seeking strategic acquisitions that will provide additional and complementary
products and services. The Company believes that acquisition candidates are
available that will allow Dailey to increase market share for its downhole tools
in existing markets, add new and complementary products and services and expand
marketing and distribution channels for its downhole tools and directional
drilling services. The directional drilling services industry recently has
experienced consolidation in response to increased demand for companies offering
a full range of advanced drilling tools and services. The Company believes that
this trend will continue and will present opportunities for Dailey to increase
the breadth and geographic scope of its directional drilling services through
strategic acquisitions. In addition, the Company believes that it can expand the
scope of the products and services it offers through the purchase or manufacture
of complementary tools and technology and by hiring experienced service
personnel.

4
<PAGE> 7

THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock............................. 4,000,000 shares
Common Stock outstanding after the Offering:
Class A Common Stock(1)(2)..................... 4,360,000 shares
Class B Common Stock(2)........................ 5,000,000 shares
Use of Proceeds.................................. Of the net proceeds from the Offering, the
Company intends to use approximately $15.0
million for capital expenditures for
downhole tools; approximately $12.0
million for repayment of indebtedness to
the Company's principal stockholder; and
the balance to fund acquisitions of
complementary businesses and assets and
for working capital and other general
corporate purposes. See "Use of Proceeds".
Nasdaq National Market Symbol.................... DALY
</TABLE>

- ---------------

(1) Includes 360,000 shares to be issued on completion of the Offering as
restricted stock awards to certain key employees pursuant to the Company's
1996 Key Employee Stock Plan, but excludes 540,000 shares reserved for
issuance under such plan. Also excludes 100,000 shares reserved for issuance
under the Company's 1996 Non-Employee Director Stock Option Plan.

(2) Class A Common Stock is substantially identical to Class B Common Stock
except with respect to voting rights. Each share of Class A Common Stock
entitles the holder thereof to one vote per share, and each share of Class B
Common Stock entitles the holder thereof to five votes per share in all
matters submitted to the stockholders for a vote. See "Risk
Factors -- Special Voting Rights of Class B Common Stock; Relationship with
Lawrence Industries" and "Certain Relationships and Related Transactions".
In addition, shares of Class B Common Stock may be converted into an equal
number of shares of Class A Common Stock at any time upon election of the
holder thereof. Shares of Class B Common Stock convert automatically into an
equal number of shares of Class A Common Stock in the event such shares of
Class B Common Stock are transferred to a person or entity that is not a
member of the Lawrence Group (as defined in the Certificate of
Incorporation). See "Description of Capital Stock -- Class A and B Common
Stock".

PRINCIPAL STOCKHOLDER

Prior to the Offering, the Company was wholly-owned by Dailey Holdings
Inc., a wholly-owned subsidiary of Lawrence Industries, Inc. References in this
Prospectus to "Lawrence" shall mean Lawrence Industries, Inc. and Dailey
Holdings Inc. Following the Offering, Lawrence will own 100% of the Company's
outstanding Class B Common Stock, which will represent 53% of the total
outstanding Common Stock (50% if the Underwriters' over-allotment option is
exercised in full) and 85% of the total voting power of the Company's
outstanding Common Stock (83% if the Underwriters' over-allotment option is
exercised in full) and thus will be able to elect the Company's directors and
control its management. See "Risk Factors -- Special Voting Rights of Class B
Common Stock; Relationship with Lawrence Industries" and "Certain Relationships
and Related Transactions".

5
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for each of the years in
the four year period ended April 30, 1995, have been derived from audited
consolidated financial statements of the Company. The selected consolidated data
for the year ended April 30, 1996, has been derived from the unaudited
consolidated financial statements of the Company. The Consolidated Statement of
Operations Data for the years ended April 30, 1994 and 1995, and the
Consolidated Balance Sheet Data as of April 30, 1995, are derived from the
Company's audited consolidated financial statements appearing elsewhere in this
Prospectus and the Consolidated Statement of Operations Data for the year ended
April 30, 1996, and the Consolidated Balance Sheet Data as of April 30, 1996,
are derived from the Company's unaudited consolidated financial statements
appearing elsewhere in this Prospectus. This information should be read in
conjunction with "Selected Consolidated Financial Data", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company and the notes thereto,
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Rental income................................... $ 30,591 $ 28,746 $ 32,393 $ 36,691 $ 42,987
Sales of products and services.................. 11,180 8,742 11,422 12,172 15,952
------- ------- ------- ------- -------
Total revenues................................ 41,771 37,488 43,815 48,863 58,939
Cost of rentals and services:
Cost of rentals................................. 26,268 25,078 27,484 30,185 33,619
Cost of products and services................... 5,116 4,003 5,124 6,889 7,927
------- ------- ------- ------- -------
Total cost of rentals and services............ 31,384 29,081 32,608 37,074 41,546
Selling, general and administrative expenses...... 7,422 6,783 6,985 9,107 11,483
Research and development expenses................. 1,224 1,262 736 775 728
------- ------- ------- ------- -------
Operating income.................................. 1,741 362 3,486 1,907 5,182
Interest expense, net............................. 29 285 513 1,001 863
Other (income)/expense, net....................... 78 (435) (225) 190 (16 )
Foreign exchange (gain)/loss...................... 111 228 122 (90) 239
------- ------- ------- ------- -------
Income before income taxes and extraordinary
item............................................ 1,523 284 3,076 806 4,096
Income tax expense................................ 1,101 898 1,075 838 1,429
Extraordinary item(1)............................. 1,535 -- -- -- --
------- ------- ------- ------- -------
Net income/(loss)................................. $ 1,957 $ (614) $ 2,001 $ (32) $ 2,669
======= ======= ======= ======= =======
Historical earnings per share(2).................. $ .37 $ (.11) $ .37 $ (.01) $ --
Pro forma earnings per share...................... 42
Average common and common equivalent shares
outstanding(3).................................. 5,360,000 5,360,000 5,360,000 5,360,000 6,360,000
OTHER DATA:
Depreciation and amortization..................... $ 3,600 $ 4,114 $ 4,323 $ 5,428 $ 5,726
Capital expenditures.............................. 4,259 11,132 15,015 12,275
</TABLE>

<TABLE>
<CAPTION>
AS OF
APRIL 30, 1996
--------------------
ACTUAL ADJUSTED
------- --------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets.................................................................................... $56,343 $83,833
Working capital................................................................................. 7,767 28,150
Long-term debt, less long-term debt payable to affiliates....................................... 6,866 6,866
Long-term debt payable to affiliates............................................................ 1,100 0
Stockholders' equity............................................................................ 35,696 64,946
</TABLE>

- ---------------

(1) Relates to proceeds received by the Company in settlement of a lawsuit.

(2) Adjusted to give effect to the Stock Split and the Reorganization. See "The
Company -- Reorganization; Relationship with Lawrence".

(3) The average number of shares outstanding at April 30, 1992, through 1996
have been adjusted to give pro forma effect to the Stock Split and
Reorganization and the issuance of 360,000 shares of Class A Common Stock to
Messrs. Farr, Sutton and Tighe immediately following consummation of the
Offering. The average number of shares outstanding at April 30, 1996, also
gives pro forma effect to the number of shares whose proceeds are deemed to
be used to repay the $10.0 million promissory note paid as a dividend on May
29, 1996.

6
<PAGE> 9

RISK FACTORS

Prospective Purchasers of the Class A Common Stock offered hereby should
consider carefully the following factors as well as the other information
provided elsewhere in this Prospectus before deciding to invest in the Class A
Common Stock offered hereby.

DEPENDENCE ON VOLATILE OIL AND GAS INDUSTRY

Demand for the Company's downhole tools and directional drilling services
depends to a large extent upon the level of exploration and production activity
in the oil and gas industry and the industry's willingness to spend capital on
drilling operations, which in turn depends in part on oil and gas prices,
expectations about future prices, the cost of exploring for, producing and
delivering oil and gas, the discovery rate of new oil and gas reserves, domestic
and international political, military, regulatory and economic conditions and
the ability of oil and gas companies to raise capital. Prices for oil and gas
historically have been extremely volatile and have reacted to changes in the
supply of and demand for oil and natural gas, domestic and worldwide economic
conditions and political instability in oil producing countries. No assurance
can be given that current levels of oil and gas activities will be maintained or
that demand for the Company's downhole tools and directional drilling services
will reflect the level of such activities. Prices for oil and natural gas are
expected to continue to be volatile and affect the demand and pricing of the
Company's downhole tools and directional drilling services. A material decline
in oil or natural gas prices or activities could materially adversely affect the
demand for the Company's downhole tools and directional drilling services and,
therefore, the Company's results of operations.

COMPETITION

The markets for the Company's directional drilling services and downhole
tools are highly competitive and characterized by continual changes in
technology. Many of the Company's existing and potential competitors have
substantially greater marketing, distribution, financial and technical resources
than the Company. There can be no assurance that the Company's downhole tool
rentals and directional drilling services will continue at current volumes or
prices if its current competitors or new market entrants introduce new products
or services with better features, performance, price or other characteristics
than the Company's products and services. Competitive pressures or other factors
also may result in significant price competition that could have a material
adverse effect on the Company's results of operations. See "Business and
Properties -- Competition".

TECHNOLOGICAL EVOLUTION AND PRODUCT OBSOLESCENCE

The markets for specialized downhole drilling and fishing tools used in oil
and gas drilling and workover applications and directional drilling services are
characterized by continual technological developments that have resulted in, and
likely will continue to result in, substantial improvements in product function
and performance and in the scope and quality of directional drilling services.
Whether the Company can develop and produce successfully, on a timely basis, new
and enhanced downhole tools that embody new technology, meet evolving industry
standards and practice, and achieve levels of capability and price that are
acceptable to its customers, will be significant factors in determining the
Company's ability to compete. There can be no assurance that the Company will
not encounter resource constraints or technical or other difficulties that could
delay introduction of new products and services in the future. If the Company is
unable, for technological or other reasons, to develop and commercialize
competitive products in a timely manner in response to changes in the rental
tool industry or directional drilling industry or changes in technology, its
business and operating results will be materially and adversely affected. In
addition, the Company's continuing development of new products inherently
carries the risk of inventory obsolescence with respect to its older products.
See "Business and Properties -- Research and Development".

7
<PAGE> 10

INTELLECTUAL PROPERTY

Certain features of the Company's downhole tools have been granted United
States and foreign patent protection, or have patent applications pending. In
addition, both the Dailey trademark and servicemark are registered in the United
States and various foreign countries. The loss or abandonment of such trademarks
and servicemarks could have a material adverse effect on the Company's results
of operations and financial condition. There can be no assurance that the
Company's patents will prove enforceable, that any patents for which the Company
has made application will be issued, or that competitors will not develop
functionally similar products outside the protection of any patents the Company
has or may obtain. Furthermore, after Dailey's patents expire, the Company's
competitors could develop products substantially similar to the Company's
downhole tools. Litigation resulting in the invalidation of certain of the
Company's patents, or a ruling that the Company's products infringe patents held
by others, could have a material adverse effect on the Company's results of
operations and financial condition. See "Business and Properties -- Intellectual
Property".

LIQUIDITY AND WORKING CAPITAL REQUIREMENTS; UNCERTAINTY IN OBTAINING FINANCING

While the Company's operations have generated positive cash flow in each of
the past five years, the Company's future cash flow is subject to a number of
variables, including the level of domestic and worldwide oil and gas exploration
and development activity, and the Company can provide no assurance that its cash
flow from operations, net proceeds of the Offering and its borrowing capacity
will be sufficient to fund its anticipated capital expenditures and working
capital requirements. During the past several years, the Company has funded its
working capital requirements through cash generated from operations, its credit
facility, asset sales and, when necessary, advances from Lawrence. Upon
completion of the Offering, it is anticipated that Lawrence will no longer be a
source of advances for funding the Company's working capital requirements. The
Company currently has a $3.0 million revolving credit facility, of which
approximately $1.3 million was drawn by the Company as of April 30, 1996. The
Company may in the future seek financing from third parties in addition to its
existing credit facility to fund such expenditures and requirements. However,
there can be no assurance that additional financing will be available to the
Company on economically acceptable terms. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations -- Liquidity and
Capital Resources".

ACQUISITION STRATEGY

The Company anticipates that a substantial portion of the net proceeds from
the Offering may be used to finance expansion through acquisitions of existing
businesses. See "Use of Proceeds". Nevertheless, there can be no assurance that
attractive acquisitions will be available to the Company at reasonable prices or
that any acquisition achieved ultimately will prove to be a successful
undertaking by the Company. The Company may be required to incur substantial
indebtedness to finance future acquisitions and also may issue equity securities
or convertible securities in connection with such acquisitions. Such additional
debt service requirements may represent a significant burden on the Company's
results of operations and financial condition. The issuance of additional equity
or convertible securities could result in significant additional dilution to
stockholders and result in significant additional shares available for future
resale. There also can be no assurance that the Company will successfully
integrate the operations and assets of any acquired business with its own or
that the Company's management will be able to manage effectively the increased
size of the Company or operate a new line of business. Any inability on the part
of the Company to integrate and manage acquired businesses could have a
materially adverse effect on the Company's results of operations or financial
condition.

DEPENDENCE ON KEY PERSONNEL; ABILITY TO ATTRACT AND RETAIN QUALIFIED
PROFESSIONALS

The Company believes that its success will depend to a significant extent
upon the continued services of certain key individuals, particularly J. D.
Lawrence, Chairman of the Board, James F. Farr, President and Chief Executive
Officer, William D. Sutton, Senior Vice President, General Counsel and Secretary
and David T. Tighe, Senior Vice-President -- Finance and Treasurer. The Company
has entered into employment

8
<PAGE> 11

agreements with these individuals. The loss of the services of any of these
individuals could have a material adverse effect on the Company. See
"Management".

The directional drilling services offered by the Company require it to
recruit and retain highly-qualified drilling consultants with extensive industry
experience. The Company believes that its success also will depend to a
significant extent upon its continued ability to recruit and retain such
drilling consultants, and in this regard, there can be no assurance that the
Company's efforts to recruit and retain such individuals will be successful. See
"Business and Properties -- Competition".

DEPENDENCE ON LIMITED NUMBER OF PRODUCT LINES

In fiscal 1996, the Company derived approximately 57% of its total revenues
from drilling jar rentals and related products. A sustained decrease in demand
for these products and services, whether caused by declines in drilling
activity, technological innovations or other competitive factors, could
adversely affect the Company's operating performance. The Company's future
success will depend upon continued demand for its drilling jars, and its ability
to enhance its existing products and services, develop additional products and
services, and supply its products and services to meet industry demands. See
"Business and Properties -- Directional Drilling Services and Rental Products".

OPERATING RISKS AND INSURANCE

The operations of the Company's customers are subject to hazards inherent
in the oil and gas industry, such as fires, explosions, craterings, blowouts and
oil spills, which can cause serious personal injury or loss of life, damage to
or destruction of property, equipment, the environment and marine life, and
suspension of operations. In addition, the Company's customers that are engaged
in the drilling and workover business may be subject to claims for loss of oil
and gas production and damages to formations. If a catastrophic event were to
occur at a location where the Company's products or services are being provided,
the Company could be named as a defendant or third-party defendant in lawsuits
asserting potentially large claims. See "Business and Properties -- Operating
Risks and Insurance".

The Company maintains insurance coverage that it believes to be customary
in the industry against certain of these hazards, however, such insurance
provides for substantial deductibles and premium adjustments based on claims
experience and excludes coverage for damages resulting from environmental damage
and pollution or breach of contract or claims based on alleged fraud or
deceptive trade practices. Insurance cannot provide complete protection against
casualty losses. There can be no assurance that the Company will be able to
maintain adequate insurance in the future at rates it considers reasonable or
that insurance will continue to be available on terms as favorable as those of
its existing arrangements. A claim or suit against the Company in excess of the
coverage limits maintained by the Company could have a material adverse effect
on the Company's financial condition and results of operations. See "Business
and Properties -- Operating Risks and Insurance".

VENDOR SUPPLY INTERRUPTION; RELIANCE ON CERTAIN SUPPLIERS

The Company assembles all of its downhole tools and manufactures a portion
of the components for its downhole tools. The manufacturing processes performed
by the Company require a ready supply of high-quality, special alloy steel.
Consistent with the recent upturn in the demand for steel and other raw
materials used in the oil and gas industry, the Company has begun to experience
longer lead times for delivery of raw materials, primarily steel, which requires
the Company to predict further in advance its needs for such materials. While
the Company has not experienced significant supply or quality control problems
to date with its various suppliers of steel and other raw materials, any supply
or quality control problems could significantly affect the Company's ability to
meet production schedules and commitments, which could have a material adverse
effect on the Company's results of operations. See "Business and Properties --
Raw Materials".

Most of the Company's downhole tools incorporate certain products or
technology supplied in part by third parties. Although the Company is not
presently experiencing and does not anticipate any significant supply or quality
control problems with its vendors, such problems, if they were to occur, could
have a material

9
<PAGE> 12

adverse effect on the Company's ability to meet future production and sales
commitments, which could adversely affect the Company's results of operations.
In addition, during the past five years, one vendor has been the Company's only
supplier of filters that go into the Company's hydraulic downhole tools. The
Company has not identified alternative suppliers for such filters. To date, the
Company has not experienced supply problems with this vendor. However, any
difficulty with such supplier combined with any difficulty in finding and
utilizing alternative sources for these filters could have a material adverse
effect on the Company's results of operations. See "Business and
Properties -- Manufacturing".

The Company purchases all of its MWD units used in connection with its
directional drilling services from a single supplier. The Company believes that
reliable MWD units are available for third party purchase from only a few
vendors worldwide. Although the Company has not experienced significant supply
or quality control problems to date with its supplier, there can be no assurance
that the Company will be able to purchase MWD units from the other vendor of
such units. Any difficulty in obtaining MWD units from this supplier, as a
result of manufacturing delays or other reasons, could have a material adverse
effect on the Company's results of operation and financial condition.

INTERNATIONAL OPERATIONS; FOREIGN EXCHANGE

The Company's international operations, which accounted for approximately
41% of its total revenues in fiscal 1996, are subject to special risks inherent
in doing business outside the United States, including governmental instability,
war and other international conflicts, civil and labor disturbances,
requirements of local ownership, partial or total expropriation,
nationalization, currency devaluation, foreign exchange controls, and foreign
laws and policies, each of which may limit the movement of assets or funds or
result in the deprivation of contract rights or the taking of property without
fair compensation. Collections and recovery of rental tools from international
customers and agents may prove more difficult due to the uncertainties of
foreign law and judicial procedure. The Company may therefore experience
significant difficulty resulting from the political or judicial climate in
countries in which it operates. From time to time the United States has passed
laws and imposed regulations prohibiting or restricting trade with certain
nations. There can be no assurance that future laws and regulations will not
limit materially the Company's international business. Although most of the
Company's international revenues are derived from transactions denominated in
United States dollars, the Company has and likely will continue to conduct, some
business in currencies other than the United States dollar. Accordingly, its
profitability has been and will continue to be affected by fluctuations in
foreign exchange rates. Foreign currency translation gains and losses during
each of fiscal 1994, 1995 and 1996 netted to a $122,000 loss, a $90,000 gain and
a $239,000 loss, respectively. The Company believes that revenues from
transactions denominated in foreign currencies will increase as a percentage of
total revenues due to continued expansion of the Company's operations in
Venezuela and the recently imposed requirement of the Venezuelan government that
it will require a greater percentage of transactions be conducted in bolivars.
At April 30, 1996, the balance of cash and accounts receivable denominated in
bolivars was approximately $2.6 million. The Company expects this balance to
increase as the Company's Venezuelan operations expand. See "Management's
Discussion and Analysis of Results of Operations and Financial Conditions" and
"Business and Properties -- International Operations".

CREDIT RISK FROM SALES ARRANGEMENTS

In various international markets, the Company utilizes independent
international agents to market its downhole tools, who in some cases also are
responsible for the collection of, and remittance to Dailey of, the accounts
receivable from Dailey's customers in these markets. The inability of the
Company's international agents to remit accounts receivable on a timely basis,
or a significant number of payment defaults by certain of the Company's
independent agents, could have a material adverse effect on the Company's
results of operations.

SPECIAL VOTING RIGHTS OF CLASS B COMMON STOCK; RELATIONSHIP WITH LAWRENCE

Each share of Class A Common Stock is entitled to one vote and each share
of Class B Common Stock is entitled to five votes, with both classes of Common
Stock voting together as a single class. Upon completion of

10
<PAGE> 13

this Offering, Lawrence, which is owned by the Chairman of the Board of the
Company and trusts for his family, will beneficially own all of the Class B
Common Stock, and will thereby control approximately 85% of the combined voting
power of the outstanding Common Stock (83% if the Underwriters' over-allotment
option is exercised in full). Accordingly, Lawrence and, indirectly, the
Company's Chairman of the Board will be in a position to elect the Company's
board of directors and otherwise control the business policies of the Company.
The Company and Lawrence have entered into various ongoing contractual
arrangements including a Tax Allocation Agreement, Registration Rights Agreement
and arrangements governing the leasing by the Company of its executive offices
and certain service, storage and other facilities from Lawrence. See "Certain
Relationships and Related Transactions" and "Description of Capital
Stock -- Class A and B Common Stock".

ABSENCE OF PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE

Prior to the Offering, there has been no public market for the Class A
Common Stock. Although application has been made for listing of the Class A
Common Stock on the Nasdaq National Market, there can be no assurance that an
active trading market will develop or continue upon completion of the Offering.
The initial public offering price of the Class A Common Stock will be determined
by negotiations between the Company and the representatives of the Underwriters
(the "Representatives") and may not be indicative of the market price of the
Class A Common Stock after the Offering. For a discussion of the factors to be
considered in determining the initial public offering price, see "Underwriting".
The market price of the Class A Common Stock could be subject to significant
fluctuations in response to variations in quarterly and yearly operating
results, the success of the Company's business strategy, general trends in the
oil and gas industry, competition, product obsolescence, changes in federal
regulations affecting the Company or the oil and gas industry and other factors.
In addition, the stock market in recent years has experienced extreme price and
volume fluctuations that often have been unrelated or disproportionate to the
operating performance of affected companies. Such broad fluctuations could
affect adversely the market price of the Class A Common Stock. See
"Underwriting".

POSSIBLE ANTI-TAKEOVER EFFECTS

The Company's Certificate of Incorporation and Bylaws include a number of
provisions that may have the effect of encouraging persons considering
unsolicited tender offers or other unilateral takeover proposals to negotiate
with the Board of Directors rather than pursue non-negotiated takeover attempts.
These provisions may have the effect of delaying, deferring or preventing a
change in control of the Company whether or not such person chooses to negotiate
with the Board of Directors. The provisions include super-majority stockholder
approval for certain mergers with, and sales of substantially all of the
Company's assets to, third parties, authorized "blank check" preferred stock, a
classified Board of Directors and restrictions on removal of directors. In
addition, the Certificate of Incorporation provides for two classes of stock,
Class A Common Stock, which is entitled to one vote per share, and Class B
Common Stock, which is entitled to five votes per share. The Class B Common
Stock converts automatically into an equal number of shares of Class A Common
Stock upon the transfer of such shares to a member outside the Lawrence Group.
See "Description of Capital Stock".

ADVERSE EFFECT ON MARKET PRICE OF SHARES ELIGIBLE FOR FUTURE SALE

Immediately following the Offering, there will be outstanding 4,360,000
shares of Class A Common Stock (4,960,000 shares if the Underwriters'
overallotment option is exercised in full), which includes 360,000 shares of
restricted stock issued immediately following the Offering to certain executive
officers pursuant to the 1996 Key Employee Stock Plan. In addition, an aggregate
of 640,000 unissued shares of Class A Common Stock have been reserved for
issuance pursuant to the Company's 1996 Key Employee Stock Plan and 1996
Non-Employee Director Stock Option Plan. The Company also will have outstanding
5,000,000 shares of Class B Common Stock, which automatically convert into
5,000,000 shares of Class A Common Stock upon the transfer of such shares to any
person or entity that is not a member of the Lawrence Group (as defined in the
Certificate of Incorporation). The 4,000,000 shares of Class A Common Stock
offered hereby will be

11
<PAGE> 14

eligible for resale in the public market without restriction under the
Securities Act, except to the extent that any such shares are acquired by
affiliates of the Company. The shares of Class A Common Stock held by the
Company's affiliates and the shares of Class A Common Stock issuable upon
conversion of shares of Class B Common Stock will be subject to resale in
accordance with Rule 144 under the Securities Act. Sales of a substantial number
of shares of Class A Common Stock may adversely affect the market price of the
Class A Common Stock. The Company, Lawrence and Messrs. Farr, Sutton and Tighe
have agreed that they will not, without the prior written consent of the
Representatives, offer for sale, sell or otherwise dispose of any shares of
Common Stock (other than pursuant to existing employee benefit plans or
outstanding options) or securities convertible into or exchangeable for Common
Stock or grant options, rights or warrants with respect to any shares of Common
Stock (other than the grant of options pursuant to option plans existing on the
date hereof), for a period of 180 days after the date of this Prospectus.

The Company also is obligated, upon the written request of Lawrence, on up
to two separate occasions, to file a registration statement under the Securities
Act registering a minimum of 1.0 million shares of Common Stock owned by
Lawrence, which may be in the form of an underwritten offering. Additionally, if
the Company proposes to register any of its securities under the Securities Act
for its own account or for the account of other security holders, Lawrence is
entitled to notice of such registration and is entitled to include all or a
portion of its holdings of the Company's securities in such registration,
subject to certain exceptions and limitations, including the right of the
underwriters (if any) of any such offering to exclude for marketing reasons some
or all of such securities from such registration. No prediction can be made as
to the effect, if any, that the sale of shares or the availability of shares for
sale will have on the market price of the Class A Common Stock prevailing from
time to time. Nevertheless, sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices and the ability of
the Company to raise equity capital in the future. See "Description of Capital
Stock -- Registration Rights Agreement" and "Shares Eligible for Future Sale".

BENEFITS OF THE OFFERING TO LAWRENCE

Lawrence will benefit from the Offering, principally through the increased
liquidity of its holdings, which results from the creation of a public market
for Class A Common Stock, into which Class B Common Stock is convertible at any
time by Lawrence and automatically upon transfer to a person or entity who is
not a member of the Lawrence Group, and through the potential unrealized gains
in the value of the Class B Common Stock held by it. Based upon the difference
between an assumed initial public offering price of $ per share of
Class A Common Stock and the average price per share of Class B Common Stock
paid by Lawrence prior to the Offering; Lawrence will have potential unrealized
gains of $ per share, or an aggregate of $ million. See "Dilution".

DILUTION

A purchaser of Class A Common Stock in the Offering will experience an
immediate and substantial dilution in the net tangible book value of its shares.
See "Dilution".

ABSENCE OF DIVIDENDS

The Company expects to retain cash generated from operations to support its
cash needs and does not anticipate the payment of any dividends on the Common
Stock for the foreseeable future. In addition, the Company's loan agreement with
its bank prohibits the payment of dividends. See "Dividend Policy".

12
<PAGE> 15

THE COMPANY

HISTORY

Dailey Corporation provides directional drilling services and designs,
manufactures and rents technologically-advanced downhole tools for oil and gas
drilling and workover applications. The Company began operations in the rental
tool business in 1945 as Dailey Oil Tools, Inc., and in 1984 changed its name to
Dailey Petroleum Services Corp. Pursuant to the Reorganization, the Company
changed its name to Dailey Corporation.

In contemplation of the Offering, the Company will effect the Stock Split
immediately prior to the closing of the Offering. References to the "Company" or
"Dailey" in this Prospectus relate to the business now carried on by the Company
and its subsidiaries and previously carried on by their predecessors.

The Company's executive offices are located in Conroe, Texas, approximately
50 miles north of Houston, Texas. The Company's address is 2507 North Frazier,
P.O. Box 1863, Conroe, Texas 77305, and its telephone number is (713) 350-3399.

REORGANIZATION; RELATIONSHIP WITH LAWRENCE

Prior to May 1996, Dailey was a wholly-owned subsidiary of Lawrence
Industries, Inc. On May 29, 1996, Lawrence reorganized its ownership of Dailey
into a holding company structure pursuant to a forward triangular merger of
Dailey Petroleum Services Corp. into a newly-formed indirect wholly-owned
subsidiary, Dailey Corporation, (the "Reorganization"). Dailey Corporation's
certificate of incorporation provides for two classes of common stock, Class A
Common Stock and Class B Common Stock. See "Description of Capital
Stock -- Class A and B Common Stock". Following the Reorganization, all of
Dailey's issued and outstanding capital stock, which consists entirely of Class
B Common Stock, has been held by Lawrence through its wholly-owned subsidiary,
Dailey Holdings Inc. References in this Prospectus to Lawrence's ownership in,
and control of, the Company relate to Lawrence's ownership of Dailey's capital
stock through this subsidiary.

Lawrence is engaged in various business activities not related to the oil
and gas industry. The Company's operations do not compete with any of Lawrence's
activities. The Company has entered into several arrangements with Lawrence,
including agreements under which the Company leases certain office space and
manufacturing and service facilities from, and provides certain services to,
Lawrence as well as a Registration Rights Agreement and Tax Allocation
Agreement. See "Certain Relationships and Related Transactions".

Upon completion of the Offering, Lawrence will own all of the outstanding
Class B Common Stock and will own approximately 53% (50% if the Underwriters'
over-allotment option is exercised in full) of the outstanding Common Stock.
Substantially all of the common stock of Lawrence is owned by the Chairman of
the Board of the Company.

13
<PAGE> 16

USE OF PROCEEDS

The net proceeds to the Company from the Offering are estimated to be
approximately $ (approximately $ if the Underwriters'
over-allotment option is exercised in full), assuming an initial public offering
price of $ per share (the midpoint of the initial public offering price
range) and after deducting the underwriting discount and estimated offering
expenses payable by the Company.

The Company intends to use approximately $15.0 million of the net proceeds
from the Offering to increase its fleet of downhole tools. The Company also
intends to use approximately $12.0 million to repay a promissory note and
long-term debt to Lawrence, including accrued interest thereon. The promissory
note was incurred in connection with a dividend declared and paid to Lawrence on
May 29, 1996, accrues interest at the prime rate and is payable upon demand. The
long-term debt to affiliates relates to advances by Lawrence to the Company for
additional working capital and general corporate purposes and is payable in 60
consecutive monthly installments through December 1998 of $55,000 plus accrued
interest then due. It bears interest at 8% per annum.

The remaining net proceeds from the Offering are expected to be used by the
Company to fund the expansion of the Company's products and services through
acquisitions of complementary businesses or assets and for working capital and
general corporate purposes. Although the Company routinely evaluates acquisition
opportunities, it does not have any current understanding, arrangement or
agreement to acquire any businesses or assets. There can be no assurance that
attractive acquisition candidates will be available to the Company at prices it
believes to be reasonable, or that any acquisition achieved will ultimately
prove to be a successful undertaking by the Company. Pending application of the
net proceeds from the Offering, the Company will invest such net proceeds in
short-term, interest-bearing, investment grade securities.

DIVIDEND POLICY

Other than the dividend of $10.0 million in the form of a promissory note
to Lawrence declared and paid on May 29, 1996, the Company has not declared or
paid any dividends during the period beginning on May 1, 1994, and ending on the
date of this Prospectus. The Company's loan agreement with its bank prohibits
the payment of dividends. The Company obtained a waiver from its bank in
connection with the May 29, 1996, dividend. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources".

The Company does not anticipate that cash dividends will be paid in the
foreseeable future. The Company presently intends to retain any future earnings
to finance the expansion and continuing development of its business. The
declaration and payment in the future of any cash dividends will be at the
election of the Company's Board of Directors and will depend upon the earnings,
capital requirements and financial position of the Company, future loan
covenants, general economic conditions and other pertinent factors. The
Company's dividend policy will be reviewed by the Board of Directors at such
future time as may be appropriate in light of relevant factors at the time.

The Company's Certificate of Incorporation requires that any dividend
declared on either shares of Class A Common Stock or shares of Class B Common
Stock must be declared on shares of Class A Common Stock and shares of Class B
Common Stock alike as if all such shares were of the same class and series.

DILUTION

The net tangible book value of the Company at April 30, 1996, was $
million, or $ per share of Common Stock. After giving effect to the
sale by the Company of the shares of Class A Common Stock offered
hereby (at an assumed initial public offering price of $ per share and
after deducting the estimated offering expenses and underwriting discounts
payable by the Company), the pro forma net tangible book value at such date
would have been $ million, or $ per share of Common Stock.
This represents an immediate increase in net tangible book value of $
per share to Lawrence and an immediate dilution of $ per share to new
investors purchasing shares in the Offering.

14
<PAGE> 17

CAPITALIZATION

The following table sets forth as of April 30, 1996, the consolidated
long-term debt and capitalization of the Company and its subsidiaries and as
adjusted to reflect the issuance of the Class A Common Stock offered hereby and
the application of $12.0 million of the estimated net proceeds to repay notes
and long-term debt to affiliates, as described under "Use of Proceeds". The
information was derived from, and is qualified by reference to, the consolidated
financial statements of the Company, including the notes thereto, included
elsewhere in this Prospectus. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
APRIL 30, 1996
--------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt:
Bank loan(2).............................................. $ 2,960 $ 2,300
Indebtedness to Affiliates(3)............................. 660 --
Other..................................................... 78 78
Long-term debt:
Bank loan(2).............................................. 6,784 7,444
Indebtedness to Affiliates(3)............................. 1,100 --
Other..................................................... 82 82
Stockholders' equity:
Class A common stock, $.01 par value, 20,000,000 shares
authorized; none issued and outstanding (4,000,000
shares as adjusted)(4)................................. -- 44
Class B common stock, $.01 par value, 10,000,000 shares
authorized; (5,000,000 shares issued and
outstanding)........................................... 50 50
Preferred stock, no par value, 5,000,000 shares
authorized; none issued and outstanding................ -- --
Paid-in capital........................................... 4,559 42,005
Retained earnings......................................... 31,087 21,087
------- --------
Total stockholders' equity........................ 35,696 63,186
------- --------
Total capitalization........................................ $47,360 $ 73,090
======= ========
</TABLE>

- ---------------

(1) As adjusted to reflect net proceeds from the Offering and application of a
portion of the net proceeds to repay indebtedness to affiliates as described
under "Use of Proceeds".

(2) The Company makes scheduled payments of approximately $139,000 per month,
plus accrued interest, on this debt. Excludes a $10.0 million note to
Lawrence issued in connection with the dividend declared and paid on May 29,
1996.

(3) The Company makes scheduled payments of approximately $55,000 per month,
plus accrued interest, on this debt.

(4) As Adjusted includes 360,000 shares of restricted stock issued to certain
executive officers of the Company immediately following the offering
pursuant to the 1996 Key Employee Stock Plan, but excludes 640,000 shares
reserved for issuance pursuant to the Company's 1996 Key Employee Stock Plan
and 1996 Non-Employee Director Stock Option Plan.

15
<PAGE> 18

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for each of the years in
the four year period ended April 30, 1995, have been derived from audited
consolidated financial statements of the Company. The selected consolidated data
for the year ended April 30, 1996, have been derived from the unaudited
consolidated financial statements of the Company. The Consolidated Statement of
Operations Data for the years ended April 30, 1994 and 1995 are derived from the
Company's audited consolidated financial statements appearing elsewhere in this
Prospectus and the Consolidated Statement of Operations Data for the year ended
April 30, 1996, and the Consolidated Balance Sheet Data as of April 30, 1996 are
derived from the Company's unaudited consolidated financial statements appearing
elsewhere in this Prospectus. This information should be read in conjunction
with "Selected Consolidated Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company and the notes thereto, included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Rental income................................... $ 30,591 $ 28,746 $ 32,393 $ 36,691 $ 42,987
Sales of products and services.................. 11,180 8,742 11,422 12,172 15,952
------- ------- ------- ------- -------
Total revenues................................ 41,771 37,488 43,815 48,863 58,939
Cost of rentals and services:
Cost of rentals................................. 26,268 25,078 27,484 30,185 33,619
Cost of products and services................... 5,116 4,003 5,124 6,889 7,927
------- ------- ------- ------- -------
Total cost of rentals and services............ 31,384 29,081 32,608 37,074 41,546
Selling, general and administrative expenses...... 7,422 6,783 6,985 9,107 11,483
Research and development expenses................. 1,224 1,262 736 775 728
------- ------- ------- ------- -------
Operating income.................................. 1,741 362 3,486 1,907 5,182
Interest expense, net............................. 29 285 513 1,001 863
Other (income)/expense, net....................... 78 (435) (225) 190 (16 )
Foreign exchange (gain)/loss...................... 111 228 122 (90) 239
------- ------- ------- ------- -------
Income before income taxes and extraordinary
item............................................ 1,523 284 3,076 806 4,096
Income tax expense................................ 1,101 898 1,075 838 1,429
Extraordinary item(1)............................. 1,535 -- -- -- --
------- ------- ------- ------- -------
Net income/(loss)................................. $ 1,957 $ (614) $ 2,001 $ (32) $ 2,669
======= ======= ======= ======= =======
Historical earnings per share(2).................. $ .37 $ (.11) $ .37 $ (.01) $ --
Pro forma earnings per share...................... -- -- -- -- .42
Average common and common equivalent shares
outstanding(3).................................. 5,360,000 5,360,000 5,360,000 5,360,000 6,360,000
OTHER DATA:
Depreciation and amortization..................... $ 3,600 $ 4,114 $ 4,323 $ 5,428 $ 5,726
Capital expenditures..............................
</TABLE>

<TABLE>
<CAPTION>
AS OF
APRIL 30, 1996
--------------------
ACTUAL ADJUSTED
------- --------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets.................................................................................... $56,343 $83,833
Working capital................................................................................. 7,767 28,150
Long-term debt, less long-term debt payable to affiliates....................................... 6,866 6,866
Long-term debt payable to affiliates............................................................ 1,100 --
Stockholders' equity............................................................................ 35,696 63,186
</TABLE>

- ---------------

(1) Relates to proceeds received by the Company in settlement of a lawsuit.

(2) Adjusted to give effect to the Stock Split and the Reorganization. See "The
Company -- Reorganization; Relationship with Lawrence".

16
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company provides directional drilling services and designs,
manufactures and rents technologically-advanced downhole tools for oil and gas
drilling and workover applications. Demand for the Company's directional
drilling services and downhole tools depends primarily upon the level of
exploration and production activity in the oil and gas industry, which in turn
depends in part on oil and gas prices, expectations about future prices, the
cost of exploring for, producing and delivering oil and gas, the discovery rate
of new oil and gas reserves, domestic and international, political, military and
regulatory and economic conditions and the ability of oil and gas companies to
raise capital.

During the past five years, the Company has experienced significant growth
in revenues relating to its directional drilling services. This growth is
consistent with trends in the oil and gas industry, which increasingly has
employed technologically-advanced directional drilling services in order to
develop reservoirs that otherwise would have been marginal or uneconomical using
conventional drilling methods. Historically, the Company has provided drilling
services primarily for directionally drilled wells in the Gulf of Mexico and the
United States Gulf Coast region. During fiscal 1995, the Company expanded its
directional drilling operations into Venezuela, and in fiscal 1996, began
offering its services in the Austin Chalk. Contemporaneously with its expansion
into the Austin Chalk, the Company began providing horizontal drilling services.
The Company believes that its plans to continue expansion as well as these
industry trends will contribute to the continued growth of its directional
drilling services.

The Company also believes that rentals of its downhole tools will benefit
from the industry trend toward the use of directional drilling techniques. In
many oilfield applications, directional drilling techniques offer significant
economic advantages over conventional drilling, such as reduced drilling time
and expense, accelerated production rates and enhanced reservoir recovery. The
Company believes that its directional drilling services have been increasingly
important to the Company's business, in part because a growing percentage of the
Company's downhole tools are rented in connection with its drilling services.

RESULTS OF OPERATIONS

The Company derives rental income from its fleet of downhole tools, and to
a lesser extent, third-party rentals. The Company typically charges its
customers a per-day rental rate for downhole tools, except for its downhole
drilling motors, which are rented at an hourly rate. In international markets,
the Company also often charges its customers a refurbishment charge, which is
included in its rental revenues.

The Company derives revenues from sales of products and services through
its directional drilling services, lost-in-hole revenues and sales of its
mechanical drilling jars. The services of Dailey's directional drillers and MWD
technicians are billed on a per person/per day basis for the time on assignment
at the customer's drill site. Although the Company considers rentals of its
downhole drilling motors, steering tools and MWD equipment to be a significant
part of its directional drilling services, revenue from such rentals is recorded
as rental income for financial statement purposes. The Company's lost-in-hole
revenues consist of replacement charges that Dailey's customers contractually
are required to pay each time a Dailey downhole tool is lost in hole. The
Company sells mechanical drilling jars in a limited number of international
markets, primarily to state-owned oil and gas companies.

The operating costs associated with the Company's rentals primarily include
expenses associated with depreciation, transportation, and maintenance and
repair and related direct overhead. The costs associated with the Company's
sales of products and services primarily include the undepreciated portion of
the capitalized cost of its downhole tools sold or lost in hole and the salaries
and related costs associated with the Company's directional drillers and MWD
technicians.

The Company believes that the percentage of its total revenues relating to
transactions conducted in foreign currencies will increase due to continued
expansion of the Company's operations in Venezuela and the recently-imposed
requirement of the Venezuelan government that a greater percentage of the
Company's transactions in Venezuela be conducted in bolivars. At April 30, 1996,
the balance of cash and accounts receivable denominated in bolivars was
approximately $2.6 million. The Company expects this balance to

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increase as the Company's operations in Venezuela expand. The Company seeks to
protect itself from fluctuations in the bolivar, as well as other
hyper-inflationary currencies, by accelerating conversion of such currencies
into United States dollars and by continual evaluation of the Company's level of
operations in such hyper-inflationary markets.

Year Ended April 30, 1996 Compared to the Year Ended April 30, 1995

Rental Income. Rental income for the year ended April 30, 1996, was $43.0
million, an increase of 17% from $36.7 million for the year ended April 30,
1995. This increase was due primarily to an increase in demand for the Company's
directional drilling services and related products in Venezuela, the Gulf of
Mexico and the United States Gulf Coast region, which resulted in a $3.5 million
increase in rental of MWD equipment, downhole motors and other directional
tools. During fiscal 1996, the Company purchased and began to utilize additional
MWD equipment in Venezuela. The Company also experienced increased demand for
its directional drilling services in the Gulf of Mexico and the United States
Gulf Coast region due to escalating gas prices and a corresponding increase in
drilling activity. In addition, rental income from the Company's drilling jars
and slingers increased $1.6 million due primarily to an increase in demand in
Latin America and to a slight increase in pricing worldwide. Also in fiscal
1996, the Company increased its distribution of fishing jars in the United
States Gulf Coast region and expanded distribution of fishing jars into the
North Sea, which resulted in an increase in rental income of $1.2 million.

Sales of Products and Services. Sales of products and services for the year
ended April 30, 1996, were $16.0 million, an increase of 31% from $12.2 million
for the year ended April 30, 1995. This increase was due primarily to an
increase in export sales of mechanical drilling jars of approximately $1.6
million and to an increase in lost-in-hole tools of $1.2 million. The increase
in lost-in-hole revenues is consistent with increased rental activity during the
year. The increase is also attributed to an increase in demand for the Company's
directional drilling services in the Gulf of Mexico, the United States Gulf
Coast region and Venezuela.

Cost of Rentals. Cost of rentals for the year ended April 30, 1996, was
$33.6 million, an increase of 11% from $30.2 million for the year ended April
30, 1995. This increase was due primarily to the variable costs associated with
an increase in rental activity, such as tool repair costs, agent commissions and
third party tool charges. The increase is also attributed to an increase in
import duties and fees of approximately $600,000 associated with the importation
of directional drilling tools to Venezuela. The Company expenses import duties
and fees as incurred instead of capitalizing them as part of the cost of the
tool. As a percentage of rental income, cost of rentals decreased from 82% in
fiscal 1995 to 78% in fiscal 1996, which reflects the fixed nature of the
Company's cost base.

Cost of Products and Services. Cost of products and services for the year
ended April 30, 1996, was $7.9 million, an increase of 15% from $6.9 million for
the year ended April 30, 1995. This increase was due primarily to an increase in
personnel costs associated with an increase in directional drilling services in
the Gulf of Mexico, the United States Gulf Coast region and Venezuela. The
increase also is attributable to the write-off of the net book value of products
lost in hole and the cost of drilling jars sold during the year.

Selling, General and Administrative. Selling, general and administrative
expenses were $11.4 million for the year ended April 30, 1996, an increase of
26% from $9.1 million for the year ended April 30, 1995. This increase was due
primarily to an increase in personnel costs associated with bonuses and raises
paid during the year as well as additional personnel, an increase in travel and
business development costs associated with higher levels of international
business and an increase in legal expenses associated with litigation involving
the Company's enforcement of its intellectual property.

Research and Development. Research and development expense for the year
ended April 30, 1996, was $728,000, a decrease of 6% from $775,000 for the year
ended April 30, 1995, as the level of the Company's research and development
activity remained relatively constant between the two years.

Interest Expense -- Nonaffiliates. Interest expense to nonaffiliates for
the year ended April 30, 1996, was $785,000, a decrease of 7% from $841,000 for
the year ended April 30, 1995. The decrease was due primarily to the repayment
of $1.3 million in principal on the Company's bank debt, which was partially
offset by advances of $1.3 million against the revolving line of credit
associated with the Company's bank debt.

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<PAGE> 21

Interest Expense -- Affiliate. Interest expense to affiliate for the year
ended April 30, 1996, was $182,000, a decrease of 17% from $220,000 for the year
ended April 30, 1995. The decrease is due to the repayment of $660,000 of
principal during the year.

Foreign Exchange (Gain)/Loss. Foreign exchange losses of $239,000 in fiscal
1996 compared to gains of $90,000 for the year ended April 30, 1995, were due
primarily to unfavorable exchange fluctuations with the British pound and the
Dutch guilder.

Other, Net. Other income for the year ended April 30, 1996, was $16,000
compared to an expense of $190,000 for the year ended April 30, 1995. This
difference was due primarily to the write-off of obsolete inventory in fiscal
1995.

Provision for Income Taxes. Provision for income taxes for the year ended
April 30, 1996, was $1.4 million, an increase of 70% from $838,000 for the year
ended April 30, 1995. The increase was due primarily to an increase in income in
countries in which the Company was subject to income or withholding taxes, which
resulted in the effective tax rate decreasing from 104% to 35% from fiscal 1995
to 1996. In fiscal 1996, the Company recorded a deferred tax asset related to
net operating loss carryforwards, which resulted in a decrease in the effective
tax rate. This decrease was predominantly offset by a gain for tax purposes
related to the dissolution of a real estate partnership, which resulted in an
increase in the effective tax rate.

Year Ended April 30, 1995 Compared to the Year Ended April 30, 1994

Rental Income. Rental income for the year ended April 30, 1995 was $36.7
million, an increase of 13% from $32.4 million for the year ended April 30,
1994. This increase was due primarily to the acquisition of MWD equipment and
related equipment, which resulted in an increase in rental revenues of $3.4
million. Distribution of these products was limited to the Gulf of Mexico and
United States Gulf Coast region in fiscal 1995. Rental income from the Company's
other products increased slightly due to an increase in demand for the hydraulic
fishing jar in the United States Gulf Coast region and to a moderate increase in
pricing for the Company's primary product line, the drilling jar.

Sales of Products and Services. Sales of products and services for the year
ended April 30, 1995, were $12.2 million, an increase of 7% from $11.4 million
for the year ended April 30, 1994. This increase was due primarily to an
increase in demand for the Company's directional drilling services in the Gulf
of Mexico as escalating gas prices resulted in increased drilling in that
region. Sales of mechanical drilling jars decreased slightly due to a decrease
in sales to Iran, which were suspended during the year due to lack of timely
payment. Lost-in-hole revenues increased slightly due to increased rental
activity, which resulted in a corresponding increase in tools lost downhole.

Cost of Rentals. Cost of rentals for the year ended April 30, 1995, was
$30.2 million, an increase of 10% from $27.5 million for the year ended April
30, 1994. This increase in cost of rentals was due primarily to costs associated
with the routine repair and maintenance of the Company's rental tool fleet, and
to additional personnel expense and depreciation expense associated with the
initial purchase of MWD equipment and the hiring of related personnel during
fiscal 1994, which contributed to the Company's costs for the entire year in
fiscal 1995. As a percentage of rental income, cost of rentals decreased to 82%
for the year ended April 30, 1995, as compared to 85% for the prior period,
reflecting the fixed nature of the Company's cost base.

Cost of products and services. Cost of products and services for the year
ended April 30, 1995, was $6.9 million, an increase of 34% from $5.1 million for
the year ended April 30, 1994. This increase was due primarily to start-up costs
of approximately $800,000 associated with the introduction of directional
drilling services in Venezuela and to additional operating costs associated with
the expansion of directional drilling services in the Gulf of Mexico. The
increase is also attributed to the write-off of the net book value of MWD
equipment lost in hole during the year.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended April 30, 1995, were $9.1 million, an
increase of 30% from $7.0 million for the year ended April 30, 1994. This
increase was due primarily to an increase in personnel costs of approximately
$850,000 and an increase in costs associated with the outsourcing of data
processing services of approximately $470,000. The

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<PAGE> 22

increase also was due to an increase in lease expense associated with the
corporate headquarters and an increase in legal fees.

Research and Development. Research and development costs for the year ended
April 30, 1995 were $775,000, an increase of 5% from $736,000 for the year ended
April 30, 1994, which reflects the relatively constant level of research and
development activity between the years.

Interest Expense -- Nonaffiliates. Interest expense to nonaffiliates for
the year ended April 30, 1995 was $841,000, an increase of 60% from $527,000 for
the year ended April 30, 1994, which was primarily due to the a full year of
accruals of interest from the Company's bank loan incurred in December 1993.

Interest Expense -- Affiliates. Interest expense to affiliates for the year
ended April 30, 1995 was $220,000, an increase of 61% from $86,000 for the year
ended April 30, 1994. The increase was due to the conversion of a non-interest
bearing loan from an affiliate in December 1993 to a term loan with interest at
8%, which resulted in twelve months of interest accrued in 1995 compared to five
months in 1994.

Foreign Exchange(Gain)/Loss. Foreign exchange gains for the year ended
April 30, 1995 were $90,000 compared to a loss of $122,000 for the year ended
April 30, 1994. The increase is due primarily to favorable exchange fluctuations
between the United States dollar and the British pound and Dutch guilder.

Other, net. Other expense for the year ended April 30, 1995, was $190,000
compared to income of $225,000 for the year ended April 30, 1994. The loss in
1995 was due primarily to the write-off of approximately $90,000 of obsolete
inventory. The gain in fiscal 1994 was due primarily to the recognition of gains
on the sale of excess machinery and equipment consistent with the Company's
decision to outsource manufacturing of many of the components of its rental
tools.

Provision for Income Taxes. Provision for income taxes was $838,000 for the
year ended April 30, 1995, a decrease of 22% from $1.1 million for the year
ended April 30, 1994. The decrease was primarily due to a decrease in income in
certain foreign tax jurisdictions in which the Company was subject to income and
withholding taxes. The effective tax rate increased from 35% to 104% due
primarily to the Company's inability to offset foreign losses with United States
income in 1995.

INFLATION

Inflation has not had a significant impact on the Company's comparative
results of operations.

LIQUIDITY AND CAPITAL RESOURCES

At April 30, 1996, the Company had $2.4 million in cash and cash
equivalents. For the year ended April 30, 1996, the Company had net income of
$2.7 million and cash provided by operating activities of $5.1 million. The
Company's principal uses of cash for the year were to fund $6.9 million for the
addition of downhole tools and $2.0 million for the repayment of long-term debt.

During the past several years, the Company has funded its working capital
requirements through cash generated from operations, its credit facilities, and,
when necessary, advances from Lawrence. Upon completion of the Offering it is
anticipated that Lawrence will no longer be a source of revenues for meeting the
Company's working capital requirements.

At April 30, 1996, the Company had $9.7 million of bank debt outstanding
under a note (the "Note") incurred on December 1, 1993, and amended on December
13, 1995, consisting of a term loan and a revolving line of credit. The original
amount of the Note of $10.0 million had a floating interest rate of prime plus
one-half of one percent on the unpaid balance. In conjunction with the loan, the
Company entered into an interest rate swap agreement, which fixed the interest
rate at 7.92%. Principal payments on the term loan are approximately $139,000
monthly through December 1999, and approximately $199,000 thereafter until
maturity on December 1, 2000. The outstanding balance on the term loan at April
30, 1996, was $8.4 million. In December 1995, the Note was amended to include a
$3.0 million revolving line of credit at the lender's prime interest rate with
an option to convert to a LIBOR-based rate plus 2%. At April 30, 1996, the
Company had drawn down $1.3 million against the line of credit at an average
interest rate of 7.44%. The Note is collateralized by substantially all of the
Company's property, equipment, inventory, intellectual property and

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<PAGE> 23

receivables, and also contains certain restrictive covenants. In connection with
the Reorganization and other matters, the Company was required to obtain waivers
of certain of these covenants. The Note is also collateralized by certain real
estate of Lawrence, which the bank has agreed to release upon closing of the
Offering.

At April 30, 1996, the Company had approximately $1.8 million outstanding
under an intercompany note due to Lawrence. Principal payments on the note of
$55,000 plus interest at 8% on the unpaid balance are due monthly with the final
payment due at maturity on December 1, 1998. The Company intends to use net
proceeds of the Offering to repay the outstanding indebtedness on this Note. In
addition, on May 29, 1996, the Company declared and paid a dividend to Lawrence
of $10.0 million in the form of a demand promissory note accruing interest at
its bank's prime rate. The Company intends to repay this note utilizing a
portion of the proceeds from the Offering. See "Use of Proceeds".

The Company anticipates that it will have capital expenditures of
approximately $16.0 million in the fiscal year ending April 30, 1997. Such
expenditures are expected to relate to certain downhole tools, primarily MWD
equipment, drilling jars and fishing jars. The Company believes it has available
resources through internally generated cash flow, the existing Note and the net
proceeds of the Offering to fund its operations for at least 12 months following
the Offering.

The Company's business strategy is to expand and diversify its operations
by expanding its product lines through existing distribution channels, acquiring
complementary businesses and by developing and marketing new products. In
connection with any future acquisition, the Company may use a portion of the
proceeds from the Offering and, in addition, may be required to incur
substantial indebtedness to finance such acquisition and may also issue equity
securities or convertible securities. Although the Company routinely evaluates
potential acquisition candidates, it currently does not have any understanding,
contract or agreement to acquire any businesses or assets.

Interest Rate Swap Agreement. In December 1993, the Company entered into an
interest rate swap agreement, which converted the interest rate on the term
portion of the Note from a floating rate of prime plus one-half of one percent
to a fixed rate of 7.92%. The financial impact of the swap was to increase
interest expense during fiscal 1994 by $24,000, and decrease interest expense in
fiscal 1995 and 1996 by $57,000 and $120,000, respectively. The Company has no
immediate plans to prepay the term portion of the Note or unwind the swap
agreement.

Income Taxes. In fiscal 1997, the Company will no longer be included in the
federal tax return of Lawrence. Accordingly, the Company has recognized an
allocation of Lawrence's net operating loss carryforwards in the amount of $4.5
million, which will expire in 2004 through 2010. The Company has net deferred
tax assets at April 30, 1996 of $1.8 million. Based on prior earnings history,
management expects that future taxable income will be sufficient to realize this
net asset.

NEW ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is effective for fiscal years beginning after December 15,
1995. The Company believes that the adoption of SFAS 121 will not have a
material impact on its consolidated financial statements.

In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
123 establishes alternative methods of accounting and disclosure for employee
stock-based compensation arrangements. In connection with establishing its 1996
Key Employee Stock Plan and its 1996 Non-Employee Director Stock Plan, the
Company has elected to use the "intrinsic value based method" of accounting for
its employee stock option plan. This method does not result in the recognition
of compensation expense when employee stock option are granted if the exercise
price of the options equals or exceeds the fair market value of the stock at the
date of grant. The Company will adopt the disclosure requirements of SFAS 123
when it becomes effective in 1996.

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BUSINESS AND PROPERTIES

THE COMPANY

Dailey Corporation provides directional drilling services and designs,
manufactures and rents technologically-advanced downhole tools for oil and gas
drilling and workover applications. Founded in 1945 as a rental tool Company,
the Company began offering directional drilling services in 1984 and currently
provides such services in the Gulf of Mexico, the United States Gulf Coast
region, and most recently, Venezuela and the Austin Chalk. The Company's
directional drilling services include computer-aided planning of optimum well
path and drilling procedures, on-site supervision, measurement-while-drilling
services and sourcing and supply of MWD equipment and related drilling tools.

Recent advances in directional drilling technologies combined with advances
in the identification and location of oil and gas reserves have made many
marginal or otherwise uneconomical reservoirs economically feasible to produce.
In many oilfield applications, directional drilling techniques, which include
directional and horizontal drilling, extended-reach drilling and short-radius
drilling, offer significant economic advantages over conventional drilling, such
as reduced drilling times and expense, accelerated production rates and enhanced
reservoir recovery. These technologically-advanced drilling techniques include
directional and horizontal drilling, extended-reach drilling and short-radius
drilling. The Company offers drilling services for directional and horizontal
applications and offers its downhole tools for all advanced drilling techniques.
The Company responds to its customers' needs by providing quality drilling
services and highly-reliable downhole tools capable of improving drilling
efficiency, reducing the risk that expensive drilling components will be lost
downhole and enhancing overall exploration and development economics.

STRATEGY

The Company's strategy is to accelerate its transition into an integrated
provider of downhole tools and related services. The Company believes this
strategy is responsive to its customers' preference to purchase as many products
and services as possible from a single provider. The Company intends to
implement this strategy by (i) expanding its directional drilling services and
related product offerings, (ii) marketing products and services directly to the
end-user, (iii) introducing new products and services through technological
innovation and (iv) acquiring complementary businesses and assets.

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DIRECTIONAL DRILLING SERVICES AND RENTAL PRODUCTS

The Company began offering its directional drilling services in 1984 and
currently offers its directional drilling services in the Gulf of Mexico, the
United States Gulf Coast region, Venezuela, and most recently, the Austin Chalk.
The directional drilling services offered by the Company consist of on-site
supervisory services to maximize drilling efficiency, MWD services and
equipment, downhole motors and post-well analysis. The Company believes that its
directional drilling services have been increasingly important to the Company's
business, in part, because a growing percentage of the Company's downhole tools
are rented in connection with providing such services.

The Company's downhole tools include drilling tools, which consist
primarily of hydraulic and mechanical drilling jars and slingers, fishing tools,
which consist primarily of hydraulic fishing jars and related products, and
tools relating to Dailey's directional drilling services, which consist
primarily of MWD equipment and drilling motors. Through its research and
development efforts, the Company recently introduced its patented, double-acting
hydraulic coil tubing jar.

Demand for the Company's directional drilling services and downhole tools
is affected by the worldwide level of, and trends in, oil and gas drilling
activity, which historically has experienced significant volatility. Demand for
the Company's directional drilling services depends upon the number of wells
being drilled using technologically-advanced directional drilling techniques,
such as directional and horizontal drilling, extended-reach drilling and
short-radius drilling. Demand for the Company's drilling tools depends primarily
upon the number of oil and gas wells being drilled, the drilling method employed
and the depth and drilling conditions of such wells. Demand for the Company's
fishing tools depends primarily upon the level of remedial or "workover"
activity in existing oil and gas fields where those products are offered and, to
a lesser extent, on the level of drilling activity in those areas.

DIRECTIONAL DRILLING SERVICES

The Company began offering directional drilling services in 1984, primarily
along the Texas and Louisiana Gulf Coast, and has since steadily expanded both
its directional drilling technical capabilities and the geographic areas in
which its services are regularly offered. In fiscal 1995, the Company began
providing its drilling services in international markets by expanding into
Venezuela. In fiscal 1996, the Company began providing directional and
horizontal drilling services in the Austin Chalk. The Company plans to continue
the expansion of its drilling services both domestically and internationally. In
addition, the Company expects to keep pace with continually evolving directional
drilling techniques by developing or acquiring extended reach and short-radius
drilling capabilities.

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The skill, experience and reputation of a service company's directional
drillers are the primary competitive factors in the directional drilling
services market. The Company believes that the quality and experience of its
directional drillers provide it with a competitive advantage. The Company
believes that it is able to recruit and retain highly qualified directional
drillers because of its reputation in the industry for stability and quality,
because it offers competitive compensation and because it provides a reliable,
experienced support staff. As of May 17, 1996, the Company employed 76
individuals in connection with its directional drilling services. These
employees include 26 directional drillers, five of whom are located in
Venezuela, with an average of 14 years of industry experience and four years of
service with the Company, and 50 individuals providing support for these
individuals, with an average of 17 years industry experience and three years of
service with the Company.

Measurement-While-Drilling Services

The steering tools utilized by directional drillers typically consist of
either wireline steering tools or more advanced MWD equipment. MWD equipment
provides a directional driller with more extensive and advanced information to
"steer" the drill bit, including inclination, azimuth, tool face and temperature
plus magnetic or gravity tool face updates in steering or rotary drilling modes.
MWD units also can provide gamma ray logging.

The Company purchases its MWD units from a single outside vendor. Reliable
MWD units currently are available for third-party purchase worldwide from only a
few independent suppliers. The Company began purchasing MWD units offering
traditional MWD services from its current supplier and offering such systems and
services to its customers in fiscal 1994. The Company believes that its MWD unit
competes favorably with respect to reliability and performance with MWD units
developed in-house by fully-integrated service companies and the other reliable
MWD unit currently available for third-party purchase. While the Company has not
experienced significant supply or quality control problems to date with its
supplier, no assurances can be made that its supplier will continue to be able
to supply the Company with MWD units or that the Company will be able to
purchase such products and services at competitive prices and comparable quality
from the other known vendor of MWD units. Any difficulty in obtaining MWD units
and related support services from its supplier could have a material adverse
effect on the Company's results of operation.

The most advanced guidance equipment also is capable of providing
logging-while-drilling ("LWD") information, which includes resistivity sensors
and other more sophisticated variations such as density and porosity sensors.
Currently, the Company believes guidance systems capable of providing LWD
information are not available for third-party purchase and are owned only by
large, diversified oil service companies that have developed such capabilities
in-house. The Company has been able to obtain access to LWD equipment on a very
limited basis in situations where the Company's customer can rent such equipment
directly from a supplier of such products. The Company believes that LWD
equipment may be available for purchase in the future and intends to purchase
such equipment if, and when, reliable equipment is offered; however, it has no
current understanding, agreement or contract to do so and no assurances can be
given that LWD equipment will become available for third-party purchase or that
such equipment will be made available to the Company at competitive prices.

As of the date of this Prospectus, the Company believes that its inventory
of MWD units is insufficient to meet current demand for such systems. Utilizing
proceeds from the Offering, the Company intends to purchase additional MWD
systems to be used in domestic and international markets. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".

Drilling Motor

Directional drilling typically is conducted using a downhole drilling motor
attached to the drill bit and powered by the circulation of drilling fluids from
the surface, unlike conventional rotary drilling techniques in which the drill
bit is turned by rotating the drillstring from the surface. The Company
designed, developed and introduced its own downhole motor, the Dailey Positive
Displacement Drilling Motor. Improved versions of

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this motor are offered for rental in connection with directional drilling
services provided by the Company, rather than to third parties providing
directional drilling services.

New Markets and Applications

The Company's growth strategy includes the geographic expansion of its
directional drilling services and the addition of highly-specialized processes
such as extended-reach and short-radius drilling. Implementation of this
strategy began with expansion into Venezuela in fiscal 1995 and into the Austin
Chalk during the most recent fiscal year. Contemporaneously with its entry into
the Austin Chalk, the Company began providing horizontal drilling services. The
Company intends to implement this strategy further by expanding into new
international and domestic markets where the Company has enjoyed established
name recognition and distribution networks.

RENTAL PRODUCTS

Drilling Jars and Related Jar Products

The Company believes it has become the worldwide leader in premium drilling
jar products due primarily to superior design features, many of which are
projectary in nature. These design features, the Company believes, enable its
drilling jars to deliver performance superior to competing jars over longer
periods of time in their intended operating environments.

A drilling jar is an impact tool that is placed in the lower section of a
drillstring as part of the bottomhole assembly. Activated from the surface, the
drilling jar delivers a sharp, powerful impact to free the drillstring should it
become lodged in the hole. The potential risks of the drillstring becoming stuck
in the hole include interruption of the drilling process, loss of drillstring
components and loss of the well. Drilling jars must be capable of reliably
delivering frequent and consistent impacts to the drillstring, sometimes over a
period of many days. As a result, reliability and consistent performance and
service by qualified personnel are key criteria in a customer's selection of
drilling jars.

Drilling jars and jar slingers generally are used in drilling applications
where there is significant risk of, or cost associated with, the bottomhole
assembly of the drillstring becoming stuck in the well bore. As the risk or
potential cost of a stuck drillstring increases, the likelihood that the
operator of the well will employ a drilling jar typically increases. Drilling
applications where drilling jars are regularly used include high cost wells,
wells drilled using directional or horizontal techniques, deeper wells, and
wells penetrating unstable geologic formations that increase the risk of well
bore collapse. Drilling jars generally are considered essential components in
most directional drilling bottomhole assemblies.

The Company's line of drilling jars includes three products: the mechanical
Dailey L.I. Rotary Drilling Jar (the "L.I. Jar"), the Dailey Hydraulic Drilling
Jar (the "Dailey Hydraulic Jar") and the Dailey No-Torque Jar (the "DNT Jar").
The Company believes that the designs of its three drilling jars allow it to
offer a drilling jar compatible with virtually any drilling condition a customer
may encounter. For the three fiscal years ended April 30, 1996, revenues from
the Company's drilling jars and related products constituted 71%, 63% and 57%,
respectively, of the Company's total revenues during such periods.

The Company offers its drilling jars in several outside diameter sizes and
can be incorporated into bottomhole assemblies utilizing most industry-standard
drill collar sizes. The Company also provides customers with computer-aided
analyses of optimal drilling jar placement in the drillstring to maximize
drilling jar performance.

Dailey Hydraulic Jar. Introduced in 1986 in response to the growing use of
directional and horizontal drilling techniques, the Dailey Hydraulic Jar
generally is suited for use in all directional drilling applications. Unlike the
mechanical jars, such as the L.I. Jar, the Dailey Hydraulic Jar does not require
rotation of the drillstring to adjust the force of impact delivered. This
adjustment feature provides more reliable control of the tool in highly deviated
or directionally drilled wells where rotating the drillstring is complicated by
increased torque and drag resulting from greater contact of the drillstring with
the walls of the well bore.

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Hydraulic drilling jars generally are more susceptible to failure caused by
heat than are mechanical drilling jars. Heat reduces the viscosity of internal
hydraulic fluids which diminishes the performance of a hydraulic drilling jar
and, at higher temperatures, may render the tool ineffective. The sources of
heat affecting hydraulic drilling jars are the internal heat generated by the
tool in operation and ambient heat downhole. As a result of its patented design,
the Dailey Hydraulic Jar is capable of operating for substantially longer
periods of time without failure induced by internally generated heat. The
Company believes this and other design features enable the Dailey Hydraulic Jar
to provide more consistent performance than competing hydraulic jars.

L.I. Jar. The Company introduced the L.I. Jar in 1965 and believes that it
was the first mechanical drilling jar utilized on a commercial basis by the oil
and gas industry. Although most commonly employed in conventional, "straight
hole" drilling or in wells where the well bore deviates only slightly from
vertical, the L.I. Jar is also capable of effective operation in highly deviated
drilling applications. The degree of upward or downward force delivered by the
L.I. Jar to the drillstring when triggered can be adjusted from the surface
while the tool remains downhole. The L.I. Jar is a self-cocking (up or down) jar
that trips immediately after applying the required pull or weight. Because of
its entirely mechanical mechanism and rugged construction, the L.I. Jar is known
for its reliability and ability to consistently deliver the desired force of
impact. The L.I. Jar is able to withstand extreme temperatures and can be
adapted for geothermal drilling. Although patent protection for the L.I. Jar
expired in 1983, it continues to be one of the most widely used mechanical
drilling jars in the oil and gas drilling industry worldwide.

DNT Jar. Like the Dailey Hydraulic Jar, the DNT Jar is designed primarily
for use in directional drilling applications. The DNT Jar was introduced in 1987
and is used by customers who prefer a mechanical jar instead of a hydraulic jar.
Although the DNT Jar's impact force cannot be adjusted while downhole as can the
Dailey Hydraulic and L.I. Jars, its mechanism enables it to be reliably and
consistently activated in directionally or horizontally drilled holes where
temperatures are so great that hydraulic drilling jars would fail or be
impaired. The DNT Jar features a patented mechanism that enables an operator to
trigger the tool without affecting drillstring torque. Like all of Dailey's
drilling jars, the DNT Jar is a self-cocking jar that trips immediately after
being triggered.

Hydraulic Fishing Jar and Related Tools

Fishing operations generally are classified as either "open hole" or "cased
hole," including "through tubing" fishing. Open hole operations usually are
associated with drilling and are directed toward removing stuck drilling
equipment, bits, drill pipe or bottomhole assemblies from the well bore in order
to proceed with drilling operations. Cased hole operations usually are
associated with existing wells in which production casing has been set and
cemented. Workover rigs and rigs utilizing coiled tubing routinely are used to
keep the well operating at expected levels of performance. The Company
manufactures a range of sizes of jars used for fishing operations whether
employing a workover rig or coiled tubing rig. During fiscal 1996, the Company
introduced its patented, double-acting, hydraulic coiled tubing jar (the "Dailey
Coiled Tubing Jar"), which was designed and developed through the Company's
research and development program. The Company believes that the Dailey Coiled
Tubing Jar is the only double-acting, hydraulic coiled tubing jar that has been
introduced for commercial operation in the oil and gas industry.

The Dailey Hydraulic Fishing Jar (the "Dailey Fishing Jar"), Dailey Coiled
Tubing Jar, Dailey Bumper Subs and Dailey HyPulse(R) Jar Slingers contain
certain patented and proprietary features. Since fishing jars deliver only an
upward blow when triggered, operators often utilize a bumper sub, which delivers
a downward impact. Operators utilize fishing jar slingers to magnify the impact
of the hydraulic fishing jar. Like the Dailey Hydraulic Jar, the Dailey Fishing
Jar incorporates a patented hydraulic chamber design that reduces
internally-generated heat. The Company believes that this characteristic and
other proprietary designs and manufacturing features make the Dailey Fishing Jar
a reliable product, capable of operating for longer periods of time than
competing hydraulic fishing jars.

As of the date of this Prospectus, the Company believes that its current
inventory of Dailey Fishing Jars and Dailey Coiled Tubing Jars is insufficient
to meet current demand for such products. Utilizing proceeds

26
<PAGE> 29

from the Offering, the Company intends to manufacture additional jars to be used
in international and domestic markets.

Other Products

In connection with its directional drilling services, the Company owns and
leases certain non-proprietary drilling tools that it leases to operators as
components of the bottom hole assembly, such as non-magnetic drill collars and
stabilizers, string stabilizers, near bit stabilizers, various short drill
collars and select heavyweight drill pipe. The Company believes that owning and
leasing an inventory of such products allows the Company to increase the
profitability of its directional drilling services.

MARKETING AND DISTRIBUTION

The Company traditionally has marketed its directional drilling services in
the Gulf of Mexico, the United States Gulf Coast region and Venezuela. During
the past year, the Company began offering its directional drilling services in
the Austin Chalk. Marketing for the Company's directional drilling services is
conducted entirely through the Company's direct sales force located in the
Company's principal offices in Conroe, Texas, and in its district offices
located at Conroe, Texas; Corpus Christi, Texas; Houma, Louisiana and Venezuela.
The Company's sales representatives have extensive experience in directional
drilling and monitor the latest drilling tool developments and drilling
techniques.

The Company typically provides its directional drilling services on a
per-day basis. The Company's directional drillers, at least one of whom is
always present during a directional drilling project, are billed separately to
customers at a per-day rate. The Company's MWD units, downhole motors and
related products, if requested by the customer, are billed to customers at a
per-day rental rate. The Company considers its directional drilling services to
be an integral part of its distribution efforts for its downhole tools.

The Company markets its downhole tools primarily to major oil companies,
independent oil and gas exploration companies, drilling contractors, and
drilling services consultants. In international markets, state-owned oil and gas
companies also are a significant customer group.

Fishing tools generally are sold, or consigned on a long-term basis to
fishing services companies. In order to protect the proprietary nature of its
tools, the Company has made a strategic decision not to sell its fishing tools
to fishing service companies. Rather, the Company rents its fishing tools to the
fishing services companies or directly to the well operator. Although the
Company believes its marketing strategy has allowed it to earn higher margins on
its fishing tools while at the same time reducing the ultimate cost to the
customer, the Company believes that this strategy has limited its ability to
increase market share since fishing service companies generally prefer to
purchase their fishing tools rather than rent from third parties.

Domestic marketing of the Company's downhole tools is conducted by the
Company's direct sales force located in the Company's principal offices in
Conroe, Texas, and in six district sales offices located at Conroe; Corpus
Christi, Texas; Houma, Louisiana; Ada, Oklahoma; Bakersfield, California; and
Anchorage, Alaska. The Company's service representatives are extensively trained
in the basic maintenance and operation of each of its downhole tools. Likewise,
the sales representatives have extensive personal experience in directional
drilling and monitor the latest drilling tool developments and directional
drilling techniques.

International marketing of the Company's downhole tools is conducted
through either the Company's direct sales force or through independent
international agents. Internationally, the Company determines its method of
marketing its downhole tools on a region-by-region and country-by-country basis.
The factors that the Company considers when determining whether to operate
through a direct sales force or through independent agents include political and
economic stability in the country and region, logistics in providing the
Company's downhole tools to the customer, market size, foreign taxes, labor laws
and import and export procedures. In countries where management believes
drilling activity is likely to remain high for a sustained period, the Company
is most likely to market and distribute its rental tools through a direct sales
force rather than through international agents, if practical. In such instances,
the Company leases facilities to accommo-

27
<PAGE> 30

date administrative, marketing, distribution, and tool maintenance functions
similar to its district facilities in the United States.

All pricing and rental terms and conditions of rental are established by
the Company and may not be varied by international agents without approval of
the Company. International agents typically offer other products and services
but are contractually prohibited from offering competing products unless the
Company does not offer the particular tool or size of tool in the agent's
territory.

The Company does not believe that any one customer accounted for more than
10% of the Company's revenues during any of the Company's three most recent
fiscal years.

INTERNATIONAL OPERATIONS

The Company's international operations accounted for approximately 46%, 39%
and 41% of total revenues for each of the three fiscal years ended April 30,
1996, respectively. As of April 30, 1996, the Company had product and equipment
sales or service operations in approximately 32 locations in 26 countries
(including the United States), primarily in Europe, Africa, the Middle East, the
Far East and Canada, and in four states in the United States. The Company's
international operations traditionally have been more stable and profitable than
its domestic operations. See Note 13 of notes to consolidated financial
statements of the Company contained elsewhere in this Prospectus for additional
information regarding foreign and domestic revenues.

The Company currently utilizes 13 international agents responsible for
marketing in approximately 31 countries. International agents also perform
maintenance of the Company's downhole tools in their custody at their own
facilities. International marketing and distribution is organized into four
major regions: Europe and Western Africa, Middle East and Eastern Africa, Asia
and Australia, and Latin America. Each region is further divided into multiple
and sometimes overlapping international agent territories, generally based on
political boundaries. Regional supervisors are assigned by the Company to
oversee international agent operations within each of the Company's four
international regions, particularly with respect to proper maintenance and
redressing of tools and to provide sales support and technical assistance to
customers.

Dailey's international operations are subject to special considerations
inherent in doing business outside the United States, including political
instability, war, civil disturbances and governmental activities, which may
limit or disrupt markets, restrict the movement of funds or result in the
deprivation of contract rights or the taking of property without fair
compensation. Government-owned petroleum companies located in some of the
countries in which Dailey operates have adopted, or are subject to, policies
which mandate that preference be given to companies that are majority-owned by
local nationals.

ARRANGEMENTS WITH CUSTOMERS

The Company typically charges is directional drilling services customers a
per-day rate for each directional driller and MWD technician provided by the
Company. Domestically, the Company separately charges its customers a per-day
rental rate for MWD units and related equipment utilized by the customer.
Downhole drilling motors provided by the Company are billed based upon an hourly
rate.

The Company's international directional drilling operations currently are
limited to Venezuela. The Company charges for its services based upon a per-well
basis, which charge includes an estimate of the number of days the Company's
directional drillers and MWD technicians will be on-site as well as an estimate
of the MWD equipment and related tools that will be utilized in drilling the
applicable well. In situations where the Company is subcontracting its services
to another directional drilling company it receives a per day charge for its
services, in some cases subject to a maximum possible charge.

The Company chooses to offer its downhole tools primarily for rental in
order to protect its proprietary designs and assure quality control in their
maintenance and operation. The Company believes that a substantial portion of
the drilling jars in use worldwide are rented rather than purchased by the
end-user.

28
<PAGE> 31

The Company typically rents its drilling tools by the day on a per-rig
basis. Because many customers prefer to have additional or substitute tools of
varying sizes on site, the Company classifies its drilling tools as either
"operational" or "standby" for purposes of calculating rental charges. Daily
rental rates for standby tools generally are less than standard rates for
operational tools, although in some international markets the same daily rent is
charged for operational and standby tools. In some domestic market areas, the
Company supplies standby tools at no additional charge.

In international markets, the Company generally receives a standard
inspection charge for drilling tools actually used and returned. Additional
charges are assessed for parts damaged beyond normal wear. A substantial
replacement or "lost-in-hole" charge is made for tools that are lost or
abandoned. Rental rates for operational and standby tools, damage charges and
lost-in-hole charges vary by product, domestic or international location, and
local competitive conditions. Longer-term tool rental contracts are negotiated,
particularly with major oil companies or with operators drilling a multiple well
program.

The Company occasionally offers its L.I. Jar and spare parts for sale in
certain international markets. Sales are generally confined to national oil
companies of countries where political risks, governmental restrictions, or
other operating conditions are such that the Company has chosen not to establish
rental operations, either directly or through agents.

MANUFACTURING

The manufacturing processes generally required to produce the Company's
downhole tools are machining, fabrication, assembly of components manufactured
by the Company or outside suppliers, and quality control testing. The Company's
downhole tools are primarily manufactured from bars and tubes of high grade
alloy and stainless steel made to the Company's proprietary metallurgical
specifications and various seal materials. While the Company chooses to purchase
some raw materials from single vendors, management believes that the raw
materials used in its tools are generally available from multiple sources at
competitive prices.

Prior to fiscal 1994, the majority of the component parts for the Company's
downhole tools were manufactured by Company personnel at locations owned or
leased by the Company, while only certain specialized manufacturing operations
were outsourced to third parties. Beginning in 1991, the Company made a
strategic decision to increase the proportion of the components of its various
downhole tools that were manufactured by outside third parties; however,
assembly of the Company's downhole tools is still done entirely in-house.
Pursuant to this strategy, the Company attempts to outsource those manufacturing
processes that can be performed more efficiently and cost effectively by outside
third parties while still satisfying Dailey's rigid quality control standards.
In order to safeguard the proprietary nature of its various downhole tools, the
Company does not outsource the manufacture of proprietary components and
maintains a policy of manufacturing at least one aspect of each of its downhole
tools in-house. The Company believes that its manufacturing capabilities and
arrangements are sufficient in order to meet the demand and timing needs of the
Company's customers for the next 12 months. Machining of larger components and
spare parts, including the most complex components, is done by the Company at
its manufacturing plant in Conroe, Texas. The Company uses independent machine
shops to produce many of the smaller spare parts, which the Company believes can
be more competitively machined by such independent shops.

Quality control is stressed throughout the manufacturing process to produce
downhole tools meeting the Company's high standards for reliability and
performance. Quality control inspections are conducted by specially trained
personnel. Steel bars and tubes are inspected and tested for compliance with the
Company's metallurgical specifications. Each part, whether produced by the
Company or others, is individually inspected for conformity with design
specifications. Each critical component is also inspected for cracking by
magnetic particle inspection. Upon final assembly, drilling and fishing jars are
repeatedly triggered in specially designed test racks to assure proper
performance before shipment.

All of the Company's tools except the Company's drilling motors are
currently assembled at its plant in Conroe, Texas. Drilling motors are assembled
at the Company's Houston, Texas facilities. The Company believes that it has
sufficient manufacturing capacity to accommodate anticipated demand for its
tools without

29
<PAGE> 32

expanding its manufacturing facilities in the United States. Increased use of
third parties to manufacture certain components of its newer products and
commencement of replacement part and tool manufacture in the United Kingdom are
expected to increase the Company's manufacturing capacity.

MAINTENANCE

Maintenance of the Company's downhole tools is conducted in the United
States at six of the Company's district facilities, each of which is specially
equipped for that purpose. In the United Kingdom, Colombia and Venezuela,
maintenance is conducted by Company personnel, and elsewhere by the Company's
international agents who are subject to periodic quality control inspection and
supervision by Company personnel. The Company's emphasis on quality control is
also applied to maintenance of its downhole tools. Upon return to the Company's
district service and distribution facility, each tool is activated repeatedly in
a test rack to detect performance deficiencies. The tool is then disassembled,
metallic parts are inspected, non-metallic parts are replaced as needed, and
moving parts are examined for excessive wear. The tool is then reassembled,
painted "Dailey blue", the characteristic blue color associated with Dailey
products, and returned to the rental fleet.

RAW MATERIALS

The manufacturing processes performed in house by the Company require a
ready supply of special alloy steel and other raw materials. The Company
purchases its raw materials from various vendors, none of which supplied more
than 30% of the Company's supply of steel during fiscal year 1996. Although the
Company typically places orders for its steel at least three months in advance
and usually stores with a third party a reserve supply of steel adequate to
cover the Company's demand for steel for at least one month, any prolonged
disruption in steel supply could affect the Company's ability to meet production
schedules and commitments, which could have a material adverse effect on the
Company's financial condition and results of operations.

INTELLECTUAL PROPERTY

The Company believes that the proprietary aspects of many of its downhole
tools provide it with certain competitive advantages. In particular, the Company
believes that the trademarks and servicemarks protecting the Dailey name in
domestic and international markets is of primary importance. The Company relies
on a combination of patents, trade secrets, trademarks and servicemarks and
copyrights to protect its proprietary technologies and intellectual properties.
Dailey owns numerous patents in the United States and other countries.

The markets for the Company's downhole tools are characterized by continual
technological developments that have resulted in, and will likely continue to
result in, improvements in product function and performance. The Company
believes that its success will depend on its ability to respond to technological
developments on a timely basis, either internally or through strategic alliances
or acquisitions. Current competitors or new market entrants may develop new
technologies, products, services or standards that could render the Company's
products and services obsolete. Furthermore, after Dailey's patents expire, the
Company's competitors could develop products substantially similar to the
Company's downhole tools. In this regard, the Company maintains an engineering
staff on-site, which is responsible for designing and developing new products
and improvements to existing products.

The Company holds approximately 22 patents in the United States and
numerous counterparts in other countries and has approximately 46 trademarks and
servicemarks registered in the United States and other countries. Patents
protect features of the Dailey Hydraulic Jar, Dailey Fishing Jar, DNT Jar,
R.A.M. Shock Absorber and Dailey Drilling Motor. The L.I. Jar has not been
protected by patent since 1983. Certain features of other products offered by
the Company have been granted United States and foreign national patent
protection, or have patent applications pending. Many of the Company's
competitors also have obtained or applied for patent protection for competing
products offered by them. There is no assurance that the Company's patents will
prove enforceable, that any patents will be issued for which the Company has
made

30
<PAGE> 33

application or that competitors will not be able to develop functionally similar
downhole tools not violating any patents the Company has or may obtain.

The Company regards its patents, trademarks and servicemarks, know-how and
proprietary information to be of significant value and vigorously protects its
intellectual property rights, by litigation if necessary. The Company also
believes that its engineering, manufacturing, and technical knowledge and
experience are important to its competitive position. Although the Company does
not consider its business to be wholly dependent on any single patent or
trademark, the loss of patent protection for the Dailey Hydraulic Jar or Dailey
Hydraulic Fishing Jar could have a material adverse effect on the Company.

RESEARCH AND DEVELOPMENT

The Company conducts its research and development ("R&D") activities
through its engineering department and believes that its engineering facilities
in Conroe, Texas are fully equipped to enable the Company to take a new product
from design through the evaluation and prototype manufacturing stages. The
Company's engineering department employs approximately ten individuals,
including four design engineers, three draftsmen and one senior project
coordinator. The Company's design engineers have an average of 21 years industry
experience and have been employed by the Company for an average of seven years.
The Company's R&D expenditures during the three fiscal years ended April 30,
1996, were $736,000, $775,000 and $728,000, respectively, and it has budgeted
$1.0 million for fiscal 1997 expenditures.

The Company's engineering department works closely with its marketing
department and personnel when developing and evaluating new downhole tools and
enhancements to existing downhole tools. The Company believes its direct
interaction with its customers has enhanced Dailey's ability to identify and
determine demand for new products and improved products. Potential ideas and
concepts are most often introduced to the engineering department by the
Company's marketing personnel based upon requests from and needs of the
Company's customers.

In connection with its R&D efforts, the Company recently introduced its
newest downhole tool, the Dailey Coiled Tubing Jar, which the Company believes
is the only double-acting, hydraulic coiled tubing jar that has been introduced
for commercial operation in the oil and gas industry. The Company has applied
for patents covering certain features of its hydraulic coiled tubing jar.

OPERATING RISKS AND INSURANCE

The operations of the Company's customers are subject to hazards inherent
in the oil and gas industry, such as blowouts, explosions, craterings, fires and
oil spills, that can cause personal injury or loss of life, damage to or
destruction of property, equipment, the environment and marine life, and
suspension of operations. In addition, claims for loss of oil and gas production
and damage to formations can occur in the workover process. If a serious
accident were to occur where the Company's downhole tools are used or its
directional drilling services are being provided could result in the Company
being named as a defendant in lawsuits asserting potentially large claims.

As protection against operating hazards, the Company maintains insurance
coverage that it believes to be customary in the industry against these hazards,
and whenever possible, obtains agreements from customers providing for
indemnification against liability. The Company maintains general liability
insurance in the primary amount of $1.0 million, policies to cover its
buildings, equipment and other property with aggregate coverage limits of $27.7
million, as well as worker's compensation, auto, crime and political risk
insurance. The Company also is insured under an umbrella liability policy with a
coverage limits of $5.0 million in the aggregate. Most of the Company's policies
provide for coverage on a per-occurrence basis, rather than a claim basis. The
Company's policies generally exclude coverage for losses and liabilities
relating to environmental damage or pollution, breach of contract or fraud or
deceptive practices. The Company does not maintain professional liability
insurance.

Although historically the Company's insurance coverage has greatly exceeded
the amount of its claims, and management believes that the Company's insurance
coverage is adequate for its present operations, a

31
<PAGE> 34

successful liability claim for which the Company is underinsured or uninsured
could have a material adverse effect on the Company. The Company often is
required to indemnify major customers pursuant to master service agreements.

COMPETITION

In directional drilling services, the Company believes that the principal
competitive factor is availability of qualified experienced directional drilling
personnel, particularly personnel with whom the customer has had satisfactory
experience, and to a lesser extent, price and technology. The Company believes
that it is able to recruit and retain highly-qualified directional drillers
because of its reputation in the industry for stability and quality and because
it offers competitive wages and a reliable, experienced support staff. The
Company believes its directional drilling personnel have excellent
qualifications and experience, and is seeking additional personnel to enhance
its competitive position in the directional drilling services industry. The
Company believes that its competition in the directional drilling services
industry is comprised of fully-integrated service companies such as
Anadrill/Schlumberger, Baker-INTEQ, Halliburton Energy Services and Sperry-Sun,
and smaller, independent companies that offer only directional drilling services
or only a limited line of additional products and services. The Company believes
that its ability to recruit and retain highly qualified directional drillers,
and in turn, offer its customers more personalized, high quality service, allows
it to compete favorably with the larger fully-integrated service companies with
respect to customers that emphasize service and quality over price. The Company
believes that the primary competitive advantages of the fully-integrated service
companies are their ability to offer lower prices in certain areas and to offer
certain technology, such as LWD services, which smaller directional drilling
service companies, such as Dailey, currently do not offer.

The Company believes its primary competitive advantages with respect to
downhole tools are the dependability and performance characteristics of its
drilling tools that the Company believes has resulted in worldwide recognition
of the Dailey name, proprietary designs for many of its principal drilling
tools, its ability to design, develop and market new and complementary products
and services and its knowledgeable sales and technical service personnel. The
Company does not generally emphasize price as a competitive feature of its
drilling tools. All of the Company's downhole tools are offered in highly
competitive markets in which many of the Company's competitors are divisions or
subsidiaries of much larger and better capitalized corporations. Many of these
competitors offer broader lines of drilling products and services with larger
and broader distribution networks than does the Company. In addition, the
Company competes with numerous smaller suppliers of specialty drilling and
fishing tools. The principal competitive factors affecting the Company's
drilling tools are reliability and performance, availability of appropriate
tools, technical support and price.

The Company competes with manufacturers and owners of drilling tools. These
competitors include Houston Engineers, a subsidiary of Wilson Industries, Inc.,
Weir-Houston, Baker Hughes, Bowen, Weatherford Enterra, Inc. and Griffith Tool
Company, a subsidiary of Dreco Energy Services Limited. The Company has
experienced some loss of drilling jar market share in certain international
markets over the past several years due to increasing price competition.

The Company's three principal competitors with respect to fishing tools are
Anadrill/Schlumberger, Bowen and Houston Engineers. Management expects
competition and customer price pressures to continue for the foreseeable future
with respect to its downhole tools and its directional drilling services.

EMPLOYEES

At April 30, 1996, the Company had 313 employees, of which 47 persons were
employed in domestic sales and marketing, nine in foreign sales and marketing,
12 in engineering and research and development, 100 in administrative and
clerical capacities, 32 in manufacturing, 58 in tool maintenance and 55 in
directional drilling. Approximately 84% of the Company's employees are located
in the United States. The Company considers its employee relations to be
excellent. The Company has no collective bargaining agreements.

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<PAGE> 35

REGULATION

Various federal, state and local laws and regulations covering the release
of materials into the environment, or otherwise relating to the protection of
the public health and the environment, affect the Company's and its customers'
domestic operations, expenses and costs. The trend in environmental regulation
has been to place more restrictions and limitations on activities that may
impact the environment, such as emissions of pollutants, generation and disposal
of wastes, and use and handling of chemical substances. Increasingly strict
environmental restrictions and limitations, as well as the obligation to
remediate existing contamination, have resulted in increased operating costs for
the Company and other similar businesses throughout the United States, and it is
possible that the costs of compliance with environmental laws and regulations
will continue to increase, both for the Company and its customers. In this
regard, the Resource Conservation and Recovery Act ("RCRA"), a federal statute
governing the disposal of solid and hazardous wastes, includes a statutory
exemption that allows oil and gas exploration and production wastes to be
classified as non-hazardous waste. A similar exemption is contained in many of
the state counterparts to RCRA. If oil and gas exploration and production wastes
were required to be managed and disposed of as hazardous waste, either as a
result of change in RCRA or the imposition of more stringent state regulations,
domestic oil and gas producers, including many of the Company's customers, could
be required to incur substantial obligations with respect to such wastes.
Because of the potential impact on the Company's customers, any regulatory
changes that impose additional restrictions or requirements on the disposal of
oil and gas wastes could adversely affect demand for the Company's products and
services. In addition, the Company is subject to laws and regulations concerning
occupational health and safety. The Company's international operations also are
subject to international laws respecting environmental and worker safety matters
in the countries in which they operate. The Company believes that it is in
compliance with the requirements of environmental and occupational health and
safety laws and regulations, but inasmuch as such laws and regulations are
frequently changed, the Company is unable to predict the ultimate impact of such
laws and regulations on the Company's business. Any violation of such laws could
subject the Company to fines, penalties or other liabilities.

Capital expenditures for property, plant and equipment for environmental
control facilities during fiscal 1996 were not material. Based on the Company's
experience to date, the Company currently does not anticipate any material
adverse effect on its results of operations or financial condition as a result
of future compliance with existing environmental laws and regulations
controlling the discharge of materials into the environment. However, future
events, such as changes in existing laws and regulations or their
interpretation, more vigorous enforcement policies of regulatory agencies, or
stricter or different interpretations of existing laws and regulations, may
require additional expenditures by the Company, which may be material.

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<PAGE> 36

PROPERTIES

The following table summarizes the Company's significant owned and leased
properties as of April 30, 1996:

<TABLE>
<CAPTION>
LOCATION OF FACILITY PROPERTY INTEREST USE
----------------------------------------- ------------------ ----------------------------
<S> <C> <C>
Aberdeen, Scotland....................... Leased General Office,
General Maintenance
Anchorage, Alaska........................ Owned General Office Storage
Bakersfield, California.................. Leased General Office Storage
Bogota, Columbia......................... Leased General Office,
General Maintenance
Anaco, Venezuela......................... Leased General Office,
General Maintenance
Cabimas, Venezuela....................... Leased General Office,
General Maintenance
Conroe, Texas............................ Leased(1) Corporate Offices,
Manufacture, General
Maintenance, Service, R&D
Corpus Christi, Texas.................... Owned General Office,
General Maintenance
Houma, Louisiana......................... Owned General Office,
General Maintenance
Houston, Texas........................... Owned Directional Drilling Plant,
General Office,
General Maintenance
Lafayette, Louisiana..................... Owned General Office,
General Maintenance
</TABLE>

- ---------------

(1) Leased from an affiliate of Lawrence. See "Certain Relationships and Related
Transactions".

The Company considers all of its facilities to be in good operating
condition and adequate for their present uses. The Company believes that it has
sufficient manufacturing, maintenance, service and storage capacity to meet its
current and anticipated requirements. The Company also utilizes properties
provided by its international agents, which the Company currently does not
lease.

LEGAL PROCEEDINGS

The Company is not a party to, nor is any of its property the subject of,
any pending legal proceedings, other than ordinary routine litigation incidental
to its business, including litigation relating to the Company's intellectual
property, and which is believed to be either covered by insurance or not
material in amount.

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<PAGE> 37

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

In connection with the Offering, the Board of Directors of the Company will
be expanded to six positions. The Company's Certificate of Incorporation
provides for the classification of the Board of Directors into three classes of
directors, with the term of each class expiring at successive annual
stockholders' meetings. At and after the 1997 annual meeting of stockholders,
all nominees of the class standing for election will be elected for three-year
terms. It is intended that the directors named below will constitute the Board
of Directors of the Company at the time of the closing of the Offering.

Set forth below is the name, age as of May 24, 1996, and position of each
of the directors, executive officers and other significant employees of the
Company as they will exist at the closing of the Offering, and, with respect to
each director, the year of expiration of his initial term of office. The Company
intends to add two additional outside directors as soon as possible after the
Offering, who it is expected to be a member of the Audit and Compensation
Committees.

<TABLE>
<CAPTION>
YEAR TERM
AS DIRECTOR
NAME AGE POSITION WILL EXPIRE
- ----------------------------------- --- ----------------------------------- -----------
<S> <C> <C> <C>
J. D. Lawrence..................... 50 Chairman of the Board of Directors 1999
James F. Farr(1)(2)................ 39 President, Chief Executive Officer 1999
and Director
William D. Sutton(1)(2)............ 42 Senior Vice President, General 1998
Counsel, Secretary and Director
David T. Tighe(2).................. 44 Senior Vice President -- Finance, 1998
Chief Financial Officer, Treasurer
and Director
John E. Blacklaws.................. 39 President -- Production Services
Dwight A. Goolsbay................. 35 Vice President -- MWD Services
Cecil W. Harvey.................... 59 President -- Directional Drilling
Gary P. Hertfelder................. 41 Vice President -- Engineering/R&D
Martin Lyons....................... 46 Senior Vice
President -- Directional Drilling
and Marketing
James G. Matlock................... 52 President -- Dailey Oil Tools
James J. Orr....................... 53 Vice President -- Domestic
Directional Drilling and Marketing
</TABLE>

- ---------------

(1) Member of the Audit Committee of the Board of Directors.

(2) Member of the Executive Committee of the Board of Directors.

(3) Member of the Compensation Committee of the Board of Directors.

(4) To be elected as a director (and committee member as indicated above)
immediately prior to the closing of the Offering.

All officers of the Company are elected by the Board of Directors of the
Company and hold office until the earlier of their resignation, removal or other
termination. All of the executive officers listed above will enter into
employment agreements with the Company prior to closing of the Offering pursuant
to which they hold their current positions. See "-- Employment Agreements".

J. D. Lawrence has been a director of the Company since 1973, and Chairman
of the Board of Directors since June 1989. He has been employed by the Company
since 1968, serving as its President from 1982 to

35
<PAGE> 38

1989 and as a Vice President from 1973 to 1982. Mr. Lawrence is Chairman of the
Board of Directors, President and the sole director of Lawrence.

James F. Farr has been President of the Company since December 1990, its
Chief Executive Officer since August 1991, and a director of the Company since
September 1991. As International Manager from October 1989 to December 1990, he
was responsible for all international activities, including the marketing,
distribution and sale of the Company's products and services, and developing and
maintaining the Company's relationships with its agents. From August 1988 to
October 1989, Mr. Farr served as Managing Director of Dailey International,
Inc., the Company's wholly-owned subsidiary, and as Region Manager for Europe
and West Africa, with responsibility for the Company's facilities in the United
Kingdom as well as marketing operations in Europe and West Africa. From 1975 to
August 1988, he served the Company in various managerial, marketing and
operating capacities.

William D. Sutton has been Senior Vice President, General Counsel and
Secretary since 1984, and a director of the Company since September 1991. He has
served as the Company's Secretary and General Counsel since 1980. He also served
as a director of the Company from 1979 to 1990, and as a Vice President from
1982 to 1984. Prior to joining the Company in 1979, Mr. Sutton was an attorney
in private practice.

David T. Tighe has been Senior Vice President -- Finance and Treasurer of
the Company since May 1988. He become a director of the Company in September
1991. Mr. Tighe also served as a director of the Company from 1984 to 1990. From
1985 to April 1988, he served as Corporate Controller. From 1984 to 1985, he was
the Company's Assistant Controller. Prior to joining the Company in 1984, Mr.
Tighe, a certified public accountant, was Controller of Carolina International,
Inc. from 1982 to 1984 and Tandem Industries, Inc. from 1980 to 1982.

John E. Blacklaws has been President of the Company's Production Services
Division since September 1994, with responsibility for the Company's
manufacturing, engineering, domestic field repairs, and management of inventory.
From November 1990 to September 1994, he was Vice President for the
manufacturing and production division in Houston, Texas. From March 1989 to
November 1990, he was Manager of Manufacturing Technical Services with quality
control responsibilities at the Company's Houston facility and in the field.

Dwight A. Goolsbay has been Vice President -- MWD Services since May 1996.
As an MWD Product Manager between December 1993 and May 1996, he was responsible
for managing Dailey's entry into the domestic and international MWD services
business. From October 1990 to December 1993, he was a drilling motor product
engineer and assisted with development and expansion of the drilling motor
product line. Prior to joining the Company in 1990, Mr. Goolsbay was the
Oklahoma City District Manager for Halliburton Drilling Systems, Inc. -- MWD
Division. From 1985 to 1987, he was U.S. Operations Coordinator for Drilex
Systems, Inc. in Houston, Texas.

Cecil W. Harvey has been President of Dailey Drilling Systems since
December 1993 and General Manager of Dailey Directional from December 1990 to
December 1993. From May 1989 to December 1990, he was Vice
President -- Marketing with responsibility for the Company's domestic and
international downhole tool marketing, rental, sale, distribution and service
operations. From July 1987 to May 1989, he was Vice President of Dailey
Directional. From 1985 to July 1987, he was District Manager for the Company's
Lafayette, Louisiana directional drilling operations. From 1983 to 1985, Mr.
Harvey was the United States Operations Manager of AMF Scientific Drilling
Control in Houston, Texas with responsibilities for its directional drilling,
steering tool and survey operations.

Gary P. Hertfelder was named Vice President Engineering/R&D in December
1994. From February 1994 to December 1994, he served the Company as Vice
President Engineering/Operations of environmental remediation technology
division which focused on applying oil and gas industry technologies, including
horizontal drilling techniques, for remediation of petroleum contaminated sites.
As Special Projects Manager, from May 1993 to February 1994, he was responsible
for identifying new products and technologies. From November 1992 to May 1993,
he was Marketing Manager responsible for development of marketing strategies. As
International Technical Manager, from November 1991 to November 1992, he was
responsible

36
<PAGE> 39

for worldwide customer technical support concerning Company products and
services. He joined the Company in November 1987 as Technical Services Engineer
and served in this capacity to November 1991. Prior to joining Dailey, Mr.
Hertfelder was employed by several oil and gas exploration companies including
Union Oil Company of California, Grace Petroleum Company and Collet Oil
Ventures, Inc., in various drilling and production engineering capacities. Mr.
Hertfelder is a Registered Petroleum Engineer in Texas.

Martin Lyons was named Senior Vice President Directional Drilling &
Marketing in May 1996. From December 1993 through May 1996, he served as Vice
President Directional Drilling, responsible for management of all the Company's
domestic directional drilling sales and operations. His duties during this time
period also included operations and capital budgeting for all domestic
directional drilling operations. During the time period of August 1990 to
December 1993 he functioned as Western Division Manager and was responsible for
the Gulf Coast directional drilling and sales operations west of the Sabine
River. From August of 1989 to August of 1990 Mr. Lyons was a Senior Technical
Sales Representative in the Houston, Texas market. Prior to joining Dailey, Mr.
Lyons was employed by Helmer Directional Drilling, Inc. were he held the
positions of Office Manager and Directional Drilling Supervisor.

James G. Matlock has been President of Dailey Oil Tools since September
1994. From February 1994 to September 1994, he was Vice President Operations,
Corporate Offices, Conroe, Texas, responsible for all Dailey Oil Tools
operations, both domestic and international. From July 1993 to January 1994, he
was International Operations Manager, Corporate offices, Conroe, Texas,
responsible for all phases of international operations. From May 1992 to July
1993, he was Eastern Hemisphere Manager, stationed in Aberdeen, responsible for
all countries in Europe, Middle East, West Africa and the Far East. From October
1989 to April 1992, he was Regional Manager Europe/West Africa, stationed in
Aberdeen. From March 1988 to September 1989, he was Regional Manager, Middle
East. Prior to joining Dailey, he was International Operations Manager from 1973
to September 1989 at various locations for Dresser Industries and Hughes Tool
Co.

James J. Orr has been Vice President -- Domestic Directional Drilling and
Marketing since May 1996, and Vice President -- Drilling Motors and MWD Services
since December 1993 and was responsible for managing Dailey's entry into the
domestic and international drilling motor and MWD business. From November 1989
to December 1993, he was Drilling Motor Development Manager assisting in the
design, development and expansion of the drilling motor product line. Prior to
joining Dailey in 1989, Mr. Orr was Gulf Coast Regional Manager for Drilex
Systems, Inc., responsible for sales and operations from 1986 to 1989. From 1983
to 1986 he was Senior Technical Sales and Operations Representative for the
Hughes Tool Company's Drilling Motor Program.

COMMITTEES

Pursuant to the Company's Bylaws, the Board has established standing Audit,
Compensation and Executive Committees. The Audit Committee recommends to the
Board the selection and discharge of the Company's independent auditors, reviews
the professional services performed by the auditors, the plan and results of the
auditing engagement and the amount of fees charged for audit services performed
by the auditors, and evaluates the Company's system of internal accounting
controls. The Compensation Committee recommends to the Board the compensation to
be paid to the Company's directors, executive officers and key employees and
administers the compensation plans for the Company's executive officers. The
Executive Committee acts on behalf of the Board between regularly scheduled
meetings of the Board.

37
<PAGE> 40

COMPENSATION OF DIRECTORS

Employee Directors of the Company do not receive any additional
compensation for their services as a director of the Company. The Company
intends to pay an annual retainer of $15,000 to each non-employee director. In
addition, each non-employee director will receive $1,000 for each Board of
Directors meeting attended and $750 for each committee meeting attended. The
Company will also pay reasonable out-of-pocket expenses incurred by non-employee
directors to attend Board of Directors and committee meetings. Non-employee
directors also will be entitled to receive options pursuant to the Company's
1996 Non-Employee Director Stock Plan. See "-- 1996 Non-Employee Director Stock
Option Plan".

COMPENSATION OF EXECUTIVE OFFICERS

The Company did not have a compensation committee prior to the Offering.
During fiscal 1996, compensation levels were determined by the Company's Board
of Directors, each of the members of which are officers of the Company. The
following Summary Compensation Table sets forth information with respect to the
President and Chief Executive Officer of the Company and the other four most
highly compensated officers of the Company for the three fiscal years ended
April 30, 1996:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
APRIL 30, 1996
ANNUAL COMPENSATION
------------------------------------
OTHER
ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION(2)
- ----------------------------------------- -------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
J. D. Lawrence........................... $444,798 $109,920 $86,255(3) $ 2,326
Chairman of the Board
James F. Farr............................ 266,652 55,500 -- 571
President and Chief Executive Officer
Cecil W. Harvey.......................... 112,441 19,520 -- 3,906
Vice President-Directional Drilling
William D. Sutton........................ 239,653 55,260 -- 824
Senior Vice President, General Counsel
and Secretary
David T. Tighe........................... 165,289 54,960 -- 901
Senior Vice President-Finance, Chief
Financial Officer and Treasurer
</TABLE>

- ---------------

(1) Amounts exclude the value of perquisites and personal benefits because the
aggregate amount thereof did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus reported for each Executive Officer.

(2) Represents payments for premiums for group term life insurance on behalf of
such individual.

(3) Represents (i) payments of $69,722 relating to expenses incurred in
chartering a corporate aircraft on behalf of Mr. Lawrence, which costs were
reimbursed to the Company by Lawrence Industries, Inc. on behalf of the
employee and (ii) $16,533 relating to lease payments for a company
automobile.

EMPLOYMENT AGREEMENTS

Each of Messrs. Lawrence, Farr, Sutton and Tighe (collectively, the
"Executive Employees") have entered into an employment agreement (collectively,
the "Executive Employment Agreements") with the Company. Each of the Executive
Employment Agreements has an initial term through April 30, 1999. The Executive
Employment Agreements provide for a minimum annual salary during the term of the
Executive Employment Agreements of approximately $100,000, $240,000, $228,000
and $180,000 for Messrs. Lawrence, Farr, Sutton and Tighe, respectively. The
Executive Employment Agreements also provide for the grant of

38
<PAGE> 41

120,000 shares of restricted Class A Common Stock to each of Messrs. Farr,
Sutton and Tighe, and the grant of options to each of the same individuals to
purchase 71,712 additional shares, at the closing of the Offering. Such
restricted stock and options vest over a period of three years. See "-- 1996 Key
Employee Stock Plan." The Executive Employment Agreements also provide for
certain automobile allowances, employee benefits, vacation and reimbursement of
expenses.

The Executive Employment Agreements may be terminated (i) by the Company
with or without cause (as hereinafter defined); (ii) by the Executive Employee's
resignation; (iii) upon the death of the Executive Employee or (iv) upon the
disability of the Executive Employee. Under the Executive Employment Agreements,
"cause" is defined to mean any of the following events: (i) an act or acts of
personal dishonesty taken by the Executive Employee and intended to result in
substantial personal enrichment of the Executive Employee at the expense of the
Company; (ii) repeated violations by the Executive Employee of his obligations
under the Executive Employment Agreement that are demonstrably willful on the
Executive Employee's part, and for which the Executive Employee has received
more than one written warning that specifies each of the Executive Employee's
violations; and (iii) the conviction of the Executive Employee of a felony.

If the Company terminates the Executive Employment Agreement for any reason
other than for "cause" and such termination is not within one year of a Change
in Control (as hereinafter defined), the Company is required to pay to the
Executive Employee an amount equal to the greater of (1) his total Base Salary
(as defined in the Executive Employment Agreement) for the remainder of the
Employment Period (as defined in the Executive Employment Agreement) or (2) the
greater of (a) three months of his Base Salary or (b) one month of Base Salary
for each full year of service completed with the Company as of the date of
termination. If the Company terminates the Executive Employment Agreement for
any reason other than for "cause" and such termination occurs within one year of
a change in control, or if the Executive Employee terminates the Agreement for
Good Cause (as defined in the Executive Employment Agreement) and such
termination occurs within one year of a Change in Control, the Company is
required to pay to the Executive Employee an amount equal to the greater of (1)
his total Base Salary for the remainder of the Employment Period, (2) two times
the greater of (a) his annualized Base Salary in effect upon the occurrence of
the Change in Control and (b) his annualized Base Salary in effect on the date
notice of termination is received, and (3) one month of Base Salary for each
full year of service completed with the Company as of the date of termination.
Under the Executive Employment Agreements, a Change in Control occurs when (i)
any person (other than those persons who own more than 10% of the combined
voting power of the Company's outstanding securities on the date of the
Executive Employment Agreements) becomes the beneficial owner, directly or
indirectly, of 30% or more of the combined voting power of the Company's then
outstanding voting securities, or (ii) individuals who at the beginning of any
period of two consecutive years constitute the Company's Board of Directors
cease for any reason to constitute a majority of such Board of Directors at any
time during such two-year period.

Each Executive Employee has agreed that for the term of his Executive
Employment Agreement and (i) perpetually after termination for whatever reason,
he will not, directly or indirectly, disclose confidential information and (ii)
for a period of two years following termination for whatever reason, he will not
participate in any business in any geographic region in which the Company
conducts business that is in competition with the Company or employ any of the
Company's employees, induce any of the Company's employees to leave their
employment or in any way interfere with the employee relations of the Company.

It is expected that each of Messrs. Blacklaws, Goolsbay, Harvey,
Hertfelder, Lyons, Matlock and Orr will enter into an employment agreement with
the Company prior to the closing of the Offering providing for an initial term
through April 30, 1999. Such employment agreements are substantially similar to
the Executive Employee Agreements with respect to non-competition and
confidentiality. The agreements provide for initial grants of stock options to
purchase 17,999 shares of Class A Common Stock pursuant to the 1996 Plan, which
will vest on the first, second and third anniversary of the date of such grants
in 33.3% increments. The agreements do not have provisions regarding Changes in
Control.

39
<PAGE> 42

1996 KEY EMPLOYEE STOCK PLAN

The Company has established a stock option and restricted stock plan, the
Dailey Petroleum Services Corp. 1996 Key Employee Stock Plan (the "1996 Plan"),
pursuant to which incentive and non-qualified options to purchase shares of
Class A Common Stock and awards of restricted shares of Class A Common Stock
will be available for future grants.

The 1996 Plan is designed to provide certain key employees, including
officers and employee-directors of the Company, with additional incentives to
promote the success of the Company's business and to enhance the Company's
ability to attract and retain the services of qualified persons. The 1996 Plan
will be administered by the Compensation Committee or such other committee of no
less than two persons (the "Committee") appointed by the Board of Directors.
Committee members may not be employees of the Company and must not have been
eligible to participate under the 1996 Plan for a period of at least one year
prior to being appointed to the Committee. Under the Plan, options to purchase
Class A Common Stock and restricted stock awards up to an aggregate of 900,000
shares of Class A Common Stock may be granted by the Committee. The maximum
number of shares subject to options that may be issued to, and the maximum
number shares subject to restricted stock awards that may be granted to, any
employee during any year is and shares, respectively. The
exercise price of an option granted pursuant to the 1996 Plan may not be less
than the fair market value of the Class A Common Stock on the date of grant. In
the case of a grant of an option designated as an "Incentive Option" to an
employee who owns more than ten percent of the total combined voting power of
all classes of Common Stock (a "10% Stockholder"), the exercise price of each
such option under the 1996 Plan may not be less than 110% of the fair market
value of the Class A Common Stock on the date of the grant. No option may be
granted under the 1996 Plan with a duration of more than ten years. In the case
of a 10% Stockholder, no option designated as an "Incentive Option" may be
granted with a duration of more than five years. Options designated as
"Incentive Options" under the 1996 Plan may be treated as such only to the
extent that the aggregate fair market value of the stock with respect to which
options are exercisable for the first time by the option holder in any calendar
year, under the 1996 Plan or any other incentive stock option plan of the
Company, does not exceed $100,000 valued as of the date of grant. Under the 1996
Plan, the Committee may issue shares of restricted stock to employees for no
payment by the employee or for a payment below the fair market value on the date
of grant. The restricted stock is subject to certain restrictions described in
the 1996 Plan, with no restrictions continuing for more than ten years from the
date of the award. The 1996 Plan may be amended by the Board of Directors
without any requirement of stockholder approval, except as required by Rule
16b-3 under the Exchange Act ("Rule 16b-3") to obtain the benefits under such
Rule and the incentive option rules of the Internal Revenue Code of 1986, as
amended (the "Code"). To date, no options or restricted stock awards have been
granted under the 1996 Plan. Contemporaneously with the Offering, the Company
intends to grant qualified options exercisable for 341,129 shares of Class A
Common Stock to various executive officers at the initial public offering price,
which will vest over three years in 33.3% increments. In addition, the Company
intends to grant to each of Messrs. Farr, Sutton and Tighe restricted stock
awards in the amount of 120,000. These executive officers will not be required
to make any payment for these restricted stock awards or grants of qualified
options, which will vest over three years in 33.3% increments. Restrictions on
transfer and forfeiture provisions upon termination of employment will apply to
the restricted stock covered by these awards for a period of up to years,
after which time the restrictions will lapse and all of the stock will be owned
by the employees free of further restrictions under the 1996 Plan.

1996 NON-EMPLOYEE DIRECTOR STOCK PLAN

The Company has established the Dailey Petroleum Services Corp. 1996
Non-Employee Director Stock Plan (the "1996 Director Plan"), pursuant to which
options to purchase shares of Class A Common Stock will be available for future
grant to non-employee directors. The 1996 Director Plan is designed to enhance
the Company's ability to attract and retain the services of qualified persons as
directors and to provide such directors with a direct proprietary interest in
the success of the Company. The 1996 Director Plan will be administered by the
Board of Directors of the Company. Under the 1996 Director Plan, an aggregate of
100,000 shares of Class A Common Stock will be reserved for grant of options to
purchase Class A Common

40
<PAGE> 43

Stock. The exercise price of an option granted pursuant to the 1996 Director
Plan may not be less than the fair market value of the Class A Common Stock on
the date of grant. No option may be granted under such Plan with a duration of
more than ten years. The 1996 Director Plan generally may be amended by the
Board of Directors without any requirement of stockholder approval except to the
extent required by Rule 16b-3 to qualify for the benefits of such Rule. To date,
no options have been granted under the 1996 Director Plan. Contemporaneously
with the Offering, the Company intends to grant options to each non-employee
director to acquire 10,000 shares of Class A Common Stock at an exercise price
equal to the initial public offering price for Class A Common Stock set forth on
the cover page of this Prospectus. In addition, options to acquire 10,000 shares
automatically will be granted after each annual meeting of stockholders to each
director who served as a director during the preceding six months and who will
continue to serve as a director.

401(K) PLAN

Prior to the Offering, the Company's employees were eligible to participate
in a defined contribution retirement plan (the "Lawrence Plan") that complies
with Section 401(k) of the Code and that was adopted by Lawrence for its
employees and the employees of its subsidiaries. After the Offering, the
Company's employees will no longer be eligible to participate in the Lawrence
Plan. The Company intends to adopt a defined contribution plan that complies
with Section 401(k) of the Code after the Offering.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PRINCIPAL STOCKHOLDER

Upon completion of the Offering, Lawrence will beneficially own all of the
outstanding Class B Common Stock, which will constitute 53% of the Company's
Common Stock (approximately 50% if the Underwriters' over-allotment option is
exercised in full) and 85% of the voting power of the Common Stock (83% if the
Underwriters' over-allotment option is exercised in full). All of the capital
stock of Lawrence is beneficially owned by Mr. Lawrence and Mr. Lawrence's
family. Accordingly, Mr. Lawrence will be in a position to elect the directors
of the Company and control all matters relating to management of the Company,
including corporate strategy, acquisition or disposition of assets, issuances of
Common Stock or other securities and payment of dividends. Mr. Lawrence is the
Chairman of the Company's Board of Directors and the sole director of Lawrence.
Upon completion of the Offering, Messrs. Farr, Sutton and Tighe, each of whom is
a director and officer of the Company, will resign all positions currently held
by them as officers of Lawrence or as officers and directors of Lawrence
subsidiaries, except that Mr. Sutton will remain a director and minority
shareholder of First Surety Title Company, Inc., an affiliate of Lawrence, which
from time to time may provide services to the Company.

The Company and Lawrence have entered into certain contractual arrangements
with respect to their relationship after the Offering is consummated. These
agreements were reached in anticipation of the Offering and are not the result
of arm's-length negotiation between independent parties. Copies of such
agreements are included as exhibits to the Registration Statement of which this
Prospectus is a part, and the following descriptions are qualified in their
entirety by reference to such agreements.

During the past several years, the Company has funded certain of its
working capital requirements through advances from Lawrence, which have been
evidenced by a note to Lawrence with an outstanding balance of $1.8 million at
April 30, 1996. The Company intends to repay such note utilizing a portion of
the net proceeds from the Offering. See "Managements Discussion and Analysis of
Results of Operations and Financial Condition -- Liquidity and Capital
Resources".

During fiscal 1996, the Company's Chairman of the Board repaid
approximately $87,000 relating to a loan made by the Company in June 1994. Such
loan was evidenced by a promissory note in the principal amount of $75,000,
accrued interest at a rate of 8% and was repayable on demand.

During the year ended April 30, 1996, the Company paid a salary of
$206,406, including bonuses, to the daughter of the Chairman of the Board. This
employment arrangement was terminated on April 30, 1996, and

41
<PAGE> 44

the Company does not anticipate paying any salaries or bonuses to such
individual in the future. In addition, during the fiscal years ended April 30,
1994, 1995 and 1996, the Company purchased office supplies totaling $131,901,
$136,588 and $114,041, respectively, from a company owned and controlled by the
Chairman's wife.

TAX ALLOCATION AGREEMENT

For taxable periods ending on or before the closing of the Offering, the
Company will be included in the consolidated federal income tax returns filed by
Lawrence as the common parent for itself, its subsidiaries and affiliated
companies. Pursuant to the Tax Allocation Agreement to be entered into by the
Company and Lawrence, the Company will pay to Lawrence an amount equal to the
federal income tax computed on the Company's (and its subsidiaries) taxable
income on a separate-company basis less any tax credits generated by the Company
or its subsidiaries. The Company will pay such amount even if the consolidated
federal income tax return to which such payment relates does not set forth a net
consolidated tax liability. Lawrence will not make any payment to the Company
for any of the Company's net operating losses or tax credits, even if such net
operating losses or tax credits have been used by Lawrence to reduce its
separate federal income tax liability. While the Company is jointly and
severally liable for federal income tax imposed on the Lawrence consolidated
group while the Company is a member, the Tax Allocation Agreement will impose an
indemnity on Lawrence in favor of the Company for any tax imposed on members of
the Lawrence group other than the Company and its subsidiaries, including any
tax of Lawrence related to the Offering and the Reorganization.

The Tax Allocation Agreement will apply to the Company for all years in
which the Company (or any predecessor) is or was included in the Lawrence
consolidated federal income tax return. The Tax Allocation Agreement will apply
to the extent a state or other taxing jurisdiction requires or permits a
consolidated, combined or unitary tax return to be filed by Lawrence and its
affiliates and such return includes the Company.

RELATIONSHIP AGREEMENT

Under the terms of a relationship agreement to be entered into prior to the
Offering between the Company and Lawrence (the "Relationship Agreement"), the
Company will agree to provide to Lawrence and its affiliates, upon their request
and on an as-available basis, various administrative and management services
including cash management, accounting, tax, data processing, human resources,
and legal services. Lawrence will pay for such services at rates calculated to
recover the Company's reasonable direct costs of providing such services. The
Relationship Agreement also will provide that Lawrence will render to the
Company management and technical consulting services when requested by the
Company. In return, the Company will pay Lawrence $250,000 per year for the term
of the Relationship Agreement. The Relationship Agreement will commence upon the
closing of the Offering and terminate on April 30, 1999, subject to earlier
termination in the event of a material breach by either party. The Relationship
Agreement will allow Lawrence to obtain, as needed, but subject to the Company's
own requirements, services that historically have been provided to Lawrence or
its affiliates by Dailey personnel.

The Company from time to time has utilized aircraft owned by a Lawrence
subsidiary. The Relationship Agreement will provide that the Company may charter
such aircraft from Lawrence or its subsidiaries, subject to availability, at
rates not exceeding those generally available for charter of substantially
similar aircraft in the Houston, Texas, metropolitan area. The Relationship
Agreement also will contemplate that the Company may, from time to time, rent
equipment or vehicles to Lawrence on an as-available basis at fair market rental
rates mutually agreed upon by the Company and Lawrence.

In addition, under the Relationship Agreement, Lawrence and the Company
have agreed to reimburse each other for the costs of certain insurance policies
purchased by one party on behalf of the other.

Pursuant to the Relationship Agreement, Lawrence must indemnify, defend and
hold harmless the Company and its directors, officers and employees from and
against any loss, liability or claim, including, without limitation, those
attributable to the negligence of the Company or Lawrence, arising out of or
relating to the Relationship Agreement and the acts or omissions of the Company
or Lawrence thereunder. During the past three years, the Company and Lawrence
have reimbursed each other for the costs of products and

42
<PAGE> 45

services that will be governed by the Relationship Agreement following the
Offering. As of April 30, 1996, Lawrence owed the Company approximately
$436,000, net, for such products and services.

LEASE AGREEMENTS

The Company maintains executive offices in a building located in Conroe,
Texas and occupies four adjacent manufacturing and maintenance research and
development, and storage facilities, all of which are owned by a subsidiary of
Lawrence. Upon completion of the Offering, the Company will lease from such
Lawrence all 90% of the executive office building. The Company will also occupy
the other adjacent facilities as the sole tenant pursuant to a separate lease
agreement.

The Office Lease Agreement is for a five-year term commencing in May 1996,
and covers all of the 64,368 square feet of office space in the Conroe building,
as well as the use of access roads and an adjacent outdoor parking lot. Rent is
payable monthly at the rate of $48,276 per month for the first two years of the
lease, $51,226 per month for the third year, $52,781 per month for the fourth
year and $54,390 per month for the fifth year. Additionally, the Company will
pay utilities, janitorial, security, maintenance, and property taxes. The
landlord will pay for, and extend, insurance coverage. The Company has the
option to extend the lease for five years with monthly rent subject to annual
increases based upon the proportion that annual increases in the United States
Consumer Price Index for All Urban Consumers in Houston, Texas bears to that
when the leased term commenced.

The Service Center Lease Agreement is for a five-year term commencing in
May 1996. This lease covers the combined square feet of the district facility
building, 31,316 square feet; the manufacturing building, 31,373 square feet;
the open storage building, 17,000 square feet and the separator building, 1,530
square feet. The use of access roads and immediately surrounding grounds is also
included. Rent is $28,000 per month for all four buildings. The company has an
option to extend the lease for five years with monthly rent subject to annual
increases based upon the proportion that annual increases in the United States
Consumer Price Index for All Urban Consumers in Houston, Texas bears to that
when the lease term commenced.

CONFLICTS OF INTEREST

The nature of the businesses presently conducted by the Company and
Lawrence is sufficiently different that conflicts of interest are unlikely to
arise in most operating circumstances. Lawrence has advised the Company that it
does not currently intend to engage in lines of business presently conducted by
the Company, except through ownership of the Company's Common Stock. Lawrence
may engage in similar lines of business as a result of the Company's expansion
of its business or by Lawrence's acquisition of other businesses. Thus, although
Lawrence has no current intention of doing so, there can be no assurance that
Lawrence will not engage in business competitive with that conducted by the
Company.

Conflicts of interest also could arise, for example, with respect to
certain matters such as the dual status of J. D. Lawrence as sole director of
Lawrence and Chairman of the Board of Directors of the Company, additional
issuances of voting securities by the Company, acquisitions or dispositions of
assets, the election of new or additional directors, or the appropriateness of
paying dividends. As described above, the Company and Lawrence will become party
to a number of contractual arrangements that could give rise to conflicts of
interest. Such conflicts could involve, for example, insurance matters, lease
disputes, charges for administrative services, aircraft charters, tax matters
and registration rights. Additional or modified agreements, arrangements and
transactions may be negotiated among the Company, Lawrence and their respective
subsidiaries after the closing of the Offering. Any such conflicts or additional
agreements, arrangements or transactions are expected to be resolved on a
negotiated basis. Lawrence will be the majority stockholder of the Company
following the Offering and consequently such negotiations will not be at arm's
length.

The Company intends that the terms of any future transactions and
agreements between the Company and Lawrence or its affiliates will be at least
as favorable as could be obtained from third parties. The Company's Board of
Directors will be advised in advance of any such proposed transactions that are
material

43
<PAGE> 46

to the Company and will evaluate their terms and provisions in accordance with
its fiduciary duties under state and federal law. Depending upon the size and
nature of the transaction, in any such review the Board may rely upon
management's knowledge, utilize outside experts or consultants, secure
appraisals, refer to industry statistics or prices or take such other actions as
are appropriate under the circumstances.

SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDER

The following table sets forth certain information regarding the beneficial
ownership of the Class A Common Stock and Class B Common Stock as of May 24,
1996, and as adjusted to reflect the sale of the Class A Common Stock in the
Offering, by (i) each director and director nominee of the Company, (ii) each
named executive officer, (iii) each person known or believed by the Company to
own beneficially 5% or more of either the Class A Common Stock or Class B Common
Stock and (iv) all directors and executive officers as a group. Unless otherwise
indicated, each person has sole voting and dispositive power with respect to
such shares.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)
------------------------------------ ---------------------------------------
CLASS A CLASS B CLASS A CLASS B
NAME AND ADDRESS OF COMMON COMMON COMMON COMMON
BENEFICIAL OWNER STOCK STOCK PERCENT(2) STOCK STOCK PERCENT(2)(3)
- ----------------------------------- --------- --------- ---------- ------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence(4)........................ * 5,000,000 100% * 5,000,000 53%
J.D. Lawrence(5)................... * 5,000,000 100% 5,000,000 53%
James F. Farr...................... * * -- 120,000(6) * 1%
Cecil W. Harvey.................... * * -- * * --
William D. Sutton.................. * * -- 120,000(6) * 1%
David T. Tighe..................... * * -- 120,000(6) * 1%
--------- --------- --- ------- --------- ---
All executive officers and
directors as a group (5
Persons)......................... 5,000,000 100% 360,000 5,000,000 57.3%
</TABLE>

- ---------------

* Less than 1%.

(1) The Securities and Exchange Commission (the "Commission") has defined
beneficial ownership to include sole or shared voting or investment power
with respect to a security or the right to acquire beneficial ownership of
a security within 60 days. The number of shares indicated are owned with
sole voting and investment power unless otherwise noted.

(2) Percent based upon both Class A and Class B Common Stock.

(3) Assumes no exercise of the Underwriters' over-allotment option. In the
event that the Underwriters' over-allotment option is exercised in full,
Lawrence will beneficially own approximately 50% of the Common Stock then
outstanding.

(4) The executive offices of Lawrence are located at 2507 North Frazier, P.O.
Box 1803, Conroe, Texas 77305.

(5) Includes 5,000,000 shares of Class B Common Stock held by Lawrence. Mr.
Lawrence and trusts for his children own all of the voting stock of
Lawrence. Because of these relationships, Mr. Lawrence may be deemed to be
the beneficial owner of all shares of Class B Common Stock owned by
Lawrence.

(6) Contemporaneously with the closing of the Offering, each of Messrs. Farr,
Sutton and Tighe will be granted 120,000 shares of restricted Class A
Common Stock, which will vest over a three-year period in 33.3% increments.

44
<PAGE> 47

DESCRIPTION OF CAPITAL STOCK

The following is a summary of certain provisions of the Certificate of
Incorporation and the Bylaws of the Company, which are included as exhibits to
the registration statement of which this Prospectus forms a part.

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

The Certificate of Incorporation provides for authorized capital stock of
35,000,000 shares, consisting of 20,000,000 shares of Class A Common Stock,
10,000,000 shares of Class B Common Stock and 5,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"). Upon the consummation of
the Offering, 4,000,000 shares of Class A Common Stock (4,600,000 shares if the
Underwriters' over-allotment option is exercised in full), and 5,000,000 shares
of Class B Common Stock and no shares of Preferred Stock will be outstanding. In
addition, immediately following the Offering, 360,000 shares of Class A Common
Stock will be issued to certain key employees at the Company pursuant to
restricted stock awards under the 1996 Plan. A total of 640,000 shares of Class
A Common Stock will be reserved for grants of options and restricted stock
awards under the 1996 Plan and the 1996 Director Plan.

CLASS A AND B COMMON STOCK

Voting

Holders of Class A Common Stock are entitled to one vote per share. Holders
of Class B Common Stock are entitled to five votes per share. All actions
submitted to a vote of stockholders are voted on by holders of Class A Common
Stock and Class B Common Stock voting together as a single class, except as
otherwise required by law. Holders of the Company's Common Stock are not
entitled to cumulative voting in the election of directors.

Conversion

Class A Common Stock has no conversion rights. A holder of Class B Common
Stock may convert its Class B Common Stock into Class A Common Stock at any time
at the ratio of one share of Class A Common Stock for each share of Class B
Common Stock. Shares of Class B Common Stock immediately and automatically
convert into an equal number of Class A Common Stock on the sale or transfer of
such shares to a person or entity not a member of the "Lawrence Group". The
"Lawrence Group" is comprised of Lawrence, James D. Lawrence, his spouse,
children, grandchildren, nieces and nephews (collectively, the "Lawrence
Family"), trusts or other entities controlled by, or for the benefit of, any
member of the Lawrence Family or any other affiliate of Lawrence or the Lawrence
Family.

Dividends

Holders of Class A Common Stock and Class B Common Stock are entitled to
receive dividends payable in cash or property other than Common Stock on an
equal basis, if and when such dividends are declared by the Board of Directors
from funds legally available, subject to any preference in favor of outstanding
preferred shares, if any. In the case of any dividend payable in Common Stock,
all holders of Common Stock shall receive the same dividend, with the holders of
Class A Common Stock receiving shares of Class A Common Stock and the holders of
Class B Common Stock receiving shares of Class A Common Stock or Class B Common
Stock, as determined by the Board of Directors when declaring such dividend.

Liquidation

In the event of liquidation, holders of Class A Common Stock and Class B
Common Stock share with each other on a ratable basis as a single class in the
net assets of the Company available for distribution after payment or provision
for liabilities of the Company and payment of the liquidation preference, if
any, on any outstanding preferred shares.

45
<PAGE> 48

Other Terms

Neither the Class A Common Stock nor the Class B Common Stock may be
subdivided, consolidated, reclassified or otherwise changed unless
contemporaneously therewith the other class of shares is subdivided,
consolidated, reclassified or otherwise changed in the same proportion and in
the same manner. In any merger, consolidation, reorganization, or other business
combination, the consideration to be received per share by holders of either
Class A Common Stock or Class B Common Stock must be identical to that received
by holders of the other class of Common Stock, except that any securities
received by holders of the Class A Common Stock or Class B Common Stock may
differ as to voting rights only to the extent that voting rights now differ
between Class A and Class B Common Stock. Holders of Common Stock are not
entitled to preemptive rights and neither the Class A Common Stock nor the Class
B Common Stock is subject to redemption.

The rights, preferences and privileges of holders of Common Stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock that the Company may designate and issue
in the future.

PREFERRED STOCK

The Board of Directors of the Company is empowered, without approval of the
stockholders, to authorize the issuance of Preferred Stock in one or more
series, to establish the number of shares to be included in each such series,
and to fix the rights, powers, preferences and limitations of each series. As a
result, the Board of Directors has the power to afford the holders of any series
of Preferred Stock preferences, powers and rights, voting or otherwise, senior
to or greater than the rights of holders of Common Stock. The ability of the
Board Directors to establish such rights, powers and preferences and to issue
the Preferred Stock could be used as an anti-takeover device without further
action on the part of the holders of Common Stock. The Company has no present
plans to issue any Preferred Stock.

SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION

Super-Majority Provisions

The Certificate of Incorporation provides that no agreement of merger or
consolidation, agreement governing the sale of substantially all of the
Company's assets, or agreement or plan governing liquidation of the Company that
are required by Delaware law to be submitted to the stockholders of the
Corporation for approval or rejection pursuant to Subchapter IX or X of the
General Corporation Law of the State of Delaware shall be approved without the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
shares of the Corporation entitled to vote thereon. This provision of the
Certificate of Incorporation may delay or hinder the ability of the Company to
enter into certain transactions that a majority of the stockholders believe to
be in the best interests of the Company and the stockholders.

Limitation of Director Liability

The General Corporation Law of the State of Delaware authorizes
corporations to limit or eliminate the personal liability of directors to
corporations and their stockholders for monetary damages for breach of
directors' fiduciary duty of care. Although this law does not change directors'
duty of care, it enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The Certificate of Incorporation
limits the liability of directors to the Company or its stockholders to the
fullest extent permitted by Delaware law. Specifically, directors of the Company
will not be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability: (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions or (iv) for any transaction from which the director
derived an improper personal benefit.

46
<PAGE> 49

Indemnification

The Certificate of Incorporation contains provisions requiring the
indemnification of the Company's directors and officers to the fullest extent
permitted by the General Corporation Law of the State of Delaware, including
circumstances in which indemnification is otherwise discretionary. The Company
also has entered into indemnification agreements with each of its current
directors and executive officers and the individuals who intend to become
directors immediately prior to the closing of the Offering. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and officers.

Classified Board of Directors; Removal of Directors

The Certificate of Incorporation provides that the Board of Directors shall
be divided into three classes, the members of which will serve staggered
three-year terms. The Company believes that staggered terms of directors could
help to assure the continuity and stability of the Board's and the Company's
business strategies and policies as determined by the Board of Directors.

The classification of directors will make changing the composition of the
Board of Directors more difficult. At least two annual meetings of stockholders
will be required to effect a change in a majority of the Board of Directors.
Such a delay may ensure that the Company's directors, if confronted by a
stockholder attempting to force a proxy contest, a tender or exchange offer or
an extraordinary corporate transaction, would have sufficient time to review the
proposal as well as any available alternatives to the proposal and to act in
what they believe to be in the best interest of the stockholders. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the Board of Directors
would be beneficial to the Company and its stockholders and whether a majority
of the Company's stockholders believes that such a change would be desirable.

The classification provisions also could discourage a third party from
initiating a proxy contest, making a tender or exchange offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders. Accordingly, stockholders
could be deprived of certain opportunities to sell their shares of Common Stock
at a higher market price than might otherwise be the case.

In addition, the Certificate of Incorporation provides that directors may
be removed from office only "for cause" (as defined therein). Subject to rights
of any holders of preferred stock, newly created directors and vacancies on the
Board of Directors will be filled solely by the remaining directors then in
office.

Advance Notice Provisions for Certain Stockholder Actions

The Bylaws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board or a committee
thereof, of candidates for election as directors (the "Nomination Procedure")
and with regard to certain matters to be brought before an annual meeting of
stockholders of the Company (the "Business Procedure").

Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the Bylaws. If the Chairman or other officer
presiding at a meeting determines that other business was not properly brought
before such meeting in accordance with the Business Procedure, such business
will not be conducted at the meeting.

The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board to the Secretary
of the Company. The requirements as to the form and timing of that notice are
specified in the Bylaws. If the election inspectors determine that a person was
not nominated in accordance with the Nomination Procedure, such person will not
be eligible for election as a director.

Although the Bylaws do not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or of any other
business desired by stockholders to be conducted at an annual or

47
<PAGE> 50

any other meeting, the Bylaws (i) may have the effect of precluding a nomination
for the election of directors or precluding the conduct of business at a
particular annual meeting if the proper procedures are not followed, or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.

REGISTRATION RIGHTS AGREEMENT

Pursuant to the terms of the Registration Rights Agreement, upon the
request of Lawrence (or certain assignees for a period of years, the Company
will register, on up to two occasions, the sale of Common Stock beneficially
owned by Lawrence which Lawrence (or such assignees) requests to be registered
under the Securities Act and applicable state securities laws. The Company will
become obligated to register the sale of Common Stock on one additional occasion
if Mr. Lawrence dies during the term of the Registration Rights Agreement and
Lawrence previously has exhausted its two demand registrations. The Company's
obligations are subject to certain limitations relating to the timing and size
of registrations and other similar matters. In addition, the Company will not be
obligated to register the Common Stock when in the good faith judgment of its
Board of Directors such registration would materially adversely affect a pending
or proposed public offering of the Company's securities or certain other
transactions. The Company also is obligated to offer Lawrence and certain
assignees the right to include shares of Common Stock owned by it in certain
registration statements filed by the Company. The Company will indemnify
Lawrence and each underwriter of Common Stock, including the officers, directors
and controlling persons of such underwriters, for certain liabilities in
connection with any such offering, other than liabilities resulting or arising
from untrue statements or omissions made in conformity with information
furnished to the Company in writing by Lawrence or such underwriter. The Company
is obligated to pay all expenses incidental to such registration of Common Stock
owned by Lawrence, excluding fees of counsel to Lawrence, underwriters'
discounts and commissions, and transfer taxes.

DELAWARE ANTI-TAKEOVER LAW

As a Delaware corporation, the Company is subject to Section 203 of the
DGCL. In general, Section 203 prohibits the Company from engaging in a "business
combination" (as defined therein) with an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) for three years following the time such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of two-thirds of the outstanding voting stock of the corporation not owned by
the interested stockholder. Under Section 203, the restrictions described above
also do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is KeyCorp
Shareholder Services, Inc., Houston, Texas.

48
<PAGE> 51

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, Lawrence will own approximately 53% of the
outstanding Common Stock (50% if the Underwriters' over-allotment option is
exercised in full). In addition, Messrs. Farr, Sutton and Tighe (the "Senior
Executive Officers") will own an aggregate of 360,000 shares of Class A Common
Stock pursuant to restricted stock awards under the 1996 Plan. The Company,
Lawrence and the Senior Executive Officers have agreed pursuant to a "lock-up"
agreement that it will not, without the prior written consent of the
Representatives, offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of any shares of Common Stock or any options exercisable
for Common Stock for a period of 180 days after the date of this Prospectus. See
"Underwriting".

Upon completion of the Offering, the Company will have 9,360,000 shares of
Common Stock outstanding (9,960,000 shares if the Underwriters' over-allotment
option is exercised in full). Of these shares, the 4,000,000 shares of Class A
Common Stock sold in the Offering (4,600,000 shares if the Underwriters' over-
allotment option is exercised in full) will be freely tradeable in the public
market without restriction by persons other than affiliates of the Company. The
5,000,000 shares of Class B Common Stock outstanding, which are owned by
Lawrence, will be "restricted securities" within the meaning of Rule 144 under
the Securities Act. Consequently, such shares may not be resold unless they are
registered under the Securities Act or resold pursuant to an applicable
exemption from registration under the Securities Act, such as Rule 144. Lawrence
has the right to require the Company to register such shares under the
Securities Act. See "Risk Factors -- Substantial Amount of Securities Subject to
Registration Rights" and "Description of Capital Stock -- Registration Rights".
In addition, the Company plans to register the shares available pursuant to
issuance pursuant to the 1996 Plan and the 1996 Director Plan. Common Stock
acquired pursuant to such plans shall be available for sale in the open market
by holders who are not affiliates of the Company, and subject to volume and
other limitations of Rule 144 by holders who are affiliates of the Company.

The Company believes that all of the outstanding shares of Common Stock
will be immediately tradeable in accordance with the provisions of Rule 144 upon
expiration of the lock-up agreement described above. In general, under Rule 144
as currently in effect, a person (or persons whose shares are required to be
aggregated) who has been deemed to have beneficially owned, for at least two
years, shares of Common Stock that have not been registered under the Securities
Act or that were acquired from an "affiliate" of the Company, is entitled to
sell within any three-month period a number of shares of Common Stock that does
not exceed the greater of 1% of the number of then outstanding shares of Common
Stock (approximately 90,000 shares upon completion of the Offering if the
Underwriters' over-allotment option is not exercised) and the average weekly
reported trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 also are subject to certain notice and
manner-of-sale requirements and to the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not an "affiliate" of the Company during the three months prior to resale
and who has been deemed to have beneficially owned such shares for at least
three years is entitled to sell such shares under Rule 144 without regard to the
requirements discussed above.

The Company has agreed pursuant to a "lock up" agreement that it will not,
without the prior written consent of the Representatives, offer for sale, sell
or otherwise dispose of any shares of Common Stock (other than shares of Common
Stock issued pursuant to the 1996 Plan and 1996 Director Plan) or securities
convertible into or exchangeable for Common Stock or sell or grant options,
rights or warrants with respect to any shares of Common Stock (other than the
grant of options pursuant to the 1996 Plan and 1996 Director Plan) for a period
of 180 days after the date of this Prospectus.

Prior to the Offering, there has been no public market for the Class A
Common Stock and no prediction can be made as to the effect, if any, that sales
of shares of Common Stock or the availability of such shares for sale will have
on the market price of the Class A Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices.

49
<PAGE> 52

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to the Underwriters named below (the
"Underwriters"), for whom Jefferies & Company, Inc. and Southcoast Capital
Corporation are acting as representatives (the "Representatives"), and the
Underwriters have severally agreed to purchase, the number of shares of Class A
Common Stock set forth opposite their respective names in the table below at the
public offering price less the underwriting discount set forth on the cover page
of this Prospectus:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
-------------------------------------------------------------------------- ----------
<S> <C>
Jefferies & Company, Inc..................................................
Southcoast Capital Corporation............................................
----------
Total........................................................... 4,000,000
========
</TABLE>

The Underwriting Agreement provides that the obligation of the Underwriters
to purchase the shares of Class A Common Stock offered hereby is subject to
certain conditions. The Underwriters are committed to purchase all of the shares
of Class A Common Stock offered hereby (other than those covered by the over-
allotment option described below), if any are purchased.

The Underwriters propose to offer the shares of Class A Common Stock to the
public initially at the public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of per share. The Underwriters may allow and such dealers may
reallow, a discount not in excess of per share to certain other
dealers. After the initial public offering of the Class A Common Stock, the
public offering price, the concession to selected dealers and the reallowance to
other dealers, may be changed by the Representatives.

The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 600,000 additional shares of
Class A Common Stock at the initial public offering price, less the underwriting
discount. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase additional shares of Class
A Common Stock proportionate to such Underwriter's initial commitment as
indicated in the preceding table. The Underwriters may exercise such right of
purchase only for the purpose of covering over-allotments, if any, made in
connection with the shares of Class A Common Stock offered by this Prospectus.

The Company and Lawrence have agreed not to offer for sale, sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock for a period of 180 days from
the date of this Prospectus, without the prior written consent of the
Representatives.

The Representatives have informed the Company that they do not expect the
Underwriters to confirm sales of shares of Class A Common Stock offered by this
Prospectus to any accounts over which they exercise discretionary authority.

At the request of the Company, the Underwriters have reserved up to 100,000
shares of the Class A Common Stock offered hereby for sale at the initial public
offering price to employees of the Company and certain other persons designated
by the Company who have expressed an interest in purchasing Class A Common
Stock. The number of shares of Class A Common Stock available to the general
public will be reduced to the extent these persons purchase the reserved shares.

The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with the Offering, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters may be required to make in respect thereof.

50
<PAGE> 53

Prior to the Offering, there has been no public trading market for the
Class A Common Stock and there can be no assurance that an active trading market
will develop or be sustained upon the completion of the Offering. The initial
public offering price of the Class A Common Stock will be determined by
negotiations between the Company and the Representatives. The material factors
considered in determining such public offering price will be the history of and
the prospects for the industry in which the Company competes, an assessment of
the Company's management, the Company's past and present operations, the
Company's past and present earnings and the trend of its earnings, the general
condition of the securities markets at the time of the Offering and the
price-earnings ratios and market prices of publicly traded securities of
companies that the Company and the Representatives believe to be comparable to
the Company.

Pursuant to a letter agreement between the Company and Jefferies & Company,
Inc., Jefferies & Company, Inc. has acted and will continue to act as a
financial advisor to the Company in connection with the acquisition of, merger
or other combination with certain potential acquisition targets. If the Company
completes a transaction with any such target, the Company will pay Jefferies &
Company, Inc. certain usual and customary fees for such services. The Company
has not paid Jefferies & Company, Inc. and is not obligated to pay Jefferies &
Company, Inc., any compensation for services rendered under this agreement to
date.

LEGAL MATTERS

In connection with the Class A Common Stock offered hereby, the validity of
the shares being offered will be passed upon for the Company by Fulbright &
Jaworski L.L.P., Houston, Texas. Certain legal matters will be passed upon for
the Underwriters by Porter & Hedges, L.L.P., Houston, Texas.

EXPERTS

The consolidated financial statements of the Company (including the related
consolidated financial statement schedule) at April 30, 1995, and for each of
the two years in the period ended April 30, 1995, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
Class A Common Stock offered by this Prospectus. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto, certain portions of which are omitted as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the Class A Common Stock offered by this Prospectus, reference
is made to the Registration Statement, including the exhibits thereto.
Statements contained in this Prospectus as to the contents of any contract or
other documents filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is hereby made to the copy
of such contract or other documents filed as an exhibit to the Registration
Statement, each statement being qualified in all respects by such reference.

The Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of such materials can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.

51
<PAGE> 54

CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets............................................................ F-3
Consolidated Statements of Operations and Retained Earnings............................ F-4
Consolidated Statements of Cash Flows.................................................. F-5
Notes to Consolidated Financial Statements............................................. F-6
</TABLE>

F-1
<PAGE> 55

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholder
of Dailey Corporation

We have audited the accompanying consolidated balance sheet of Dailey
Corporation, a Delaware corporation, (successor to Dailey Petroleum Services
Corp.) as of April 30, 1995, and the related consolidated statements of
operations and retained earnings and cash flows for each of the two years in the
period ended April 30, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Dailey Corporation (successor to Dailey Petroleum Services Corp.) at April 30,
1995, and the consolidated results of its operations and its cash flows for each
of the two years in the period ended April 30, 1995, in conformity with
generally accepted accounting principles.

Houston, Texas
July 14, 1995, except for Note 1 as to which
the date is June , 1996

- --------------------------------------------------------------------------------

The foregoing report is in the form that will be signed upon completion of
the reorganization of the capital accounts of the Company as described in Note 1
to the consolidated financial statements.

ERNST & YOUNG LLP

Houston, Texas
May 23, 1996

F-2
<PAGE> 56

DAILEY CORPORATION

CONSOLIDATED BALANCE SHEETS

(NOTE 1)
PROFORMA
APRIL 30,
1995 1996 1996
------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 1,796 $ 2,367 $ 2,367
Accounts receivable, net (Note 2)........................... 14,064 16,606 16,606
Accounts receivable from officers and affiliates............ 150 436 436
Prepaid expenses............................................ 489 422 422
Deferred income taxes....................................... 392 389 389
Other current assets........................................ 422 153 153
------- ------- -------
Total current assets................................ 17,313 20,373 20,373
Revenue-producing tools and inventory, net (Note 3)........... 29,983 29,208 29,208
Property and equipment, net (Note 4).......................... 5,451 4,058 4,058
Property and equipment held for sale, net..................... 762 1,033 1,033
Deferred income taxes......................................... 565 1,384 1,384
Intangibles and other assets.................................. 334 287 287
------- ------- -------
Total assets........................................ $54,408 $56,343 $56,343
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities (Note 5)........... $ 7,681 $ 7,159 $ 7,159
Accounts payable to affiliates.............................. 252
Dividend payable............................................ -- -- 10,000
Income taxes payable........................................ 1,008 1,749 1,749
Short-term debt (Note 7).................................... -- 1,300 1,300
Current portion of long-term debt (Note 7).................. 1,307 1,738 1,738
Current portion of indebtedness to affiliate (Notes 6 and
7)....................................................... 660 660 660
------- ------- -------
Total current liabilities........................... 10,908 12,606 22,606
Long-term debt (Note 7)....................................... 8,604 6,866 6,866
Long-term indebtedness to affiliate (Notes 6 and 7)........... 1,760 1,100 1,100
Other noncurrent liabilities.................................. 109 75 75
Commitments and contingencies (Note 10)
Stockholders' equity (Note 1):
Preferred stock............................................. -- -- --
Common stock................................................ 50 50 50
Paid-in capital............................................. 4,559 4,559 4,559
Retained earnings........................................... 28,418 31,087 21,087
------- ------- -------
Total stockholders' equity.......................... 33,027 35,696 25,696
------- ------- -------
Total liabilities and stockholders' equity.......... $54,408 $56,343 $56,343
======= ======= =======
</TABLE>

See accompanying notes.

F-3
<PAGE> 57

DAILEY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
---------------------------------
1994 1995 1996
------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Rental income................................................ $32,393 $36,691 $42,987
Sales of products and services............................... 11,422 12,172 15,952
------- ------- -------
43,815 48,863 58,939
Costs and expenses (Notes 6 and 9):
Cost of rentals.............................................. 27,484 30,185 33,619
Cost of products and services................................ 5,124 6,889 7,927
Selling, general and administrative.......................... 6,985 9,107 11,483
Research and development..................................... 736 775 728
------- ------- -------
40,329 46,956 53,757
------- ------- -------
Operating income............................................... 3,486 1,907 5,182
Other (income) expense:
Interest income.............................................. (100) (60) (104)
Interest expense -- nonaffiliates............................ 527 841 785
Interest expense -- affiliate................................ 86 220 182
Foreign exchange (gain) loss................................. 122 (90) 239
Other, net................................................... (225) 190 (16)
------- ------- -------
Income before income taxes..................................... 3,076 806 4,096
Provision for income taxes (Note 8)............................ 1,075 838 1,427
------- ------- -------
Net income (loss).............................................. 2,001 (32) 2,669
Retained earnings at beginning of year......................... 26,449 28,450 28,418
------- ------- -------
Retained earnings at end of year............................... $28,450 $28,418 $31,087
======= ======= =======
Historical earnings per share.................................. $ .37 $ (.01) --
======= ======= =======
Proforma earnings per share (Note 1)........................... $ .42
=======
</TABLE>

See accompanying notes.

F-4
<PAGE> 58

DAILEY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
----------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................................... $ 2,001 $ (32) $ 2,669
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 4,323 5,428 5,726
Deferred income taxes.................................... (470) (487) (816)
Provision for doubtful accounts receivable............... 184 140 256
(Gain) loss on sale and disposition of property and
equipment............................................. (533) (9) 6
Changes in operating assets and liabilities:
Accounts receivable -- trade.......................... (3,877) (482) (2,798)
Accounts receivable -- officers and affiliates........ -- (150) (286)
Prepaid expenses...................................... 110 (67) 67
Other current assets.................................. (93) (242) 269
Accounts payable and accrued liabilities.............. 826 2,458 (522)
Accounts payable to affiliates........................ 52 (561) (252)
Income taxes payable.................................. (190) (319) 741
Other................................................. (90) 306 11
-------- -------- --------
Net cash provided by operating activities.................. 2,243 5,983 5,071
INVESTING ACTIVITIES
Additions to revenue-producing tools and inventory......... (9,816) (13,396) (11,702)
Inventory transferred to cost of rentals................... 4,285 4,739 5,050
Revenue-producing tools lost in hole, abandoned, and
sold..................................................... 1,432 2,073 2,551
Additions to property and equipment........................ (1,316) (1,619) (648)
Proceeds from sale of property and equipment............... 880 473 916
-------- -------- --------
Net cash used in investing activities...................... (4,535) (7,730) (3,833)
FINANCING ACTIVITIES
Proceeds from the issuance of debt......................... 5,670 -- 1,300
Payments on long-term debt................................. (261) (1,074) (1,967)
-------- -------- --------
Net cash provided by (used in) financing activities........ 5,409 (1,074) (667)
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... 3,117 (2,821) 571
Cash and cash equivalents at beginning of year............. 1,500 4,617 1,796
-------- -------- --------
Cash and cash equivalents at end of year................... $ 4,617 $ 1,796 $ 2,367
======== ======== ========
</TABLE>

See accompanying notes.

F-5
<PAGE> 59

DAILEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996

1. ORGANIZATION

The accompanying financial statements reflect the operations of Dailey
Petroleum Services Corp., a Delaware corporation, which was merged with Dailey
Corporation upon its incorporation in May 1996. Dailey Corporation had no
separate legal status or existence as of April 30, 1996. Dailey Corporation and
its predecessor, Dailey Petroleum Services Corp., are hereinafter referred to as
the "Company" or "Dailey."

Prior to May 1996, Dailey was a wholly owned subsidiary of Lawrence
Industries, Inc. ("Lawrence"). With the intent of filing a public offering of
4,000,000 shares of Class A common stock of Dailey (the "Offering") in May 1996,
Lawrence reorganized its ownership of the Company into a holding company
structure through a forward triangular merger of Dailey Petroleum Services Corp,
into a newly-formed, wholly-owned indirect subsidiary of Lawrence, Dailey
Corporation (the "Reorganization").

Dailey Corporation's certificate of incorporation provides for three
classes of stock: Class A Common Stock, $.01 par (20,000,000 shares authorized,
no shares issued or outstanding) ("Class A Common Stock"), Class B Common Stock,
$.01 par (10,000,000 shares authorized, 1,000 shares issued and outstanding)
("Class B Common Stock"), and Preferred Stock, $.01 par (5,000,000 shares
authorized, no shares issued or outstanding). A holder of Class B Common Stock
may convert its Class B Common Stock into Class A Common Stock at any time at
the ratio of one share of Class A Common Stock for each share of Class B Common
Stock. In the event of liquidation, holders of Class A Common Stock and Class B
Common Stock share with each other on a ratable basis as a single class in the
net assets of the Company available for distribution. In addition, shares of
Class B Common Stock convert automatically into a like number of shares of Class
A Common Stock upon the sale or transfer of such shares to a person or entity
that is not a member of the Lawrence Group (as defined in the Company's
Certificate of Incorporation). In contemplation of the Offering, the Company
effected a 5,000-for-one stock split of the Class B Common Stock on June ,
1996 (resulting in 5,000,000 shares issued and outstanding). The effect of the
forward triangular merger and stock split have been reflected retroactively in
the accompanying financial statements.

The Company intends to use $10.0 million of the proceeds from the Offering
to repay a promissory note, which was incurred in connection with a dividend
declared on May 29, 1996. The promissory note accrues interest at the prime rate
and is payable upon demand. Accordingly, the accompanying pro forma consolidated
balance sheet as of April 30, 1996, retroactively reflects the dividend and
resulting decrease in retained earnings. In the accompanying statements of
operations and retained earnings pro forma per share data is included which
gives effect to the number of shares whose proceeds would be used to pay the
dividend (the $10.0 million dividend would require an additional one million
shares assuming a $10 Offering price, thus earnings per share for the year
ending April 30, 1996, are based on 6,360,000 shares of Common Stock
outstanding).

The Company provides directional drilling services and designs,
manufactures and rents technologically-advanced downhole tools for oil and gas
drilling and workover applications. Founded in 1945 as a rental tool company,
Dailey began offering directional drilling services in 1984 and currently
provides such services in the Gulf of Mexico, the United States Gulf Coast
region, Venezuela and the Austin Chalk formation in Texas and Louisiana. The
Company's directional drilling services include computer-aided planning of
optimum well path and drilling procedures, on-site supervision,
measurement-while-drilling ("MWD") services, sourcing and supply of MWD
equipment and related directional drilling tools. The Company introduced the
first drilling jar to the oil and gas industry and currently rents an array of
downhole tools, which it selectively offers in every major oil and gas
exploration and production region in the world. The Company's downhole tools
include mechanical and hydraulic drilling jars, drilling shock absorbers,
hydraulic fishing jars, downhole drilling motors, steering tools, MWD equipment,
coiled tubing jars and thrusters for directional drilling. The Company operates
in one business segment.

F-6
<PAGE> 60

DAILEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances are eliminated in consolidation.

The Company has historically had significant transactions with Lawrence
which are reflected in the accompanying financial statements on the basis
established between the Company and Lawrence. See Notes 6, 7, 8 and 10.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash and cash equivalents.

Accounts Receivable

Accounts receivable are net of allowances for doubtful accounts of
$1,356,000 in 1995 and $1,325,000 in 1996.

Revenue-Producing Tools and Inventory

Revenue-producing tools and inventory are stated at cost utilizing the
first-in, first-out method. Revenue-producing tools are depreciated on the
straight-line method over their estimated useful lives of 5 to 7 years. Tools
lost in hole and billed to customers and tools abandoned are included in sales
of products and services and the related write-off of the tools' net book values
are included in costs of products and services in the accompanying consolidated
statements of operations.

Tools manufactured and assembled are transferred to revenue-producing tools
as completed at the total cost of components, subassemblies, expendable parts,
direct labor, and indirect costs of each tool. For U.S. locations and
international distribution centers, components, subassemblies and expendable
parts are capitalized as inventory and expensed as tools are repaired and
maintained. Components, subassemblies and expendable parts are expensed when
shipped to all international locations other than distribution centers.

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated
primarily on the straight-line method over the estimated useful lives of 5 to 30
years for buildings and improvements, 3 to 10 years for machinery and equipment,
4 to 10 years for furniture and fixtures, and 3 to 7 years for other property
and equipment.

Maintenance and repairs are charged to expense as incurred. Major repairs
and improvements are capitalized and depreciated. The cost and accumulated
depreciation of property and equipment retired or otherwise disposed of are
removed from the related accounts and any gain or loss is recognized in
operations.

F-7
<PAGE> 61

DAILEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Intangible Assets

Patents and other intangibles are amortized over 13 to 40 years and had a
net book value of $203,000 and $182,000 at April 30, 1995 and 1996,
respectively.

Impairment of Long-Lived Assets

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS 121 is
effective for fiscal years beginning after December 15, 1995. The Company
believes that the adoption of SFAS 121 in the first quarter of fiscal 1997 will
not have a material impact on its consolidated financial statements.

Stock Based Compensation

In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
123 establishes alternative methods of accounting and disclosure for employee
stock-based compensation arrangements. In connection with establishing its "1996
Key Employee Stock Plan" and its "1996 Non-Employee Director Stock Plan", the
Company has elected to use the "intrinsic value based method" of accounting for
its stock option plan. This method does not result in the recognition of
compensation expense when employee stock options are granted if the exercise
price of the option equals or exceeds the fair market value of the stock at the
date of grant.

Income Taxes

The Company is included in the consolidated U.S. federal income tax return
of Lawrence for taxable periods ending on or before the closing of the Initial
Public Offering. The Company and its subsidiaries file separate state and
foreign income tax returns. The accompanying consolidated financial statements
reflect the income tax provisions of the Company on a separate return basis with
no U.S. federal tax operating loss, tax credit, or foreign credit carryforwards
generated prior to May 1, 1988 allocated to the Company by Lawrence.

Pursuant to the Tax Allocation Agreement entered into by the Company and
Lawrence, the Company pays to Lawrence an amount equal to the federal income tax
computed on the Company's (and its subsidiaries) taxable income less any tax
credits generated by the Company or its subsidiaries. The Company will pay such
amount even if the consolidated federal income tax return to which the payment
relates does not have a consolidated tax liability. Lawrence will not make any
payment to the Company for any of the Company's net operating losses or tax
credits, even if such net operating losses or tax credits have been used by
Lawrence to reduce its separate federal income tax liability.

The Tax Allocation Agreement applies to the Company for all years in which
the Company (or any predecessor) is or was included in the Lawrence consolidated
federal income tax return. To the extent a state or other taxing jurisdiction
requires or permits a consolidated, combined or unitary tax return to be filed
by Lawrence and its affiliates and such return includes the Company, the
principles expressed with respect to the consolidated federal tax allocation
will apply.

The accompanying consolidated financial statements reflect deferred income
taxes on the liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws in effect. An impairment evaluation, with reserves recorded as
necessary for any tax benefit not expected to be realized, is required of
deferred tax assets. A current tax expense or benefit is recognized for
estimated taxes payable or refundable for the current year.

F-8
<PAGE> 62

DAILEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Foreign Currency Translation

The U.S. dollar is the functional currency for all operations. Accordingly,
foreign currency translation gains and losses are recognized in the consolidated
statements of operations.

Reclassifications

Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform to the current year presentation.

3. REVENUE-PRODUCING TOOLS AND INVENTORY

<TABLE>
<CAPTION>
APRIL 30
----------------------
1995 1996
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Revenue-producing tools................................................ $ 45,963 $ 48,024
Accumulated depreciation............................................... (27,196) (29,740)
-------- --------
18,767 18,284
Inventory:
Components, subassemblies and expendable parts....................... 9,031 9,096
Rental tools and expendable parts under production................... 1,171 1,058
Raw materials........................................................ 1,014 770
-------- --------
11,216 10,924
-------- --------
$ 29,983 $ 29,208
======== ========
</TABLE>

4. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
APRIL 30
------------------------
1995 1996
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Land................................................................. $ 1,383 $ 673
Buildings and improvements........................................... 5,732 5,502
Machinery and equipment.............................................. 14,727 15,167
Furniture and fixtures............................................... 1,402 1,390
Other................................................................ 499 499
-------- --------
23,743 23,231
Accumulated depreciation............................................. (18,292) (19,173)
-------- --------
$ 5,451 $ 4,058
======== ========
</TABLE>

F-9
<PAGE> 63

DAILEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

<TABLE>
<CAPTION>
APRIL 30
----------------------
1995 1996
------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Trade accounts payable................................................. $4,289 $ 3,011
Accrued salaries and vacation.......................................... 1,222 1,778
Agent commissions payable.............................................. 1,021 774
Accrued expenses and other............................................. 1,149 1,596
------ ------
$7,681 $ 7,159
====== ======
</TABLE>

6. RELATED PARTY TRANSACTIONS

The accompanying consolidated statements of operations include annual
rental charges from Lawrence for a corporate office facility and a manufacturing
and service center facilitary. See Note 10.

The affiliate balances, other than the amounts included in long-term debt,
are non-interest bearing and have no fixed repayment terms.

The Company provided Lawrence and certain of its affiliates with various
administrative and management services including cash management, accounting,
tax, data processing, human resources and legal services in 1994, 1995 and 1996.
The Company also utilized from time to time aircraft owned by another Lawrence
subsidiary. The Company historically has not charged Lawrence for these
administrative and management services or reimbursed Lawrence for the use of
aircraft. The effect of not recording the fair values of these services rendered
less services received is not significant.

7. BORROWING ARRANGEMENTS

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
APRIL 30
-----------------------
1995 1996
------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Note payable to a bank:
Monthly interest payments at a fixed rate of 7.92% (See
below); monthly principal payments of $138,889 through
December 1999, with increasing principal payments through
the maturity date of December 2000....................... $ 9,667 $ 8,444
Note payable to affiliates:
Monthly principal payments of $55,000 plus interest at 8%,
with the final payment due December 1998................. 2,420 1,760
Other notes payable........................................... 244 160
------- -------
12,331 10,364
Less current portion of long-term debt........................ 1,967 2,398
------- -------
Total long-term debt................................ $10,364 $ 7,966
======= =======
</TABLE>

F-10
<PAGE> 64

DAILEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Principal payments of long-term debt are due as follows:

The note payable to a bank includes, among other things, provisions
relative to maintenance of working capital balances, limitations on additional
borrowing, debt coverage requirements and restrictions on payment of dividends.
The note payable to a bank is collateralized by a majority of the Company's
assets and a portion of other notes payable is collateralized by equipment
purchased.

In conjunction with $10 million in borrowings and to limit interest rate
exposure, the Company entered into an interest rate swap, which converted the
floating interest rate to a fixed rate of 7.92% and matures in December 2000.

Interest paid during the years ended April 30, 1994, 1995 and 1996 amounted
to $442,000, $1,128,000 and $956,000, respectively.

In December 1995, the Company entered into a $3 million revolving credit
facility with a bank which provides interest at the prime rate with an option to
convert to a LIBOR-based rate plus 2%. At April 30, 1996, the Company had
outstanding borrowings of $1,300,000 at 7.4375% against the line of credit. The
borrowing is due in December 1996.

8. INCOME TAXES

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
---------------------------------
1994 1995 1996
------ ------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes:
U.S. operations............................................. $ 130 $1,443 $ 4,072
Foreign operations.......................................... 2,946 (637) 24
------ ------ ------
$3,076 $ 806 $ 4,096
====== ====== ======
Income tax provision (benefit):
U.S. current................................................ $ 653 $ 737 $ 941
Foreign current............................................. 892 588 1,302
U.S. deferred............................................... (470) (487) (816)
------ ------ ------
$1,075 $ 838 $ 1,427
====== ====== ======
</TABLE>

F-11
<PAGE> 65

DAILEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. A summary of the components of deferred tax liabilities and assets
are as follows:

<TABLE>
<CAPTION>
APRIL 30
----------------------
1995 1996
------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Revenue-producing tools and property and equipment........... $ 918 $ 662
------ ------
Total deferred tax liabilities....................... 918 662
Deferred tax assets:
Net operating loss carryforward.............................. -- 1,547
Provision for doubtful accounts receivable................... 461 504
Uniform capitalization costs................................. 1,483 1,053
Vacation and workers' compensation accruals.................. 392 389
------ ------
Total deferred tax assets............................ 2,336 3,493
Valuation allowance for deferred tax assets.................... (461) (1,058)
------ ------
1,875 2,435
------ ------
Net deferred tax assets........................................ $ 957 $ 1,773
====== ======
</TABLE>

The difference between the United States statutory rate and the Company's
effective income tax rate is reconciled as follows:

<TABLE>
<CAPTION>
APRIL 30
-------------------------------
1994 1995 1996
----- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
United States statutory rate............................ 34.0% 34.0% 34.0%
Increases (reductions) in tax rate resulting from:
Meals and entertainment............................... 0.9 10.7 2.2
Dissolution of partnership............................ 20.0
Benefit of net operating loss carryforward............ (23.2)
Foreign losses........................................ 41.4 2.1
Other................................................. 17.9 (.3)
---- ----- ----
Effective income tax rate..................... 34.9% 104.0% 34.8%
==== ===== ====
</TABLE>

Subsequent to the Reorganization, the Company will file U.S. federal income
tax returns on a stand alone basis. The Company and Lawrence are jointly and
severally liable with respect to taxes related to periods prior to the
Reorganization. The Company and Lawrence have entered into a tax allocation
agreement, pursuant to which Lawrence has agreed to indemnify the Company with
respect to any federal or state taxes unrelated to Dailey for periods prior to
the Reorganization.

For income tax reporting at April 30, 1996, the Company has net operating
loss carryforwards of approximately $4,550,000, expiring in 2004 through 2010.
The valuation allowance relates to deferred tax assets established under SFAS
No. 109 for the provision for doubtful accounts receivable of $504,000 and net
operating loss carryforwards of $554,000. No other valuation allowances were
considered necessary. The change in the valuation allowance during fiscal 1996
is primarily due to the benefit of previously unrecognized net operating loss
carryforwards. Based upon prior earnings history, it is expected that future
taxable income will be more than sufficient to utilize the remaining deductible
temporary differences.

F-12
<PAGE> 66

DAILEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

No provision is made for U.S. income taxes applicable to undistributed
earnings of foreign subsidiaries that are indefinitely reinvested in foreign
operations.

Income taxes paid during 1994, 1995 and 1996 were $1,056,000, $917,000 and
$538,000, respectively.

9. ROYALTIES

In 1986, the Company purchased the design, patents and rights to certain
hydraulic tools and entered into a royalty agreement with the seller which
expires in 1999 and 2003 as to the covered hydraulic drilling and fishing jars,
respectively. Royalty agreements were executed between the Company and the
royalty owner in 1993 and 1994 on newly issued methods and apparatus patents
related to a double-acting drilling accelerator and improvements to hydraulic
drilling jars. In March 1994, the royalty agreements were amended to cap
royalties at 5% of annual net rental revenues derived from the hydraulic
drilling and fishing jars and double-acting drilling accelerators through
December 1999, with the royalty percentage decreasing to 4% from January 2000 to
expiration of the applicable patents. Upon expiration of the patents, no
royalties will be required. The amended agreement also revised the 1% royalty
paid on net lost-in-hole revenue for the original hydraulic drilling jar patent
to the 2% provided in subsequent royalty agreements. In consideration for the
execution of the amendment to the royalty agreement, the Company agreed to pay
the owner of the royalty $250,000 in royalties. The $250,000, net of imputed
interest, was recorded as an expense at April 30, 1994, and subsequent to that
date, the Company arranged for the payment of this amount through a note
payable. For the years ended April 30, 1994, 1995 and 1996, the accompanying
consolidated statements of operations include royalty expense of $466,000,
$826,000 and $843,000, respectively, excluding the $250,000 related to the
amended royalty agreement. The owner of the royalty was an officer of the
Company until October 1994.

10. COMMITMENTS AND CONTINGENCIES

The Company leases office space, transportation equipment, and other
property under noncancelable operating leases with third parties and a corporate
office facility and manufacturing and service center facility with Lawrence. See
Note 6. Future minimum lease commitments under noncancelable operating leases at
April 30, 1996 are as follows:

<TABLE>
<CAPTION>
THIRD PARTY LAWRENCE TOTAL
----------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
1997.................................................. $ 331 $ 450 $ 781
1998.................................................. 174 -- 174
1999.................................................. 181 -- 181
2000.................................................. 181 -- 181
2001.................................................. 181 -- 181
Thereafter............................................ 634 -- 634
---- ------ ------
$ 1,682 $ 450 $2,132
==== ====== ======
</TABLE>

Rental expense under operating leases with third parties, inclusive of
month-to-month rentals, totaled $1,329,000, $1,700,000 and $2,283,000 in 1994,
1995 and 1996, respectively, and with Lawrence totaled $1,029,000, $1,244,000
and $1,306,000 in 1994, 1995 and 1996, respectively and are included in selling
general and administrative expenses and cost of rentals.

The Company is the defendant in various legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not materially
affect the consolidated financial statements of the Company. The Company is also
the plaintiff in certain actions defending its patents and proprietary designs
and in 1994 was awarded damages in

F-13
<PAGE> 67

DAILEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

one case in the amount of $3,600,000. As the case remains on appeal and the
ability of the defendant to pay is unknown, no amount has been recorded in the
accompanying financial statements.

11. CONCENTRATIONS OF CREDIT RISK AND FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company is subject to credit risk and other risks inherent in
international operations. Generally, in excess of 50% of the Company's
receivables are due from oil and gas exploration companies and drilling
contractors operating in countries other than the United States and from the
Company's international agents. United States receivables are generally due from
major oil and gas exploration and drilling contractors throughout the oil field
areas of the United States. The Company routinely monitors its cash and
receivable positions with customers and international agents.

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.

Long- and short-term debt and interest rate swap: The carrying amounts
of the Company's borrowings under its short-term revolving note payable
approximates fair value. The fair values of the Company's long-term debt
and interest rate swap are estimated using discounted cash flow analyses,
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.

The carrying amounts and fair value of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
APRIL 30, 1995 APRIL 30, 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents...................... $ 1,796 $ 1,796 $ 2,367 $ 2,367
Short-term debt................................ -- -- 1,300 1,300
Long-term debt, including interest rate swap... 12,331 11,833 10,364 10,316
</TABLE>

12. SUBSEQUENT EVENT

Subsequent to April 30, 1996, and effective with the completion of a public
offering, the Board of Directors adopted the "1996 Key Employee Stock Plan" and
the "1996 Non-Employee Director Stock Plan." The Company's "1996 Key Employee
Stock Plan," a non compensatory plan, authorized the grant of options or
restricted stock for Class A Common Stock to management personnel for up to
900,000 shares of the Company's Common Stock. The Company intends to grant
options totalling 341,129 shares contemporaneously with the offering to various
executive officers at the initial public offering price, which will vest over
three years. In addition, the Company granted to key officers restricted stock
awards totalling 360,000 shares of Class A Common Stock, which will vest over
three years and not require any payment by the key officers. The "1996
Non-Employee Director Stock Plan," a compensatory plan, has 100,000 shares
authorized for the grant of options to outside directors.

F-14
<PAGE> 68

DAILEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. INDUSTRY SEGMENT AND DOMESTIC AND INTERNATIONAL OPERATIONS

The Company operates in one business segment, providing directional
drilling services and technologically-advanced downhole tools for oil and gas
drilling and workover applications.

Export revenues to unaffiliated customers included in domestic sales were
$1,003,000, $274,000 and $1,833,000 in 1994, 1995 and 1996, respectively.

Revenues by geographic area are as follows:

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1994 1995 1996
------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
(IN THOUSANDS)
Domestic................................................ $23,736 $29,607 $34,370
Europe.................................................. 6,198 7,090 7,349
Africa.................................................. 1,565 1,446 2,059
Latin America........................................... 6,712 6,024 11,032
Middle East............................................. 984 511 563
Asia.................................................... 4,620 4,185 3,566
------- ------- -------
Total................................................... $43,815 $48,863 $58,939
======= ======= =======
</TABLE>

Operating income (loss) by geographic area is as follows:

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1994 1995 1996
------- ------- -------
(UNAUDITED)

<S> <C> <C> <C>
(IN THOUSANDS)
Domestic................................................ $ 2,781 $ 3,639 $ 8,025
Europe.................................................. 2,368 2,512 2,424
Africa.................................................. 419 286 860
Latin America........................................... 2,758 812 1,434
Middle East............................................. 236 (15) 413
Asia.................................................... 2,078 1,645 916
Corporate............................................... (7,154) (6,972) (8,890)
------- ------- -------
Total................................................... $ 3,486 $ 1,907 $ 5,182
======= ======= =======
</TABLE>

Identifiable assets by geographic area are as follows:

<TABLE>
<CAPTION>
APRIL 30,
------------------
1995 1996
------- -------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)
Domestic.......................................................... $32,717 $31,136
Europe............................................................ 7,328 7,617
Africa............................................................ 1,418 1,631
Latin America..................................................... 5,091 8,437
Middle East....................................................... 342 242
Asia.............................................................. 4,098 3,620
Corporate......................................................... 2,457 1,887
------- -------
Total............................................................. $53,451 $54,570
======= =======
</TABLE>

F-15
<PAGE> 69

================================================================================

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
ON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES IN ANY STATE
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
STATE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 13
Use of Proceeds....................... 14
Dividend Policy....................... 14
Dilution.............................. 14
Capitalization........................ 15
Selected Consolidated Financial
Data................................ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business and Properties............... 22
Management............................ 35
Certain Relationships and Related
Transactions........................ 41
Security Ownership of Management and
Principal Stockholder............... 44
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 49
Underwriting.......................... 50
Legal Matters......................... 51
Experts............................... 51
Available Information................. 51
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

---------------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

================================================================================

4,000,000 SHARES

[LOGO]

DAILEY
CORPORATION

CLASS A COMMON STOCK
PROSPECTUS
JEFFERIES & COMPANY, INC.

SOUTHCOAST CAPITAL
CORPORATION
, 1996

================================================================================
<PAGE> 70

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The estimated expenses in connection with the Offering are:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........................ $15,862
NASD Filing Fee............................................................ 5,100
Nasdaq National Market Listing Fee......................................... *
Legal Fees and Expenses.................................................... *
Accounting Fees and Expenses............................................... *
Blue Sky Fees and Expenses (including legal fees).......................... *
Printing Expenses.......................................................... *
Transfer Agent and Registrar Fees.......................................... *
Miscellaneous.............................................................. *
-------
TOTAL............................................................ $ *
=======
</TABLE>

- ---------------

* to be filed by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Delaware law, a corporation may include provisions in its certificate
of incorporation that will relieve its directors of monetary liability for
breaches of their fiduciary duty to the corporation, except under certain
circumstances, including a breach of the director's duty of loyalty, acts or
omissions of the director not in good faith or which involve intentional
misconduct or a knowing violation of law, the approval of an improper payment of
a dividend or an improper purchase by the corporation of stock or any
transaction from which the director derived an improper personal benefit. The
Restated Certificate of Incorporation provides that the Company's directors are
not liable to the Company or its stockholders for monetary damages for breach of
their fiduciary duty, subject to the described exceptions specified by Delaware
law.

Section 145 of the General Corporation Law of the State of Delaware grants
to the Company the authority to indemnify each officer and director of the
Company against liabilities and expenses incurred by reason of the fact that he
is or was an officer or director of the Company if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Bylaws provide for
indemnification of each officer and director of the Company to the fullest
extent permitted by Delaware law.

Section 145 of the General Corporation Law of the State of Delaware also
allows the Company to purchase and maintain insurance on behalf of any person
who is or was an officer or director of the Company against liability asserted
against or incurred by him in any such capacity, whether or not the Company
would have the authority to indemnify such officer or director against such
liability under the provisions of Section 145. The Company has purchased and
maintains a directors' and officers' liability policy for such purposes.

The Company's Bylaws provide for the indemnification of its officers and
directors and the advancement to them of expenses in connection with proceedings
and claims, to the fullest extent permitted under the General Corporation Law of
the State of Delaware. Such indemnification may be made even though directors
and officers would not otherwise be entitled to indemnification under other
provisions by the Bylaws.

The above discussion of the General Corporation Law of the State of
Delaware and of the Restated Certificate of Incorporation and Bylaws is not
intended to be exhaustive and is qualified in its entirety by such statute and
the Restated Certificate of Incorporation and Bylaws.

II-1
<PAGE> 71

Reference is made to the form of Underwriting Agreement filed as Exhibit
1.1 to the Registration Statement for certain provisions regarding the
indemnification of the Company, its officers and directors and any controlling
persons by the Underwriters against certain liabilities for information
furnished by the Underwriters.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrants
pursuant to the foregoing provisions, the Registrants have been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and therefore is unenforceable.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On May 21, 1996, in connection with the Reorganization, The Registrant
issued 1,000 shares of Class B Common Stock to Dailey Holdings Inc., a Delaware
corporation and wholly-owned subsidiary of Lawrence Industries, Inc. All of the
shares of capital stock of the Registrant's predecessor, which were held by
Lawrence Industries, Inc., were then exchanged for additional shares of Dailey
Holdings Inc. See "The Company -- Reorganization; Relationship with Lawrence".
The aggregate consideration paid for these shares was, in effect, all of the
capital stock of the Registrant's predecessor. The sale of such securities was
exempt from registration under the Securities Act pursuant to Section 4(2) of
the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<TABLE>
<C> <S>
+1.1 -- Form of Underwriting Agreement.
+2.1 -- Plan and Agreement of Merger by and between Dailey Petroleum Services
Corp., Dailey Corporation and DPSC Holdings Inc., dated May 29, 1996.
3.1 -- Certificate of Incorporation of the Company.
+3.2 -- Bylaws of the Company.
+4.1 -- Form of Class A Common Stock Certificate.
4.2 -- See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Company defining the rights of the
holders of Common Stock.
+4.3 -- Second Amended and Restated Loan Agreement by and between Dailey
Petroleum Services Corp. and First Interstate Bank of Texas, N.A.,
dated December 13, 1995.
+4.4 -- Revolving Credit Note in Favor of First Interstate Bank of Texas,
N.A., dated December 13, 1995.
+4.5 -- Second Amended and Restated Subordination Agreement by and among
Lawrence Industries, Inc., First Interstate Bank of Texas, N.A. and
Dailey Petroleum Services Corp., dated December 13, 1995.
+4.6 -- Second Amended and Restated Commercial Security Agreement by and
between First Interstate Bank of Texas, N.A. and Dailey Petroleum
Services Corp., dated December 13, 1995.
+4.7 -- Second Amended Notice of Security Interest in Intellectual Property
in Favor of First Interstate Bank of Texas, N.A., dated December 13,
1995.
+5.1 -- Opinion of Fulbright & Jaworski L.L.P.
+10.1 -- Relationship Agreement dated , 1995, by and between the
Company and Lawrence Industries, Inc.
+10.2 -- Office Lease Agreement dated , 19 , by and between the
Company as lessee and Lawrence International, Inc. as lessor
+10.3 -- Service Center Lease Agreement dated , 19 , by and
between the Company as lessee and Lawrence International, Inc. as
lessor
</TABLE>

II-2
<PAGE> 72

<TABLE>
<S> <C>
+10.4 -- Registration Rights Agreement dated , 19 , by and
between the Company and Lawrence, Inc.
+10.5 -- Form of Employment Agreement by and between the Company and certain
members of Management.
+10.6 -- Dailey Corporation 401(k) Plan
+10.7 -- Dailey Corporation 1996 Key Employee Stock Plan
+10.8 -- Dailey Corporation 1996 Non-Employee Director Stock Option Plan.
+10.9 -- Second Amended and Restated Loan Agreement by and between Dailey
Petroleum Services Corp. and First Interstate Bank of Texas, N.A.,
dated December 13, 1995 (set forth as Exhibit 4.3)
+10.10 -- Form of Tax Allocation Agreement
21.1 -- List of subsidiaries of the Company.
23.1 -- Consent of Ernst & Young LLP.
+23.2 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
24.1 -- Powers of Attorney from certain members of the Board of Directors of
the Company (contained on page II-5).
27.1 -- Financial Data Schedule.
</TABLE>

- ---------------

+ To be filed by amendment.

(b) Financial Statement Schedules:

The following financial statement schedule is included in Part II of this
Registration Statement, can be found on the page indicated and should be read in
conjunction with the financial statements and notes thereto:

<TABLE>
<CAPTION>
ITEM PAGE
------------------------------------------------------------------------------ ----
<S> <C>
Report of Independent Auditors on Schedule.................................... S-1
Schedule II -- Valuation and Qualifying Accounts.............................. S-2
</TABLE>

All other financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are omitted because they are
not required under the related instructions, are inapplicable or the required
information is included elsewhere in the financial statements.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the foregoing
provisions may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the Securities Act or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-3
<PAGE> 73

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
the Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 74

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on May 24, 1996.

DAILEY CORPORATION

By: /s/ JAMES F. FARR
---------------------------------
James F. Farr
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints James F. Farr and William D. Sutton, and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same and all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ---------------
<C> <S> <C>
/s/ J. D. LAWRENCE Chairman of the Board May 24, 1996
------------------------------------
J. D. Lawrence

/s/ JAMES F. FARR President and Chief Executive May 24, 1996
----------------------------------- Officer and Director
James F. Farr (Principal Executive
Officer)

/s/ WILLIAM D. SUTTON Senior Vice President, General May 24, 1996
----------------------------------- Counsel, Secretary and
William D. Sutton Director

/s/ David T. Tighe Senior Vice President, May 24, 1996
----------------------------------- Finance, Chief Financial
David T. Tighe Officer, Treasurer and
Director (Principal
Financial Officer and
Principal Accounting
Officer)
</TABLE>

II-5
<PAGE> 75

REPORT OF INDEPENDENT AUDITORS ON SCHEDULE

To the Board of Directors and Stockholder
of Dailey Corporation

We have audited the consolidated financial statements of Dailey
Corporation, a Delaware corporation, (successor to Dailey Petroleum Services
Corp.) as of April 30, 1995, and for each of the two years in the period ended
April 30, 1995, and have issued our report thereon dated July 14, 1995, except
for Note 1 as to which the date is June , 1996 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

Houston, Texas
July 14, 1995, except for Note 1 as to which
the date is June , 1996

- --------------------------------------------------------------------------------

The foregoing report is in the form that will be signed upon completion of
the reorganization of the capital accounts of the Company as described in Note 1
to the consolidated financial statements.

ERNST & YOUNG LLP
Houston, Texas
May 23, 1996

S-1
<PAGE> 76

DAILEY CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
----------------

BALANCE
AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
----------------------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1994 Allowance for Bad Debt $1,301,000 $184,000 0 $(175,000) $1,310,000
========== ======== == ========= ==========
Inventory Reserve $ 973,000 0 0 $ (21,000) $ 952,000
========== ======== == ========= ==========
1995 Allowance for Bad Debt $1,310,000 $140,000 0 $ (94,000) $1,356,000
========== ======== == ========= ==========
Inventory Reserve $ 952,000 0 0 $ (60,000) $ 892,000
========== ======== == ========= ==========
1996 Allowance for Bad Debt $1,356,000 $256,000 0 $(287,000) $1,325,000
========== ======== == ========= ==========
Inventory Reserve $ 892,000 0 0 $ (88,000) $ 804,000
========== ======== == ========= ==========
</TABLE>

S-2
<PAGE> 77

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
+1.1 -- Form of Underwriting Agreement.
+2.1 -- Plan and Agreement of Merger by and between Dailey Petroleum Services
Corp., Dailey Corporation and DPSC Holdings Inc., dated May 29, 1996.
3.1 -- Certificate of Incorporation of the Company.
+3.2 -- Bylaws of the Company.
+4.1 -- Form of Class A Common Stock Certificate.
4.2 -- See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Company defining the rights of the
holders of Common Stock.
+4.3 -- Second Amended and Restated Loan Agreement by and between Dailey
Petroleum Services Corp. and First Interstate Bank of Texas, N.A.,
dated December 13, 1995.
+4.4 -- Revolving Credit Note in Favor of First Interstate Bank of Texas,
N.A., dated December 13, 1995.
+4.5 -- Second Amended and Restated Subordination Agreement by and among
Lawrence Industries, Inc., First Interstate Bank of Texas, N.A. and
Dailey Petroleum Services Corp., dated December 13, 1995.
+4.6 -- Second Amended and Restated Commercial Security Agreement by and
between First Interstate Bank of Texas, N.A. and Dailey Petroleum
Services Corp., dated December 13, 1995.
+4.7 -- Second Amended Notice of Security Interest in Intellectual Property
in Favor of First Interstate Bank of Texas, N.A., dated December 13,
1995.
+5.1 -- Opinion of Fulbright & Jaworski L.L.P.
+10.1 -- Relationship Agreement dated , 1995, by and between the
Company and Lawrence Industries, Inc.
+10.2 -- Office Lease Agreement dated , 19 , by and between the
Company as lessee and Lawrence International, Inc. as lessor
+10.3 -- Service Center Lease Agreement dated , 19 , by and
between the Company as lessee and Lawrence International, Inc. as
lessor
+10.4 -- Registration Rights Agreement dated , 19 , by and
between the Company and Lawrence, Inc.
+10.5 -- Form of Employment Agreement by and between the Company and certain
members of Management.
+10.6 -- Dailey Corporation 401(k) Plan
+10.7 -- Dailey Corporation 1996 Key Employee Stock Plan
+10.8 -- Dailey Corporation 1996 Non-Employee Director Stock Option Plan.
+10.9 -- Second Amended and Restated Loan Agreement by and between Dailey
Petroleum Services Corp. and First Interstate Bank of Texas, N.A.,
dated December 13, 1995 (set forth as Exhibit 4.3)
+10.10 -- Form of Tax Allocation Agreement
21.1 -- List of subsidiaries of the Company.
23.1 -- Consent of Ernst & Young LLP.
+23.2 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
24.1 -- Powers of Attorney from certain members of the Board of Directors of
the Company (contained on page II-5).
27.1 -- Financial Data Schedule.
</TABLE>

- ---------------

+ To be filed by amendment.

<PAGE> 1
STATE OF DELAWARE PAGE 1

OFFICE OF THE SECRETARY OF STATE

---------------------------------

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "DAILEY CORPORATION", FILED IN THIS OFFICE ON THE TWENTIETH
DAY OF MAY, A.D. 1996, AT 4:30 O'CLOCK P.M.

[GREAT SEAL OF THE STATE OF DELAWARE]

/s/ EDWARD J. FREEL
------------------------------
Edward J. Freel, Secretary of State

AUTHENTICATION:

2625481 8100 7954114

DATE:
960147095 05-21-96
<PAGE> 2
DAILEY CORPORATION

CERTIFICATE OF INCORPORATION

ARTICLE 1

The name of the Corporation is Dailey Corporation.

ARTICLE 2

The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at that address is The Corporation
Trust Company.

ARTICLE 3

The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.

ARTICLE 4

The total number of shares of stock of all classes which the
Corporation has authority to issue is 35,000,000 shares, of which 20,000,000
shares shall be Class A Common Stock, with a par value of $.01 per share
("Class A Common Stock"), 10,000,000 shares shall be Class B Common Stock, with
a par value of $.01 per share ("Class B Common Stock"), and 5,000,000 shares
shall be Preferred Stock, with a par value of $.01 per share ("Preferred
Stock").

The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the shares of each class of
stock are as follows:

PREFERRED STOCK

Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. Subject to the provisions hereof
and the limitations prescribed by law, the Board of Directors is hereby vested
with the authority and is expressly authorized, prior to issuance, by adopting
resolutions providing for the issuance of, or providing for a change in the
number of, shares of any particular series and, if and to the extent from time
to time required by law, by filing a certificate pursuant to the General
Corporation Law of the State of Delaware (or other law hereafter in effect
relating to the same or substantially similar subject matter), to establish or
change the number of shares to be included in each such series and to fix
<PAGE> 3
the designation and powers, preferences and rights and the qualifications and
limitations or restrictions thereof relating to the shares of each such series,
all to the maximum extent permitted by the General Corporation Law of the State
of Delaware as in effect on the date hereof or as hereafter amended. The
vested authority of the Board of Directors with respect to each series shall
include, but not be limited to, the determination of the following:

(a) the distinctive serial designation of such series and
the number of shares constituting such series (provided that the
aggregate number of shares constituting all series of Preferred Stock
shall not exceed 5,000,000);

(b) The annual dividend rate, if any, on shares of such
series and the preferences, if any, over any other series (or of any
other series over such series) with respect to dividends, and whether
dividends shall be cumulative and, if so, from which date or dates;

(c) whether the shares of such series shall be redeemable
and, if so, the terms and conditions of such redemption, including the
date or dates upon and after which such shares shall be redeemable,
and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates;

(d) the obligation, if any, of the Corporation to
purchase or redeem shares of such series pursuant to a sinking fund or
purchase fund and, if so, the terms of such obligation;

(e) whether shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or
classes, any stock of any series of the same class or any other class
or classes or any evidences of indebtedness and, if so, the terms and
conditions of such conversion or exchange, including the price or
prices or the rate or rates of conversion or exchange and the terms of
adjustment, if any;

(f) whether the shares of such series shall have voting
rights in addition to the voting rights provided by law, and, if so,
the terms of such voting rights, including, without limitation,
whether such shares shall have the right to vote with the Class A
Common Stock and Class B Common Stock on issues on an equal, greater
or lesser basis;

(g) the rights of the shares of such series in the event
of a voluntary or involuntary liquidation, dissolution, winding up or
distribution of assets of the Corporation;

(h) whether the shares of such series shall be entitled
to the benefit of conditions and restrictions upon (i) the creation of
indebtedness of the Corporation or any subsidiary, (ii) the issuance
of any additional stock (including additional shares of such series or
of any other series) or

2
<PAGE> 4
(iii) the payment of dividends or the making of other distributions on
the purchase, redemption or other acquisition by the Corporation or
any subsidiary of any outstanding stock of the Corporation; and

(i) any other relative, rights, powers, preferences,
qualifications, limitations or restrictions thereof, including, but
not limited to, any that may be determined in connection with the
adoption of any stockholder rights plan after the date hereof,
relating to any such series.

Except where otherwise set forth in the resolution or resolutions
adopted by the Board of Directors providing for the issuance of any series of
Preferred Stock, the number of shares comprising such series may be increased
or decreased (but not below the number of shares then outstanding) from time to
time by like action of the Board of Directors. The shares of Preferred Stock
of any one series shall be identical with the other shares in the same series
in all respects except as to the dates from and after which dividends thereon
shall cumulate, if cumulative.

Shares of any series of Preferred Stock that have been redeemed
(whether through the operation of a sinking fund or otherwise) or purchased by
the Corporation, or which, if convertible or exchangeable, have been converted
into, or exchanged for, shares of stock of any other class or classes or any
evidences of indebtedness shall have the status of authorized and unissued
shares of Preferred Stock and may be reissued as a part of the series of which
they were originally a part or may be reclassified and reissued as part of a
new series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors or as part of any other series of Preferred Stock, all
subject to the conditions or restrictions on issuance set forth in the
resolution or resolutions adopted by the Board of Directors providing for the
issuance of any series of Preferred Stock and to any filing required by law.

The number of authorized shares of Preferred Stock may be increased or
decreased by the affirmative vote of the holders of a majority of the stock of
the Corporation entitled to vote without the separate vote of holders of
Preferred Stock as a class.

CLASS A COMMON STOCK AND CLASS B COMMON STOCK

Subject to all of the rights of the Preferred Stock, and except as may
be expressly provided with respect to the Preferred Stock herein, by law or by
the Board of Directors pursuant to this Article 4:

(a) dividends may be declared and paid or set apart for
payment upon Class A Common Stock and Class B Common Stock out of any
assets or funds of the Corporation legally available for the payment
of dividends and may be payable in cash, stock or otherwise; provided,
however, that any dividend declared on either shares of Class A Common
Stock shares of Class B Common Stock shall be declared on shares of
Class A Common Stock and shares of Class B Common Stock alike as if
all such shares were of the same class and series;

3
<PAGE> 5
(b) the holders of Class A Common Stock and Class B
Common Stock shall have the exclusive right to vote for the election
of directors (other than in the case of newly created directorships
and vacancies, which shall be filled solely by the remaining directors
as set forth in Article 6 hereof) and on all other matters requiring
stockholder action, with each share of Class A Common Stock entitling
the holder thereof to one (1) vote on any matter submitted to the
stockholders for a vote, and each share of Class B Common Stock
entitling the holder thereof to five (5) votes on any matter submitted
to the stockholders for a vote, provided that such holder of the Class
B Common Stock is a member of the Lawrence Group (as hereinafter
defined); and every reference in this Certificate of Incorporation or
the Bylaws of the Corporation, as in effect from time to time, to a
majority or other portion of stock shall refer to such majority or
other proportion of the votes of such stock; provided, however, that,
except as required by law, holders of Class A Common Stock and Class B
Common Stock shall, on every matter submitted to the stockholders for
a vote, vote as a single class, and in no case, except as required by
law, shall the holders of Class A Common Stock or Class B Common Stock
be entitled to vote separately as a class, and provided that the
number of authorized shares of any class or classes of stock may be
increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of a majority of the votes
of the voting stock of the Corporation; and as used in this Restated
Certificate of Incorporation, the "Lawrence Group" shall mean Lawrence
Industries, Inc., a Delaware corporation, and its subsidiaries and
affiliates (collectively, "Lawrence Industries"), James D. Lawrence,
his spouse, children, grandchildren, nieces and nephews (collectively,
the "Lawrence Family"), trusts or other entities controlled by, or for
the benefit of, any member of the Lawrence Family or any other
affiliate of Lawrence Industries or the Lawrence Family;

(c) upon any merger, consolidation, reorganization, or
other business combination of the Corporation and any other entity,
the consideration to be received per share by the holders of the Class
A Common Stock and Class B Common Stock as a result of such merger,
consolidation, reorganization, or other business combination shall be
identical, except that the voting rights of any securities received by
holders of Class A Common Stock may differ from the voting rights of
any securities received by holders of Class B Common Stock to the
extent that the voting rights differ between shares of Class A Common
Stock and shares of Class B Common Stock;

(d) neither the outstanding shares of Class A Common
Stock nor the outstanding shares of Class B Common Stock may be
subdivided, consolidated, reclassified or otherwise changed unless
contemporaneously therewith the outstanding shares of the other class
of common stock are subdivided, consolidated, reclassified or
otherwise changed in the same proportion and in the same manner; and

4
<PAGE> 6
(e) upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the net assets of the
Corporation shall be distributed pro rata to the holders of Class A
Common Stock and Class B Common Stock, without distinction as to
class, in accordance with the number of shares held by each such
holder.

CONVERSION OF CLASS B COMMON STOCK TO CLASS A COMMON STOCK

Each share of Class B Common Stock may be converted, at any time and
at the election of the holder, into one share of Class A Common Stock. In
addition, each share of Class B Common Stock shall be converted automatically
into one share of Class A Common Stock at the time it is sold, transferred or
otherwise disposed of to any third party other than a member of the Lawrence
Group. Upon any conversion of the Class B Common Stock into Class A Common
Stock, the holder thereof shall be entitled to only one (1) vote per share on
any matter submitted to the stockholders for a vote.

DENIAL OF PREEMPTIVE RIGHTS AND CUMULATIVE VOTING

No holder of any stock of the Corporation shall be entitled as such,
as a matter of right, to subscribe for or purchase any part of any new or
additional issue of stock of any class whatsoever of the Corporation, or of
securities convertible into stock of any class whatsoever, whether now or
hereafter authorized, or whether issued for cash or other consideration or by
way of dividend.

No holder of any stock of the Corporation shall have the right of
cumulative voting at any election of directors or upon any other matter.

ARTICLE 5

The name of the incorporator is William D. Sutton, whose mailing
address is 2507 North Frazier, Conroe, Texas 77305.

ARTICLE 6

The Corporation is to have perpetual existence.

ARTICLE 7

All power of the Corporation shall be vested in and exercised by or
under the direction of the Board of Directors except as otherwise provided
herein or required by law.

For the management of the business and for the conduct of the affairs
of the Corporation, and in further creation, definition, limitation and
regulation of the power of the Corporation and of its directors and
stockholders, it is further provided:

5
<PAGE> 7
Section 1. Elections of Directors. Elections of Directors need not
be by written ballot unless the Bylaws of the Corporation shall so provide.

Section 2. Number, Election and Terms of Directors. Except as
otherwise fixed pursuant to the provisions of Article 4 hereof relating to the
rights of the holders of any class or series of stock having a preference over
the Class A and Class B Common Stock as to dividends or upon liquidation to
elect additional directors under specified circumstances, the number of
directors of the Corporation shall be fixed from time to time by or in the
manner provided by the Bylaws; provided that such number shall not be less than
three nor more than twelve. The directors, other than those who may be elected
by the holders of any class or series of stock having preference over the Class
A and Class B Common Stock as to dividends or upon liquidation, shall be
classified, with respect to the time for which they severally hold office, into
three classes, each as nearly equal in number as possible, as shall be provided
in the manner specified in the Bylaws, one class (Class I) to hold office
initially for a term expiring at the annual meeting of stockholders to be held
in 1997, another class (Class II) to hold office initially for a term expiring
at the annual meeting of stockholders to be held in 1998, and another class
(Class III) to hold office initially for a term expiring at the annual meeting
of stockholders to be held in 1999, with the members of each class to hold
office until their successors are duly elected and qualified or until their
earlier resignation or removal. At each annual meeting of the stockholders of
the Corporation, the successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders to be held in the third year following the year of
their election.

Section 3. Stockholder Nomination of Director Candidates. Advance
notice of nominations for the election of Directors, other than by the Board of
Directors or a Committee thereof, shall be given in the manner provided in the
Bylaws.

Section 4. Newly Created Directorships and Vacancies. Except as
otherwise fixed pursuant to the provisions of Article 4 hereof relating to the
rights of the holders of any class or series of stock having a preference over
Class A and Class B Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, newly created directorships resulting
from any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled solely by the affirmative vote of not less than
two-thirds of the remaining directors then in office, even though less than a
quorum of the Board of Directors. Any director elected to fill a vacancy
resulting from death, resignation, disqualification, removal or other cause
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred and until such director's successor shall have
been elected and qualified or until his or her earlier resignation or removal.
Newly created directorships shall be within such class of directors as shall be
required to maintain, as nearly as possible, an equal number of directors in
each class. Any director elected to fill a newly created directorship shall
hold office for the term of the class in which such directorship has been
created and until such director's successor shall have been elected and
qualified or until his or her earlier resignation or removal. No decrease in
the number

6
<PAGE> 8
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.

Section 5. Removal of Directors. Subject to the rights of any class
or series of stock having preference over Class A and Class B Common Stock as
to dividends or upon liquidation to elect directors under specified
circumstances, any director may be removed from office only for cause. Except
as may otherwise be provided by law, cause for removal shall be construed to
exist only if during a director's term as a director of the Corporation: (a)
the director whose removal is proposed has been convicted of a felony by a
court of competent jurisdiction and such conviction is no longer subject to
direct appeal; (b) such director has been adjudicated by a court of competent
jurisdiction to be liable for gross negligence, recklessness or misconduct in
the performance of his or her duty to the Corporation in a manner of
substantial importance to the Corporation and such adjudication is no longer
subject to direct appeal; or (c) such director has been adjudicated by a court
of competent jurisdiction to be mentally incompetent, which mental incompetency
directly affects his or her ability as a director of the Corporation, and such
adjudication is no longer subject to direct appeal.

Section 6. Stockholder Action. Any action required or permitted to
be taken by the stockholders of the Corporation at any annual or special
meeting may be taken without a meeting, without prior written notice and
without a vote if a consent or consents in writing setting forth the action so
taken shall be signed by the holders of outstanding voting stock of the
Corporation having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business or the Secretary of the Corporation. Except as otherwise
required by law and subject to the rights of holders of any class or series of
stock having a preference over Class A and Class B Common Stock as to dividends
or upon liquidation, special meetings of stockholders of the Corporation may be
called only by the Chairman of the Board, the Chief Executive Officer or the
Board of Directors pursuant to a resolution approved by a majority of the
entire Board of Directors.

Section 7. Bylaw Amendments. The Board of Directors shall have the
power to make, alter, amend and repeal the Bylaws (except so far as the Bylaws
adopted by the stockholders shall otherwise provide). Any Bylaws made by the
Board of Directors under the powers conferred hereby may be altered, amended or
repealed by the directors or by the stockholders; provided, however, that the
Bylaws shall not be altered, amended or repealed and no provision inconsistent
therewith shall be adopted (i) by stockholder action without the affirmative
vote of the holders of at least 66 2/3% of the voting power of all the shares
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class or (ii) by director action without the
affirmative vote of not less than two-thirds of the directors then in office.

Section 8. Liability of Directors.

A. 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

7
<PAGE> 9
director; provided that this Article 6 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.

B. 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
Section 8 of this Article 6.

C. Any repeal or modification of this Section 8 of this
Article 6 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.

D. The Corporation shall be obligated at all times to
maintain the effectiveness of Bylaw provisions providing for the
mandatory indemnification of the directors of the Corporation to the
maximum extent permitted by the General Corporation Law of the State
of Delaware.

Section 9. Fundamental Changes. No agreement of merger or
consolidation that is required by Delaware law to be submitted to the
stockholders of the Corporation for approval or rejection pursuant to
Subchapter IX of the General Corporation Law of the State of Delaware shall
approved without the affirmative vote of the holders of at least 66 2/3% of the
voting power of all shares of the Corporation entitled to vote thereon. No
resolution authorizing the sale, lease or exchange of all or substantially all
of the property or assets of the Corporation or the liquidation or winding up
of the Corporation shall be adopted by the stockholders pursuant to Subchapter
X of the General Corporation Law of the State of Delaware without the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
shares of the Corporation entitled to vote thereon.

Section 10. Amendment. Notwithstanding anything contained in this
Restated Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 66 2/3% of the voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, amend, adopt any
provision inconsistent with, or repeal, this Article 6 or any provision hereof.

8
<PAGE> 10
ARTICLE 8

The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Restated Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.

THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate, hereby declaring that this is my
act and deed and the facts stated herein are true. Accordingly, I have
hereunto set my hand this 20th day of May, 1996.

/s/ WILLIAM D. SUTTON
----------------------------------------
William D. Sutton,
Incorporator

<PAGE> 1

EXHIBIT 21.1

<TABLE>
<CAPTION>
JURISDICTION OF INCORPORATION
NAME OR ORGANIZATION
- --------------------------------------------- ---------------------------------------------
<S> <C>
CTC - Empresa Tecnica E Commercial de
Equipmentos LTDA........................... Rio de Janeiro (Brazil)
Columbia Petroleum Services Corp. ........... Delaware
Dailey de Venezuela, S.A. ................... Venezuela
Dailey Environmental Remediation
Technologies, Inc. ........................ Texas
Dailey International, Inc. .................. Delaware
Dailey International Sales Corporation....... Delaware
Dailey Regional Headquarters, S.A. .......... Venezuela
GL/95 Servicios, C.A. ....................... Caracas (Venezuela)
International Oil Tool Rentals Ltd. ......... Cayman Islands
International Petroleum Services, Inc. ...... Delaware
J.D. Investments Bonaire N.V. ............... Bonaire (Netherlands Antilles)
J.D.I. Tool Works B.V. ...................... Spankeren (Netherlands)
Worldwide Oil Tool Rentals Ltd. ............. Cayman Islands
</TABLE>

<PAGE> 1

EXHIBIT 23.1

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated July 14, 1995, except for Note 1 as to which the
date is June , 1996, in the Registration Statement (Form S-1) and related
Prospectus of Dailey Corporation, a Delaware corporation, (formerly Dailey
Petroleum Services Corp.) for the registration of 4,000,000 shares of Class A
Common Stock.

Houston, Texas
June , 1996

- --------------------------------------------------------------------------------

The foregoing consent is in the form that will be signed upon completion of
the reorganization of the capital accounts of the Company as described in Note 1
to the consolidated financial statements.

ERNST & YOUNG LLP

Houston, Texas
May 23, 1996

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 2,367
<SECURITIES> 0
<RECEIVABLES> 18,367
<ALLOWANCES> 1,325
<INVENTORY> 0
<CURRENT-ASSETS> 20,373
<PP&E> 23,231
<DEPRECIATION> 19,173
<TOTAL-ASSETS> 56,343
<CURRENT-LIABILITIES> 12,606
<BONDS> 0
<COMMON> 50
0
0
<OTHER-SE> 35,646
<TOTAL-LIABILITY-AND-EQUITY> 56,343
<SALES> 0
<TOTAL-REVENUES> 58,939
<CGS> 0
<TOTAL-COSTS> 53,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 967
<INCOME-PRETAX> 4,096
<INCOME-TAX> 1,427
<INCOME-CONTINUING> 2,669
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,669
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> APR-30-1995
<CASH> 1,796
<SECURITIES> 0
<RECEIVABLES> 15,570
<ALLOWANCES> 1,356
<INVENTORY> 0
<CURRENT-ASSETS> 17,313
<PP&E> 23,743
<DEPRECIATION> 18,292
<TOTAL-ASSETS> 54,408
<CURRENT-LIABILITIES> 10,908
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0
0
<OTHER-SE> 32,977
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<INTEREST-EXPENSE> 1,061
<INCOME-PRETAX> 806
<INCOME-TAX> 838
<INCOME-CONTINUING> (32)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0

</TABLE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1994
<PERIOD-START> MAY-01-1993
<PERIOD-END> APR-30-1994
<CASH> 4,617
<SECURITIES> 0
<RECEIVABLES> 15,032
<ALLOWANCES> 1,310
<INVENTORY> 0
<CURRENT-ASSETS> 18,941
<PP&E> 25,253
<DEPRECIATION> 19,409
<TOTAL-ASSETS> 53,621
<CURRENT-LIABILITIES> 8,399
<BONDS> 0
<COMMON> 2
0
0
<OTHER-SE> 33,057
<TOTAL-LIABILITY-AND-EQUITY> 53,621
<SALES> 0
<TOTAL-REVENUES> 43,815
<CGS> 0
<TOTAL-COSTS> 40,329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 613
<INCOME-PRETAX> 3,076
<INCOME-TAX> 1,075
<INCOME-CONTINUING> 2,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,001
<EPS-PRIMARY> .37
<EPS-DILUTED> 0

</TABLE>