W-H ENERGY SERVICES INC, 424B4, 2000-10-11

W-H ENERGY SERVICES INC
424B4, 2000-10-11
OIL & GAS FIELD MACHINERY & EQUIPMENT

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<PAGE> 1

FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-43411

10,000,000 Shares

[W-H ENERGY SERVICES]

Common Stock
---------------------

We are offering 10,000,000 shares of our common stock.

This is our initial public offering, and no public market currently exists
for our common stock. The selling shareholders have granted the underwriters an
option to purchase an additional 1,500,000 shares of our common stock to cover
over-allotments. We will not receive any proceeds of the sale of common stock by
the selling shareholders.

Our common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "WHES."

THIS INVESTMENT INVOLVES RISKS. PLEASE READ "RISK FACTORS" BEGINNING ON PAGE 7.

<TABLE>
<CAPTION>
PUBLIC PROCEEDS TO
OFFERING UNDERWRITING W-H ENERGY
PRICE FEES SERVICES, INC.
------------ ------------ --------------
<S> <C> <C> <C>
Per Share................................................. $ 16.50 $ 1.155 $ 15.345
Total..................................................... 165,000,000 11,550,000 153,450,000
</TABLE>

Delivery of the shares of common stock will be made on or about October 16,
2000.

Neither the SEC nor any state securities commission has determined whether
this prospectus is truthful or complete. Nor have they made, nor will they make,
any determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.

CREDIT SUISSE FIRST BOSTON MORGAN STANLEY DEAN WITTER

DONALDSON, LUFKIN & JENRETTE
UBS WARBURG LLC
SIMMONS & COMPANY
INTERNATIONAL
DLJDIRECT INC.

Prospectus dated October 10, 2000.
<PAGE> 2

[MAP OF GULF COAST AND NORTH SEA REGIONS SHOWING OPERATING LOCATIONS]
[PICTURES OF CERTAIN FACILITIES AND EQUIPMENT]
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................... 1
Risk Factors............................. 7
Special Note Regarding Forward-Looking
Statements............................. 15
Use of Proceeds.......................... 16
Dividend Policy.......................... 17
Dilution................................. 18
Capitalization........................... 19
Selected Consolidated Financial Data..... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 22
</TABLE>

<TABLE>
<CAPTION>
PAGE
<S> <C>
Business................................. 31
Management............................... 45
Relationships and Related Transactions... 52
Principal and Selling Shareholders....... 56
Description of Capital Stock............. 59
Shares Eligible for Future Sale.......... 60
Underwriting............................. 62
Notice to Canadian Residents............. 66
Legal Matters............................ 67
Experts.................................. 67
Available Information.................... 67
Index to Consolidated Financial
Statements............................. F-1
</TABLE>

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales are
permitted.

WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THAT WOULD NOT BE PERMITTED OR LEGAL.

UNTIL NOVEMBER 4, 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

(i)
<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights selected information from this prospectus but does
not contain all of the information that may be important to you. This prospectus
includes specific terms of this offering, information about our business and our
financial information. You should read this prospectus in its entirety before
making an investment decision.

Unless otherwise indicated, all information in this prospectus:

- gives effect to a 33-for-1 split of our common stock prior to this
offering;

- assumes the issuance to DLJ Merchant Banking Partners II, L.P. and its
affiliated investment funds of 2,974,436 shares of our common stock in
connection with this offering in respect of warrants held by those
entities and that the balance of their warrants are retired through the
prepayment of our 13% senior subordinated notes; and

- assumes no exercise by the underwriters of their option to purchase an
additional 1,500,000 shares of our common stock from the selling
shareholders to cover over-allotments.

OUR COMPANY

OUR BUSINESS

We are a diversified oilfield service company that provides products and
services used primarily for the drilling, completion and production of oil and
natural gas wells. Our operations currently are focused offshore in the Gulf of
Mexico and in the North Sea and onshore along the Gulf Coast. We are expanding
our international operations into Brazil, the Caspian Sea, Italy and the Middle
East in 2000. Since our formation in 1989, we have entered the following three
primary lines of business through acquisitions and have expanded our product and
service offerings through a combination of acquisitions, internal growth and
research and development:

- drilling related products and services, which include
logging-while-drilling, measurement-while-drilling, rental tools
(including drill pipe), downhole drilling motors and drilling fluids;

- completion and workover related products and services, which include
cased-hole wireline logging and perforating, polymers and specialty
chemicals and tubing; and

- maintenance and safety related products and services, which include
integrated on-site cleaning and waste management and safety equipment.

Our customers include major and independent oil and natural gas companies,
refining and petrochemical companies and other oilfield service companies,
including independent directional drilling companies. We reported revenues of
$137.1 million, EBITDA, as adjusted, of $23.0 million and net income of $0.6
million in 1999, after giving pro forma effect to our March 1999 acquisition of
the PathFinder business described below and the receipt and application of the
estimated net proceeds from this offering and borrowings under our new credit
facility as described under "Use of Proceeds." We reported revenues of $99.4
million, EBITDA, as adjusted, of $21.8 million and net income of $8.7 million
for the six months ended June 30, 2000, after giving effect to the receipt and
application of the estimated net proceeds from this offering and borrowings
under our new credit facility as described under "Use of Proceeds." Our actual
historical net losses for the year ended December 31, 1999 and the six months
ended June 30, 2000 were $15.2 million and $1.4 million, respectively.

We focus on discrete products and services that provide our customers with
alternatives to the integrated services typically marketed by the major
integrated oilfield service companies. We believe our business approach enables
us to compete successfully against these larger oilfield service companies by:

- offering technologically advanced products and services;

- focusing on niche markets in which leading market positions can be
maintained;

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- operating our business lines autonomously and marketing our product
offerings independently;

- emphasizing customer service, responsiveness and reliability; and

- providing equity-incentives to key management and operating personnel.

OUR STRATEGY

Our business strategy is to grow revenue and earnings by providing our
customers with an alternative to the major integrated oilfield service companies
while preserving our entrepreneurial culture. Our business strategy consists of
the following key components:

- Provide leading technology solutions for our customers. In recent years,
technologies have been introduced in the oilfield services industry which
have dramatically improved the efficiency of finding and developing oil
and natural gas reserves. We have made substantial investments in
technologically-advanced product and service offerings, including
logging-while-drilling (LWD) and measurement-while-drilling (MWD)
technology, which we believe are increasingly important to our customers.

- Capitalize on the growth of offshore and directional drilling. A
substantial portion of our products and services are designed for use in
offshore and directional drilling, which represent an increasing
percentage of overall drilling activity.

- Expand the breadth and scope of our international operations. Since the
end of the last year, we have expanded our international operations
beyond the North Sea to the Middle East, Brazil, the Caspian Sea and
Italy. We currently continue to offer LWD and MWD products and services,
downhole drilling motors and directional drilling services in the North
Sea, and this year we have entered into contracts and are providing these
services in the Middle East. In addition, we recently have entered into a
contract and are providing LWD and MWD products and services in Brazil.
We also have been selected to provide LWD and MWD products and services,
downhole drilling motors and directional drilling services in the Caspian
Sea and in Italy.

- Leverage our market positions to deploy our under-utilized equipment. We
intend to capitalize on the increase in oilfield activity and our
opportunities for international expansion by deploying under-utilized
equipment, including the significant inventory of LWD and MWD tools,
downhole drilling motors and other equipment we acquired as part of the
PathFinder acquisition.

- Selectively acquire complementary businesses and technologies. We will
continue to pursue acquisitions which increase the technological base and
expand the market reach of our product and service offerings.

Please read "Risk Factors" for a discussion of the risks associated with
implementing our strategy.

OUR ACQUISITION OF THE PATHFINDER ASSETS

In March 1999, we acquired the LWD and related MWD business of Halliburton
Company located in the United States and the North Sea, as well as Halliburton's
remaining LWD and related MWD assets worldwide. Halliburton was required to
divest its LWD and related MWD business, which it marketed under the PathFinder
name, by the United States Department of Justice as a condition of its
acquisition of Dresser Industries, Inc. In this acquisition, we also acquired a
significant inventory of additional MWD tools and the Dyna Drill line of
downhole drilling motors and manufacturing equipment. In this prospectus, we
refer to the assets we acquired from Halliburton as the PathFinder assets, and
we refer to this acquisition transaction as the PathFinder acquisition.

We are one of only four companies worldwide with the technological
capability to provide a full complement of LWD services. LWD technology allows
oil and natural gas companies to gather well formation data while drilling,
eliminating the need to halt drilling, remove the drill string and use wireline
to lower evaluation tools into the well. Many offshore wells now utilize LWD
technology because of the
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substantial time and cost savings which logging-while-drilling provides.
Furthermore, we believe that many oil and natural gas companies now rely
exclusively on LWD technology to provide well formation data for open-hole wells
and no longer perform subsequent evaluations with traditional wireline logging
tools.

With the PathFinder acquisition, we acquired a mature LWD business with a
variety of available tools for evaluating well formation data which has
benefitted from Halliburton's substantial historical research and development
and capital investment. Since the acquisition, we have continued to improve the
existing PathFinder technologies and to develop complementary tools through our
own research and development efforts. Since the date we acquired the PathFinder
assets, we have tripled the number of active LWD jobs on which our PathFinder
tools are working in the Gulf of Mexico.

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THE OFFERING

Common stock offered by
us......................... 10,000,000 shares

Common stock to be
outstanding after this
offering................. 22,059,336 shares(1)

Use of proceeds............ We intend to use the net proceeds of this offering
along with borrowings under our new credit
facility:

- to repay in full, for a cash payment of
approximately $157.9 million, the outstanding
balance under our existing credit facility, plus
accrued and unpaid interest;

- to repay in full, for a cash payment of
approximately $27.1 million, our 12 1/2% senior
subordinated notes and the related
payment-in-kind notes, plus accrued and unpaid
interest;

- to repay in full, for a cash payment of
approximately $39.7 million, our 13% senior
subordinated notes and the related
payment-in-kind notes, plus accrued and unpaid
interest; and

- to repay, for a cash payment of approximately
$1.8 million, other long term debt and to pay
fees of approximately $2.5 million associated
with obtaining the commitment and arranging and
administrative services for our new credit
facility.

The selling shareholders will sell shares of common
stock to the underwriters if the underwriters
exercise their over-allotment option. We will not
receive any proceeds from the sale of common stock
by the selling shareholders.

Nasdaq National Market
symbol................... "WHES"
------------------------------

(1) The number of shares of our common stock outstanding after this offering is
based on the number of shares outstanding as of June 30, 2000, adjusted to
include 2,974,436 shares of our common stock to be issued to DLJ Merchant
Banking Partners II, L.P. and its affiliated investment funds in connection
with this offering in respect of warrants held by those entities. This
number does not include:

- up to 201,300 shares of our common stock subject to options to be granted
to certain of our employees concurrently with this offering at an
exercise price equal to the initial public offering price;

- an aggregate of 2,229,150 shares of our common stock issuable upon the
exercise of options outstanding as of June 30, 2000 at a weighted average
exercise price of $3.96 per share; or

- an aggregate of 3,125,694 shares of our common stock issuable upon the
exercise of warrants outstanding as of June 30, 2000 at a weighted
average exercise price of $2.44 per share.

4
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL DATA

Our summary consolidated financial information set forth below is derived
from our Consolidated Financial Statements and should be read in conjunction
with our Consolidated Financial Statements and the accompanying notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The as adjusted consolidated
statements of operations data, for the year ended December 31, 1999 and for the
six months ended June 30, 2000, set forth below are derived from the Unaudited
Pro Forma Financial Information that appears elsewhere in this prospectus.

The unaudited as adjusted consolidated statement of operations data for the
year ended December 31, 1999 give effect to:

- the acquisition of the PathFinder business located in the United States
and the North Sea and the related issuance of our 13% senior subordinated
notes as if these events had occurred on January 1, 1999; and

- the receipt and application as described under "Use of Proceeds" of
borrowings under our new credit facility and $150.2 million of estimated
net proceeds from the sale of 10,000,000 shares of our common stock in
this offering at a price of $16.50 per share after deducting the
underwriting fees and estimated expenses of this offering.

The as adjusted financial information does not purport to represent what our
results of operations actually would have been had these events, in fact,
occurred on January 1, 1999, nor are they intended to project our results of
operations for any future period or date.

<TABLE>
<CAPTION>
AS ADJUSTED HISTORICAL AS ADJUSTED
HISTORICAL ------------ ----------------- --------------
------------------------------ YEAR ENDED SIX MONTHS SIX MONTHS
YEARS ENDED DECEMBER 31, DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------ ----------------- --------------
1997 1998 1999 1999 1999 2000 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues......................... $59,833 $90,293 $127,641 $137,142 $50,913 $99,410 $99,410
Cost of revenues................. 25,889 43,431 68,399 74,157 26,842 54,680 54,680
Selling, general and
administrative................. 30,732(1) 23,788 36,118 39,361 15,748 23,054 23,054
Depreciation and amortization.... 5,870 10,748 15,521 16,351 7,497 9,055 9,055
------- ------- -------- -------- ------- ------- -------
Income (loss) from operations.... (2,658) 12,326 7,603 7,273 826 12,621 12,621
Interest expense................. 4,733 13,418 21,989 5,850 9,686 13,500 3,394
Other expense (income), net...... (8) 142 595 595 281 177 177
------- ------- -------- -------- ------- ------- -------
Income (loss) before income
taxes.......................... (7,383) (1,234) (14,981) 828 (9,141) (1,056) 9,050
Provision (benefit) for income
taxes.......................... (1,714) 152 239 239 18 374 374
------- ------- -------- -------- ------- ------- -------
Net income (loss)................ $(5,669) $(1,386) $(15,220) $ 589(2)(3) $(9,159) $(1,430) $ 8,676(2)(3)
======= ======= ======== ======== ======= ======= =======
Net income (loss) per share
Basic.......................... $ (0.32) $ (0.15) $ (1.34) $ 0.03 $ (0.86) $ (0.12) $ 0.39
======= ======= ======== ======== ======= ======= =======
Diluted........................ $ (0.32) $ (0.15) $ (1.34) $ 0.02 $ (0.86) $ (0.12) $ 0.34
======= ======= ======== ======== ======= ======= =======
Number of shares used in
computing income (loss) per
share
Basic.......................... 17,448 9,075 11,339 22,049 10,612 12,058 22,059
======= ======= ======== ======== ======= ======= =======
Diluted........................ 17,448 9,075 11,339 25,710 10,612 12,058 25,748
======= ======= ======== ======== ======= ======= =======
</TABLE>

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<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------
ACTUAL AS ADJUSTED
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 33,509 $ 38,339
Total assets................................................ 206,490 199,585
Total debt.................................................. 210,202 68,053
Total shareholders' equity (deficit)........................ (37,555) 97,689
</TABLE>

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

(1) Includes $13.5 million of non-recurring compensation expense resulting from
the redemption of options in connection with our recapitalization in 1997.

(2) Does not include the write-off for deferred financing costs and unamortized
discount associated with the debt to be retired with the proceeds from this
offering in the amount of $14.1 million for the year ended December 31, 1999
and $14.1 million for the six months ended June 30, 2000. The write-off will
be recorded in our historical statement of operations in the period the debt
is repaid.

(3) Does not include a charge of $250,000 related to the termination of the
consulting agreement with TJC Management in connection with this offering.
We expensed $600,000 and $300,000, for the year ended December 31, 1999 and
the six months ended June 30, 2000, respectively, related to this agreement.
The charge will be recorded in our historical statement of operations in the
period the fee is paid.

(4) We calculate EBITDA, as adjusted, as earnings before interest expense,
income taxes, depreciation and amortization, non-cash stock-based
compensation expense, and a non-recurring compensation expense of $13.5
million in 1997 resulting from the redemption of options in connection with
our recapitalization. EBITDA, as adjusted, should not be considered as an
alternative to net income or any other measure of operating performance
calculated in accordance with generally accepted accounting principles.
EBITDA is widely used by financial analysts as a measure of financial
performance. Our calculation of EBITDA, as adjusted, may not be comparable
to similarly titled measures reported by other companies.

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RISK FACTORS

In addition to the other information in this prospectus, the following
factors should be considered carefully in evaluating us and our business before
purchasing shares of our common stock.

RISKS RELATED TO OUR BUSINESS

WE HAVE A HISTORY OF NET LOSSES, AND THIS TREND MAY CONTINUE.

We suffered net losses in 1997, 1998, 1999 and the six months ended June
30, 2000 largely because of the decline in activity by oil and natural gas
drilling and producing companies caused in response to lower oil and natural gas
prices, as well as interest and amortization expenses associated with our 1997
recapitalization and acquisition activities. As a result of our recapitalization
in 1997 and these losses, we have negative shareholders' equity. The volatility
underlying the oil and natural gas industry prevents us from accurately
predicting future operating conditions and results, and the extent of our future
profitability.

DEMAND FOR OUR PRODUCTS AND SERVICES DEPENDS ON OIL AND NATURAL GAS INDUSTRY
ACTIVITY AND EXPENDITURE LEVELS THAT ARE DIRECTLY AFFECTED BY TRENDS IN OIL AND
NATURAL GAS PRICES.

The markets for oil and natural gas historically have been volatile and are
likely to continue to be so in the future. A prolonged downturn in oil and
natural gas prices could have a material adverse effect on our results of
operations and financial condition, particularly with respect to our drilling
related products and services. Demand for our drilling related products and
services is particularly sensitive to the level of exploration, development and
production activity of, and the corresponding capital spending by, oil and
natural gas companies. Prices for oil and natural gas are subject to large
fluctuations in response to relatively minor changes in the supply of and demand
for oil and natural gas, market uncertainty and a variety of other factors that
are beyond our control. Any prolonged reduction in oil and natural gas prices
will depress the level of exploration, development and production activity.
Lower levels of activity result in a corresponding decline in the demand for our
drilling related products and services which could have a material adverse
effect on our revenues and profitability.

Factors affecting the prices of oil and natural gas include:

- the level of demand for oil and natural gas;

- worldwide political, military and economic conditions, including the
ability of the Organization of Petroleum Exporting Countries (OPEC) to
set and maintain production levels and prices for oil;

- the level of oil and natural gas production;

- the policies of governments regarding the exploration for and production
and development of their oil and natural gas reserves; and

- global weather conditions.

The production sector of the oil and natural gas industry, which utilizes
our completion and workover related products and services, is less immediately
affected by changing oil and natural gas prices and, thus, is less volatile than
the exploration sector, which utilizes our drilling related products and
services. However, producers likely would react to declining oil and natural gas
prices by reducing expenditures, which could adversely affect our business in
this segment as well.

BECAUSE MANY OF OUR PRODUCTS AND SERVICES ARE USED IN POTENTIALLY HAZARDOUS
APPLICATIONS AND OPERATIONS, OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH
THE OCCURRENCE OF PERSONAL INJURIES, LOSS OF LIFE, DAMAGE OR DESTRUCTION OF
PROPERTY, EQUIPMENT OR THE ENVIRONMENT AND SUSPENSION OF OPERATIONS. THE
OCCURRENCE OF ANY OF THESE EVENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
OR RESULTS OF OPERATION.

Many of our products and services are used in potentially hazardous
drilling, completion and production applications, as well as cleaning,
maintenance and safety operations. These activities can cause:

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- personal injury;

- loss of life;

- damage or destruction of property, equipment or the environment; and

- suspension of operations.

Litigation arising from a catastrophic occurrence at a location where our
equipment or services are used may result, in the future, in our being named as
a defendant in lawsuits asserting potentially large claims.

In addition, many of our employees who perform services on offshore
platforms and vessels are covered by provisions of the Jones Act, the Death on
the High Seas Act and general maritime law. These laws have the effect of making
the liability limits established by state workers' compensation laws
inapplicable to these employees and, instead, permit them or their
representatives to pursue actions against us for damages from job-related
injuries, with generally no limitations on our potential liability.

The frequency and severity of these incidents affect our operating costs,
insurability and relationships with customers, employees and regulators. Any
increase in the frequency or severity of these incidents, or the general level
of compensation awards resulting from these incidents, could affect our ability
to obtain projects from oil and natural gas companies or insurance covering
these incidents.

There is always a risk that our insurance may not be sufficient to cover
any particular loss. In addition, our insurance does not provide coverage for
all liabilities, including liability for some events involving pollution. Our
insurance coverage may not otherwise be adequate to cover claims that may arise,
and we may not be able to maintain adequate insurance at rates we consider
commercially reasonable. The occurrence of an event not fully covered by
insurance could have a material adverse effect on our financial condition.

THE VOLATILITY OF THE OIL AND NATURAL GAS INDUSTRY AND THE DEMANDING NATURE OF
OUR WORK MAY AFFECT OUR ABILITY TO ATTRACT AND RETAIN THE SKILLED WORKERS ON
WHICH OUR OPERATIONS DEPEND.

We may not be able to find enough skilled workers to meet our needs, which
could limit our growth. Business activity in the oil and natural gas industry
historically decreases or increases with the price of oil and natural gas. In
late 1997, the price of oil and natural gas began to decline and continued this
trend until the first quarter of 1999. In turn, industry-wide downsizing caused
oilfield workers to look for and secure work in other industries and locations.
As a result of the employment migration away from the oil and natural gas
industry, we may have problems finding enough skilled workers in the future.

In addition, we require skilled workers who can perform physically
demanding work. As a result of the volatility of the oil and natural gas
industry and the demanding nature of the work, workers may choose to pursue
employment in fields that offer a more desirable work environment at wage rates
that are competitive with ours.

With a reduced pool of workers, it is possible that we will have to raise
wage rates to attract workers from other fields and to retain or expand our
current work force. If we are not able to increase our service rates to our
customers to compensate for wage rate increases, our operating results may be
adversely affected.

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OUR SUCCESS DEPENDS ON KEY MEMBERS OF OUR MANAGEMENT, THE LOSS OF WHOM COULD
DISRUPT OUR BUSINESS OPERATIONS.

We depend to a large extent on the services of some of our executive
officers and directors. The loss of services of any of Kenneth T. White, Jr.,
Jeffrey L. Tepera or William J. Thomas, III could disrupt our operations. We
have entered into employment agreements with Messrs. White, Tepera and Thomas
that contain non-compete provisions. Despite these agreements, we may not be
able to retain these officers and may not be able to enforce the non-compete
provisions in their employment agreements. We maintain key person life insurance
on the lives of Messrs. White and Thomas. However, the proceeds from these
insurance policies may not be sufficient to cover our losses in the event of the
death of either of these officers.

INTENSE COMPETITION IN OUR INDUSTRY COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.

We compete in highly competitive areas of the oilfield products and
services markets. The depressed oil and natural gas prices and the consequent
decline in the oil and natural gas industry in the 1980s, 1998 and early 1999
has led to a consolidation of the number of companies providing products and
services similar to those we provide. As a result of these consolidations, many
of our competitors are much larger and have greater marketing, distribution,
financial and other resources than we do.

We may not be able to continue operating at current levels or prices if our
current competitors or new market entrants introduce new products or services
with better features, performance, prices or other characteristics. Competitive
pressures or other factors also may result in significant price competition with
respect to existing products and services that could have a material adverse
effect on our results of operations and financial condition. Competition among
oilfield product and service providers is also based on a provider's reputation
for safety and quality service. Unforeseen events may occur which could
negatively affect our reputation for safety and quality service and, thus, our
competitive position.

In the future, we also may face the threat of competition from companies
providing products similar to ours over the Internet. These companies may have
greater technical capabilities and access to greater financial resources than we
have. This may place us at a disadvantage in responding to the Internet
offerings of these competitors or to changes in the way our customers procure
products and services.

ADVERSE WEATHER CONDITIONS COULD RESULT IN FLUCTUATIONS IN OUR OPERATING
RESULTS.

Demand for our products and services in the Gulf of Mexico may be adversely
affected by the hurricanes and other storms prevalent in the Gulf of Mexico and
along the Gulf Coast during the summer and fall months. The threat of a
hurricane or tropical storm in the vicinity of a drilling rig where we have
personnel and equipment deployed often requires us to evacuate our personnel and
equipment. An evacuation and the amount of time required to redeploy personnel
and equipment after the threat of a storm has passed may result in significant
downtime and lost revenues, especially in the case of a large storm. In
addition, equipment that we are unable to remove from the path of a storm may be
damaged, lost or destroyed.

In the North Sea, demand for our products and services is also affected by
periods of adverse weather, although the storms experienced in the North Sea
typically do not require the evacuation of personnel and equipment.

As a result, our operating results may vary from quarter to quarter,
depending upon factors outside of our control. Thus, full year results are not
likely to be a direct multiple of any particular quarter or combination of
quarters.

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COMPLIANCE WITH ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS COULD ADVERSELY
AFFECT OUR BUSINESS.

Our business is significantly affected by:

- foreign, federal, state and local laws and other regulations relating to

-- the oil and natural gas industry,

-- the refining and petrochemical industry, and

-- worker safety and environmental protection;

- changes in these laws and regulations; and

- the level of enforcement of these laws and regulations.

In addition, our maintenance and safety related products and services are
substantially dependent on the cleaning and maintenance operations of our
customers. Numerous foreign, federal, state and local laws and regulations
affect the necessity, timing and frequency of the cleaning and maintenance
operations of refining and petrochemical companies and thus affect the demand
for our products and services. We cannot determine the extent to which our
future operations and earnings may be affected by new legislation, new
regulations or changes in existing laws and regulations or enforcement.

The technical requirements of the foreign, federal, state and local laws
and regulations affecting our business are becoming increasingly complex and
stringent. These laws may provide for "strict liability" for damages to natural
resources or threats to public health and safety, rendering a party liable for
environmental damage without regard to negligence or fault on the part of the
party. Sanctions for noncompliance may include:

- revocation of permits;

- corrective action orders;

- administrative or civil penalties; and

- criminal prosecution.

Some environmental laws provide for joint and several strict liability for
remediation of spills and releases of hazardous substances. In addition, we may
be subject to claims alleging personal injury or property damage as a result of
alleged exposure to hazardous substances, as well as damage to natural
resources. These laws and regulations also may expose us to liability for the
conduct of, or conditions caused by, others, or for our acts that were in
compliance with applicable laws at the time the acts were performed.

OUR BUSINESS COULD BE ADVERSELY AFFECTED BY NEW TECHNOLOGIES.

Many of our operations, primarily LWD and MWD products and services and
specialty chemical sales, are based substantially on technologies for which we
hold licenses or patents. Our success in these areas depends to a significant
extent on the development and implementation of new product designs and
formulations. Whether we can continue to develop products and technologies to
meet evolving industry requirements and at prices acceptable to our customers
will be a significant factor in determining our ability to compete in these
areas. Many of our competitors have greater resources devoted to research and
10
<PAGE> 14

development of new products and technologies than we do. The licenses or patents
we have secured may be successfully challenged by others. Moreover, these
licenses or patents may not protect us from the development of similar products
by others.

WE DO NOT OWN ALL OF THE TECHNOLOGIES ASSOCIATED WITH OUR PATHFINDER ASSETS.

Our LWD business is substantially dependent upon technologies that we
acquired in the PathFinder acquisition. We possess the right to use these
technologies through non-exclusive, worldwide licenses granted to us by
Halliburton and other third-party licensors. Our rights under these licenses are
subject to the licensors' abiding by the terms of these licenses and not
terminating them.

In addition, because these licenses are non-exclusive, these technologies
may be licensed by Halliburton and other licensors to third parties, including
our current competitors in the LWD business and others who are seeking to enter
the LWD business.

Halliburton has agreed to defend and indemnify us with respect to any claim
of infringement or misappropriation by third parties with regard to the
intellectual property, such as patents, copyrights, trade secrets, and
trademarks, that were conveyed to us in the PathFinder acquisition.
Halliburton's obligation only applies to claims made on or before March 29,
2001. We have received notice of an infringement claim from a competitor
asserting that certain components of a PathFinder tool infringe upon one or more
of its patents. Halliburton has agreed to undertake the defense of this claim.
In addition, we have received an inquiry from an educational institution
regarding the PathFinder tool, which could develop into an infringement claim
with respect to patents held by it. We have notified Halliburton of this inquiry
and are awaiting Halliburton's response. We cannot be certain that we will be
protected against all risks related to claims in connection with these
technologies.

THE CONCENTRATION OF OUR CUSTOMERS IN THE ENERGY INDUSTRY COULD MATERIALLY AND
ADVERSELY AFFECT OUR EARNINGS.

Substantially all of our customers are in the energy industry. This
concentration of customers may impact our overall exposure to credit risk,
either positively or negatively, in that customers may be similarly affected by
changes in economic and industry conditions. Many of our customers were slow in
paying their accounts in late 1998 and 1999 in light of adverse industry
conditions. We perform ongoing credit evaluations of our customers and do not
generally require collateral in support of our trade receivables.

A SIGNIFICANT AMOUNT OF OUR GROWTH HAS OCCURRED THROUGH THE ACQUISITION OF
EXISTING BUSINESSES; HOWEVER, FUTURE ACQUISITIONS MAY BE DIFFICULT TO INTEGRATE,
DISRUPT OUR BUSINESS AND ADVERSELY AFFECT OUR OPERATING RESULTS.

We may acquire other companies, assets and product lines that complement or
expand our existing business. Each acquisition, however, involves a number of
risks. These risks include:

- the diversion of our management's attention from our existing businesses
to integrating the operations and personnel of the acquired business;

- possible adverse effects on our operating results during the integration
process; and

- our possible inability to achieve the intended objectives of the
combination.

We may seek to finance an acquisition through borrowings under our new
credit facility or through the issuance of new debt or equity securities. If we
should proceed with a relatively large cash acquisition, we could deplete a
substantial portion of our financial resources to the possible detriment of our
other operations. Any future acquisitions could also dilute the equity interests
of our shareholders, require us to write off assets for accounting purposes or
create other undesirable accounting issues, such as significant expenses for
amortization of goodwill or other intangible assets.

11
<PAGE> 15

OUR INTERNATIONAL OPERATIONS MAY EXPERIENCE INTERRUPTIONS DUE TO POLITICAL AND
ECONOMIC RISKS.

We operate our business and market our products and services in oil and
natural gas producing areas outside the United States. We are, therefore,
subject to the risks common in international operations and investments in
foreign countries. These risks include:

- nationalization and expropriation;

- war and civil disturbances;

- restrictive actions by local governments;

- limitations on repatriation of earnings;

- changes in foreign tax laws; and

- changes in currency exchange rates.

The occurrence of any of these events could have an adverse effect on
regional demand for our products and services or our ability to provide our
products and services in a particular region. Although we currently only operate
internationally in the North Sea, we are in the process of expanding our
business into other international locations. An interruption of our
international operations could have a material adverse effect on our results of
operations and financial condition.

A CHANGE IN THE ESTIMATED LIFE OF GOODWILL COULD REDUCE OUR EARNINGS.

Our balance sheet as of June 30, 2000, included "goodwill" which
represented 18% of our assets. Goodwill is recorded when we pay more for a
business than the fair market value of the tangible and separately measurable
intangible net assets. Generally accepted accounting principles require us to
amortize this and all other intangible assets over the periods we benefit from
those assets. The amortization periods for our acquisitions to date are between
20 years and 40 years. We evaluate the useful life of all our assets on an
ongoing basis. If we were to assign a shorter life to a material portion of this
goodwill, earnings reported in prospective periods would be reduced. If we were
to determine that the remaining balance of goodwill was impaired, we would be
required to take an immediate charge to earnings with a correlative effect on
stockholders' equity (deficit).

AS A HOLDING COMPANY, WE ARE TOTALLY DEPENDENT ON DIVIDENDS FROM OUR OPERATING
SUBSIDIARIES TO PAY DIVIDENDS AND OUR OTHER OBLIGATIONS.

We are a holding company with no business operations. Our only significant
asset is the outstanding capital stock of our subsidiaries. As a result, we must
rely on payments from our subsidiaries to meet our obligations. We currently
expect that the earnings and cash flow of our subsidiaries will be retained and
used by them in their operations, including to service any debt obligations they
may now or in the future have. Even if we decided to pay a dividend on or make a
distribution in respect of our common stock, our subsidiaries may not be able to
generate sufficient cash flow to pay a dividend or distribute funds to us. At
present, we and our subsidiaries are restricted from paying dividends under our
credit facility. Future credit facilities and other future debt obligations, as
well as statutory provisions, may also limit our ability to pay dividends.

OUR NEW CREDIT FACILITY WILL CONTAIN RESTRICTIVE COVENANTS THAT WILL LIMIT OUR
FINANCIAL AND OPERATIONAL FLEXIBILITY AND OUR ABILITY TO PAY DIVIDENDS.

We will enter into a new credit facility concurrently with the closing of
this offering. This new credit facility will contain restrictive covenants that
limit the incurrence of debt by our company and by our subsidiary, Perf-O-Log,
require us to maintain financial ratios, such as an interest coverage ratio and
leverage ratio, limit the amount of capital expenditures we may make and
effectively restrict our ability to pay dividends. These restrictions may
adversely affect our ability to conduct and expand our operations. For example,
our business is capital intensive, requiring specialized equipment and trained
personnel to
12
<PAGE> 16

provide our products and services. We may need to raise additional funds through
public or private debt or equity financing. Adequate funds may not be available
when needed or may not be available on favorable terms. Even if adequate funds
are available, our credit facility may restrict our ability to raise additional
funds. If we are unable to raise capital, our finances and operations may be
adversely affected.

RISKS RELATED TO THE MARKET FOR OUR COMMON STOCK

THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK BY EXISTING SHAREHOLDERS WILL
LIMIT THE INFLUENCE OF PUBLIC SHAREHOLDERS.

Upon completion of this offering, our principal shareholders, investment
funds affiliated with The Jordan Company, a private merchant banking firm, and
DLJ Merchant Banking Partners II, L.P. and its affiliated investment funds,
together with our officers, directors and other affiliates, will beneficially
own approximately 53.4% of the outstanding shares of our common stock.
Accordingly, these shareholders, if they were to vote in the same manner, would
have the ability to control the election of our directors and the outcome of
other matters submitted to a vote of our shareholders, which may have the effect
of delaying or preventing a change in control of us.

THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.

Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline.

Upon completion of this offering, a total of 22,059,336 shares of our
common stock will be outstanding. Of these shares, all of the 10,000,000 shares
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the Securities Act),
unless these shares are purchased by our affiliates. The remaining 12,059,336
shares of common stock held by existing shareholders are restricted securities.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under the Securities Act.

Under "lock-up" agreements, our executive officers, directors and certain
shareholders, including the selling shareholders, have agreed that, with limited
exceptions, they will not sell any shares of our common stock for a period of
180 days from the date of this prospectus without the prior written consent of
Credit Suisse First Boston Corporation and Morgan Stanley & Co. Incorporated,
subject to the following:

- 25% of the shares of common stock subject to the lock-up restrictions
described in the preceding paragraph will be released from these
restrictions if the reported last sale price of the common stock on the
Nasdaq National Market is at least twice the initial public offering
price for 20 of the 30 consecutive trading days ending on the last
trading day of the 90-day period after the date of this prospectus. These
shares will be released on the later to occur of the 90th day after the
date of this prospectus and the second trading day after the first public
release of our quarterly results; and

- an additional 25% of the shares of common stock subject to the
restrictions described above will be released from these restrictions if
the reported last sale price of the common stock on the Nasdaq National
Market is at least twice the initial public offering price for 20 of the
30 consecutive trading days ending on the last trading day of the 135-day
period after the date of this prospectus.

13
<PAGE> 17

As a result of these "lock-up" agreements and the rules under the
Securities Act, the restricted shares will be available for sale in the public
market, subject in most cases to volume and other restrictions, as follows:

<TABLE>
<CAPTION>
DAYS AFTER NUMBER OF SHARES
THE EFFECTIVE DATE ELIGIBLE FOR SALE COMMENT
<S> <C> <C>
Upon effectiveness................... 257,532 Shares not locked up and eligible for
sale under Rule 144
90 days.............................. -- Shares not locked up and eligible for
sale under Rules 144 and 701
180 days............................. 11,801,804 Lock-up released; shares eligible for
sale under Rules 144 and 701
</TABLE>

Of the shares set forth in the above table as eligible for resale after 180
days, 2,950,451 shares will be eligible for resale after 90 days and an
additional 2,950,451 shares will be eligible for resale after 135 days in the
event that shareholders subject to lock-up agreements are released from their
lock-up restrictions under the staggered lock-up provisions described above.

In addition, following the consummation of this offering, we intend to
register the issuance of up to 3,375,900 shares of our common stock purchased by
the exercise of options granted under our option plans. All of these shares
issued upon exercise of these options will be freely tradeable without
restrictions or registration under the Securities Act, by persons other than our
affiliates. Our affiliates will be able to sell these shares under Rule 144
after compliance with any lock-up agreement to which they would be subject.

OUR STOCK PRICE COULD BE EXTREMELY VOLATILE AS A RESULT OF THE EFFECT THAT
VARIATIONS IN OIL AND NATURAL GAS PRICES AND OTHER FACTORS BEYOND OUR CONTROL
COULD HAVE ON THE MARKET PRICE OF OUR STOCK. AS A RESULT, YOU MAY NOT BE ABLE TO
RESELL YOUR SHARES AT OR ABOVE THE PUBLIC OFFERING PRICE.

Prior to this offering, there has been no public market for our common
stock. An active trading market may not develop following completion of this
offering and, if it develops, may not be maintained. The public offering price
will be determined by negotiation between us, the selling shareholders and the
underwriters and may not be indicative of the price at which our common stock
will trade following the completion of this offering. Thus, you may not be able
to resell your shares at or above the initial public offering price. The market
price of our common stock may be influenced by many factors, including:

- variations in our quarterly or annual results of operations;

- variations in oil and natural gas prices;

- investor perceptions of us and other oilfield service companies, in
general;

- general economic and other conditions; and

- the liquidity of the market for our common stock.

These factors may cause the price of our common stock to fluctuate
significantly or decline.

In particular, the market price of our common stock may be influenced by
variations in oil and natural gas prices, because demand for our products and
services is closely related to the prices of these commodities. This may cause
our stock price to fluctuate with these underlying commodity prices, which are
highly volatile.

NEW INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

The public offering price will be substantially higher than the book value
per share of our common stock. New investors in our common stock in this
offering will experience immediate dilution of $14.02 in the net tangible book
value per share of common stock, based on a public offering price of $16.50 per
share.

14
<PAGE> 18

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. All projections
contained in this prospectus, including those contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," are
forward-looking statements. These forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.

Forward-looking statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "anticipates," "believes," "continue," "estimates,"
"expects," "may," "plans," "potential," "predicts," "projected," "should" or
"will" or the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined under "Risk Factors." These factors may
cause our actual results to differ materially from any forward-looking
statement.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements.
Except as required by law, we are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results and do not intend to do so.

15
<PAGE> 19

USE OF PROCEEDS

We expect to receive net proceeds of approximately $150.2 million from the
sale of the 10,000,000 shares of common stock offered by this prospectus, after
deducting underwriting fees and estimated offering expenses payable by us. This
amount is based on a public offering price of $16.50 per share.

We intend to use the net proceeds of this offering along with borrowings of
approximately $78.8 million under our new credit facility:

- to repay in full, for a cash payment of approximately $157.9 million, the
outstanding balance under our existing credit facility, plus accrued and
unpaid interest;

- to repay in full, for a cash payment of approximately $27.1 million, our
12 1/2% senior subordinated notes and the related payment-in-kind notes,
plus accrued and unpaid interest;

- to repay in full, for a cash payment of approximately $39.7 million, our
13% senior subordinated notes and the related payment-in-kind notes, plus
accrued and unpaid interest; and

- to repay, for a cash payment of approximately $1.8 million, other
long-term debt and to pay fees of approximately $2.5 million associated
with obtaining the commitment and arranging and administrative services
for our new credit facility.

Pending such uses, the net proceeds of this offering will be invested in
short-term, investment grade, interest-bearing securities.

The selling shareholders will sell shares of common stock to the
underwriters if the underwriters exercise their over-allotment option. We will
not receive any proceeds from the sale of common stock by the selling
shareholders. See "Principal and Selling Shareholders."

The borrowings outstanding under our existing credit facility bear interest
at floating rates equal to the London Interbank Offered Rate (LIBOR) plus a
margin that depends on our debt coverage ratio. These borrowings mature between
August 2002 and March 2005. For the six months ended June 30, 2000, the weighted
average applicable interest rate under our existing credit facility was 10.51%.
Amounts borrowed under our existing credit facility were used to fund our
recapitalization in 1997, our acquisitions of Integrity Industries, Inc.,
Diamond Wireline Services, Inc., Grinding and Sizing Company, Inc. and Agri-
Empresa, Inc. and for general corporate purposes.

We have received a commitment from DLJ Capital Funding, Inc. (an affiliate
of Donaldson, Lufkin & Jenrette Securities Corporation) to provide a new credit
facility at or prior to the closing of this offering. Borrowings under our new
credit facility will be used, along with a portion of the proceeds of this
offering, as described above. Please read "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" for a description of the anticipated terms of our new credit
facility.

Our 13% senior subordinated notes bear interest at 13% per annum and are
due in April 2006. The proceeds from the sale of our 13% senior subordinated
notes were used to fund the PathFinder acquisition. Our 13% senior subordinated
notes and the related payment-in-kind notes, which bear interest at 14% per
annum and mature April 1, 2006, were issued to and are held by DLJ Merchant
Banking Partners II, L.P., and its affiliated investment funds. Please read
"Relationships and Related Transactions."

Our 12 1/2% senior subordinated notes bear interest at 12 1/2% per annum.
One-half of our 12 1/2% senior subordinated notes are due September 2006, and
one-half of these notes are due September 2007. The proceeds from the sale of
our 12 1/2% senior subordinated notes and the related payment-in-kind notes,
which bear interest at 14 1/2% per annum and mature September 15, 2007, were
used to fund our recapitalization in 1997. Our 12 1/2% senior subordinated notes
were issued to and are held by JZ Equity Partners PLC. Please read
"Relationships and Related Transactions."

16
<PAGE> 20

The other long-term debt being prepaid with the proceeds of this offering
consists of two notes issued by us in connection with acquisitions. These notes
bear interest at a rate of 10.0% per annum and mature October 1, 2001 and May 1,
2002.

DIVIDEND POLICY

We do not intend to pay cash dividends on our common stock in the
foreseeable future. We currently intend to retain our cash for the continued
development of our business. In addition, we anticipate that our new credit
facility will restrict our ability to pay dividends. Please read "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for a discussion of restrictions
on our ability to pay dividends.

17
<PAGE> 21

DILUTION

Our net tangible book value (deficit) as of June 30, 2000, was
approximately $(95.4) million or $(7.91) per share. Net tangible book value per
share represents our tangible net worth (tangible assets less total liabilities,
excluding the unamortized debt discount of $8.1 million) divided by the total
number of outstanding shares of our common stock. Dilution in net tangible book
value per share represents the difference between the amount per share that
investors will pay in this offering and the net tangible book value per share
immediately afterwards.

After giving effect to the receipt of $150.2 million of estimated net
proceeds from the sale of 10,000,000 shares of our common stock in this offering
at a price of $16.50 per share after deducting the underwriting fees and
estimated expenses of this offering, our adjusted net tangible book value as of
June 30, 2000 would have been $54.8 million or $2.48 per share. This represents
an immediate increase in our net tangible book value of $10.39 per share to
existing shareholders and an immediate dilution of $14.02 per share to new
investors purchasing our common stock in this offering. The following table
illustrates this per share dilution to new investors purchasing our common stock
in this offering:

<TABLE>
<S> <C> <C>
Public offering price per share............................. $16.50
Net tangible book value (deficit) per share as of June 30,
2000................................................... $(7.91)
Increase per share attributable to new investors.......... 10.39
------
Adjusted net tangible book value per share after this
offering.................................................. 2.48
------
Dilution per share to new investors......................... $14.02
======
</TABLE>

The table above assumes no issuance of shares in respect of any of our
outstanding options or warrants, other than those shares issued to DLJ Merchant
Banking Partners II, L.P. and its affiliated investment funds in respect of
warrants held by those funds. Upon completion of this offering, we also will
have outstanding options covering 2,430,450 shares of our common stock
exercisable at a weighted average price of $5.08 per share (that includes
201,300 options to be granted concurrently with this offering at an exercise
price equal to the initial public offering price) and warrants to purchase a
total of 3,125,694 shares of our common stock exercisable at a weighted average
price of $2.44 per share. Please read "Management -- Option Grants, Exercises
and Holdings" and "Principal and Selling Shareholders" for a description of
outstanding options and warrants to purchase our common stock. In the event the
5,556,144 shares currently subject to these additional options and warrants were
included in the above calculations, the dilution per share to new investors
would be $13.83.

The following table illustrates on an as adjusted basis as of June 30,
2000, the difference between the number of shares of common stock purchased from
us, the total consideration paid to us and the average price paid by existing
shareholders and by the new investors purchasing shares of common stock in this
offering, before deduction of estimated underwriting fees and estimated expenses
of this offering payable by us.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CASH CONSIDERATION AVERAGE
-------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders............ 12,059,336 54.7% $ 12,775,000 7.2% $ 1.06
New investors.................... 10,000,000 45.3 165,000,000 92.8 $16.50
---------- ----- ------------ -----
Total.................. 22,059,336 100.0% $177,775,000 100.0%
========== ===== ============ =====
</TABLE>

18
<PAGE> 22

CAPITALIZATION

The following table sets forth our actual and as adjusted capitalization as
of June 30, 2000. The as adjusted information gives effect to the receipt and
application as described under "Use of Proceeds" of borrowings of approximately
$78.8 million under our new credit facility and of $150.2 million of estimated
net proceeds from the sale of 10,000,000 shares of our common stock in this
offering at a price of $16.50 per share after deducting the underwriting fees
and estimated expenses of this offering.

This table should be read in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our Consolidated Financial Statements, and our Unaudited Pro Forma
Consolidated Financial Information and the accompanying notes included elsewhere
in this prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-------------------------
ACTUAL AS ADJUSTED
<S> <C> <C>
Long-term debt, including current maturities:
Existing credit facility:
Revolving line of credit................................ $ 8,000 $ --
Term facilities......................................... 145,716 --
New credit facility:
Revolving line of credit................................ -- --
Term facilities......................................... -- 68,053(1)
13% senior subordinated notes............................. 37,275(2)(3) --
12 1/2% senior subordinated notes......................... 25,500(4) --
Other long-term debt...................................... 1,762 --
-------- --------
Total long-term debt, including current
maturities....................................... 218,253 68,053
-------- --------
Shareholders' equity (deficit):
Preferred stock; 10,000,000 shares authorized; no shares
outstanding............................................. -- --
Common stock; 100,000,000 shares authorized; 9,084,900
shares issued and outstanding, actual and pro forma;
22,059,336 shares issued and outstanding, as adjusted... 91 221
Additional paid-in capital................................ 13,378 162,589
Deferred compensation..................................... (1,397) (1,397)
Cumulative translation adjustment......................... (991) (991)
Note receivable from shareholder.......................... (45) (45)
Retained earnings (deficit)............................... (48,591) (62,688)(5)
-------- --------
Total shareholders' equity (deficit)............... (37,555) 97,689
-------- --------
Total capitalization............................... $180,698 $165,742
======== ========
</TABLE>

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

(1) Excludes $4.2 million in additional borrowings that were made under our
existing credit facility in September 2000 and anticipated borrowings to be
made under our new credit facility to pay fees of approximately $2.5 million
associated with obtaining the commitment and arranging and administrative
services for our new credit facility and $2.4 million in payment-in-kind
notes issued in October 2000 as described in footnote 3 below and $1.6
million in payment-in-kind notes issued in September 2000 as described in
footnote 4 below.

(2) Excludes $8.1 million in unamortized discount associated with the sale of
our 13% senior subordinated notes and the related issuance of warrants.

(3) Includes $2.275 million in aggregate principal amount of 14% notes issued in
April 2000 in lieu of making the interest payment on our 13% senior
subordinated notes due April 1, 2000. Excludes $2.4 million in aggregate
principal amount of 14% notes issued on October 1, 2000, in lieu of making
the interest payment on our 13% senior subordinated notes due October 1,
2000 and our 14% payment-in-kind notes issued in April 2000. Please read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

(4) Includes $1.5 million in aggregate principal amount of 14 1/2% notes issued
in March 2000 in lieu of making the interest payment on our 12 1/2% senior
subordinated notes due March 15, 2000. Excludes $1.6 million in aggregate
principal amount of 14 1/2% notes issued on September 15, 2000 in lieu of
making the interest payment on our 12 1/2% senior subordinated notes due
September 15, 2000 and our 14 1/2% payment-in-kind notes issued in March
2000. Please read "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

(5) Includes the write-off for deferred financing costs and unamortized discount
associated with the debt to be retired with the proceeds from this offering
in the amount of $14.1 million.

The table above does not include:

- up to 201,300 shares of our common stock subject to options to be
granted to certain of our employees concurrently with this offering at
an exercise price equal to the initial public offering price;

- an aggregate of 2,229,150 shares of our common stock issuable upon the
exercise of options outstanding as of June 30, 2000 at a weighted
average exercise price of $3.96 per share; or

- an aggregate of 3,125,694 shares of our common stock issuable upon the
exercise of warrants outstanding as of June 30, 2000 at a weighted
average exercise price of $2.44 per share.

19
<PAGE> 23

SELECTED CONSOLIDATED FINANCIAL DATA

Our selected consolidated financial information contained below is derived
from our Consolidated Financial Statements and should be read in conjunction
with our Consolidated Financial Statements and the accompanying notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The as adjusted consolidated
statements of operations data, for the year ended December 31, 1999 and for the
six months ended June 30, 2000, contained below are derived from the Unaudited
Pro Forma Financial Information that appears elsewhere in this prospectus.

The unaudited as adjusted consolidated statement of operations data for the
year ended December 31, 1999 give effect to:

The as adjusted financial information does not purport to represent what our
results of operations actually would have been had these events occurred on
January 1, 1999, nor are they intended to project our results of operations for
any future period or date.

The unaudited as adjusted consolidated statement of operations data for the
six months ended June 30, 2000 and the unaudited as adjusted consolidated
balance sheet data as of June 30, 2000 give effect to the receipt and
application of borrowings under our new credit facility and the estimated net
proceeds from this offering as described above.
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------------
THREE
MONTHS
YEARS ENDED ENDED
SEPTEMBER 30, DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------ ------------ ------------------------------
1995 1996 1996 1997 1998 1999

(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Drilling related products and
services...................... $ 5,795 $ 13,503 $ 4,376 $29,149 $ 46,368 $ 80,643
Completion and workover related
products and services......... 10,128 11,225 2,688 14,966 23,789 27,436
Maintenance and safety related
products and services......... 11,437 11,487 3,024 15,718 20,136 19,562
------- -------- ------- ------- -------- --------
Total revenues.............. 27,360 36,215 10,088 59,833 90,293 127,641
Cost of revenues.................. 11,931 15,447 4,401 25,889 43,431 68,399
Selling, general and
administrative expense.......... 9,078 10,955 3,071 30,732(1) 23,788 36,118
Depreciation and amortization..... 2,489 3,395 1,017 5,870 10,748 15,521
------- -------- ------- ------- -------- --------
Income (loss) from operations..... 3,862 6,418 1,599 (2,658) 12,326 7,603
Interest expense.................. 1,003 1,301 340 4,733 13,418 21,989
Other expense (income), net....... 5 18 48 (8) 142 595
------- -------- ------- ------- -------- --------
Income (loss) before income
taxes........................... 2,854 5,099 1,211 (7,383) (1,234) (14,981)
Provision (benefit)for income
taxes........................... 1,258 1,985 472 (1,714) 152 239
------- -------- ------- ------- -------- --------
Net income (loss)................. $ 1,596 $ 3,114 $ 739 $(5,669) $ (1,386) $(15,220)
======= ======== ======= ======= ======== ========
Net income (loss) per share
Basic........................... $ 0.07 $ 0.14 $ 0.03 $ (0.32) $ (0.15) $ (1.34)
======= ======== ======= ======= ======== ========
Diluted......................... $ 0.06 $ 0.10 $ 0.02 $ (0.32) $ (0.15) $ (1.34)
======= ======== ======= ======= ======== ========
Number of shares used in computing
income (loss) per share
Basic........................... 22,374 22,800 22,800 17,448 9,075 11,339
======= ======== ======= ======= ======== ========
Diluted......................... 26,072 30,850 30,850 17,448 9,075 11,339
======= ======== ======= ======= ======== ========

<CAPTION>
AS ADJUSTED
-----------
AS ADJUSTED HISTORICAL SIX
------------ ---------------------- MONTHS
YEAR ENDED SIX MONTHS ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
------------ ---------------------- -----------
1999 1999 2000 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Drilling related products and
services...................... $ 90,144 $ 28,538 $68,053 $68,053
Completion and workover related
products and services......... 27,436 11,890 19,564 19,564
Maintenance and safety related
products and services......... 19,562 10,485 11,793 11,793
-------- -------- ------- -------
Total revenues.............. 137,142 50,913 99,410 99,410
Cost of revenues.................. 74,157 26,842 54,680 54,680
Selling, general and
administrative expense.......... 39,361 15,748 23,054 23,054
Depreciation and amortization..... 16,351 7,497 9,055 9,055
-------- -------- ------- -------
Income (loss) from operations..... 7,273 826 12,621 12,621
Interest expense.................. 5,850 9,686 13,500 3,394
Other expense (income), net....... 595 281 177 177
-------- -------- ------- -------
Income (loss) before income
taxes........................... 828 (9,141) (1,056) 9,050
Provision (benefit)for income
taxes........................... 239 18 374 374
-------- -------- ------- -------
Net income (loss)................. $ 589(2)(3) $ (9,159) $(1,430) $ 8,676(2)(3)
======== ======== ======= =======
Net income (loss) per share
Basic........................... $ 0.03 $ (0.86) $ (0.12) $ 0.39
======== ======== ======= =======
Diluted......................... $ 0.02 $ (0.86) $ (0.12) $ 0.34
======== ======== ======= =======
Number of shares used in computing
income (loss) per share
Basic........................... 22,049 10,612 12,058 22,059
======== ======== ======= =======
Diluted......................... 25,710 10,612 12,058 25,748
======== ======== ======= =======
</TABLE>

20
<PAGE> 24
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------------
THREE
MONTHS
YEARS ENDED ENDED
SEPTEMBER 30, DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------ ------------ ------------------------------
1995 1996 1996 1997 1998 1999

(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA, as adjusted(4)............ $ 6,346 $ 9,795 $ 2,568 $16,673 $ 22,932 $ 22,546
Net cash provided by (used in)
operating activities............ 4,824 5,314 2,053 3,472 1,103 (7,230)
Net cash provided by (used in)
investing activities............ (3,622) (10,991) (2,870) (34,760) (52,289) (46,352)
Net cash provided by (used in)
financing activities............ (1,255) 5,656 512 32,340 50,982 54,649

<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------
SEPTEMBER 30, DECEMBER 31, JUNE 30, 2000
---------------- ----------------------------- ----------------------
1995 1996 1997 1998 1999 ACTUAL AS ADJUSTED
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................... $3,888 $5,855 $12,682 $19,365 $28,422 $33,509 $ 38,339
Total assets....................................... 23,137 33,796 82,981 132,599 191,604 206,490 199,585
Total debt......................................... 9,732 15,066 101,668 153,450 198,822 210,202 68,053
Total shareholders' equity (deficit)............... 8,644 12,285 (30,280) (31,391) (35,462) (37,555) 97,689
</TABLE>

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

(1) Includes $13.5 million of non-recurring compensation expense resulting from
the redemption of options in connection with our recapitalization in 1997.

21
<PAGE> 25

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

The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our Consolidated Financial Statements and related notes
appearing elsewhere in this prospectus. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results could differ significantly from the results discussed in the
forward-looking statements as a result of factors set forth under "Risk Factors"
and elsewhere in this prospectus.

OVERVIEW OF THE MARKETS FOR OUR PRODUCTS AND SERVICES

We are a diversified oilfield service company that provides drilling
related products and services, completion and workover related products and
services and maintenance and safety related products and services. Our customers
include major and independent oil and natural gas companies, other oilfield
service companies and refining and petrochemical companies.

Prices for oil and natural gas are subject to large fluctuations in
response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of other factors. Any prolonged
increase or decrease in oil and natural gas prices affects the levels of
exploration, development and production activity as well as the entire health of
the oil and natural gas industry. Demand for our drilling related products and
services is directly affected by the level of exploration, development and
production activity of, and the corresponding capital spending by, oil and
natural gas companies. Demand for our completion and workover related products
and services depends more on oil and natural gas production activity, which is
less immediately affected by changes in oil and natural gas prices. Demand for
our maintenance and safety related products and services is affected by the rate
of plant overhauls and maintenance turnarounds as well as the overall health of
the refining and petrochemical industries.

Over the past several years, the oil and natural gas industry has
experienced volatility as a result of significant changes in oil and natural gas
prices. In 1997 and early 1998, we experienced strong demand for our products
and services as a result of an increase in exploration, development and
production activities. However, after remaining fairly stable in the second and
third quarters of 1997, the price of oil began to decline in late 1997 and
continued declining until early 1999. The decline in oil prices caused a decline
in exploration, development and production activity. The following table sets
forth the weekly average oil and natural gas prices from January 1, 1997 through
June 30, 2000:

[Average Weekly Oil & Natural Gas Prices Graph]

22
<PAGE> 26

The downturn in the oil and natural gas industry that began in 1998 led our
customers to substantially curtail their exploration and development activity
during the second half of 1998 and most of 1999. This reduction in activity
resulted in substantially lower purchases of products and services from our
drilling related products and services segment. The following table sets forth
the average monthly rotary rig count from January 1, 1997 through June 30, 2000:

[Average Monthly Rotary Rig Count Graph]

Our completion and workover related products and services segment also was
impacted by a decrease in production and workover activities by these same
customers. The following table sets forth the average monthly workover rig count
from January 1, 1997 through June 30, 2000:

[Average Monthly U.S. Workover Rig Count Graph]

Both of these segments were further impacted by an unprecedented wave of
mergers and consolidations among our customers, which slowed capital spending.
The downturn also affected our maintenance and safety related services segment,
though not as severely.

23
<PAGE> 27

STRATEGIC TRANSACTIONS

Although market conditions materially and adversely affected our businesses
in 1998 and 1999, we made the strategic decision during the industry downturn to
take advantage of opportunities to acquire desirable businesses and
technologies. This decision was based on our belief that the downturn would
create unique opportunities for us to acquire, on desirable terms, businesses
that could serve as platforms for future growth. We also believed that because
of the consolidating nature of our industry, many of these opportunities might
not be available again.

On April 24, 1998, we acquired Grinding and Sizing Company, Inc., a
closely-held, private company, and its affiliated companies, from its
shareholders. Grinding and Sizing is in the business of size reduction, or
grinding, of products primarily used in the drilling and specialty chemical
fluids industry. We paid $10.2 million, including acquisition costs, which was
funded with borrowings under our credit facility in a purchase accounting
transaction.

On July 27, 1998, we acquired Agri-Empresa, Inc., a closely-held, private
company, and its affiliated companies, from its shareholders. Agri-Empresa
manufactures, packages, distributes and transports drilling fluids. We paid
$21.3 million, including acquisition costs, which was funded with borrowings
under our credit facility in a purchase accounting transaction.

On March 29, 1999, we acquired the PathFinder assets from Halliburton
Company. We paid cash consideration of $33.3 million, including acquisition
costs, which was funded through the issuance of our 13% senior subordinated
notes in a purchase accounting transaction.

While we believe the steps taken in 1998 and 1999 should benefit our
results of operations as our industry improves, the downturn in our industry has
materially and adversely impacted our results of operations over the last two
years through lower sales and margins.

MARKET OUTLOOK

Demand for our products and services began to increase during the fourth
quarter of 1999 and further increased in the first six months of 2000, primarily
as a result of higher oil and natural gas prices. We expect that demand for our
products and services will continue to improve in the second half of 2000. The
level of market improvement for our businesses in 2000 will be heavily dependent
on whether oil and natural gas prices can remain at levels that will allow oil
and natural gas companies to economically pursue exploration and development
activities. However, the extent of the recovery is difficult to predict in light
of the volatile nature of our business. In this regard, the strength of the
recovery will be dependent on many external factors such as compliance with OPEC
quotas, world economic conditions and weather conditions.

RESULTS OF OPERATIONS

The following information should be read in conjunction with our
Consolidated Financial Statements and the accompanying notes presented elsewhere
in this prospectus.

SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999

Revenues. Revenues increased by $48.5 million, or approximately 95%, to
$99.4 million for the six months ended June 30, 2000 from $50.9 million for the
six months ended June 30, 1999. Approximately $15.7 million of our increase in
revenues was attributable to the PathFinder acquisition in March 1999, and the
remaining $32.8 million increase in revenues was attributable to an increase in
drilling and workover rig activity and the benefit of additional equipment which
was added to our rental fleet in 2000.

Revenues from our drilling related products and services increased by $39.6
million, or approximately 139%, to $68.1 million for the six months ended June
30, 2000 from $28.5 million for the six months ended June 30, 1999.
Approximately $15.7 million of this increase was attributable to the PathFinder

24
<PAGE> 28

acquisition, and the remaining $23.9 million of this increase was primarily
attributable to an increase in drilling activity and the benefit of additional
equipment which was added to our rental fleet in 2000.

Revenues from our completion and workover related products and services
increased by $7.7 million, or approximately 65%, to $19.6 million for the six
months ended June 30, 2000 from $11.9 million for the six months ended June 30,
1999. Our revenue increased as a result of an increase in workover rig activity
and the benefit of additional equipment which was added to our rental fleet in
2000.

Revenues from our maintenance and safety related products and services
increased by $1.3 million, or approximately 12%, to $11.8 million for the six
months ended June 30, 2000 from $10.5 million for the six months ended June 30,
1999. This increase was primarily the result of increased plant overhauls and
turnarounds in the first quarter of 2000.

Cost of Revenues. As a percentage of revenues, cost of revenues increased
to 55% for the six months ended June 30, 2000 from 53% for the six months ended
June 30, 1999. This increase was primarily attributable to lower pricing for our
products and services.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $7.4 million, or approximately 47%, to
$23.1 million for the six months ended June 30, 2000 from $15.7 million for the
six months ended June 30, 1999. Our selling, general and administrative expenses
increased by $2.1 million as a result of the PathFinder acquisition. An
additional $3.6 million of the increase was related to research and development
expenses. The remaining increase was attributable to our expansion of sales and
marketing personnel in 2000. As a percentage of revenues, selling, general and
administrative expenses decreased to 23% for the six months ended June 30, 2000
from 31% for the six months ended June 30, 1999.

Depreciation and Amortization. Depreciation and amortization increased by
$1.6 million, or approximately 21%, to $9.1 million for the six months ended
June 30, 2000 from $7.5 million for the six months ended June 30, 1999. This
increase was the result of depreciation associated with our capital expenditures
in 2000 and the PathFinder acquisition.

Interest Expense. Interest expense for the six months ended June 30, 2000
was $13.5 million, an increase of $3.8 million, or approximately 39%, from $9.7
million for the six months ended June 30, 1999. The increase was primarily due
to increased borrowing related to our capital expenditures and the PathFinder
acquisition and $1.2 million of non-cash interest expense resulting from the
amortization of a discount associated with our 13% senior subordinated notes. As
discussed in "Use of Proceeds," we intend to use the net proceeds of this
offering along with borrowings under our new credit facility to repay our
outstanding debt. This reduction in debt and the expected lower effective rate
of interest on our new credit facility will result in a material decrease in our
future annual interest expense.

Net Loss. Net loss decreased by $7.8 million to $1.4 million for the six
months ended June 30, 2000 from $9.2 million for the six months ended June 30,
1999.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998

Revenues. Revenues increased by $37.3 million, or approximately 41%, to
$127.6 million for the year ended December 31, 1999 from $90.3 million for the
year ended December 31, 1998. Our revenues increased by approximately $44.5
million as a result of the PathFinder acquisition in March 1999, the
Agri-Empresa acquisition in July 1998 and the Grinding and Sizing acquisition in
April 1998. However, this revenue increase was offset by a decrease in revenues
of approximately $7.0 million as a result of a general decline in drilling and
workover rig activity.

Revenues from our drilling related products and services increased by $34.2
million, or approximately 74%, to $80.6 million for the year ended December 31,
1999 from $46.4 million for the year ended December 31, 1998. Our revenues
increased by approximately $40.5 million as a result of our acquisitions.
However, this revenue increase was offset by a decrease in revenues of
approximately $6.3 million as a result of a general decline in drilling
activity.

25
<PAGE> 29

Revenues from our completion and workover related products and services
increased by $3.6 million, or approximately 15%, to $27.4 million for the year
ended December 31, 1999 from $23.8 million for the year ended December 31, 1998.
Our revenues increased by approximately $4.0 million as a result of our
acquisition of Agri-Empresa. However, this revenue increase was offset by a
decrease in revenues of approximately $0.4 million as a result of a general
decline in workover rig activity.

Revenues from our maintenance and safety related products and services
decreased by $0.5 million, or approximately 3%, to $19.6 million for the year
ended December 31, 1999 from $20.1 million for the year ended December 31, 1998.
This decrease was primarily the result of reduced plant overhauls and
turnarounds in 1999.

Cost of Revenues. As a percentage of revenues, cost of revenues increased
to 54% for the year ended December 31, 1999 from 48% for the year ended December
31, 1998. This increase was primarily attributable to lower pricing for our
products and services and lower utilization of our manufacturing facilities and
our service organization during a period of low drilling and workover activity
levels, as well as the incremental effect of our acquisitions in 1998, which
have lower gross margins than our existing businesses.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $12.3 million, or approximately 52%, to
$36.1 million for the year ended December 31, 1999 from $23.8 million for the
year ended December 31, 1998. Approximately $10.4 million of this increase was
attributable to the PathFinder acquisition, of which $3.8 million related to
research and development expenses. The remaining $1.9 million of this increase
was attributable to our expansion of sales and marketing personnel in 1999. As a
percentage of revenues, selling, general and administrative expenses increased
to 28% for the three year ended December 31, 1999 from 26% for the year ended
December 31, 1998.

Depreciation and Amortization. Depreciation and amortization increased by
$4.8 million, or approximately 45%, to $15.5 million for the year ended December
31, 1999 from $10.7 million for the year ended December 31, 1998. This increase
was the result of depreciation associated with our capital expenditures in 1999
and the incremental effect of our acquisitions.

Interest Expense. Interest expense for the year ended December 31, 1999 was
$22.0 million, an increase of $8.6 million, or approximately 64%, from $13.4
million for the year ended December 31, 1998. The increase was primarily due to
increased borrowing related to our capital expenditures and acquisitions and
$1.9 million of non-cash interest expense resulting from the amortization of a
discount associated with our 13% senior subordinated notes.

Net Loss. Net loss increased by $13.8 million to $15.2 million for the year
ended December 31, 1999 from $1.4 million for the year ended December 31, 1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

Revenues. Revenues increased by $30.5 million, or approximately 51%, to
$90.3 million for the year ended December 31, 1998 from $59.8 million for the
year ended December 31, 1997. Approximately $20.0 million of our increase in
revenues was attributable to our acquisition of Integrity Industries in
September 1997, Diamond Wireline in October 1997, Grinding and Sizing in April
1998 and Agri-Empresa in July 1998. The remaining $10.5 million of this increase
in revenues was attributable to an increase in drilling rig activity and the
benefit of additional equipment which was added to our rental fleet in 1998.

Revenues from our drilling related products and services increased by $17.3
million, or approximately 59%, to $46.4 million for the year ended December 31,
1998 from $29.1 million for the year ended December 31, 1997. Approximately
$15.5 million of this increase was attributable to our acquisitions, and the
remaining $1.8 million of this increase was attributable to the benefit of
additional equipment which was added to our rental fleet in 1998.

26
<PAGE> 30

Revenues from our completion and workover related products and services
increased by $8.8 million, or approximately 59%, to $23.8 million for the year
ended December 31, 1998 from $15.0 million for the year ended December 31, 1997.
Approximately $4.5 million of this increase was attributable to our
acquisitions, and the remaining $4.3 million of this increase was attributable
to the benefit of additional equipment which was added to our rental fleet in
1998 and our expansion into additional geographic markets.

Revenues from our maintenance and safety related products and services
increased by $4.4 million, or approximately 28%, to $20.1 million for the year
ended December 31, 1998 from $15.7 million for the year ended December 31, 1997.
This increase was the result of additional equipment which was added to our
rental fleet in 1998 and our expansion into additional geographic markets.

Costs of Revenues. As a percentage of revenues, costs of revenues increased
to 48% for the year ended December 31, 1998 from 43% for the year ended December
31, 1997. This increase was primarily the result of our acquisitions in late
1997 and 1998 of businesses which had lower gross margins than our existing
businesses at the time.

Selling, General and Administrative Expenses. Excluding the $13.5 million
charge for the redemption of options in connection with our 1997
recapitalization, selling, general and administrative expenses increased by $6.5
million, or approximately 38%, to $23.8 million for the year ended December 31,
1998 from $17.3 million for the year ended December 31, 1997. Approximately $2.0
million of this increase was attributable to our acquisitions, and the remaining
$4.5 million of this increase was attributable to our expansion of sales and
marketing personnel in 1998. Excluding the charge discussed above, as a
percentage of revenues, selling, general and administrative expenses decreased
to 26% for the year ended December 31, 1998 from 29% for the year ended December
31, 1997.

Depreciation and Amortization. Depreciation and amortization increased by
$4.8 million, or approximately 81%, to $10.7 million for the year ended December
31, 1998 from $5.9 million for the year ended December 31, 1997. This increase
was the result of depreciation associated with our capital expenditures in 1998
and the effect of our acquisitions.

Interest Expense. Interest expense for the year ended December 31, 1998 was
$13.4 million, an increase of $8.7 million, or approximately 185%, from $4.7
million for the year ended December 31, 1997. The increase was primarily due to
increased borrowing related to our capital expenditures and acquisitions.

Net Income. Net loss decreased by $4.3 million, or approximately 75%, to a
net loss of $1.4 million for the year ended December 31, 1998 from a net loss of
$5.7 million for the year ended December 31, 1997. The decrease was primarily
the result of the $13.5 million non-cash charge taken in 1997 for redemption of
options in connection with our recapitalization, offset by increased expenses
attributable to our acquisitions and corporate expansion efforts.

LIQUIDITY AND CAPITAL RESOURCES

Our primary uses for cash are working capital, capital expenditures,
acquisitions and principal and interest payments on indebtedness. Our principal
sources of cash have been cash flow from operations, borrowings for acquisitions
and our recapitalization. To the extent our cash requirements for working
capital, capital expenditures, acquisitions and principal and interest payments
on indebtedness exceed cash flow from operations, we must finance our cash
requirements primarily through debt and equity financing activities.

In August 1997, we issued $24.0 million of our 12 1/2% senior subordinated
notes, the proceeds of which were used to fund our recapitalization. One-half of
our 12 1/2% senior subordinated notes are due September 2006, and one-half of
these notes are due September 2007. As of December 31, 1999, there were $24.0
million in principal amount of our 12 1/2% senior subordinated notes
outstanding. In March 2000, in lieu of making the interest payment on our
12 1/2% senior subordinated notes due on March 15, 2000, we issued to the
holders of these notes additional notes in an aggregate principal amount of $1.5
million, bearing interest initially at the rate of 14 1/2% per annum, and
maturing on September 15,
27
<PAGE> 31

2007. On September 15, 2000, in lieu of making the interest payment on our
12 1/2% senior subordinated notes due on September 15, 2000 and our 14 1/2%
payment-in-kind notes issued in March 2000, we issued to the holders of these
notes additional notes in an aggregate principal amount of $1.6 million, bearing
interest initially at the rate of 14 1/2% per annum, and maturing on September
15, 2007. We intend to use a portion of the net proceeds of this offering along
with borrowings under our new credit facility to repay in full, for a cash
payment of $27.1 million, our 12 1/2% senior subordinated notes and the related
payment-in-kind notes issued in March 2000 and September 2000, plus accrued and
unpaid interest.

In March 1999, our wholly-owned subsidiary, Perf-O-Log, Inc., issued $40.0
million of 13% senior subordinated notes. Our 13% senior subordinated notes are
due on April 1, 2006. The proceeds of these notes were used to fund the
PathFinder acquisition. In May 1999, we redeemed $5.0 million of these notes. As
of December 31, 1999, there were $35.0 million in aggregate principal amount of
our 13% senior subordinated notes outstanding. In April 2000, in lieu of making
the interest payment on our 13% senior subordinated notes due on April 1, 2000,
we issued to the holders of these notes additional notes in an aggregate
principal amount of $2.275 million, bearing interest at the rate of 14% per
annum, and maturing on April 1, 2006. On October 1, 2000, in lieu of making the
interest payment on our 13% senior subordinated notes due on October 1, 2000 and
our 14% payment-in-kind notes issued in April 2000, we issued to the holders of
these notes additional notes in an aggregate principal amount of $2.4 million,
bearing interest at the rate of 14% per annum, and maturing on April 1, 2006. We
intend to use a portion of the net proceeds of this offering along with
borrowings under our new credit facility to repay in full, for a cash payment of
approximately $39.7 million, our 13% senior subordinated notes and the related
payment-in-kind notes issued in April 2000 and October 2000, plus accrued and
unpaid interest.

Net cash provided by (used in) operating activities was $1.1 million in
fiscal year 1998 and $(7.2) million in fiscal year 1999. Decreases in cash flow
from operating activities are principally the result of working capital
requirements attributable to increases in accounts receivable and inventory.

Net cash used in investing activities was $52.3 million in fiscal year 1998
and $46.4 million in fiscal year 1999. Net cash used in investing activities was
primarily the result of capital expenditures and acquisitions.

Net cash provided by financing activities was $51.0 million in fiscal year
1998 and $54.6 million in fiscal year 1999. Net cash provided by financing
activities was primarily the result of debt issuances used to fund capital
expenditures and acquisitions.

As of June 30, 2000, we had working capital of approximately $33.5 million.
As of June 30, 2000, after giving effect to this offering and the application of
the net proceeds as described under "Use of Proceeds," we would have had net
working capital of $38.3 million.

In March 2000, we amended our existing credit facility to permit total term
loan borrowings of up to $153.5 million. As of June 30, 2000, $145.7 million in
principal amount of term loan borrowings under our existing credit facility were
outstanding. Our existing credit facility also provides for a revolving line of
credit of up to $20.0 million that will mature in August 2002 and bears interest
at an annual rate of LIBOR plus a margin that depends on our debt coverage
ratio. As of June 30, 2000, we had $8.0 million in principal amount of
borrowings outstanding under the revolving line of credit.

We intend to use a portion of the net proceeds of this offering and
borrowings under our new credit facility, described below, to repay in full, for
a cash payment of approximately $157.9 million, the outstanding balance under
our existing credit facility, plus accrued and unpaid interest.

We have a commitment from DLJ Capital Funding, Inc. (an affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation) to enter into a new credit
facility at or prior to the closing of this offering that will replace our
existing credit facility. Our new credit facility will consist of a Term A
credit facility of up to $50.0 million and a Term B credit facility of up to
$25.0 million. We anticipate that, at closing, we will borrow approximately
$75.0 million under these term facilities. After these borrowings, we will not
be able to borrow any additional amounts under these term facilities. We
anticipate that our new credit

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facility will also include a revolving credit facility of up to $20.0 million.
We anticipate that we will have outstanding borrowings of $3.8 million under the
revolving facility at closing. Amounts borrowed under:

- the Term A credit facility will amortize over six years, will mature on
the sixth anniversary of the closing of the new credit facility and will
require that we make annual principal repayments ranging from 0% of the
commitment amount in the first year of the new credit facility to 30% of
the commitment amount in the sixth year of the new credit facility;

- the Term B credit facility will amortize over six and one-half years,
will mature on the six and one-half year anniversary of the closing of
the new credit facility and will require that we make annual principal
repayments of 1% of the commitment amount in the first six years of the
new credit facility with the outstanding balance being due on the
maturity date; and

- the revolving credit facility may be borrowed, prepaid and reborrowed
from time to time and will mature on the sixth anniversary of the closing
of the new credit facility.

At our option, amounts borrowed under the new credit facility will bear
interest at either a variable rate equal to the reserve-adjusted LIBOR or an
alternate base rate, plus, in each case, an applicable margin. The applicable
margin will be 2.75% in the case of a LIBOR based loan under the revolving
credit facility or the Term A credit facility and from 3.25% to 3.50% in the
case of a LIBOR based loan under the Term B credit facility. For alternate base
rate loans, the applicable margin will be 1.75% under the revolving credit
facility and the Term A credit facility and from 2.25% to 2.50% under the Term B
credit facility. The foregoing margins will be subject to adjustment based on a
leverage ratio.

We anticipate that our new credit facility will be secured by a lien on all
of our property and assets, a pledge of all of the capital stock of our domestic
subsidiaries and a pledge of not greater than 65% of the capital stock of each
of our foreign subsidiaries. In addition, we anticipate that our new credit
facility will be guaranteed by all of our domestic subsidiaries.

We anticipate that our new credit facility will contain negative covenants
which restrict our ability to incur additional indebtedness, sell assets other
than in the ordinary course of business, make capital expenditures, make
investments and acquisitions and enter into mergers, consolidations or similar
transactions. In addition, we anticipate that our new credit facility will
require us to maintain an interest coverage ratio, to be defined in our new
credit facility, of at least 2.50 to 1 and a leverage ratio, to be defined in
our new credit facility, of no more than 3.25 to 1.

Upon completion of this offering and the application of the net proceeds
from this offering and the borrowings under our new credit facility as described
under "Use of Proceeds":

- our existing credit facility will be retired;

- our 12 1/2% senior subordinated notes and our 13% senior subordinated
notes will be repaid; and

- approximately $78.8 million will be outstanding under our new credit
facility.

DLJ Capital Funding, Inc. is in the process of syndicating our new credit
facility upon completion of which, allocations of borrowings between the Term A
credit facility and the Term B credit facility will be determined. Our
commitment letter provides that the terms described above, other than the amount
we may borrow under our new credit facility and the fees payable by us, may be
changed in connection with the syndication process. In addition, we are
negotiating with potential syndicate members to increase the amount available
under the revolving credit facility from $20 million to $40 million.

During fiscal year 1999, we made capital expenditures, including
expenditures for the replacement of equipment lost in hole, of approximately
$23.8 million, primarily for expansion of our rental tool inventory and certain
assets purchased in the PathFinder acquisition. Management currently projects
capital expenditures, including expenditures for the replacement of equipment
lost in hole, of approximately $27.5 million during fiscal year 2000, primarily
for additional rental tool inventory, additional LWD and MWD tools and wireline
equipment. In addition, management expects research and development expenses

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<PAGE> 33

of $6.5 million during fiscal year 2000, which we expense as incurred. We
believe that cash generated from operations and amounts available under our
revolving line of credit will provide sufficient funds for our identified
capital projects, debt service and working capital requirements. However, part
of our strategy involves the acquisition of companies that have products and
services complementary to our existing strategic base of operations. Depending
on the size of any future acquisitions, we may require additional debt
financing, possibly in excess of the limits of the new credit facility, or
additional equity financing. Although we are continually evaluating potential
acquisitions, currently we do not have any contracts, understandings or
arrangements with respect to any material acquisitions.

As of December 31, 1999, we had net operating loss carryforwards of
approximately $39.5 million available through 2019 to offset future taxable
income. Utilization of the net operating losses may be limited due to U.S. tax
laws. Please read Note 7 to our Consolidated Financial Statements included
elsewhere in this prospectus.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks. Market risk is the potential loss arising
from adverse changes in market prices and rates. We do not enter into derivative
or other financial instruments for trading or speculative purposes. Our market
risk could arise from changes in interest rates and foreign currency exchange
rates.

Interest Rate Risk. We are subject to market risk exposure related to
changes in interest rates. Assuming our current level of borrowings, a 100 basis
point increase in interest rates under these borrowings would increase our 1999
as adjusted interest expense by approximately $550,000.

Foreign Currency Exchange Risk. Our earnings and financial position are
affected by foreign exchange rate fluctuations. We currently do not hedge
against foreign currency translation risks, and we believe that foreign currency
exchange risk is not significant to our operations.

YEAR 2000

We have not experienced any significant Year 2000 software failures. The
amount charged to expense during the twelve months ended December 31, 1999 and
the six months ended June 30, 2000, as well as the amounts anticipated to be
charged to expense related to the Year 2000 computer compliance modifications,
have been negligible and are not expected to be material to our financial
position, results of operations or cash flows.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which we are required to adopt effective
January 1, 2001. SFAS No. 133 will require us to record all derivatives as
assets or liabilities at fair value. Changes in derivative fair values will
either be recognized in earnings, offset against changes in the fair value of
the related hedged assets, liabilities and firm commitments or, for forecasted
transactions, recorded as a component of other comprehensive income in
shareholders' equity until the hedged transactions occur and are recognized in
earnings. The ineffective portion of a hedging derivative's change in fair value
will be recognized in earnings immediately. We have not engaged in activities or
entered into arrangements associated with derivative instruments.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements"
which provides guidance related to revenue recognition based on interpretations
and practices followed by the Securities and Exchange Commission. SAB 101 is
effective by the fourth fiscal quarter of fiscal years beginning after December
15, 1999 and requires companies to report any changes in revenue recognition as
a cumulative change in accounting principle at the time of implementation. We
believe that our revenue recognition policy is in accordance with SAB 101 and do
not believe that this SAB will have a material impact on our financial position
or results of operations.

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BUSINESS

OVERVIEW

- drilling related products and services, which include LWD, MWD, rental
tools (including drill pipe), downhole drilling motors and drilling
fluids;

- completion and workover related products and services, which include
cased-hole wireline logging and perforating, polymers and specialty
chemicals and tubing; and

- maintenance and safety related products and services, which include
integrated on-site cleaning and waste management and safety equipment.

Please read Note 11 to our Consolidated Financial Statements for financial
information for each of the last three years and for the six months ended June
30, 1999 and June 30, 2000, which sets forth our revenues, gross profits and
total assets by segment and provides a summary of this information by geographic
region.

- offering technologically advanced products and services;

- focusing on niche markets in which leading market positions can be
maintained;

- operating our business lines autonomously and marketing our product
offerings independently;

- emphasizing customer service, responsiveness and reliability; and

- providing equity-incentives to key management and operating personnel.

OUR STRATEGY

Our strategy is to grow revenue and earnings by providing our customers
with an alternative to the major oilfield service companies while preserving our
entrepreneurial culture. Our strategy consists of the following key components:

Provide Leading Technology Solutions for Our Customers. The PathFinder
acquisition significantly increased our technological base by providing us with
LWD capabilities. We are one of just four companies worldwide that currently
have the technological capability to offer a full complement of LWD products and
services. In addition, we have achieved technological advancements through our
internal research and development efforts. Prior to the PathFinder acquisition,
we developed and commercialized a patented retrievable MWD system that has
gained market acceptance, and we have introduced several innovative drilling
fluid products to the market. We are in the process of developing for commercial
use the following three technologically advanced downhole products:

- the drilling formation tester, which is capable of measuring formation
pressure while drilling, eliminating the need for wireline pressure
testing;

- the super sonic tool, which is a high accuracy acoustic tool that can
deliver rig site logs more quickly than existing technologies; and

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<PAGE> 35

- the payzone inclination gamma ray tool, which accurately measures well
bore inclination, enabling the driller to perform high precision downhole
steering.

We plan to use research and development expenditures to continue developing the
technologies acquired in the PathFinder acquisition and to develop new
technology-based products in our other segments.

Capitalize on the Growth of Offshore and Directional Drilling. A
substantial portion of our drilling related products and services are designed
for use in directional drilling onshore and directional and vertical drilling
offshore. While the overall level of drilling activity fluctuates based on the
industry environment, we believe the trends in both directional drilling and
offshore drilling are positive. According to statistics published by Baker
Hughes regarding the North American market, rigs drilling directionally as a
percentage of total rigs drilling has increased from 13% in 1991 to 25% in 1999.
Likewise, in the North American market, the number of rigs drilling offshore as
a percentage of total rigs drilling has increased from 9% in 1991 to 17% in 1999
according to statistics published by Baker Hughes. We intend to capitalize on
these trends by aggressively marketing the following products and services:

- LWD products, which are economically attractive in many offshore wells,
whether directional or vertical;

- MWD products, which are necessary when LWD products are used and when
drilling directionally, whether onshore or offshore;

- high torque drill pipe, which is utilized in wells drilled directionally;

- downhole drilling motors, which are required for wells drilled
directionally; and

- specialized drilling fluids, which improve drilling performance while
meeting the rigid environmental standards required in offshore drilling.

Expand the breadth and scope of our international operations. Since the end
of the last year, we have expanded our international operations beyond the North
Sea to the Middle East, Brazil, the Caspian Sea and Italy. We currently continue
to offer LWD and MWD products and services, downhole drilling motors and
directional drilling services in the North Sea, and this year we have entered
into contracts and are providing these services in the Middle East. In addition,
we recently have entered into a contract and are providing LWD and MWD products
and services in Brazil. We also have been selected to provide LWD and MWD
products and services, downhole drilling motors and directional drilling
services in the Caspian Sea and in Italy.

Leverage Our Market Positions to Deploy Our Under-Utilized Equipment. We
intend to capitalize on increases in oilfield activity and opportunities for
international expansion by deploying under-utilized equipment. We acquired a
significant inventory of equipment in the March 1999 PathFinder acquisition.
However, much of this equipment was under contract and was not delivered to us
until the end of 1999 and the beginning of 2000. We will seek to introduce this
equipment to our existing markets and to international markets as attractive and
profitable opportunities emerge.

Selectively Acquire Complementary Businesses and Technologies. We will
continue to pursue acquisitions of complementary businesses which increase the
technological base and expand the market reach of our product and service
offerings. We intend to focus on acquisitions that expand our operations with
new products and services, broaden our geographic scope, increase our market
share and improve our ability to compete with the major integrated oilfield
service companies. We will continue to provide management and key personnel of
acquired businesses with stock-based incentives in our company and will continue
to market these companies and technologies under their established names.

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OUR HISTORY

The following table lists the operating subsidiaries that we have formed or
acquired, either through stock or asset acquisitions, since 1989 and the
business segments in which each of these subsidiaries operates. Two of these
subsidiaries, Integrity Industries, Inc. and Agri-Empresa, Inc., operate in more
than one segment.

<TABLE>
<CAPTION>
SEGMENT OPERATING SUBSIDIARY DATE ACQUIRED/FORMED
<S> <C> <C>
Drilling related products and services Thomas Tools, a division of Thomas Energy June 1994
Services, Inc.
Drill Motor Services, Inc. December 1995
Integrity Industries, Inc. September 1997
Grinding and Sizing Company, Inc. April 1998
Agri-Empresa, Inc. July 1998
PathFinder Energy Services, Inc. March 1999
Dyna Drill Technologies, Inc. March 1999

Completion and workover related Perf-O-Log, Inc. December 1990
products and services
Integrity Industries, Inc. September 1997
Diamond Wireline Services, Inc. October 1997
Agri-Empresa, Inc. July 1998
Thomas Tubing Specialists, a division of July 1998
Thomas Energy Services, Inc.

Maintenance and safety related products Charles Holston, Inc. April 1989
and services
Well Safe, Inc. May 1990
</TABLE>

Most of these companies continue to be operated by their former owners and key
managers.

OUR BUSINESSES

DRILLING RELATED PRODUCTS AND SERVICES

Our drilling related products and services segment provides a broad range
of products and services used by oil and natural gas companies, drilling
contractors and other oilfield service companies for the drilling of oil and
natural gas wells. Currently, our drilling related products and services are
used primarily offshore in the Gulf of Mexico and in the North Sea and onshore
in the Gulf Coast region. Our drilling related products and services consist of
five primary business lines:

- LWD;

- MWD;

- rental tools;

- downhole drilling motors; and

- drilling fluids.

We believe technology is an increasingly important aspect of our drilling
related products and services. Improving technology helps us provide our
customers with more efficient and cost-effective tools to find and produce oil
and natural gas. We have invested a substantial amount of our time and resources
in building our technology-based offerings. We believe our new products and
services are among the best in the industry and will provide us with the
opportunity to increase our share of the drilling related products and services
market.

Logging-while-Drilling. We are one of only four companies in the world with
the technological capability to provide a full complement of LWD products and
services. In addition to indicating the
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possible presence of oil and natural gas, LWD tools provide data about formation
pressure, porosity and permeability as well as providing real time drilling
information which improves drilling performance. Also, data can be provided
during the drilling process which can be correlated with previously obtained
seismic information.

Before the introduction of LWD technology, well formation data was
traditionally obtained by lowering evaluation tools into the well with
electro-mechanical cable, or wireline, from a truck on land or a skid unit
offshore. Traditional wireline information can only be obtained after the well
has been drilled or during the drilling process if drilling is halted and the
drill string is removed from the well. An advantage that LWD has over
traditional wireline logging is that costs are reduced as drilling rig downtime
is minimized -- these savings can be substantial for offshore jobs where rates
for drilling currently range from $15,000 per day in shallow waters to $200,000
per day in deep waters. In addition, the real-time information transmitted
during the drilling process can assist in making drilling decisions such as
altering the path of the drill string to a point in the formation which provides
for enhanced recovery of oil and natural gas.

Our LWD business was acquired from Halliburton as part of the PathFinder
acquisition in March 1999, after the Department of Justice required Halliburton
to divest its PathFinder assets. Halliburton entered the LWD market in 1992. Our
LWD business is operated by our wholly-owned subsidiary PathFinder Energy
Services and marketed under the PathFinder brand name, established by
Halliburton. A typical LWD job involves deployment of LWD tools and one to three
skilled LWD field engineers to a customer's drill site. A typical LWD job lasts
five days for onshore jobs and 20 days for offshore jobs. Since acquiring the
PathFinder assets, we have provided LWD products and services in the United
States and the North Sea. In 2000, we have entered into contracts and are
providing LWD products and services in the Middle East and Brazil. In addition,
we have been selected to provide LWD products and services in Italy and the
Caspian Sea. In the North Sea, we also provide directional drilling services in
conjunction with our LWD services, and we have been selected to provide these
services in the Caspian Sea and Italy.

We market and sell these services through an internal sales force and
through our relationships with independent directional drilling companies, and
our customers typically utilize these services on a per well basis. We charge
our customers for these services on a per day rental basis. Our LWD business is
currently operated from service facilities in Lafayette, Louisiana; Aberdeen,
Scotland and Stavanger, Norway.

Measurement-while-Drilling. We provide MWD products and services, which
involve the use of a downhole electronic instrument to locate and direct the
drill bit to the intended target. This capability is utilized when drilling
directional (non-vertical) wells which represent an increasing percentage of
overall drilling activity, particularly offshore. In order to drill a
directional well, the driller must be able to determine the precise direction
the drill bit is moving during the drilling operation. MWD tools enable the
driller to make this determination by transmitting the angle and direction of
the well bore. This data is received at the surface enabling the driller to
adjust the drilling path as necessary.

Our MWD business is operated by our wholly-owned subsidiary PathFinder
Energy Services and marketed under the PathFinder and The Tracker brand names. A
typical MWD job involves deployment of MWD tools and a skilled MWD field
engineer to a customer's drill site. A typical MWD job lasts 15 days for onshore
jobs and 20 days for offshore jobs.

We introduced The Tracker to the market in 1998 following approximately
three years of internal research and development. The Tracker is an MWD system
designed for work in slim hole (down to a 3 1/2 inches diameter drilling
assembly), high temperature and high pressure drilling conditions. Additionally,
The Tracker MWD system is fully retrievable. This means that the system can be
wireline retrieved, or extracted from the hole through the drill pipe, if the
well bore conditions become extremely adverse or if the drill string becomes
stuck. As well bore conditions improve, The Tracker can be re-inserted. This
ability to retrieve and re-insert The Tracker MWD system avoids costs associated
with equipment being lost in the well and creates a significant savings to the
operator in both time and money.

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We acquired our PathFinder MWD kits from Halliburton in connection with the
PathFinder acquisition in March 1999. Halliburton entered the MWD market in
1988. The PathFinder MWD kits are used in conjunction with the PathFinder LWD
tools.

We market and sell our MWD services through an internal sales force, and
our customers typically utilize these services on a per well basis. We charge
our customers on a per day rental basis. Our MWD business is currently operated
from service facilities in Lafayette, Louisiana; Victoria, Texas; Casper,
Wyoming; Aberdeen, Scotland and Stavanger, Norway. This year we intend to pursue
additional international expansion of our MWD products and services.

Rental Tools. We provide a broad range of rental equipment and tools for
the drilling of oil and natural gas wells. Our rental equipment allows our
customers, primarily oil and natural gas companies, the ability to have access
to inventories of tools and other equipment without the cost of maintaining or
storing that equipment in their own inventory. Our rental tool inventory
includes:

- drilling equipment, such as large diameter drill pipe, heavy weight drill
pipe, high torque drill pipe, drill collars and other required
accessories;

- pressure control equipment, such as blowout preventers, high pressure
valves, choke and kill manifolds and test pumps;

- downhole tools, such as milling tools and casing scrapers; and

- pipe handling equipment.

Our rental tool operations are focused onshore in Texas and Louisiana and
offshore in the Gulf of Mexico.

We have an extensive inventory of various sizes of drill pipe and related
handling tools, providing our customers with a full range of drill pipe for
drilling at a variety of well depths and conditions. In response to the growth
in directional drilling, we have expanded our inventory of premium, high torque
drill pipe, which provides operators with the technical characteristics demanded
by deeper wells and wells expected to encounter adverse conditions, including
deviated well bores. We also offer all complementary handling and sub-surface
tools and pressure control equipment that support high torque drill pipe.

Our rental tool business is operated by Thomas Tools, a division of our
wholly owned subsidiary Thomas Energy Services, Inc., which was founded in 1961.
Equipment and tools typically are rented to customers for seven to 45 days. Our
rental customers are responsible for transporting our rental tools to and from
our facilities to their sites.

We market these rental tool services through an internal sales force in
sales offices in Lafayette and New Iberia, Louisiana; Houston, Dallas and Corpus
Christi, Texas; and Denver, Colorado and through operating managers at our
operational locations in Victoria, Texas and New Iberia, Louisiana. The majority
of our equipment and tools is rented to customers on a day rental basis. We
currently do not have international rental tool operations.

Downhole Drilling Motors. We are a manufacturer and supplier of downhole
drilling motors. We supply downhole drilling motors onshore in Louisiana,
Oklahoma, Texas and Wyoming and offshore in the Gulf of Mexico and the North
Sea. We provide downhole drilling motors to exploration and production companies
and independent directional drillers. We believe independent directional
drillers will continue to manage a substantial portion of the directional
drilling jobs performed in the Gulf of Mexico, and we will focus on leveraging
our relationships with these customers. Our drilling motors business is
conducted by our two wholly owned subsidiaries, Drill Motor Services and Dyna
Drill Technologies and is also marketed by our wholly owned subsidiary,
PathFinder Energy Services.

Our Drill Motor Services subsidiary began providing downhole drilling
motors in 1991 to capitalize on the growth of directional drilling. Its rental
product line consists of a wide range of sizes of downhole drilling motors
ranging from 3 1/2 inches to 9 5/8 inches in outside diameter for use at various
drilling depths. The components of the drill motor are designed to operate at
various speeds and torque levels and to withstand

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<PAGE> 39

severe environmental conditions such as high temperatures, hard rock and
abrasive muds. Additionally, Drill Motor Services has designed a small diameter
motor for coiled tubing and snubbing applications. We expect this new motor to
be ready for commercial use by the end of the fourth quarter of 2000.

In connection with the PathFinder acquisition, we acquired a second line of
rental downhole drilling motors and the related manufacturing equipment which
had been operated and marketed by Halliburton under the name Dyna Drill. We also
acquired the non-exclusive right to use the Dyna Drill name. The Dyna Drill
downhole drilling motors are manufactured and repaired by our subsidiary, Dyna
Drill Technologies. In addition to complementing our Drill Motor Services line
of downhole drilling motors, the manufacturing equipment enables us to support
both motor lines and to provide manufacturing and repair services for other
drilling motor companies. Dyna Drill Technologies is one of only four companies
worldwide that manufactures the power section of downhole drilling motors.

Our drilling motor customers include directional drilling companies and
other oilfield service companies. We typically charge our customers for use of
our drilling motors on the basis of hours of usage. We market our downhole
drilling motors and services directly through our internal sales force and
operating managers at locations in Lafayette, Louisiana; Houston, Texas; Elk
City, Oklahoma; Aberdeen, Scotland; and Stavanger, Norway.

Drilling Fluids. We manufacture, package, transport, warehouse and
wholesale drilling fluids and drilling fluid chemicals and additives. We also
provide size reduction services of environmentally approved solids used in loss
circulation and seepage control, both of which are problems regularly
encountered in drilling oil and natural gas wells. Drilling fluid products are
used to cool and lubricate the drill bit during drilling operations, to contain
formation pressures, to suspend and remove rock cuttings from the hole and to
maintain the stability of the wellbore. Our customers, which include retail
drilling fluid companies, specialty fluid companies and other oilfield service
companies, use our drilling fluid products throughout the world.

Our drilling fluid chemicals and additives are used in the production and
maintenance of:

- water-based drilling fluids;

- oil-based drilling fluids; and

- synthetic-based drilling fluids.

Water-based drilling fluids are the most widely used drilling fluids, having
application in both land and offshore environments. Water-based drilling fluids
typically contain an engineered blend of weighting materials used to contain
formation pressures and a broad range of chemical additives specially designed
to yield the specific drilling performance characteristics required for a given
drilling project. Oil-based drilling fluids, which primarily are used to drill
water-sensitive shales, reduce torque and drag and are widely used in drilling
conditions where stuck pipe is likely to occur. In certain drilling areas,
oil-based systems exhibit higher penetration rates than water-based systems.
These higher penetration rates significantly reduce the time required to drill a
well and overall drilling costs. Synthetic-based drilling fluids are used where
oil-based fluids are prohibited for environmental reasons and are particularly
advantageous in the deepwater environment, because of their high performance and
safety.

We manufacture a large portion of the drilling fluid products we wholesale,
which enables us to manage the cost and maintain the proprietary nature of these
products. Our research and development initiatives are designed to develop new
products specifically for our customer base. One of our recent product
innovations is a high performance lubricant that allows the use of
environmentally friendly water-based drilling fluids in the deep, severe
drilling environments of the North Sea.

We established our drilling fluids and drilling fluid chemicals and
additives business through the acquisitions of Integrity Industries, Inc. in
September 1997, Grinding and Sizing Company, Inc. in April 1998 and
Agri-Empresa, Inc. in July 1998. We market and sell these products through an
internal sales force. Our drilling fluids business provides products and
services throughout Texas, Louisiana and eastern New Mexico.
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COMPLETION AND WORKOVER RELATED PRODUCTS AND SERVICES

Our completion and workover related products and services segment provides
a broad range of products and services primarily to customers onshore in the
Gulf Coast region and offshore in the Gulf of Mexico. These products and
services include:

- wireline logging and perforating;

- polymers and specialty chemicals; and

- tubing.

Wireline Logging and Perforating. We provide cased-hole wireline logging
and perforating services to oil and natural gas companies onshore in Alabama,
Louisiana, Mississippi and Texas and offshore in the Gulf of Mexico. Our
services include:

- Logging Services. Logging involves the gathering of downhole information
to identify various characteristics about the formation or zone to be
produced. Logging services are performed through armored
electro-mechanical cable, or wireline, which is lowered into a well from
a truck on land or a skid unit offshore. These units contain considerable
instrumentation and computer equipment used to chart and record downhole
information.

- Perforating Services. Perforating is the method used to establish
communication between the oil or natural gas reservoir and production
tubing to enable the production of oil or natural gas. A path for oil and
natural gas to flow from the reservoir through the casing and cement to
the production tubing is created through the use of a shaped explosive
charge from a perforating gun which penetrates the producing zone.
Wireline is used to position and discharge the perforating gun. We also
perform services aimed at improving the production rate of existing oil
and natural gas wells and in perforating new zones in a well once a
deeper zone or formation has been depleted. We provide a patented gravel
pack service referred to as the "Thru-Tubing Wireline Gravel Pack," that
provides operators of oil and natural gas wells with a more precise
method of installing gravel packs. A gravel pack involves the use of a
slurry-like material that is placed in the well to restore or improve
production in wells that have become congested by producing sand.

We supply wireline logging and perforating services primarily to cased-hole
markets. Cased-holes are wells which have been drilled and cased and are either
ready to produce or are already producing. As a result, the majority of our
revenues from this business are generated by repeat business on existing wells.
Consequently, our wireline logging and perforating services provide revenue
stability during periods of reduced drilling activity.

We established our wireline logging and perforating business through the
acquisitions of Perf-O-Log, Inc. in December 1990 and Diamond Wireline Services,
Inc. in October 1997. A wireline job typically involves the use of both a
logging unit and a perforating unit at a customer's well site. These services
require skilled operators and typically last several days for onshore jobs and a
week or more for offshore jobs. We market and sell these services through an
internal sales force, and our customers typically utilize these services on a
per well basis. We charge our customers on a per day basis. Our wireline logging
and perforating business is currently operated out of facilities located in
Lafayette and Houma, Louisiana; Laurel, Mississippi; and Corpus Christi and
Tyler, Texas.

Polymers and Specialty Chemicals. We produce polymers and specialty
chemicals for niche applications related to completion and workover activities.
Our polymers and specialty chemical products are sold to customers for use
around the world.

Completion fluids are generally solids-free solutions with high specific
gravities and are non-damaging to the producing formation. Oil and natural gas
operators use these specially designed fluid systems in combination with a
comprehensive range of specialty chemical products to control bottom-hole
pressures, while meeting the specific corrosion, inhibition, viscosity and fluid
loss requirements during the completion

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and workover phase of a well. These systems are specially designed to maximize
well production by minimizing formation damage that can be caused by
solids-laden systems.

Our three classes of completion and workover related polymer and specialty
chemical products are:

- oilfield products, which include:

-- enhanced recovery chemicals,

-- spotting fluids,

-- well treating chemicals, and

-- liquified polymers;

- industrial products, which include:

-- cleaners,

-- lubricants, and

-- environmentally sensitive solvents; and

- environmental remediation products.

We established our polymers and specialty chemicals business through the
acquisitions of Integrity Industries, Inc. in September 1997, Grinding and
Sizing Company, Inc. in April 1998 and Agri-Empresa, Inc. in July 1998. We
market and sell our polymers and specialty chemical products through an internal
sales force. Our polymers and specialty chemical products are distributed from
strategically located facilities throughout Texas, Louisiana and in eastern New
Mexico.

Tubing. Thomas Tubing Specialists was established with a capital investment
in 1998. This specialized division of Thomas Energy Services, Inc. provides a
variety of quality tubing and high pressure blowout preventers used in
conventional well servicing and workover applications, as well as specialized
snubbing and coiled tubing applications.

Snubbing involves pushing pipe into the well against well bore pressures
that often exceed 10,000 to 12,000 pounds per square inch. Failure during high
pressure applications such as snubbing could result in a blowout. Through Thomas
Tubing, we offer both the proper equipment and the experience to handle the
critical nature of snubbing. Thomas Tubing also provides standard tubing for
less demanding applications.

Thomas Tubing has benefitted from the lack of specific focus by our
competitors on the tubing and snubbing market. We market and sell our equipment
through an internal sales force. Our customers typically utilize equipment on a
per well basis, and we charge our customers for equipment primarily on a day
rental basis. Our tubing business is currently operated out of facilities
located in New Iberia, Louisiana.

MAINTENANCE AND SAFETY RELATED PRODUCTS AND SERVICES

We provide maintenance and safety related products and services primarily
for refinery and petrochemical plant applications and major and independent oil
and natural gas companies, including:

- integrated on-site cleaning and waste management; and

- safety equipment.

Integrated On-Site Cleaning and Waste Management. We provide on-site
cleaning, maintenance and waste storage services to refining and petrochemical
companies and major and independent oil and natural gas companies through our
fleet of high velocity vacuum trucks, storage tanks and boxes and a broad
selection of specialty equipment. Our services include on-site cleaning and
waste management, waste

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<PAGE> 42

transportation, wastewater services, container cleaning and repair, emergency
spill response services and other general plant support services.

We established an integrated cleaning and maintenance business through our
acquisition of Charles Holston, Inc. in April 1989. We market these services
directly through an internal sales force and operating managers at locations in
Jennings, Lake Charles and Eunice, Louisiana.

Safety Equipment. Our safety equipment business provides equipment used in
the detection of and protection from toxic gases encountered by refining and
petrochemical companies and major and independent oil and natural gas companies
onshore in the Gulf Coast region and offshore in the Gulf of Mexico. We rent
electronic detection and monitoring equipment, breathing units and other
personal safety equipment, primarily on a day rate basis. In addition, we
provide comprehensive safety planning services, safety training and safety
supervision.

We acquired our safety equipment business through the acquisition of Well
Safe, Inc. in May 1990. Originally established to service the oil and natural
gas exploration and production market, we expanded our business in 1993 to
include refining and petrochemical companies. This has enabled us to capitalize
on the stringent safety requirements of this market. We market and sell our
safety services and products directly through an internal sales force and
operating managers at locations in Decatur and Mobile, Alabama; Gonzales and
Sulfur, Louisiana; and Corpus Christi, Beaumont and Houston, Texas.

POTENTIAL LIABILITIES AND INSURANCE

Our operations involve a high degree of operational risk, particularly
personal injuries and equipment damage, that are typical of companies operating
in our industry. Failure of our equipment could result in property damages,
personal injury, environmental pollution and damage for which we could be
liable. Litigation arising from a catastrophic occurrence at a location where
our equipment or services are used may result in our being named as a defendant
in lawsuits asserting potentially large claims. We maintain insurance against
risks that are consistent with industry standards and required by our customers.
Although we believe that we maintain insurance coverage that is adequate in
amount and type for the risks associated with our businesses, there is always a
risk that our insurance may not be sufficient to cover any particular loss. In
addition, our insurance does not provide coverage for all liabilities, including
liability for some events involving pollution. Our insurance coverage may not
otherwise be adequate to cover claims that may arise, and we may not be able to
maintain adequate insurance at rates we consider commercially reasonable.

LICENSES, PATENTS AND TRADEMARKS

We possess or have licenses to use various patents covering a variety of
technologies that form components of our products. Although in the aggregate
these patents are of importance to us, we do not consider any single patent to
be of a critical or essential nature. We also enjoy product name brand
recognition, principally through The Tracker(R), Dyna Drill(R) and other
trademarks that we own or possess the right to use, and consider such trademarks
to be important to our business.

Our LWD business is substantially dependent upon technologies that we
acquired in the PathFinder acquisition. Through non-exclusive, worldwide,
royalty free licenses granted to us by Halliburton, Honeywell, and other
third-party licensors, and a royalty bearing non-exclusive, worldwide license
granted to us by Schlumberger, we possess the right to use, but do not own and
may not sublicense, these technologies. These licenses have termination dates,
subject to renewal in some cases, ranging from March 31, 2004 through November
6, 2007. Some of the licenses have perpetual terms.

In connection with the PathFinder acquisition, Halliburton agreed to defend
and indemnify us with respect to any claim of infringement or misappropriation
by third parties with regard to the intellectual property, such as patents,
copyrights, trade secrets and trademarks, that were conveyed to us in the
PathFinder acquisition. This indemnity protects us in the event of a loss
arising out of any suit or

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<PAGE> 43

settlement resulting from a claim of infringement of patents, copyrights or
trade secrets of third parties by the PathFinder assets. The indemnity applies
to claims made on or before March 29, 2001.

On January 25, 2000, we notified Halliburton of its indemnity obligations
under this agreement in connection with the assertion by one of our competitors
that certain components of a PathFinder tool infringe upon one or more of its
patents. Halliburton has agreed that this claim is subject to the indemnity
agreement and has commenced its initial investigation of this claim. In
addition, we have received an inquiry from an educational institution regarding
the PathFinder tool, which could develop into an infringement claim with respect
to patents held by it. We have notified Halliburton of this inquiry and are
awaiting Halliburton's response.

We have employment or royalty agreements with certain of our employees who
have been involved in the development of technologies that are important to our
business. In general, these agreements provide that we must pay royalties to
these employees based upon the amount of revenues that their technologies are
used to produce. In some cases, these agreements provide for acceleration of
these royalty payments upon the occurrence of specified events, such as a change
in control of W-H Energy Services, Inc.

GOVERNMENT REGULATION

Our business is significantly affected by foreign, federal, state and local
laws and regulations relating to the oil and natural gas industry, the refining
and petrochemical industry, worker safety and environmental protection. Changes
in these laws, including more stringent administrative regulations and increased
levels of enforcement of these laws and regulations, will affect our business.
We cannot predict the level of enforcement of existing laws and regulations or
how these laws and regulations may be interpreted by enforcement agencies or
court rulings or the effect changes in these laws and regulations may have on us
or our businesses, our results of operations, our cash flows or our financial
condition. We also are not able to predict whether additional laws and
regulations will be adopted.

We depend on the demand for our products and services from oil and natural
gas companies, oilfield service companies and refining and petrochemical
companies. This demand is affected by changing taxes, price controls and other
laws and regulations relating to the oil and natural gas industry and the
refining and petrochemical industry, generally. The adoption of laws and
regulations curtailing exploration and development drilling for oil and natural
gas in our areas of operation for economic, environmental or other policy
reasons could also adversely affect our operations by limiting demand for our
products and services. In addition, our maintenance and safety related services
are substantially dependent on the cleaning and maintenance operations of our
customers. Numerous local, state and federal laws and regulations affect the
necessity, timing and frequency of the cleaning and maintenance operations of
refining and petrochemical companies and, consequently affect the demand for our
products and services. We cannot determine the extent to which our future
operations and earnings may be effected by new legislation, new regulations or
changes in existing regulations or enforcement.

Some of our employees who perform services on offshore platforms and
vessels are covered by the provisions of the Jones Act, the Death on the High
Seas Act and general maritime law. These laws operate to make the liability
limits established under state workers' compensation laws inapplicable to these
employees and, instead, permit them or their representatives to pursue actions
against us for damages or job-related injuries, with generally no limitations on
our potential liability.

Our operations are subject to numerous foreign, federal, state and local
laws and regulations governing the manufacture, management and/or disposal of
materials and wastes in the environment and otherwise relating to environmental
protection. Numerous governmental agencies issue regulations to implement and
enforce these laws which are often difficult and costly to comply with, and the
violation of which may result in the revocation of permits, issuance of
corrective action orders, assessment of administrative and civil penalties and
even criminal prosecution. For example, state and federal agencies have issued
regulations implementing environmental laws that regulate environmental and
safety matters, such as restrictions on the types, quantities, and concentration
of various substances that can be released into the environment in connection
with specialty chemical manufacturing and tank vacuum or other field service
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<PAGE> 44

operations, remedial measures to prevent pollution arising from current and
former operations, and requirements for worker safety training and equipment
usage. Our management believes that we are in compliance in all material
respects with applicable environmental laws and regulations and, further, does
not anticipate that compliance with existing laws and regulations will have a
material effect on us.

We generate wastes, including hazardous wastes, that are subject to the
federal Resource Conservation and Recovery Act (RCRA) and comparable state
statutes. The U.S. Environmental Protection Agency (EPA) and state agencies have
limited the approved methods of disposal for some types of hazardous and
nonhazardous wastes. Furthermore, it is possible that certain wastes handled by
us in connection with our tank vacuum or other field service activities that
currently are exempt from treatment as "hazardous wastes" may in the future be
designated as "hazardous wastes" under RCRA or other applicable statutes, and
therefore be subject to more rigorous and costly operating and disposal
requirements.

The federal Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA), also known as the "Superfund" law, and comparable state
statutes impose liability, without regard to fault or legality of the original
conduct, on classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or the site where the release
occurred and companies that disposed of or arranged for the disposal of the
hazardous substances at the site where the release occurred. Under CERCLA, these
persons may be subject to joint and several liability for the costs of cleaning
up the hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment. We
currently lease a number of properties upon which activities involving the
handling of hazardous substances or wastes may have been conducted by third
parties not under our control. These properties may be subject to CERCLA, RCRA
and analogous state laws in the future. Under these laws and implementing
regulations, we could be required to remove or remediate previously discarded
hazardous substances and wastes or property contamination that was caused by
these third parties. These laws and regulations may also expose us to liability
for our acts that were in compliance with applicable laws at the time the acts
were performed.

Our operations may result in discharges of pollutants into waters. The
Federal Water Pollution Control Act (FWPCA) and analogous state laws impose
restrictions and strict controls regarding the discharge of pollutants into
state waters or waters of the United States. The discharge of pollutants are
prohibited unless permitted by the EPA or applicable state agencies. In
addition, the Oil Pollution Act of 1990 (OPA) as amended by the Coast Guard
Authorization Act of 1996, imposes a variety of requirements on "responsible
parties" related to the prevention of oil spills and liability for damages,
including natural resource damages, resulting from such spills in waters of the
United States. A "responsible party" includes the owner or operator of a
facility or vessel, or the lessee or permittee of the area in which an offshore
facility is located. The FWPCA and analogous state laws provide for
administrative, civil and criminal penalties for unauthorized discharges and,
together with OPA, impose rigorous requirements for spill prevention and
response planning as well as substantial potential liability for the costs of
removal, remediation, and damages in connection with any unauthorized
discharges. Our management believes that we are in substantial compliance with
applicable permitting, planning, and discharge requirements under the FWPCA and
OPA.

The Atomic Energy Act, which provides for the development and regulation of
commercial nuclear power, authorizes the Nuclear Regulatory Commission (NRC) to
regulate radioactive "source material." A "source material" is uranium and
thorium that can be used to produce nuclear fuels, but that has not yet been
"enriched" to be fissionable. Under the Atomic Energy Act, the NRC has entered
into cooperative agreements with the states of Texas, Louisiana, and Mississippi
that authorize those states to regulate and license the use of source material.
Source material is used by several of our companies, including PathFinder,
Perf-O-Log, and Diamond Wireline, in connection with logging exploratory wells
in Louisiana, Mississippi, and Texas. We have obtained licenses from the
Louisiana Department of
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<PAGE> 45

Environmental Quality, the Texas Department of Health and Radiological Control,
and the Mississippi Department of Health and Radiological Control that allow us
to store and use these source materials in connection with our well logging
activities in these three states. We believe that we are in compliance with the
terms and conditions of our source material state licenses.

As part of the oilfield products and services provided by our Charles
Holston company in Louisiana, we have in the past been involved in treating,
removing, and disposing of naturally occurring radioactive material (NORM) which
is generated in connection with oil and gas exploration and production
activities. The Atomic Energy Act does not regulate NORM; rather, NORM is
regulated by the states. Under authority granted by Louisiana law, the Louisiana
Department of Environmental Quality has adopted regulations establishing
radiation, health, and safety requirements for the possession, use, transfer,
treatment, storage, and disposal of NORM, and the recycling of NORM-contaminated
equipment. These regulations authorize the issuance of "specific licenses" to
qualified companies to remove and dispose of regulated NORM that has
contaminated oilfield equipment such as tanks and pipes as well as surficial
soils, including soils comprising oilfield pits. We have in the past held a
specific license for treating, removing, and disposing of NORM in Louisiana.
While we are not currently licensed to treat, remove or dispose of NORM, we are
undertaking efforts to once again obtain a special license in order to handle
regulated NORM waste. We believe that our past NORM activities under our
previous specific license were performed in compliance with applicable Louisiana
Department of Environmental Quality NORM requirements, and do not expect to
experience significant difficulty in obtaining a new specific license with
respect to the future handling of regulated NORM.

CUSTOMERS

Our customers include major and independent oil and natural gas companies
and independent directional drillers operating onshore in North America and
offshore in the Gulf of Mexico and the North Sea. Our customers also include
refinery and petrochemical companies located on the Gulf Coast. Additionally, we
provide drilling fluids to other oilfield services companies on a wholesale
basis. We provide services and equipment to a broad range of customers and,
therefore, we believe that we are not dependent on any single customer or group
of customers. For the year ended December 31, 1999, no single customer or group
of affiliated customers accounted for 10% or more of our revenues. We generally
enter into informal, nonbinding commitments with our customers, which are
customary within our business lines.

SUPPLIERS

We obtain our rental tools, certain parts and components of our drilling
motors and LWD and MWD tools and certain chemicals and additives used in
producing our drilling fluids from various third-party suppliers. We do not
believe that any one supplier of these products is material to us. We have not
experienced and do not foresee experiencing a shortage of any of these products.

COMPETITION

We operate in highly competitive areas of the oilfield services industry.
The depressed oil and natural gas prices and the resulting decline in the oil
and natural gas industry in the 1980s and in 1998 and early 1999 has led to a
consolidation of the number of companies providing services similar to those we
provide. Many of our competitors are larger and have greater marketing,
distribution, financial and other resources than we do.

Drilling Related Products and Services. We experience significant
competition in our drilling related products and services segment. In this
segment, we principally compete on the basis of reputation, technology, quality,
price and availability. Competitors in our LWD and MWD businesses include
divisions of Baker Hughes, Halliburton and Schlumberger. Small and large
independent oilfield service companies also compete with us in our MWD business.
In our rental tool business, our competitors range from small, independent
oilfield service companies to much larger oilfield service companies such as
Weatherford International. In addition, many of our customers own and operate
large inventories of equipment they

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<PAGE> 46

might otherwise rent and have the ability to purchase additional equipment, as
opposed to renting. Competitors in our downhole drilling motors business and our
drilling fluids and specialty chemicals business include both small and large
independent oilfield service companies.

Completion and Workover Related Products and Services. We experience
significant competition in our completion and workover related products and
services segment. In this segment, we principally compete on the basis of price,
quality, reputation, availability and range of services offered. Our competitors
in this segment include the major oilfield service companies and both small and
large independent oilfield service companies.

Maintenance and Safety Related Products and Services. Our maintenance and
safety related products and services segment also experiences significant
competition. In this segment, we compete principally on the basis of quality,
reputation and price. Competition in our safety equipment business is fragmented
and our competitors vary widely. We have a variety of competitors in our
cleaning and waste management business ranging from large public companies to
small independent, single-location operators.

We may not be able to continue operating at current volumes or prices if
our current competitors or new market entrants introduce new products or
services with better features, performance, prices or other characteristics than
our products and services. Competitive pressures or other factors also may
result in significant price competition that could have a material adverse
effect on our results of operations and financial condition. In the future, we
also may face the threat of competition from companies providing products
similar to ours over the Internet. These potential Internet companies may have
greater technical capabilities and access to greater financial resources than we
have. This may place us at a disadvantage in responding to the Internet
offerings of these competitors, technological changes in the Internet or changes
in our customers' requirements. Furthermore, competition among oilfield service
and equipment providers is also based on the provider's reputation for safety
and quality. Although we believe that our reputation for safety and quality
service is good, there can be no assurance that we will be able to maintain this
reputation and, thus, our competitive position.

EMPLOYEES

As of June 30, 2000, we had approximately 921 employees. None of our
employees is represented by a union or covered by a collective bargaining
agreement. We believe that our relations with our employees are good.

LEGAL PROCEEDINGS

We are a party to various routine legal proceedings that primarily involve
commercial claims and workers' compensation claims. We cannot predict the
outcome of these lawsuits, legal proceedings and claims with certainty.
Nevertheless, we believe that the outcome of all of these proceedings, even if
determined adversely, would not have a material adverse effect on our business
or financial condition.

Two separate lawsuits, Keith Vienne, et al. v. Conoco, Inc., et al., No.
74,427, and Larry Mouton, et al. v. Conoco, Inc., et al., No. 75,038, were filed
in 1999 in Louisiana state court against six defendants, including Conoco, Inc.,
the primary operator of the field beginning in the 1950s, and Guillory Tank
Truck Service, Inc., an oilfield waste disposal company. One of our
subsidiaries, Charles Holston, Inc., purchased the assets of Guillory Tank Truck
Service, Inc. in 1989. These cases have several hundred plaintiffs who allege
that they and their property have been exposed to improperly handled oil, gas,
and oilfield waste over a 40-year period in connection with the operation of an
oilfield approximately four miles north of Rayne, Louisiana. The plaintiffs
allege that Guillory Tank Truck Service, Inc. improperly disposed of oilfield
waste from the field at various unspecified times over the years. The plaintiffs
are seeking an unspecified amount of general, special and exemplary damages.
These cases, which are being consolidated for trial purposes, are in the initial
phase of discovery, and it is too early for us to predict a range of exposure or
a likely outcome. However, we believe that under the terms of the asset purchase
agreement entered into in 1989 to acquire these assets, Charles Holston, Inc. is
not contractually liable for any acts

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<PAGE> 47

which may result in liability prior to the acquisition of these assets. We do
not expect these two lawsuits to have a material adverse effect on our financial
condition or results of operations.

For a discussion of the claims relating to intellectual property rights,
please read "-- Licenses, Patents and Trademarks."

PROPERTIES

Our principal executive offices are located at 10370 Richmond Avenue, Suite
990, Houston, Texas 77042, and our telephone number is (713) 974-9071. Our
businesses are conducted out of sales offices and facilities located throughout
the United States and Europe. Set forth below is a chart describing the
locations of these sales offices and facilities:

<TABLE>
<CAPTION>
BUSINESS LOCATION
-------- --------
<S> <C>
Drilling Related Products and Services
LWD/MWD Lafayette and New Orleans, Louisiana; Houston and
Victoria, Texas; Casper, Wyoming; Stavanger, Norway;
Aberdeen, Scotland
Rental Tools Lafayette and New Iberia, Louisiana; Denver, Colorado;
Houston, Dallas, Corpus Christi and Victoria, Texas
Downhole Drilling Motors Lafayette, Louisiana; Elk City, Oklahoma; Houston,
Texas; Stavanger, Norway; Aberdeen, Scotland
Drilling Fluids Jennings, Louisiana; Carlsbad and Hobbs, New Mexico;
Kingsville, Conroe, Victoria, Lufkin, Zapata, Edinburg,
Midland, Abilene, Jacksboro and Houston, Texas
Completion and Workover Related Products and Services
Wireline Logging and Perforating Lafayette and Houma, Louisiana; Laurel, Mississippi;
Corpus Christi and Tyler, Texas
Polymers and Specialty Chemicals Jennings, Louisiana; Carlsbad and Hobbs, New Mexico;
Kingsville, Conroe, Victoria, Lufkin, Zapata, Edinburg,
Midland, Abilene, Jacksboro and Houston, Texas
Tubing New Iberia, Louisiana
Maintenance and Safety Related Products and Services
Integrated On-site Cleaning and Waste Management Eunice, Jennings and Lake Charles, Louisiana
Safety Equipment Decatur and Mobile, Alabama; Gonzales and Sulfur,
Louisiana; Beaumont, Corpus Christi and Houston, Texas
</TABLE>

With the exception of our Lafayette (LWD/MWD) and Houma, Louisiana and
Tyler, Texas facilities, which are owned, all of these sales offices and
facilities are leased pursuant to operating leases for various terms. Some of
these sales offices and facilities are leased from employees who were the former
owners of our subsidiaries. We believe that all of our leases are at competitive
or market rates and do not anticipate any difficulty in leasing suitable
additional space upon expiration of our current lease terms. Please read
"Relationships and Related Transactions -- Lease Agreement."

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our executive officers and directors and their ages and positions are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Kenneth T. White, Jr. ............... 58 Chairman of the Board, President, Chief
Executive Officer and Director
Jeffrey L. Tepera.................... 35 Vice President, Secretary and Chief Financial
Officer
William J. Thomas III................ 49 Vice President
Jonathan F. Boucher.................. 43 Director
John W. Jordan II.................... 52 Director
David W. Zalaznick................... 46 Director
J. Jack Watson....................... 71 Director
Christopher Mills.................... 47 Director
Robert H. Whilden, Jr. .............. 65 Director
Milton L. Scott...................... 43 Director
</TABLE>

Our board of directors consists of eight members. Each of our directors
will serve until the next annual meeting of the shareholders or until his death,
resignation or removal, whichever is earlier. Directors are elected annually and
executive officers hold office for such terms as may be determined by our board
of directors. Set forth below is a brief description of the business experience
of each of our directors and executive officers.

Mr. White, our founder, has served as a director and as our President,
Chairman and Chief Executive Officer since our inception in April 1989. Prior to
founding our company, Mr. White participated in the acquisition, development and
eventual sale of a number of businesses, including an oil and natural gas
products and services business and a manufacturing and distributing company. Mr.
White has over 25 years of experience in the oil and natural gas industry.

Mr. Tepera, a certified public accountant, serves as our Vice President,
Secretary and Chief Financial Officer. From December 1997 until March 2000, when
Mr. Tepera was appointed to his current positions with us, Mr. Tepera served as
our Vice President and Treasurer. From 1989 to December 1997 Mr. Tepera was
employed by Arthur Andersen LLP, independent public accountants, serving in
various positions, most recently as Manager in the enterprise group, which
specializes in emerging high growth companies.

Mr. Thomas has served as our Vice President since May 2000, the President
of PathFinder Energy Services, Inc. since June 1999 and the Chief Executive
Officer of Thomas Energy Services, Inc. since June 1994. Mr. Thomas has over 25
years of experience in the oil and natural gas industry and has been employed by
Thomas Energy Services since 1974.

Mr. Boucher has served as one of our directors since August 1997. Mr.
Boucher has been a partner of The Jordan Company, a private merchant banking
firm, since 1983. Mr. Boucher is also a director of Jackson Products, Inc.,
Jordan Industries, Inc. and Motors and Gears, Inc., as well as other privately
held companies.

Mr. Jordan has served as one of our directors since August 1997. Mr. Jordan
has been a partner of The Jordan Company, a private merchant banking firm, since
1982. Mr. Jordan is also a director of AmeriKing, Inc., Carmike Cinemas, Inc.,
Jackson Products, Inc., Jordan Industries, Inc., Motors and Gears, Inc. and
Rockshox, Inc., as well as other privately held companies.

Mr. Zalaznick has served as one of our directors since August 1997. Mr.
Zalaznick has been a partner of The Jordan Company, a private merchant banking
firm, since 1982. Mr. Zalaznick is also a director of AmeriKing, Inc., Carmike
Cinemas, Inc., Jackson Products, Inc., Jordan Industries, Inc., Marisa
Christina, Inc. and Motors and Gears, Inc., as well as other privately held
companies.

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<PAGE> 49

Mr. Watson has served as one of our directors since August 1997. Mr. Watson
was Chairman, President and Chief Executive Officer of Newflo Corporation from
1987 to 1996. Newflo is a manufacturer of pumps, valves and meters which, at the
time of Mr. Watson's departure, had annual revenues of approximately $250
million.

Mr. Mills has served as one of our directors since 1990. Mr. Mills is a
director of Compass Plastics, Denison Investments PLC, Horace Small PLC, North
Atlantic Smaller Companies Investment Trust, a closed end mutual fund, and Oak
Industries. Mr. Mills has been the Chief Executive Officer of North Atlantic
Smaller Companies Trust since 1984.

Mr. Whilden has served as one of our directors since our inception in 1989.
Since January 2000, Mr. Whilden has served as Senior Vice President and General
Counsel of BMC Software, Inc. and is also a director of Tom Brown, Inc., an
independent oil and natural gas company. Until December 31, 1999, Mr. Whilden
had been a partner since 1970 in the law firm of Vinson & Elkins L.L.P., our
counsel in connection with this offering.

Mr. Scott has served as one of our directors since August 2000. Mr. Scott
has served as Senior Vice President and Chief Administrative Officer of Dynegy
Inc. since October 1999. From 1977 to October 1999, Mr. Scott was employed by
Arthur Andersen LLP, independent public accountants, serving in various
positions, most recently as partner in charge of the Gulf Coast region's
technology and telecommunications practice.

BOARD COMMITTEES

Prior to the completion of this offering, our board of directors intends to
appoint an audit committee composed of three independent directors and a
compensation committee. The audit committee will make recommendations to the
board of directors regarding the selection of independent accountants, will
review the results and scope of that firm's audit and the services provided by
them and will review and evaluate our audit and control functions.

The compensation committee will administer our stock plans and make
decisions concerning salaries and incentive compensation for our employees.

INDEMNIFICATION

We are parties to indemnification agreements with each of our directors and
executive officers. These indemnification agreements provide that we will
indemnify our directors or executive officers to the fullest extent permitted by
Texas law.

Our restated articles of incorporation contain provisions relating to the
limitation of liability and indemnification of our directors and officers. They
provide that directors shall not be personally liable to us or our shareholders
for monetary damages for any act or omission in the director's capacity as a
director, except for liability for:

- any breach of a director's duty of loyalty to us or our shareholders;

- acts or omissions not in good faith or which constitute a breach by a
director of a duty owed to us or an act or omission that involves
intentional misconduct or a knowing violation of law;

- a transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope
of the director's office; or

- any act or omission for which the liability of a director is expressly
provided by an applicable statute.

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<PAGE> 50

Our restated articles of incorporation also provide that:

- if Texas law is amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of
our directors shall be eliminated or limited to the fullest extent
permitted by the amended Texas law; and

- we may not retroactively amend the provisions in our restated articles of
incorporation relating to indemnity in a way that would adversely affect
the rights of our directors or officers.

In addition, our amended and restated bylaws provide that:

- we are required to indemnify our directors and officers to the fullest
extent permitted by Texas law; and

- we are required to advance all expenses incurred by a director or officer
in connection with legal proceedings relating to his service as an
officer or director to the fullest extent permitted by Texas law, subject
to limited exceptions.

MANAGEMENT OF OPERATING SUBSIDIARIES

Set forth below is a brief description of the principal executive officer
of each of our main operating subsidiaries:

Bill W. Bouziden has served as the President of Perf-O-Log since
October 1998. Prior to serving as President of Perf-O-Log, Mr. Bouziden
served as operations manager at Perf-O-Log from September 1997 to September
1998 and at Diamond Wireline from September 1995 to September 1997. Mr.
Bouziden has over 15 years of experience in the oil and natural gas
industry and wireline business.

William Max Duncan, Jr. has been the President of Integrity since he
co-founded it in 1986. Mr. Duncan has over 20 years of experience in the
specialty chemicals and drilling fluids business.

Shaun R. Gilly has been the Chief Executive Officer of Diamond
Wireline since its formation in October 1987. Mr. Gilly has over 30 years
of experience in the oil and natural gas industry.

Stephen T. Goree has been the Chief Executive Officer of Agri-Empresa
since its formation in 1977. Mr. Goree was the founder of Agri-Empresa and
has over 20 years of experience in the oil and natural gas industry.

Craig Holston is the Chief Executive Officer of Charles Holston and
has been with Charles Holston since its formation in 1985 and has over 15
years of experience in the oil and natural gas industry.

Ronald A. Rose, Sr. has been with Grinding and Sizing since 1988 and
has been the President of Grinding and Sizing since 1995. Mr. Rose has over
10 years of experience in the drilling fluids business.

Daniel M. Spiller is the Chief Executive Officer of Drill Motor
Services. Mr. Spiller has over 20 years of experience in the design,
manufacture, sale, rental and operation of downhole drilling motors. Mr.
Spiller organized Drill Motor Services in 1991 and, prior to such time,
worked with several recognized leaders in the downhole drilling motor
sector.

Leif R. Syverson has been the Chief Executive Officer of Dyna Drill
Technologies since its formation in April 1999, prior to which Mr. Syverson
was with Halliburton from March 1997 to April 1999. Mr. Syverson was a
managing partner of Nightrider Litigation Service from February 1995 to
March 1997. Mr. Syverson has over 15 years of experience in the oil and
natural gas industry.

William J. Thomas III has been the President of PathFinder Energy
Services, Inc. since June 1999 and the Chief Executive Officer of Thomas
Energy Services, Inc. since June 1994. Mr. Thomas

47
<PAGE> 51

has over 25 years of experience in the oil and natural gas industry and has
been with Thomas Energy Services since 1974.

J.B. Wilson, Jr. is the President of Well Safe and has been with Well
Safe since its inception in 1985. Mr. Wilson has over 20 years of
experience in the oil and natural gas industry.

EXECUTIVE COMPENSATION

The following table sets forth summary compensation information with
respect to our President and Chief Executive Officer and certain of our other
officers for the year ended December 31, 1999:

<TABLE>
<CAPTION>
NUMBER OF
ANNUAL COMPENSATION SECURITIES
---------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION OTHER ANNUAL ALL OTHER OPTIONS/WARRANTS
IN THE COMPANY(1) SALARY BONUS COMPENSATION COMPENSATION(2) GRANTED
<S> <C> <C> <C> <C> <C>
Kenneth T. White, Jr. ......... $259,616 $250,000 $ -- $ -- 900,900
Chairman, President and
Chief Executive Officer
William J. Thomas III.......... 196,601 100,000 -- 4,500 33,000
Vice President
Jeffrey L. Tepera.............. 88,269 20,000 8,100 1,912 16,500
Vice President, Secretary
and Chief Financial Officer
</TABLE>

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

(1) Excludes David N. Eliff, who served as our Vice President, Secretary and
Chief Financial Officer, until his resignation in March 2000. For the year
ended December 31, 1999, Mr. Eliff received a salary of $140,192, a bonus of
$45,000, other annual compensation of $8,100 and other compensation of
$3,154. During the year ended December 31, 1999, we granted Mr. Eliff
options to purchase 33,000 shares of our common stock, which had not vested
and, thus, terminated upon Mr. Eliff's resignation.

(2) Consists of our contractual and discretionary contributions to the named
executive officer's 401(k) plan account.

OPTION GRANTS, EXERCISES AND HOLDINGS

Option Grants. The following table contains certain information concerning
options granted to the named executive officers during the year ended December
31, 1999:

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------- POTENTIAL REALIZABLE VALUE AT
PERCENT OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS GRANTED EXERCISE OR STOCK PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION OPTION TERM(3)
NAME(1) GRANTED IN 1999 PER SHARE(2) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Kenneth T. White, Jr. .... 900,900 64.5% $4.55 3/29/2009 $2,577,899 $6,532,902
William J. Thomas III..... 33,000 2.4 4.55 3/29/2009 94,429 239,300
Jeffrey L. Tepera......... 16,500 1.2 4.55 3/29/2009 47,214 119,650
</TABLE>

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

(1) Excludes David N. Eliff who, during the year ended December 31, 1999, was
granted options to purchase 33,000 shares of our common stock at an exercise
price of $4.55 per share, which was at or above fair market value. In March
2000, these options had not vested and, thus, terminated upon Mr. Eliff's
resignation.

(2) The options were granted at or above the fair market value of our common
stock on the date of grant with a term of 10 years, unless otherwise noted.

(3) In accordance with the rules of the Securities and Exchange Commission,
shown are the gains or "option spreads" that would exist for the respective
options granted. These gains are based on the assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted over the full option term. These assumed annual compound rates of
stock price

48
<PAGE> 52

appreciation are mandated by the rules of the Securities and Exchange Commission
and do not represent our estimate or projection of our future common stock
prices.

Option and Warrant Holdings. The following table sets forth certain
information regarding options and warrants held at December 31, 1999:

<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK UNDERLYING VALUE OF UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS/WARRANTS HELD AT OPTIONS/WARRANTS HELD AT
DECEMBER 31, 1999 DECEMBER 31, 1999(2)
--------------------------- ---------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Kenneth T. White, Jr.
Options................................... 480,480 420,420 $5,741,736 $5,024,019
Warrants.................................. 311,438 -- 3,721,684 --
William J. Thomas III
Options................................... -- 33,000 -- 394,350
Warrants.................................. 148,500 -- 1,774,575 --
Jeffrey L. Tepera
Options................................... 8,250 24,750 98,588 295,763
Warrants.................................. -- -- -- --
</TABLE>

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

(1) Excludes David N. Eliff who, as of December 31, 1999, held unvested options
to purchase 33,000 shares of our common stock. In March 2000, these options
had not vested and, thus, terminated upon Mr. Eliff's resignation. As of
December 31, 1999, Mr. Eliff held warrants to purchase 115,500 shares of our
common stock, all of which are exercisable. The value of Mr. Eliff's
exercisable in-the-money warrants held at December 31, 1999 was $1,650,495.

(2) There was no public market for the common stock at December 31, 1999.
Accordingly, these values have been calculated by determining the difference
between the exercise price per share and the fair market value at December
31, 1999. A fair market value of $16.50 per share was used, which is the
public offering price.

EMPLOYMENT AGREEMENTS

Kenneth T. White, Jr. Mr. White serves as our Chairman, President and Chief
Executive Officer under an employment agreement, with an initial term expiring
March 29, 2002. However, Mr. White's employment agreement contains an option,
which we intend to exercise, that will extend Mr. White's employment agreement
for a term of three years from the effective date of this offering. We also have
the option to extend the employment agreement for a term of three years from the
effective date of certain events, including the completion of a merger or other
business combination with a third party in which there is more than a 50% change
in stock ownership and board control.

Mr. White's employment agreement provides for an annual base salary of
$300,000 plus a car allowance and such fringe benefits as are available from us
to our executive officers and the executive officers of our subsidiaries. Mr.
White is also entitled to receive incentive compensation up to a maximum of 100%
of his base compensation each year as determined in the sole discretion of our
board of directors. If we terminate Mr. White's employment for any reason other
than for cause, he is entitled to receive his base salary for a period of two
years. Mr. White has agreed during the term of the agreement, and for a period
of two years after any voluntary termination, not to engage directly or
indirectly in any type of business in which we or any of our subsidiaries are
actively engaged in the state of Texas or Louisiana.

Mr. White received a 10-year option to purchase 900,900 shares of our
common stock at an exercise price of $4.55 per share. Mr. White's option to
purchase 480,480 of these shares has already vested. Mr. White may exercise his
option with respect to 210,210 of these unvested shares on or after March 29,
2001 and may exercise his option with respect to the remaining 210,210 unvested
shares on or after March 29, 2002. Under certain circumstances, vesting of the
options may accelerate and Mr. White will be permitted to exercise these options
immediately in full. These circumstances include a merger or

49
<PAGE> 53

consolidation of us with another company in which we are not the surviving
entity, a sale, lease or exchange of all or substantially all of our assets to
any other person or entity, our dissolution or bankruptcy, or the acquisition by
a person or entity of ownership or control of more than 50% of the outstanding
shares of our voting stock.

William J. Thomas III. Mr. Thomas serves as our Vice President under an
employment agreement, with an initial term expiring May 1, 2003. However, Mr.
Thomas's employment agreement may be renewed automatically for an additional
period ending April 30, 2006, unless terminated by Mr. Thomas or us. Mr.
Thomas's employment agreement provides for an annual salary of $250,000 plus a
car allowance and other benefits. Mr. Thomas is also entitled to incentive
compensation up to a maximum of 100% of his base compensation each year as
determined by our compensation committee. Under the agreement, Mr. Thomas's
salary will be reviewed every two years by our compensation committee for
possible increases based on Mr. Thomas's performance. If we terminate Mr.
Thomas's employment for any reason other than for cause, he is entitled to
receive his salary for two years. Mr. Thomas has agreed, during the term of the
agreement and for a period of one year after any voluntary termination, that he
will not be employed by or associated with or own any entity which is engaged in
any type of business in which we or any of our subsidiaries are actively engaged
in the state of Texas or Louisiana.

Jeffrey L. Tepera. Mr. Tepera serves as our Vice President, Secretary and
Chief Financial Officer under an employment agreement, with an initial term
expiring March 26, 2002. However, Mr. Tepera's employment agreement may be
renewed automatically for an additional period ending March 26, 2005, unless
terminated by Mr. Tepera or us. Mr. Tepera's employment agreement provides for
an annual salary of $150,000 plus a car allowance and other benefits. Mr. Tepera
is also entitled to incentive compensation each year, as determined by our
compensation committee. Under the agreement, Mr. Tepera's salary will be
reviewed every two years by our compensation committee for possible increases
based on Mr. Tepera's performance. If we terminate Mr. Tepera's employment for
any reason other than for cause, he is entitled to receive his salary for two
years. Under Mr. Tepera's employment agreement, Mr. Tepera has agreed for a
period of one year from the date of voluntary termination, that he will not be
employed or associated with or own any entity which is engaged in any type of
business in which we or any of our subsidiaries are actively engaged.

COMPENSATION OF DIRECTORS

Beginning with the first regular annual meeting of the board after the
consummation of this offering, and on each annual meeting after that, each then
serving independent director will receive an annual fee for his services to our
company, plus reimbursement of reasonable out-of-pocket expenses incurred in
attending meetings of the board and for other reasonable expenses related to the
performance of his duties as director.

STOCK OPTION PLAN

Our board adopted a stock option plan in August 1997. Our board believes
that, by providing our key employees with an opportunity to acquire an ownership
interest in our company, the option plan will give employees a stronger
incentive to work for our continued success. Our board of directors also
believes that the option plan will help us attract and retain outstanding
personnel. The principal features of the option plan are described below.

The option plan will be administered by a committee of our board of
directors appointed by our board of directors. If no committee is appointed
under the option plan, the board of directors will act as the administrator. The
administrator has the power to determine those employees to be granted options,
the price and the number of shares subject to each option, the time at which
each option is granted and becomes exercisable, the duration of the option
period, the inclusion of stock appreciation rights and such other conditions and
limitations as may be applicable.

Each option granted under the option plan will contain terms and conditions
as may be approved by the administrator. The administrator has granted options
under the option plan that will vest over a
50
<PAGE> 54

four-year period and will expire in all cases 10 years from the date the options
were granted. Except in certain circumstances, including a merger or
consolidation with another corporation or the sale of substantially all of our
assets, no option may be exercised unless the continuous service requirement has
been satisfied. If an optionee's employment terminates for any reason, the
option may be exercised during the three-month period following the termination,
but only to the extent vested at the time of the termination.

Each option will be assignable or transferable only by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined by the Internal Revenue Code of 1986, as amended, or Title 1 of the
Employee Retirement Income Security Act of 1974, as amended, and will be
exercisable during the optionee's lifetime only by the optionee or the
optionee's guardian or legal representative.

No consideration is payable to us upon the grant of any option. The
exercise price of any option will be determined by the administrator.

Our board of directors may amend or terminate the option plan as it deems
advisable. Termination of the option plan will not affect the rights of the
optionees or their successors under any options outstanding and not exercised in
full on the date of termination. Unless earlier terminated by the board of
directors, the option plan will terminate in August 2007.

The option plan provides for the issuance of non-qualified stock options.
The option plan covers an aggregate of 2,475,000 shares of our common stock
(subject to adjustments in the event of stock dividends, stock splits and
certain other events). As of June 30, 2000, 10-year options were outstanding
under the option plan with respect to a total of 1,328,250 shares of our common
stock, which will vest over a four-year period, in 25% increments after each
full year of service following the date of grant, beginning in August 1998. This
amount does not include:

- 900,900 options granted to Mr. White on March 29, 1999 under a separate
non-statutory stock option plan; or

- up to 201,300 options to be granted under the 1997 option plan to certain
of our employees concurrently with this offering at an exercise price
equal to the initial public offering price.

Mr. White's options vest as described under "Management -- Employment
Agreements -- Kenneth T. White."

OTHER COMPENSATORY ARRANGEMENTS

Retirement Plan. We provide our employees with a 401(k) plan pursuant to
which we contribute $0.75 for each $1.00 contribution by the employee on the
first 3% of salary that the employee contributes to the plan.

Health Plan. We provide our employees with a traditional major medical plan
that pays 80% to 90% of an employee's medical expenses. Our health plan is
partially self-insured with a specific individual loss of limit of $100,000 and
an aggregate annual stop loss limit. We also offer our employees a voluntary
plan to cover dental care the cost of which is paid for by the participating
employee.

Group Life Insurance. We provide group term life insurance for each of our
employees which pays a $20,000 death benefit ($40,000 if death is the result of
an accident) to the employee's estate or beneficiary.

Disability Insurance. We provide group short-term and long-term disability
insurance plans to our employees.

Key Person Life Insurance. We maintain key person life insurance policies
on Mr. White which pay $1,500,000 to us and $500,000 to Mr. White's named
beneficiary in the event of his death. We maintain a key person life insurance
policy on Mr. Thomas which pays $500,000 to us in the event of his death.

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<PAGE> 55

RELATIONSHIPS AND RELATED TRANSACTIONS

The following is a discussion of transactions between us and our executive
officers, directors and shareholders owning more than five percent of our common
stock. We believe that the terms of each of these transactions were at least as
favorable as could have been obtained in similar transactions with unaffiliated
third parties. Because of the existence of these transactions, the parties to
these transactions could have interests different from those of other
shareholders.

TRANSACTIONS WITH THE JORDAN COMPANY, ITS AFFILIATES AND RELATED ENTITIES

Recapitalization. On August 11, 1997, we entered into an Agreement and Plan
of Recapitalization with W-H Investment, L.P. providing for a series of equity
and debt transactions which resulted in a recapitalization and change in our
controlling ownership. In connection with the recapitalization we:

- repurchased and retired shares of our common stock and warrants to
purchase shares of our common stock for approximately $48.1 million;

- repurchased outstanding options to purchase shares of our common stock
for approximately $13.5 million;

- issued 7,260,000 new shares of our common stock and new warrants to
purchase 1,247,813 shares of our common stock at an exercise price of
$2.21 per share to W-H Investment, L.P. for approximately $12.0 million;

- issued our 12 1/2% senior subordinated notes to JZ Equity Partners PLC
for $24.0 million;

- issued new warrants to purchase 1,020,937 shares of our common stock at
an exercise price of $2.21 per share to certain members of our
management; and

- entered into our credit facility.

On October 1, 1998, W-H Investment, L.P. transferred to W-H Investment II,
G.P. 3,630,000 of our shares of common stock and warrants to purchase 623,906
shares of our common stock received in connection with the recapitalization.

In March 2000, in lieu of making the interest payment on our 12 1/2% senior
subordinated notes due on March 15, 2000, we issued to JZ Equity Partners PLC
$1.5 million in additional notes, bearing interest initially at the rate of
14 1/2% per annum, and maturing on September 15, 2007. On September 15, 2000, in
lieu of making the interest payment on our 12 1/2% senior subordinated notes due
on September 15, 2000 and our 14 1/2% payment-in-kind notes issued in March
2000, we issued to JZ Equity Partners PLC $1.6 million in additional notes. We
expect to use a portion of the proceeds of this offering along with borrowings
under our new credit facility to repay in full these notes and all accrued
interest on these notes. Please read "Use of Proceeds."

In addition, in March 2000, we paid JZ Equity Partners PLC $120,000 in
connection with obtaining its consent to the amendments being made to our credit
facility.

W-H Investment, L.P. and W-H Investment II, G.P. are affiliated with The
Jordan Company, a private merchant banking firm. JZ Equity Partners PLC, a
publicly traded U.K. investment trust, is a limited partner of W-H Investment,
L.P. and a general partner of W-H Investment II, G.P. Two of our directors,
Messrs. Boucher and Zalaznick, are members of W-H Investment GP, L.L.C., the
general partner of W-H Investment, L.P. and the managing general partner of W-H
Investment II, G.P. Three of our directors, Messrs. Zalaznick, Boucher and
Watson, are limited partners of W-H Investment, L.P. One of our directors, Mr.
Watson, is a general partner in W-H Investment II, G.P. The John W. Jordan II,
Revocable Trust is a member of W-H Investment GP, L.L.C. and is a limited
partner in W-H Investment, L.P.

Consulting Agreement. At the time of our recapitalization, we entered into
a consulting agreement with TJC Management Corp., an affiliate of The Jordan
Company, W-H Investment, L.P. and W-H Investment II, G.P., two of our principal
shareholders, and JZ Equity Partners PLC. This agreement was

52
<PAGE> 56

amended and restated on March 26, 1999 in connection with the issuance of our
13% senior subordinated notes.

We have agreed with TJC Management to terminate the consulting agreement
concurrently with the completion of this offering in consideration of a payment
by us to TJC Management of $250,000. In 1999, we paid TJC Management
approximately $145,000 under the consulting agreement. We expect to pay
approximately $900,000 during 2000 under the consulting agreement through its
date of termination exclusive of the $250,000 termination fee. As of June 30,
2000, we had accrued $750,000 of this $900,000.

Transaction Advisory Agreement. At the time of our recapitalization, we
also entered into a transaction advisory agreement with TJC Management, pursuant
to which TJC Management renders consulting services to us and our subsidiaries
in connection with our acquisitions, divestitures and investments. This
agreement was amended and restated on March 29, 1999 in connection with the
issuance of our 13% senior subordinated notes.

The transaction advisory agreement provides for:

- an investment banking and sponsorship fee payable by us of 2% of the
aggregate consideration

-- paid by us for any acquisition consummated by us,

-- paid by us in connection with any joint venture or minority investment,
or

-- paid to us in connection with any sale by us of substantially all of
our stock or assets or the stock or assets of any of our subsidiaries;

- a financial consulting fee of 1% of the amount obtained or made available
to us and/or our subsidiaries pursuant to any debt, equity or other
financing by us with the assistance of TJC Management;

- payment by us of fees for extraordinary services rendered by TJC
Management; and

- payment by us of an amount equal to TJC Management's out-of-pocket
expenses, including an allocable amount of TJC Management's overhead
expenses attributable to services provided to us.

The original term of the transaction advisory agreement ends December 31,
2007. However, unless either party elects to terminate the agreement, the
agreement automatically will be renewed for successive one-year terms starting
December 31, 2007. In addition, the agreement may be terminated with 90 days'
prior written notice from us to TJC management at any time after substantially
all of our stock or substantially all our assets are sold to any entity
unaffiliated with TJC management and/or a majority of our shareholders.

In 1999, we paid TJC Management approximately $500,000 under the
transaction advisory agreement, in lieu of the amounts that otherwise would have
been due under the transaction advisory agreement, for services rendered in
connection with the PathFinder acquisition and the issuance of our 13% senior
subordinated notes. We expect to pay $1.75 million under the transaction
advisory agreement, upon the consummation of this offering for services rendered
to us under the transaction advisory agreement.

TRANSACTIONS WITH DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION AND ITS
AFFILIATES

Notes and Warrants. In March 1999, to finance the PathFinder acquisition,
we issued $40.0 million of our 13% senior subordinated notes to DLJ Merchant
Banking Partners II, L.P. and its affiliated investment funds. In May 1999, we
redeemed $5.0 million in principal amount of our 13% senior subordinated notes
from these holders, leaving $35.0 million in principal amount of these notes
outstanding. In March 2000, in lieu of making the interest payment due on these
notes on April 1, 2000, we issued to DLJ Merchant Banking Partners II, L.P. and
its affiliated investment funds additional notes in an aggregate principal
amount of $2.275 million, bearing interest at the rate of 14% per annum, and
maturing on April 1, 2006. On October 1, 2000, in lieu of making the interest
payment on our 13% senior subordinated notes due on October 1, 2000 and our 14%
payment-in-kind notes issued in April 2000, we

53
<PAGE> 57

issued to DLJ Merchant Banking Partners II, L.P. and its affiliated investment
funds $2.4 million in additional notes. We expect to use a portion of the
proceeds of this offering along with borrowings under our new credit facility to
repay in full these notes and all accrued interest on these notes. Please read
"Use of Proceeds."

In March 1999, at the time we issued our 13% senior subordinated notes, we
also issued warrants to purchase 6,115,263 shares of our common stock to DLJ
Merchant Banking Partners II, L.P. and its affiliated investment funds. These
warrants have an exercise price of $.0003 per share. These warrants, by their
terms, provide for a reduction in the number of shares of our common stock
issued under the warrants in the event that we prepay our 13% senior
subordinated notes by certain dates. In accordance with this provision, we
reduced the number of shares of our common stock that we must issue to DLJ
Merchant Banking Partners II, L.P. and its affiliated investment funds in
respect of their warrants from 6,115,263 to 4,756,323 when we prepaid $5.0
million of our 13% senior subordinated notes in May 1999.

By repaying the 13% senior subordinated notes in full with the proceeds of
this offering, we will "claw back" an additional 1,781,835 warrants.
Concurrently with the completion of this offering, DLJ Merchant Banking Partners
II, L.P. and its affiliated investment funds intend to enter into an exchange
agreement with us whereby, upon relinquishment of the right to receive 52 shares
in respect of the exercise price of the warrants, these entities will be issued
2,974,436 shares of our common stock in respect of the remaining warrants. Up to
584,170 of these shares may be sold in this offering if the underwriters
exercise the over-allotment option.

In connection with the issuance of the 13% senior subordinated notes and
warrants to DLJ Merchant Banking Partners II, L.P., we granted to those entities
the right to request registration of those securities.

In March 2000, we paid DLJ Merchant Banking Partners II, L.P. and its
affiliated investment funds $175,000 in connection with obtaining their consent
to the amendments being made to our credit facility.

DLJ Merchant Banking Partners II, L.P. is an affiliate of Donaldson, Lufkin
& Jenrette Securities Corporation, which is serving as an underwriter in
connection with this offering.

Credit Agreement. DLJ Capital Funding, Inc. has served as syndication agent
in connection with our existing credit facility. For these services, DLJ Capital
Funding, Inc. was paid fees of $180,000 in 1999 and $277,500 in 2000. We also
have received a commitment from DLJ Capital Funding, Inc. to enter into a new
credit facility at or prior to the closing of this offering. In consideration
for acting as arranger of and providing a commitment for our new credit
facility, we will pay to DLJ Capital Funding, Inc. an arrangement fee of
approximately $2.1 million. DLJ Capital Funding, Inc. is an affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation and DLJ Merchant Banking
Partners II, L.P. and its affiliated investment funds.

PathFinder Acquisition. In March 1999, we paid Donaldson, Lufkin & Jenrette
Securities Corporation $800,000 for financial advisory services rendered to us
in connection with the PathFinder acquisition.

Engagement Agreement. On March 29, 1999, we entered into an engagement
agreement with Donaldson, Lufkin & Jenrette Securities Corporation pursuant to
which we agreed that such firm would serve as lead or co-lead financial advisor
in reviewing our strategic alternatives and that it would serve as sole lead
manager on senior bank financings, sole lead placement agent, sole lead initial
purchaser, sole lead managing underwriter or sole lead dealer manager, as the
case may be, in connection with any transaction occurring during the term of the
agreement. In addition, we agreed to enter into an agreement with Donaldson,
Lufkin & Jenrette Securities Corporation in connection with any such transaction
which would provide for compensation and indemnification which are usual and
customary for the transaction. The engagement agreement terminates on March 29,
2001. Donaldson Lufkin & Jenrette Securities Corporation has waived its right to
serve as sole lead managing underwriter of this offering.

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<PAGE> 58

INDEMNIFICATION AGREEMENTS

We are parties to indemnification agreements with our directors and
executive officers containing provisions requiring us to, among other things,
indemnify them against liabilities that may arise by reason of their service to
us, other than liabilities arising from willful misconduct of a culpable nature,
and to advance expenses they incur as a result of any proceeding against them as
to which they could be indemnified. See "Management -- Indemnification."

LEASE AGREEMENT

Our subsidiary, Thomas Energy Services, Inc. leases its facilities in
Lafayette, Louisiana from Mr. Thomas, our Vice President. In 1999, we paid Mr.
Thomas $76,500, and, as of June 30, 2000, we had paid Mr. Thomas $54,000 under
this lease.

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<PAGE> 59

PRINCIPAL AND SELLING SHAREHOLDERS

The following table contains information regarding the beneficial ownership
of our common stock as of June 30, 2000, by:

- each director;

- each named executive officer in the Summary Compensation Table;

- each person who is known by us to own beneficially 5% or more of our
common stock;

- the selling shareholders; and

- all directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC
computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock under options held by that
person that are currently exercisable or exercisable within 60 days of the date
of this prospectus are considered outstanding. These shares, however, are not
considered outstanding when computing the percentage ownership of each other
person.

Except as indicated in the footnotes to this table and pursuant to state
community property laws, each stockholder named in the table has sole voting and
investment power for the shares shown as beneficially owned by that person.
Unless otherwise indicated, the address of each shareholder listed below is c/o
W-H Energy Services, Inc., 10370 Richmond Avenue, Suite 990, Houston, Texas
77042.

<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED(2)
------------------------------------------
MAXIMUM AFTER
NUMBER OF AFTER OFFERING
SHARES TO BE OFFERING (ASSUMING
SOLD UPON (ASSUMING NO EXERCISE OF
SHARES EXERCISE OF EXERCISE OF OVER-ALLOTMENT
BENEFICIALLY OVER-ALLOTMENT BEFORE OVER-ALLOTMENT OPTION IN
PRINCIPAL AND SELLING SHAREHOLDERS OWNED OPTION(1) OFFERING OPTION) FULL)
<S> <C> <C> <C> <C> <C>
W-H Investment, L.P.(3)............... 4,253,906 457,915 33.5% 18.8% 16.7%
c/o The Jordan Company
767 Fifth Avenue
New York, New York 10153
W-H Investment II, G.P.(4)............ 4,253,906 457,915 33.5 18.8 16.7
c/o The Jordan Company
767 Fifth Avenue
New York, New York 10153
DLJ Merchant Banking Partners II, L.P.
and affiliated investment
funds(5)............................ 2,974,436 584,170 24.7 13.5 10.8
c/o DLJ Merchant Banking Partners
II, L.P.
277 Park Avenue
New York, New York 10172
</TABLE>

56
<PAGE> 60

<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED(2)
------------------------------------------
MAXIMUM AFTER
NUMBER OF AFTER OFFERING
SHARES TO BE OFFERING (ASSUMING
SOLD UPON (ASSUMING NO EXERCISE OF
SHARES EXERCISE OF EXERCISE OF OVER-ALLOTMENT
BENEFICIALLY OVER-ALLOTMENT BEFORE OVER-ALLOTMENT OPTION IN
DIRECTORS AND OFFICERS OWNED OPTION(1) OFFERING OPTION) FULL)
<S> <C> <C> <C> <C> <C>
Kenneth T. White, Jr.(6).............. 1,187,918 -- 9.2 5.2 5.2
Jeffrey L. Tepera(7).................. 16,500 -- * * *
William J. Thomas III(8).............. 222,750 -- 1.8 1.0 1.0
John W. Jordan II(9).................. -- -- -- -- --
David W. Zalaznick(9)................. -- -- -- -- --
Jonathan F. Boucher(9)................ -- -- -- -- --
J. Jack Watson(9)..................... -- -- -- -- --
Christopher Mills(10)................. 49,500 -- * * *
Robert H. Whilden, Jr.(11)............ 65,043 -- * * *
Milton L. Scott....................... -- -- -- -- --
All directors and officers as a group
(10 persons)(9)(10)................. 1,541,711 -- 11.7 6.7 6.7
</TABLE>

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

* Represents less than 1% of the outstanding common stock.

(1) If the over-allotment option is exercised in full, then the selling
shareholders will sell the number of shares of common stock indicated. If
the over-allotment option is exercised in part, then the number of shares
to be sold by each selling shareholder will be allocated pro rata, based
upon the maximum number of shares to be sold by each selling shareholder
upon exercise of the over-allotment option.

(2) The percentage of shares beneficially owned before this offering is based
on total outstanding shares of 12,059,336. The percentage of shares
beneficially owned after this offering assuming no exercise of the
over-allotment option and assuming exercise in full of the over-allotment
option is based on total outstanding shares of 22,059,336.

(3) Includes 623,906 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days. W-H Investment, L.P. is a limited
partnership, for which W-H Investment GP, L.L.C. acts as the general
partner and exercises the voting and investment control over our common
stock and warrants. The members of W-H Investment GP, L.L.C. include
certain affiliates of The Jordan Company, including the John W. Jordan II,
Revocable Trust, David W. Zalaznick and Jonathan F. Boucher. The limited
partners of this partnership include the John W. Jordan II, Revocable
Trust, David W. Zalaznick, Jonathan F. Boucher, Leucadia Investors, Inc.,
Adam E. Max, John R. Lowden, A. Richard Caputo, Douglas Zych, Paul
Rodzevik, the James E. Jordan, Jr. Profit Sharing Plan & Trust, Jack J.
Watson and JZ Equity Partners PLC.

(4) Includes 623,906 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days. W-H Investment II, G.P. is a general
partnership, for which W-H Investment GP, L.L.C. acts as the managing
general partner and exercises the voting and investment control over our
common stock and warrants. The members of W-H Investment GP, L.L.C. include
certain affiliates of The Jordan Company, including the John W. Jordan II,
Revocable Trust, David W. Zalaznick and Jonathan F. Boucher. The other
partners of W-H Investment II, G.P. include J. Jack Watson and JZ Equity
Partners PLC.

(5) The entities affiliated with DLJ Merchant Banking Partners II, L.P. include
DLJ Merchant Banking II-A, L.P., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJMB Funding
II, Inc., DLJ Millennium Partners, L.P., DLJ Millennium Partners-A, L.P.,
DLJ EAB Partners, L.P., UK Investment Plan 1997 Partners, DLJ ESC II L.P.
and DLJ First ESC L.P.

(6) Includes 311,438 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days and 480,480 shares of our common stock
issuable upon the exercise of options exercisable within 60 days.
57
<PAGE> 61

(7) Includes 16,500 shares of our common stock issuable upon the exercise of
options exercisable within 60 days.

(8) Includes 148,500 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days and 8,250 shares of our common stock
issuable upon exercise of options exercisable within 60 days.

(9) Excludes 3,630,000 shares and warrants to purchase 623,906 shares held by
W-H Investment, L.P., in which the John W. Jordan II, Revocable Trust and
Messrs. Zalaznick, Boucher and Watson are limited partners and of which W-H
Investment GP, L.L.C., in which Messrs. Jordan, Zalaznick and Boucher are
members, serves as general partner. Each of Mr. Jordan, Mr. Zalaznick, Mr.
Boucher and Mr. Watson disclaims beneficial ownership of the securities
held by W-H Investment, L.P. Also excludes 3,630,000 shares and warrants to
purchase 623,906 shares held by W-H Investment II, G.P. W-H Investment GP,
L.L.P., in which Messrs. Jordan, Zalaznick and Boucher are members, serves
as managing general partner of W-H Investment II, G.P. Mr. Watson is also a
partner in W-H Investment II, G.P. Each of Mr. Jordan, Mr. Zalaznick, Mr.
Boucher, and Mr. Watson disclaims any beneficial ownership of the
securities held by W-H Investment II, G.P.

(10) Includes 49,500 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days. Excludes 533,214 shares beneficially
owned by North Atlantic Smaller Companies Trust PLC of which Mr. Mills is
an affiliate and 57,222 shares owned by RBSI Custody Bank Limited of which
Mr. Mills is an affiliate. The beneficial owners of the shares held by RBSI
Custody Bank Limited are Seaway Capital, Limited and Sannafi Limited. Mr.
Mills disclaims any beneficial ownership of the securities held by North
Atlantic Smaller Companies Trust PLC and RBSI Custody Bank Limited.

(11) Includes 49,500 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days.

The table above excludes David N. Eliff, who served as our Vice President,
Secretary and Chief Financial Officer until his resignation in March 2000. As of
June 30, 2000, Mr. Eliff owned 95,700 shares of our common stock and warrants to
purchase 115,500 shares of our common stock.

SHAREHOLDERS AGREEMENT

We and the beneficial holders of approximately 55.4%, upon completion of
this offering, of the outstanding shares of our common stock are parties to a
shareholders agreement. The shareholder parties to this agreement include W-H
Investment, L.P., W-H Investment II, G.P., DLJ Merchant Banking Partners II,
L.P. and its affiliated investment funds, Kenneth T. White, Jr., Witham
Management Corp. and Bank of Scotland Nominees Ltd. (for the account of North
Atlantic Smaller Companies Trust PLC). The shareholders agreement gives the
holders of shares of our common stock rights to request registration of their
securities and to participate in any registration by us of any of our equity
securities for sale to the public pursuant to the Securities Act, other than in
connection with mergers, acquisitions, exchange offers, dividend reinvestment
plans or stock option or other employee benefit plans. We are required to pay
all registration expenses if these registration rights are exercised, other than
underwriting discounts and selling commissions. The holders of shares of our
common stock that are a party to the shareholders agreement have waived their
registration rights for a period of 180 days following the date of this
prospectus.

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<PAGE> 62

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 100,000,000 shares of common
stock, $.0001 par value per share, and 10,000,000 shares of preferred stock,
$.01 par value per share. Upon completion of this offering, 22,059,336 shares of
our common stock will be issued and outstanding and no shares of preferred stock
will be issued and outstanding.

Prior to this offering, there has been no public market for our common
stock. Although our common stock has been approved for listing on the Nasdaq
National Market, we cannot assure you that a market for our common stock will
develop or, if one develops, that it will be sustained.

COMMON STOCK

The rights of the holders of our common stock are identical in all
respects. All of the issued and outstanding shares of our common stock are
validly issued, fully paid and nonassessable.

The holders of our common stock are entitled to one vote for each share
held on all matters submitted to a vote of common shareholders. The shares of
common stock do not have cumulative voting rights. Shares of common stock have
no preemptive rights, conversion rights, redemption rights or sinking fund
provisions. Except as otherwise required by Texas law, the holders of a majority
of the shares of common stock may approve any matter submitted to a vote of our
shareholders, including the election of directors. Our common stock is not
subject to redemption by us. All shares of common stock issued in this offering
will be validly issued, fully paid and nonassessable.

Subject to the rights of the holders of any class of our capital stock
having preference or priority over our common stock, the holders of common stock
are entitled to dividends in such amounts as may be declared by our board of
directors from time to time out of funds legally available for such payments
and, in the event of liquidation, to share ratably in any of our assets
remaining after payment in full of all creditors and provision for any
liquidation preferences on any outstanding preferred stock ranking prior to our
common stock.

PREFERRED STOCK

Our board of directors, in its sole discretion, may designate and issue one
or more series of preferred stock from the authorized and unissued shares of
preferred stock. Subject to limitations imposed by law or our restated articles
of incorporation, our board of directors is empowered to determine the
designation of and the number of shares constituting a series of preferred
stock. In addition, our board of directors may designate the dividend rate, the
terms and conditions of any voting and conversion rights, the amounts payable
upon redemption or upon liquidation, dissolution or winding-up of us, the
provisions of any sinking fund for the redemption or purchase of shares, and the
preferences and relative rights among the series of preferred stock. Such
rights, preferences, privileges and limitations could adversely affect the
rights of holders of common stock.

PROVISIONS OF OUR RESTATED ARTICLES OF INCORPORATION AND AMENDED AND RESTATED
BYLAWS

Limitations on Shareholder Actions. Advance notice of at least 60 days but
not more than 90 days is required for shareholders to nominate directors or to
submit proposals for consideration at meetings of shareholders.

TEXAS ANTI-TAKEOVER LAW

Upon completion of this offering, we will be subject to Part Thirteen of
the Texas Business Corporation Act (TBCA). Generally, Part Thirteen of the TBCA
prohibits a publicly held Texas corporation from engaging in any "business
combination" with any "affiliated shareholder" for a period of three years after
the date that the person became an affiliated shareholder, unless:

59
<PAGE> 63

- prior to the date of the business combination, the transaction is
approved by the board of directors; or

- no earlier than six months after such date, the business combination is
approved by the affirmative vote of at least two-thirds of the
unaffiliated shareholders at a shareholders' meeting.

A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the shareholder. An affiliated shareholder
is a person who, together with affiliates and associates, owns (or within three
years, did own) 20% or more of the voting stock of a corporation.

These and certain other provisions of the TBCA may deter an unsolicited
merger or other efforts to obtain control of our company that are not approved
by our board of directors. Therefore, the TBCA may deprive our shareholders of
opportunities to sell their shares at a premium over prevailing market prices in
connection with a takeover attempt.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Computershare
Trust Company, Inc., formerly American Securities Transfer & Trust, Inc.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock. The
sale, or availability for sale, of substantial amounts of common stock in the
public market subsequent to this offering could adversely affect the prevailing
market price of the shares of common stock and could impair our ability to raise
additional capital through the sale of equity securities.

Upon completion of this offering, we will have 22,059,336 shares of common
stock outstanding. Of these shares, the 10,000,000 shares sold in this offering
will be freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by our affiliates, as that term
is defined under the Securities Act, may generally only be sold in compliance
with the limitations of Rule 144 described below. Our remaining 12,059,336
shares of common stock are restricted shares under Rule 144. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under the Securities Act.

Our executive officers, directors and certain shareholders, including the
selling shareholders, have agreed pursuant to "lock-up" agreements that, with
limited exceptions, they will not sell any shares of our common stock for a
period of 180 days from the date of this prospectus without the prior written
consent of Credit Suisse First Boston Corporation and Morgan Stanley & Co.
Incorporated. However, under the staggered lock-up provisions described under
"Underwriting," the shares of common stock subject to the lock-up agreements may
be released for resale after 90 days and/or 135 days upon the occurrence of
certain events.

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<PAGE> 64

Upon expiration of the lock-up period, or to the extent restricted shares
are not subject to the lock-up restrictions, the restricted shares will become
available for sale in the public market, subject to Rule 144 and Rule 701 of the
Securities Act.

RULE 144

In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after the date of this prospectus, a person (or persons whose
shares are aggregated, such as an affiliate) who has beneficially owned
restricted shares for at least one year, 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 then-outstanding shares of common stock, which will equal
approximately 220,593 shares after giving effect to this offering; or

- the average weekly trading volume of our common stock during the four
calendar weeks preceding such sale.

Sales under Rule 144 are subject to restrictions relating to manner of
sale, notice and the availability of current public information about us.

RULE 144(K)

In addition, under Rule 144(k) of the Securities Act, a person who is not
our affiliate at any time within the 90 days preceding a sale, and who has
beneficially owned shares for at least two years, is entitled to sell such
shares immediately following this offering without having to comply with volume
limitations, manner of sale provisions, notice or other requirements of Rule
144.

RULE 701

In general, under Rule 701, our employees, directors, officers, consultants
and advisors who purchase shares from us in connection with a compensatory stock
or option plan or other written agreement before the effective date of this
offering are entitled to sell such shares 90 days after the effective date of
this offering in reliance on Rule 144, without having to comply with the holding
period and notice filing requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the public information, volume
limitation or notice filing provisions of Rule 144.

Following the consummation of this offering, we intend to register on a
registration statement on Form S-8, a total of 3,375,900 shares of common stock
issued under our stock option plans. All of these shares issued upon the
exercise of these options will be freely tradeable without restrictions or the
need to be registered under the Securities Act, by persons other than our
affiliates. Our affiliates will be able to sell these shares under Rule 144
after compliance with any lock-up agreement to which they would be subject.

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<PAGE> 65

UNDERWRITING

Subject to the terms and conditions of an underwriting agreement dated
October 10, 2000, the underwriters named below, who are represented by Credit
Suisse First Boston Corporation, Morgan Stanley & Co. Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, UBS Warburg LLC, Simmons & Company
International and DLJdirect Inc., have severally agreed to purchase an aggregate
of 10,000,000 shares of our common stock from us. The number of shares of our
common stock that each underwriter has agreed to purchase is set forth opposite
its name below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Credit Suisse First Boston Corporation...................... 2,892,500
Morgan Stanley & Co. Incorporated........................... 2,892,500
Donaldson, Lufkin & Jenrette Securities Corporation......... 1,112,500
UBS Warburg LLC............................................. 1,001,250
Simmons & Company International............................. 1,001,250
DLJdirect Inc. ............................................. 100,000
Robert W. Baird & Co. Incorporated.......................... 100,000
Chatsworth Securities LLC................................... 100,000
First Union Securities, Inc................................. 100,000
Invemed Associates, Inc..................................... 100,000
Jefferies & Company, Inc.................................... 100,000
Edward D. Jones & Co., L.P.................................. 100,000
PaineWebber Incorporated.................................... 100,000
Prudential Securities Incorporated.......................... 100,000
Raymond James & Associates, Inc............................. 100,000
Sanders Morris Harris Inc................................... 100,000
----------
Total............................................. 10,000,000
==========
</TABLE>

The underwriting agreement provides that the obligations of the
underwriters to purchase and accept delivery of the shares of our common stock
included in this offering are subject to approval by their counsel of certain
legal matters and to certain other conditions precedent that must be satisfied
by us. The underwriters are obligated to purchase and accept delivery of all the
shares of our common stock (other than those covered by the over-allotment
option described below) if they purchase any of the shares of our common stock.

The underwriters initially propose to offer some of the shares of our
common stock directly to the public at the public offering price set forth on
the cover page of this prospectus and some of the shares of our common stock to
certain dealers (including the underwriters) at the public offering price less a
concession not in excess of $0.70 per share. After the initial offering of our
common stock to the public, the representatives may change the public offering
price and other selling terms at any time without notice. The underwriters will
not confirm sales to any accounts over which they exercise discretionary
authority without the prior specific written approval of the customer.

The selling shareholders have granted to the underwriters an option,
exercisable within 30 days after the date of this prospectus, to purchase, from
time to time, in whole or in part, up to 1,500,000 additional shares of our
common stock at the public offering price less underwriting fees. The
underwriters may exercise this option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise this option, each underwriter will become obligated, subject to certain
conditions, to purchase a number of additional shares of our common stock
approximately proportionate to its initial purchase commitment. The selling
shareholders will receive the net proceeds of any sale of shares of common stock
to the underwriters upon the exercise of their right to purchase additional
shares under the over-allotment option.

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<PAGE> 66

The following table shows the underwriting fees we and the selling
shareholders will pay to the underwriters in connection with this offering. The
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of our common stock.

<TABLE>
<CAPTION>
FEE PER WITHOUT EXERCISE OF FULL EXERCISE OF
SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by us.................................. $1.155 $11,550,000 $11,550,000
Fees paid by selling shareholders................ 1.155 -- 1,732,500
</TABLE>

The underwriting discount is 7% of the public offering price.

We estimate our expenses relating to this offering to be $3.25 million,
which includes $1.75 million we are required to pay to TJC Management under the
transaction advisory agreement. Please read "Relationships and Related
Transactions." We and the selling shareholders will pay to the underwriters
underwriting fees in an amount equal to the public offering price per share of
common stock less the amount the underwriters pay to us for each share of common
stock.

An electronic prospectus is available on the Internet site maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information on
the Internet site relating to this offering is not a part of this prospectus.

We and the selling shareholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that the underwriters may be required to make with
respect to these liabilities.

For a period ending 180 days from the date of this prospectus, we and our
executive officers, directors and certain of our shareholders, including the
selling shareholders, have agreed not to, without the prior written consent of
Credit Suisse First Boston Corporation and Morgan Stanley & Co. Incorporated:

- offer, pledge, sell, contract to sell or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly, any shares of our common stock or any securities convertible
into or exercisable or exchangeable for our common stock; or

- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of our common
stock, whether any such transaction described above is to be settled by
delivery of our common stock or other securities, in cash, or otherwise.

The shares of common stock subject to the lock-up restrictions described
above will be released from these restrictions as follows:

- 25% of these shares will be released if the reported last sale price of
the common stock on the Nasdaq National Market is at least twice the
initial public offering price for 20 of the 30 consecutive trading days
ending on the last trading day of the 90-day period after the date of
this prospectus. These shares will be released on the later to occur of
the 90-day period after the date of this prospectus and the second
trading day after the first public release of our quarterly results; and

- an additional 25% of the shares of common stock will be released from
these restrictions if the reported last sale price of the common stock on
the Nasdaq National Market is at least twice the initial public offering
price for 20 of the 30 consecutive trading days ending on the last
trading day of the 135-day period after the date of this prospectus.

In addition, during this 180-day period, we have also agreed not to file
any registration statement (other than a registration statement to register
shares issued upon exercise of options issued under our stock option plans) for
the registration of any shares of our common stock or any securities convertible

63
<PAGE> 67

into or exercisable or exchangeable for our common stock without the prior
written consent of Credit Suisse First Boston Corporation and Morgan Stanley &
Co. Incorporated. Likewise, during this 180-day period, our executive officers,
directors and certain of our shareholders, including the selling shareholders,
who have demand registration rights under our shareholders agreement may not
make any demand for, or exercise any right for, registration of any shares of
our common stock under the terms of that agreement.

Credit Suisse First Boston Corporation and Morgan Stanley & Co.
Incorporated currently have no plans to release any portion of the securities
subject to lock-up agreements. When determining whether or not to release any
portion of the securities subject to lock-up agreements, Credit Suisse First
Boston Corporation and Morgan Stanley & Co. Incorporated will consider, among
other factors, the shareholder's reasons for requesting the release, the number
of shares for which the release is being requested and the market conditions at
the time.

At our request, the underwriters have reserved up to 5% of the shares
offered by this prospectus for sale at the initial public offering price to our
employees, officers and directors and other parties associated with us. These
persons must commit to purchase after the registration statement has become
effective but before the open of business on the following business day. The
number of shares available for sale to the general public will be reduced to the
extent these individuals purchase such reserved shares. Any reserved shares not
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered hereby.

Our common stock has been approved for listing on the Nasdaq National
Market under the symbol "WHES."

Other than in the United States, no action has been taken by us, the
selling shareholders or the underwriters that would permit a public offering of
the shares of our common stock included in this offering in any jurisdiction
where action for that purpose is required. The shares of our common stock
included in this offering may not be offered or sold, directly or indirectly,
nor may this prospectus or any other offering material or advertisements in
connection with the offer and sale of any shares of our common stock be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of that
jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to this offering of
our common stock and the distribution of this prospectus. This prospectus is not
an offer to sell or a solicitation of an offer to buy any shares of our common
stock included in this offering in any jurisdiction where that would not be
permitted or legal.

In connection with this offering, certain underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock. Specifically, the underwriters may create a syndicate short
position by making short sales of our common stock and may purchase shares of
our common stock on the open market to cover syndicate short positions created
by short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Short sales
can be either "covered" or "naked." "Covered" short sales are sales made in an
amount not greater than the underwriters' over-allotment option to purchase
additional shares in the offering. "Naked" short sales are sales in excess of
the over-allotment option. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of the common stock in the open market after pricing that could adversely
affect investors who purchase in the offering. The underwriters may close out
any covered short position by either exercising their over-allotment option or
purchasing shares in the open market. The underwriters must close out any naked
short position by purchasing shares in the open market. In determining the
source of shares to close out the covered short position, the underwriters will
consider, among other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase shares through
the over-allotment option. The underwriting syndicate may reclaim selling
concessions if the syndicate repurchases previously distributed shares in
syndicate covering transactions, in stabilization transactions or in some other
way or if Morgan Stanley & Co. Incorporated receives a report that indicates
clients of such syndicate members have "flipped" the shares. These activities
may have the effect of

64
<PAGE> 68

raising or maintaining the market price of our common stock or preventing or
retarding a decline in the market price of our common stock. As a result, the
price of our common stock may be higher than the price that might otherwise
exist in the open market. The underwriters are not required to engage in these
activities and may end any of these activities at any time.

Prior to this offering, there has been no established market for our common
stock. The initial public offering price for the shares of our common stock
offered by this prospectus will be determined by negotiation between us and the
representatives of the underwriters. The factors to be considered in determining
the initial public offering price include:

- the history of and the prospects for the industry in which we compete;

- our past and present operations;

- our historical results of operations;

- our prospects for future operational results;

- the recent market prices of securities of generally comparable companies;
and

- general conditions of the securities market at the time of this offering.

Donaldson, Lufkin & Jenrette Securities Corporation has in the past
provided, and may in the future from time to time provide, investment banking
and general financing and banking services to us and our affiliates for which
they have in the past received, and may in the future receive, customary fees
and reimbursement of expenses. DLJ Capital Funding, Inc. acted as arranger and
syndication agent under our existing credit facility and received customary fees
and reimbursements in connection therewith. In addition, DLJ Capital Funding,
Inc. will receive customary fees for acting as arranger of and providing a
commitment for our new credit facility. DLJ Merchant Banking Partners II, L.P.
and its affiliated investment funds, all of which are affiliated with Donaldson,
Lufkin & Jenrette Securities Corporation, own warrants to purchase shares of our
common stock. We will issue common stock to these entities in respect of these
warrants in connection with this offering. DLJ Merchant Banking Partners II,
L.P. and its affiliated investment funds also hold approximately $35 million in
principal amount of our 13% senior subordinated notes and $2.275 million of the
related payment-in-kind notes issued in March 2000, and $2.4 million in
principal amount of payment-in-kind notes issued on October 1, 2000. A portion
of the net proceeds of this offering along with borrowings under our new credit
facility will be used in part to redeem these notes and in part to repay the
indebtedness outstanding under our existing credit facility. For more
information about our relationships with these parties, please read "Principal
and Selling Shareholders" and "Relationships and Related Transactions."

Because DLJ Merchant Banking Partners II, L.P. and its affiliated
investment funds are deemed to beneficially own more than 10% of our outstanding
common stock, this offering is being made in compliance with Rule 2720(c) of the
Conduct Rules of the National Association of Securities Dealers, Inc. In
addition, this offering will comply with the venture capital restrictions set
forth in Rule 2710(c)(7)(C) of the NASD Conduct Rules since DLJ Merchant Banking
Partners II, L.P. and its affiliated investment funds will be selling
shareholders upon any exercise of the over-allotment option. Both of these rules
require that the initial public offering price be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
In accordance with this requirement, Morgan Stanley & Co. Incorporated will act
as the qualified independent underwriter in connection with this offering and
assume the customary responsibilities of acting as a qualified independent
underwriter in pricing and conducting due diligence for this offering.

The decision of Donaldson, Lufkin & Jenrette Securities Corporation to
participate in this offering was made independent of DLJ Capital Funding, Inc.
and DLJ Merchant Banking Partners II, L.P. and its affiliated investment funds,
which entities had no involvement in determining whether or when to participate
in this offering or in determining the terms of this offering. Donaldson, Lufkin
& Jenrette

65
<PAGE> 69

Securities Corporation will not receive any payment from us in connection with
this offering other than its portion of the underwriting fees and related
expenses.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
shareholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are made. Any resale
of the common stock in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the common
stock.

REPRESENTATIONS OF PURCHASERS

By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us, the selling shareholders and the dealer from
whom the purchase confirmation is received that:

- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws;

- where required by law, the purchaser is purchasing as principal and not
as agent; and

- the purchaser has reviewed the text above under "-- Resale Restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the United States federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein and the selling shareholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. The report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
for common stock acquired on the same date and under the same prospectus
exemption.

66
<PAGE> 70

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.

LEGAL MATTERS

The validity of our common stock offered in this prospectus will be passed
upon for us by Vinson & Elkins L.L.P., Houston, Texas. Some legal matters in
connection with the sale of our common stock offered in this prospectus will be
passed upon for the underwriters by Andrews & Kurth L.L.P., Houston, Texas.
Robert H. Whilden, Jr., a former partner of Vinson & Elkins L.L.P., is one of
our directors. Please read "Principal and Selling Shareholders" for a
description of common stock and warrants to purchase common stock held by Mr.
Whilden.

EXPERTS

The financial statements included in this prospectus and elsewhere in this
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

AVAILABLE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act relating to our common stock
being sold in this offering. This prospectus is a part of that registration
statement. This prospectus does not contain all of the information included in
the registration statement and the exhibits and schedules to the registration
statement because some parts have been omitted in accordance with the rules and
regulations of the commission. For further information about us and our common
stock being sold in this offering, you should refer to the registration
statement and the exhibits and schedules filed as a part of the registration
statement. Statements contained in this prospectus regarding the contents of any
agreement, contract or other document filed as an exhibit to the registration
statement are summaries of the material provisions of the documents; reference
is made in each instance to the copy of the agreement, contract or other
document filed as an exhibit to the registration statement. Each statement is
qualified by reference to the exhibit. The registration statement, including
related exhibits and schedules, may be inspected without charge at the
commission's principal office in Washington, D.C. Copies of all or any part of
the registration statement may be obtained after payment of fees prescribed by
the commission from:

- the commission's public reference room at the commission's principal
office, 450 Fifth Street, N.W., Washington D.C. 20549; or

- the commission's regional offices in:

-- New York, located at 7 World Trade Center, Suite 1300, New York, New
York 10048 or

-- Chicago, located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.

You may obtain information regarding the operation of the public reference
room by calling the commission at 1-800-SEC-0330. The commission maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants, including us, that file electronically with
the commission. The address of the site is www.sec.gov.

67
<PAGE> 71

We intend to furnish holders of our common stock with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited condensed financial
information for the first three quarters of each fiscal year. We intend to
furnish other reports as we may determine or as may be required by law.

68
<PAGE> 72

W-H ENERGY SERVICES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PRO FORMA:
Unaudited Pro Forma Financial Information................... F-2
Unaudited Pro Forma Condensed Consolidated Statement of
Operations................................................ F-3
Unaudited As Adjusted Condensed Consolidated Statement of
Operations................................................ F-4

HISTORICAL:
I. W-H ENERGY SERVICES, INC.
Report of Independent Public Accountants.................... F-5
Consolidated Balance Sheets................................. F-6
Consolidated Statements of Operations and Comprehensive
Loss...................................................... F-7
Consolidated Statements of Shareholders' Equity (Deficit)... F-8
Consolidated Statements of Cash Flows....................... F-9
Notes to Consolidated Financial Statements.................. F-10

II. GRINDING AND SIZING COMPANY, INC. AND AFFILIATES

Report of Independent Public Accountants.................... F-29
Combined Statements of Operations........................... F-30
Combined Statements of Shareholders' Equity................. F-31
Combined Statements of Cash Flows........................... F-32
Notes to Combined Financial Statements...................... F-33

III. AGRI-EMPRESA INC. AND AFFILIATES

Report of Independent Public Accountants.................... F-36
Combined Statements of Operations........................... F-37
Combined Statements of Shareholders' Equity................. F-38
Combined Statements of Cash Flows........................... F-39
Notes to Combined Financial Statements...................... F-40
</TABLE>

F-1
<PAGE> 73

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma consolidated condensed financial
information is derived from the historical financial statements of W-H Energy
Services, Inc. included elsewhere in this prospectus. The unaudited pro forma
condensed consolidated statement of operations for the year ended December 31,
1999 gives effect to the acquisition of the PathFinder business located in the
United States and the North Sea and related financing as if they occurred on
January 1, 1999 and the offering and borrowings under the new credit facility
described in this prospectus. The unaudited as adjusted condensed consolidated
statement of operations for the six months ended June 30, 2000 gives effect to
the offering and borrowings under the new credit facility described in this
prospectus.

The unaudited pro forma financial information does not purport to represent
what W-H Energy Services, Inc.'s results of operations actually would have been
had these events occurred at January 1, 1999 nor are they intended to project
W-H Energy Services, Inc.'s results of operations for any future period or date.
The unaudited pro forma consolidated financial information should be read in
conjunction with the historical financial statements appearing elsewhere in this
prospectus.

F-2
<PAGE> 74

W-H ENERGY SERVICES, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
PATHFINDER
(PREACQUISITION
PERIOD FROM
JANUARY 1, 1999
W-H ENERGY TO PRO FORMA OFFERING
SERVICES, INC. MARCH 29, 1999) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 127,641 $ 9,501 $ -- $ 137,142 $ -- $ 137,142
Costs and Expenses:
Cost of revenues.............. 68,399 5,758 -- 74,157 -- 74,157
Selling, general and
administrative.............. 36,118 3,243 -- 39,361 -- 39,361
Depreciation and
amortization................ 15,521 2,876 (2,046)(1) 16,351 -- 16,351
----------- ------- ------ ----------- ----------- -----------
Total costs and
expenses.............. 120,038 11,877 (2,046) 129,869 -- 129,869
----------- ------- ------ ----------- ----------- -----------
Income (loss) from operations... 7,603 (2,376) 2,046 7,273 -- 7,273
Other expense:
Interest expense.............. 21,989 -- 2,436(2) 24,425 (18,575)(3) 5,850
Other expense, net............ 595 -- -- 595 -- 595
----------- ------- ------ ----------- ----------- -----------
Income (loss) before income
taxes......................... (14,981) (2,376) (390) (17,747) 18,575 828
Provision for income taxes...... 239 -- -- 239 -- 239(4)
----------- ------- ------ ----------- ----------- -----------
Net income (loss)............... $ (15,220) $(2,376) $ (390) $ (17,986) $ 18,575 $ 589(5)(6)
=========== ======= ====== =========== =========== ===========
Net income (loss) per share
Basic......................... $ (1.34) $ (1.49) $ 0.03
=========== =========== ===========
Diluted....................... $ (1.34) $ (1.49) $ 0.02
=========== =========== ===========
Shares used in computing net
income (loss) per share
Basic......................... 11,338,513 12,049,436 22,049,436
=========== =========== ===========
Diluted....................... 11,338,513 12,049,436 25,710,452
=========== =========== ===========
</TABLE>

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

(1) To adjust depreciation expense to reflect the new basis in property and
equipment as a result of the PathFinder acquisition purchase price
allocation.

(2) To record interest expense at an effective interest rate of 24% for amounts
borrowed related to the 13% senior subordinated notes used to finance the
PathFinder acquisition and amortization of deferred financing costs. The
effective interest rate of 24% is based on the 13% stated interest rate
adjusted for amortization of the $11.2 million original issue discount
associated with the sale of the 13% senior subordinated notes.

(3) Reflects interest expense, including amortization of deferred financing
costs, on borrowings of $57.9 million under the new credit facility
necessary to repay in full the outstanding balance under our existing credit
facility. This is net of savings of $18.6 million of interest expense,
including amortization of deferred financing costs and the original issue
discount, on $208.1 million of historical debt to be repaid with proceeds
from the offering and borrowings under the new credit facility.
(4) No adjustment is reflected in the provision for income taxes due to the net
valuation allowance on the deferred tax assets.

(5) Does not include the write-off for $14.1 million in deferred financing costs
and unamortized discount associated with the debt to be retired with the
proceeds from the offering. The write-off will be recorded in W-H's
historical statement of operations in the period the debt is repaid.

(6) Does not include a charge of $250,000 related to the termination of the
consulting agreement with TJC Management in connection with this offering.
W-H expensed $600,000 for the year ended December 31, 1999 related to this
agreement. The charge will be recorded in W-H's historical statement of
operations in the period the fee is paid.

F-3
<PAGE> 75

W-H ENERGY SERVICES, INC.

UNAUDITED AS ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL
--------------
W-H ENERGY OFFERING
SERVICES, INC. ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C>
Revenues.................................................... $ 99,410 $ -- $ 99,410
Costs and expenses:
Cost of revenues.......................................... 54,680 -- 54,680
Selling, general and administrative....................... 23,054 -- 23,054
Depreciation and amortization............................. 9,055 -- 9,055
----------- ----------- -----------
Total costs and expenses............................ 86,789 -- 86,789
----------- ----------- -----------
Income from operations...................................... 12,621 -- 12,621
Other expense:
Interest expense.......................................... 13,500 (10,106)(1) 3,394
Other expense, net........................................ 177 -- 177
----------- ----------- -----------
Income (loss) before income taxes........................... (1,056) 10,106 9,050
Provision for income taxes.................................. 374 -- 374(2)
----------- ----------- -----------
Net income (loss)........................................... $ (1,430) $ 10,106 $ 8,676(3)(4)
=========== =========== ===========
Net income (loss) per share
Basic..................................................... $ (0.12) $ 0.39
=========== ===========
Diluted................................................... $ (0.12) $ 0.34
=========== ===========
Shares used in computing net income (loss) per share
Basic..................................................... 12,057,640 22,059,336
=========== ===========
Diluted................................................... 12,057,640 25,748,189
=========== ===========
</TABLE>

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

(1) Reflects interest expense, including amortization of deferred financing
costs, on borrowings of $68.1 million under the new credit facility
necessary to repay in full the outstanding balance under our existing credit
facility. This is net of savings of $10.1 million of interest expense,
including amortization of deferred financing costs and the original issue
discount, on $218.3 million of historical debt to be repaid with proceeds
from the offering and borrowings under the new credit facility.

(2) No adjustment is reflected in the provision for income taxes due to the net
valuation allowance on the deferred tax assets.

(3) Does not include the write-off for $14.1 million in deferred financing costs
and unamortized discount associated with the debt to be retired with the
proceeds from the offering. The write-off will be recorded in W-H's
historical statement of operations in the period the debt is repaid.

(4) Does not include a charge of $250,000 related to the termination of the
consulting agreement with TJC Management in connection with this offering.
W-H expensed $300,000 for six months ended June 30, 2000 related to this
agreement. The charge will be recorded in W-H's historical statement of
operations in the period the fee is paid.

F-4
<PAGE> 76

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
W-H Energy Services, Inc.:

We have audited the accompanying consolidated balance sheets of W-H Energy
Services, Inc. (a Texas corporation), and subsidiaries as of December 31, 1998
and 1999, and the related consolidated statements of operations and
comprehensive loss, shareholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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
W-H Energy Services, Inc. and subsidiaries as of December 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
April 12, 2000 (except with respect
to the matter discussed in the first
paragraph of Note 9, as to which the
date is May 8, 2000)

F-5
<PAGE> 77

W-H ENERGY SERVICES, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1998 1999 2000
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 1,466 $ 2,490 $ 3,665
Accounts receivable, net of allowance of $1,721, $2,897
and $2,897, respectively............................... 21,835 40,439 46,101
Income tax receivable..................................... 253 75 5
Deferred income taxes..................................... 343 1,907 2,744
Inventories............................................... 7,837 13,694 15,085
Prepaid expenses and other................................ 495 614 1,274
-------- -------- --------
Total current assets.............................. 32,229 59,219 68,874
Property and Equipment, net................................. 50,843 83,235 87,813
Goodwill and Other Intangibles, net......................... 45,579 43,751 42,764
Other Assets, net........................................... 3,948 5,399 7,039
-------- -------- --------
Total assets...................................... $132,599 $191,604 $206,490
======== ======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
Current maturities of long-term debt...................... $ 3,250 $ 4,900 $ 4,900
Accounts payable.......................................... 4,487 14,772 14,642
Accrued liabilities....................................... 5,127 11,125 15,823
-------- -------- --------
Total current liabilities......................... 12,864 30,797 35,365
Long-term Debt, net of current maturities................... 124,438 142,437 148,816
Long-term Debt, related parties............................. 25,762 51,485 56,486
Deferred Income Taxes....................................... 926 2,347 3,378
Commitments and Contingencies
Shareholders' Equity (Deficit):
Common stock, $0.01 par value, 100,000,000 shares
authorized, 9,075,000, 9,075,000 and 9,084,900 shares
issued and outstanding, respectively................... 9,075 91 91
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, none issued and outstanding................ -- -- --
Additional paid-in capital................................ (8,525) 11,792 13,378
Deferred compensation..................................... -- (141) (1,397)
Cumulative translation adjustment......................... -- (43) (991)
Note receivable from shareholder.......................... -- -- (45)
Retained earnings (deficit)............................... (31,941) (47,161) (48,591)
-------- -------- --------
Total shareholders' equity (deficit).............. (31,391) (35,462) (37,555)
-------- -------- --------
Total liabilities and shareholders' equity
(deficit)....................................... $132,599 $191,604 $206,490
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 78

W-H ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -------------------------
1998 1999 1999 2000
1997 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues..................... $ 59,833 $ 90,293 $ 127,641 $ 50,913 $ 99,410
Costs and Expenses:
Cost of revenues........... 25,889 43,431 68,399 26,842 54,680
Selling, general and
administrative.......... 17,279 23,788 36,118 15,748 23,054
Depreciation and
amortization............ 5,870 10,748 15,521 7,497 9,055
Recapitalization
compensation charge..... 13,453 -- -- -- --
----------- ---------- ----------- ----------- -----------
Total costs and
expenses......... 62,491 77,967 120,038 50,087 86,789
----------- ---------- ----------- ----------- -----------
Income (Loss) from
Operations................. (2,658) 12,326 7,603 826 12,621
Other Expense (Income):
Interest expense........... 4,733 13,418 21,989 9,686 13,500
Other expense (income),
net..................... (8) 142 595 281 177
----------- ---------- ----------- ----------- -----------
Loss Before Income Taxes..... (7,383) (1,234) (14,981) (9,141) (1,056)
Provision (Benefit) for
Income Taxes............... (1,714) 152 239 18 374
----------- ---------- ----------- ----------- -----------
Net Loss..................... (5,669) (1,386) (15,220) (9,159) (1,430)
Foreign Currency Translation
Adjustment................. -- -- (43) (23) (948)
----------- ---------- ----------- ----------- -----------
Comprehensive Loss........... $ (5,669) $ (1,386) $ (15,263) $ (9,182) $ (2,378)
=========== ========== =========== =========== ===========
Net Loss per Share (basic and
diluted)................... $ (0.32) $ (0.15) $ (1.34) $ (0.86) $ (0.12)
=========== ========== =========== =========== ===========
Number of Shares Used in
Calculating Net Loss per
Share (basic and
diluted)................... 17,447,571 9,075,000 11,338,513 10,611,792 12,057,640
=========== ========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE> 79

W-H ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK NOTE
------------------ ADDITIONAL CUMULATIVE RECEIVABLE RETAINED
PAR PAID-IN DEFERRED TRANSLATION FROM EARNINGS
SHARES VALUE CAPITAL COMPENSATION ADJUSTMENT SHAREHOLDER (DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996.................... 22,803 $ 22,803 $(13,399) $ -- $ -- $ -- $ 3,669 $ 13,073
Income Tax Benefit from
Purchase of Restricted
Stock................... -- -- 984 -- -- -- -- 984
Issuance of Stock Purchase
Warrants................ -- -- 130 -- -- -- -- 130
Conversion of Debt to
Common Stock in
Connection with
Recapitalization........ 330 330 170 -- -- -- -- 500
Proceeds from the Sale of
Common Stock in
Connection with
Recapitalization, net of
transaction costs of
$3,334.................. 7,260 7,260 1,450 -- -- -- -- 8,710
Repurchase of Outstanding
Common Stock and
Warrants in Connection
with Recapitalization... (21,318) (21,318) 1,865 -- -- -- (28,555) (48,008)
Net Loss.................. -- -- -- -- -- -- (5,669) (5,669)
------- -------- -------- ------- ----- -------- -------- --------
Balance, December 31,
1997.................... 9,075 9,075 (8,800) -- -- -- (30,555) (30,280)
Issuance of Stock Purchase
Warrants................ -- -- 275 -- -- -- -- 275
Net Loss.................. -- -- -- -- -- -- (1,386) (1,386)
------- -------- -------- ------- ----- -------- -------- --------
Balance, December 31,
1998.................... 9,075 9,075 (8,525) -- -- -- (31,941) (31,391)
Change in Par Value of
Class A Common Stock.... -- (8,984) 8,984 -- -- -- -- --
Issuance of Stock Purchase
Warrants................ -- -- 11,175 -- -- -- -- 11,175
Deferred Compensation..... -- -- 158 (158) -- -- -- --
Amortization of Deferred
Compensation............ -- -- -- 17 -- -- -- 17
Foreign Currency
Translation
Adjustment.............. -- -- -- -- (43) -- -- (43)
Net Loss.................. -- -- -- -- -- -- (15,220) (15,220)
------- -------- -------- ------- ----- -------- -------- --------
Balance, December 31,
1999.................... 9,075 91 11,792 (141) (43) -- (47,161) (35,462)
Issuance of Common Stock
(unaudited)............. 10 -- -- -- -- -- -- --
Deferred Compensation
(unaudited)............. -- -- 1,458 (1,458) -- -- -- --
Amortization of Deferred
Compensation
(unaudited)............. -- -- -- 202 -- -- -- 202
Foreign Currency
Translation Adjustment
(unaudited)............. -- -- -- -- (948) -- -- (948)
Issuance of Common Stock
for Note Receivable
(unaudited)............. -- -- 128 -- -- (45) -- 83
Net Loss (unaudited)...... -- -- -- -- -- -- (1,430) (1,430)
------- -------- -------- ------- ----- -------- -------- --------
Balance, June 30, 2000
(unaudited)............. 9,085 $ 91 $ 13,378 $(1,397) $(991) $ (45) $(48,591) $(37,555)
======= ======== ======== ======= ===== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-8
<PAGE> 80

W-H ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------- -------------------
1997 1998 1999 1999 2000
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.......................................... $ (5,669) $ (1,386) $(15,220) $ (9,159) $ (1,430)
Adjustments to reconcile net loss to cash provided
by (used in) operating activities --
Depreciation and amortization................... 5,870 10,748 15,521 7,497 9,055
Gain on sale of assets.......................... (867) (1,395) (3,260) (1,859) (3,242)
Deferred tax provision (benefit)................ (756) 26 (143) (808) 142
Noncash stock-based compensation expense........ 13,453 -- -- -- 83
Amortization of deferred compensation........... -- -- 17 -- 202
Noncash interest expense........................ -- -- 1,898 633 1,226
Change in operating assets and liabilities,
excluding effects of acquisitions --
(Increase) decrease in accounts receivable,
net........................................ (7,685) 120 (18,604) (7,417) (5,662)
(Increase) decrease in prepaid expenses and
other...................................... 109 (169) (119) -- (608)
(Increase) decrease in inventories............ (167) (1,197) 727 (6,730) (1,391)
(Increase) decrease in income tax
receivable................................. (2,588) 1,352 178 -- 70
Increase in other assets, net................. (2,761) (1,316) (1,872) (529) (1,661)
Increase (decrease) in accounts payable and
accrued liabilities........................ 4,533 (5,680) 13,647 12,092 4,568
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities............................... 3,472 1,103 (7,230) (6,280) 1,352
-------- -------- -------- -------- --------
Cash Flows from Investing Activities:
Acquisition of businesses, net of cash acquired... (16,248) (29,768) (27,173) (27,173) --
Additions to property and equipment............... (20,810) (25,300) (23,849) (10,785) (14,449)
Proceeds from sale of property and equipment...... 2,298 2,779 4,670 1,868 5,066
-------- -------- -------- -------- --------
Net cash used in investing activities...... (34,760) (52,289) (46,352) (36,090) (9,383)
-------- -------- -------- -------- --------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt................ 102,950 66,750 65,825 45,585 26,775
Payments on debt.................................. (18,843) (15,768) (22,351) (13,292) (16,621)
Proceeds from the issuance of common stock and
warrants, net of offering costs................. 8,710 -- 11,175 11,175 --
Repurchase of outstanding common stock, stock
options and warrants............................ (61,461) -- -- -- --
Income tax benefit from repurchase of restricted
stock........................................... 984 -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by financing
activities............................... 32,340 50,982 54,649 43,468 10,154
-------- -------- -------- -------- --------
Translation Adjustment.............................. -- -- (43) -- (948)
-------- -------- -------- -------- --------
Net (Decrease) Increase in Cash and Cash
Equivalents....................................... 1,052 (204) 1,024 1,098 1,175
Cash and Cash Equivalents, beginning of period...... 618 1,670 1,466 1,466 2,490
-------- -------- -------- -------- --------
Cash and Cash Equivalents, end of period............ $ 1,670 $ 1,466 $ 2,490 $ 2,564 $ 3,665
======== ======== ======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period................... $ 3,267 $ 12,843 $ 17,877 $ 5,832 $ 7,388
======== ======== ======== ======== ========
Income taxes paid during the period............... $ 1,052 $ 188 $ 681 $ 167 $ 145
======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-9
<PAGE> 81

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING AMOUNTS RELATED TO UNAUDITED INTERIM PERIODS)

1. BUSINESS ORGANIZATION:

DESCRIPTION OF COMPANY

W-H Energy Services, Inc. and its subsidiaries (collectively, W-H) is a
diversified oilfield service company that provides products and services used
primarily for the drilling, completion and production of oil and natural gas
wells. W-H has the following three primary lines of business: (i) drilling
related products and services, which include logging-while-drilling,
measurement-while-drilling, rental tools (including drill pipe), downhole
drilling motors and drilling fluids; (ii) completion and workover related
products and services, which include cased-hole wireline logging and
perforating, polymers and specialty chemicals and tubing; and (iii) maintenance
and safety related products and services, which include integrated on-site
cleaning and waste management and safety equipment.

W-H's business depends in large part on the conditions of the oil and
natural gas industry, and specifically on the capital investment of W-H's
customers. A prolonged downturn in oil and natural gas prices could have a
material adverse effect on W-H's results of operations and financial condition,
particularly with respect to its drilling related products and services. Demand
for WH's drilling related products and services is particularly sensitive to the
level of exploration, development and production activity of, and the
corresponding capital spending by, oil and natural gas companies. Prices for oil
and natural gas are subject to large fluctuations in response to relatively
minor changes in the supply of and demand for oil and natural gas, market
uncertainty and a variety of other factors that are beyond W-H's control. Any
prolonged reduction in oil and natural gas prices will depress the level of
exploration, development and production activity. Lower levels of activity
result in a corresponding decline in the demand for W-H's drilling related
products and services which could have a material adverse effect on its revenues
and profitability. Other risk factors include, but are not limited to,
competition, risks relating to W-H's acquisition strategy, risks relating to
acquisition financing and reliance on key personnel. Management believes that
cash flows anticipated to be generated from operations together with W-H's
existing credit capacity will provide sufficient liquidity for its foreseeable
needs.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CONSOLIDATION AND PRESENTATION

The accompanying consolidated financial statements include the accounts of
W-H and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include highly liquid investments with an
original maturity of three months or less.

ACCOUNTS RECEIVABLE

Accounts receivable have a concentration of credit risk in the oil and
natural gas industry. W-H performs continuing credit evaluations of its
customers and generally does not require collateral.

INVENTORIES

Inventories are stated at the lower of cost or market, determined on a
first-in, first-out basis. Inventories consist primarily of equipment, parts,
raw materials and supplies.

F-10
<PAGE> 82
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized while minor replacements, maintenance
and repairs which do not improve or extend the life of such assets are charged
to operations as incurred. Disposals are removed at cost less accumulated
depreciation, and any resulting gain or loss is reflected in the accompanying
consolidated statements of operations.

Depreciation is calculated using the straight-line method over the
estimated useful lives of the depreciable assets. Leasehold improvements are
amortized over the shorter of their useful lives or the term of the lease. The
useful lives of the major classes of property and equipment are as follows:

<TABLE>
<CAPTION>
LIFE IN
YEARS
<S> <C>
Rental equipment............................................ 7-10
Machinery and equipment..................................... 5-10
Automobiles and trucks...................................... 5
Office equipment, furniture and fixtures.................... 5-7
Leasehold improvements...................................... 5-39
</TABLE>

REALIZATION OF LONG-LIVED ASSETS

Under Statement of Financial Accounting Standard (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," W-H has evaluated its long-lived assets for financial
impairment and will continue to evaluate them as events or changes in
circumstances indicate that the carrying amount of such assets may not be fully
recoverable.

W-H evaluates the recoverability of assets not held for sale by measuring
the carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient
to recover the carrying value of such assets, the assets are adjusted to their
fair values. Based on these evaluations, there were no adjustments to the
carrying value of long-lived assets in 1997, 1998 or 1999.

GOODWILL AND OTHER INTANGIBLES

Goodwill represents the excess of the aggregate price paid by W-H in
acquisitions accounted for as purchases over the fair market value of the
tangible and identifiable intangible net assets acquired. Under Accounting
Principles Board (APB) Opinion No. 17 and SFAS No. 121, W-H periodically
evaluates whether events and circumstances after the acquisition date indicate
that the remaining balance of goodwill may not be recoverable. If factors
indicate that goodwill should be evaluated for possible impairment, W-H would
compare estimated undiscounted future cash flows from the related operations to
the carrying amount of goodwill. If the carrying amount of goodwill was greater
than undiscounted future cash flows, an impairment loss would be recognized. Any
impairment loss would be computed as the excess of the carrying amount of
goodwill over the estimated fair value of the goodwill (calculated based on
discounting estimated future cash flows). Amortization expense charged to
operations totaled approximately $522,000, $1,802,000 and $2,243,000 for the
years ended December 31, 1997, 1998 and 1999 respectively.

F-11
<PAGE> 83
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Goodwill and other intangibles as of December 31, 1998, 1999, and June 30,
2000, consist of the following (in thousands):

<TABLE>
<CAPTION>
1998 1999 JUNE 30, 2000
(UNAUDITED) LIFE IN YEARS
<S> <C> <C> <C> <C>
Goodwill.................................. $41,863 $42,005 $42,005 20-40
Workforce................................. 2,560 2,560 2,560 12-24
License agreements........................ 1,900 2,173 2,173 12-17
Non-compete agreements.................... 1,185 1,185 1,185 5
Customer lists............................ 953 953 953 7
------- ------- -------
Total................................... 48,461 48,876 48,876
Less-accumulated amortization............. (2,882) (5,125) (6,112)
------- ------- -------
Goodwill and other intangibles, net....... $45,579 $43,751 $42,764
======= ======= =======
</TABLE>

REVENUE RECOGNITION AND COST OF REVENUES

W-H recognizes revenue for services as services are provided. Revenue from
products is recognized upon shipment of the product. Revenue from the rental of
equipment is recognized as earned over the life of the contract. The primary
components of operating expenses are those salaries, expendable supplies,
repairs and maintenance, costs of products sold and general operational costs
that are directly associated with the services performed or products sold by W-H
for its customers. Proceeds from customers for the cost of oilfield rental
equipment that is involuntarily damaged or lost downhole are reflected as
revenues.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed when incurred. For the years
ended December 31, 1997, 1998 and 1999, research and development costs of
$68,000, $249,000 and $4.1 million, respectively, are included in selling,
general and administrative expenses in the accompanying consolidated financial
statements.

INCOME TAXES

W-H utilizes the liability method of accounting for income taxes. Under the
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying values of existing assets and liabilities and their
respective tax bases based on enacted tax rates.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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.

FINANCIAL INSTRUMENTS

W-H considers the fair value of all financial instruments (primarily
long-term debt) not to be materially different from their carrying values at the
end of each fiscal year based on management's estimate of W-H's ability to
borrow funds under terms and conditions similar to those of W-H's existing debt.

F-12
<PAGE> 84
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTING FOR STOCK-BASED COMPENSATION

In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation,"
W-H can adopt either of two methods for accounting for stock options granted to
employees. W-H has elected to account for its stock-based compensation plans
under APB Opinion No. 25, "Accounting for Stock Issued to Employees," and to
provide pro forma disclosures required by SFAS No. 123 (see Note 9).

FOREIGN CURRENCY TRANSLATIONS

The operations of foreign locations were translated into U.S. dollars based
on the current exchange rate at the balance sheet date and the weighted-average
rate for the period of the statement of operations and comprehensive loss. The
translation adjustment was a loss of $43,000 for the year ended December 31,
1999, and is reflected as a foreign currency translation adjustment in the
consolidated statement of operations and comprehensive loss for the year ended
December 31, 1999. There were no such adjustments for the years ended December
31, 1997 and 1998.

EARNINGS PER SHARE

Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share is computed
considering the dilutive effect of stock options and warrants. The 2,974,436
warrants issued in connection with the 13% senior subordinated notes (see Note
9) are considered to be outstanding as of the date of issuance and included in
the computation of basic and diluted earnings per share as the warrants are
exerciseable for nominal consideration and are not contingent. Because of the
loss for each year, no shares resulting from the assumed exercise of options or
warrants, with the exception of the warrants exerciseable for nominal
consideration discussed above, are added to the denominator because the
inclusion of such shares would be antidilutive due to the losses for all periods
included in the consolidated statements of operations. For the years ended
December 31, 1997, 1998 and 1999, options of 573,375, 738,375, and 2,111,175,
respectively and warrants of 2,680,194, 3,125,694, and 3,125,694, respectively
were excluded from the computation.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which W-H is
required to adopt effective January 1, 2001. SFAS No. 133 will require W-H to
record all derivatives as assets or liabilities at fair value. Changes in
derivative fair values will either be recognized in earnings, offset against
changes in the fair value of the related hedged assets, liabilities and firm
commitments or, for forecasted transactions, recorded as a component of other
comprehensive income in shareholders" equity until the hedged transactions occur
and are recognized in earnings. The ineffective portion of a hedging
derivative's change in fair value will be recognized in earnings immediately.
W-H has not, to date, engaged in activities or entered into arrangements
associated with derivative instruments.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB 101)
which provides guidance related to revenue recognition based on interpretations
and practices followed by the SEC. SAB 101 is effective by the fourth fiscal
quarter of fiscal years beginning after December 15, 1999 and requires companies
to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation. W-H's management believes
that its revenue recognition policy is in accordance with SAB 101 and does not
believe that SAB 101 will have a material impact on W-H's financial position or
results of operations.

F-13
<PAGE> 85
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTERIM FINANCIAL INFORMATION

The interim consolidated balance sheet as of June 30, 2000 and consolidated
statements of operations and comprehensive loss, shareholders' equity (deficit)
and cash flows for the six months ended June 30, 1999 and 2000 are unaudited,
and certain information and footnote disclosures, normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations, comprehensive
income and cash flows with respect to the interim consolidated financial
statements have been included. The results of operations for the interim periods
are not necessarily indicative of the results for the entire fiscal year.

3. ACQUISITIONS:

PATHFINDER ENERGY SERVICES

On March 29, 1999, W-H acquired the logging-while-drilling (LWD) and
related measurement-while-drilling (MWD) businesses from Halliburton Company
(Halliburton), located in the United States and North Sea (the U.S. and North
Sea PathFinder Assets) and certain LWD, MWD and other related assets in other
foreign locations (the Foreign PathFinder Assets) for consideration of $33.3
million in cash, including acquisition costs. Management allocated $27.2 million
and $6.1 million to the U.S. and North Sea PathFinder Assets and the Foreign
PathFinder Assets, respectively, based on the relative fair value of the assets
acquired. W-H funded the acquisition of the U.S. and North Sea PathFinder Assets
and the Foreign PathFinder Assets (the PathFinder acquisition) through the
issuance of its 13% senior subordinated notes (see Note 5).

GRINDING AND SIZING COMPANY, INC.

On April 24, 1998, W-H acquired 100 percent of the issued and outstanding
stock of Grinding and Sizing Company, Inc., Houston Bagging and Blending, Inc.,
and Reliable Equipment, Inc., collectively, GSI, for consideration of $10.2
million, including acquisition costs. GSI is in the business of size reduction
(grinding) of products primarily used in the drilling and specialty chemical
fluids industry. W-H funded this acquisition with a $10 million term C loan
facility under W-H's credit facility (see Note 5).

AGRI-EMPRESA, INC.

On July 27, 1998, W-H acquired 100 percent of the issued and outstanding
stock of Agri-Empresa, Inc., Lone Star Distribution, Inc., STG and Agri-Empresa
Transportation and Superior Packaging & Distribution, collectively,
Agri-Empresa, for consideration of $21.3 million, including acquisition costs.
Agri-Empresa manufactures, packages, distributes and transports chemicals used
in oilfield and industrial applications. W-H funded this acquisition with a $25
million term D loan facility under W-H's credit facility (see Note 5).

INTEGRITY INDUSTRIES, INC.

On September 25, 1997, W-H acquired 100 percent of the issued and
outstanding stock of Integrity Industries, Inc. (Integrity) for total
consideration of approximately $13.4 million, including acquisition costs.
Integrity is a manufacturer and wholesaler of specialty chemicals and drilling
fluid products. W-H funded this acquisition with a $15 million delayed term loan
facility under W-H's credit facility (see Note 5).

All of the above business acquisitions have been accounted for as
purchases; therefore, the accompanying consolidated statements of operation and
comprehensive loss reflect the results of each

F-14
<PAGE> 86
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

acquisitions' operations since their respective acquisition dates. The purchase
price and direct acquisition costs were allocated based on the fair value of the
assets acquired and liabilities assumed.

The purchase price and estimated fair market value of the assets acquired
and liabilities assumed with the U.S. and North Sea PathFinder Assets, GSI,
Agri-Empresa and Integrity acquisitions are as follows (in thousands):

<TABLE>
<CAPTION>
PATHFINDER GSI AGRI-EMPRESA INTEGRITY
<S> <C> <C> <C> <C>
Purchase price:
Cash paid................................ $26,673 $ 9,250 $21,000 $13,000
Debt issued.............................. -- 800 -- 200
Warrants issued to former owners......... -- 110 165 130
Acquisition costs........................ 500 85 135 27
------- ------- ------- -------
Total purchase price............. $27,173 $10,245 $21,300 $13,357
======= ======= ======= =======
Net assets acquired:
Current assets........................... $ 8,240 $ 1,338 $ 5,673 $ 3,900
Property and equipment................... 23,233 253 1,520 314
Goodwill................................. -- 6,781 15,575 12,477
Other intangibles........................ -- 2,669 1,908 909
Current liabilities...................... (4,300) (796) (3,376) (1,895)
Other liabilities........................ -- -- -- (2,348)
------- ------- ------- -------
Net assets acquired.............. $27,173 $10,245 $21,300 $13,357
======= ======= ======= =======
</TABLE>

Goodwill is being amortized over 40 years, 30 years and 20 years for GSI,
Agri-Empresa, and Integrity, respectively.

The following table reflects on an unaudited consolidated pro forma basis
the results of operations as though each acquired company had been acquired as
of the beginning of W-H's fiscal years 1998 and 1999. Adjustments have been made
to reflect the accounting basis used in recording the acquisitions. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations that would have resulted
had the combination been in effect on the date indicated, that have resulted
since the date of acquisition or that may result in the future. Pro forma
amounts are as follows (in thousands, unaudited):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1999
<S> <C> <C>
Total revenues.............................................. $158,486 $137,142
Net income (loss)........................................... 2,778 (17,868)
Net income (loss) per share -- basic........................ 0.23 (1.48)
Net income (loss) per share -- diluted...................... 0.22 (1.48)
</TABLE>

F-15
<PAGE> 87
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in W-H's allowance for doubtful accounts for the years ended
December 31, 1997, 1998 and 1999, consists of the following (in thousands):

<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Balance, beginning of year............................... $ 479 $1,223 $1,721
Deductions for uncollectible receivables written off..... (105) (353) (380)
Additions charged to expense............................. 174 451 1,556
Additions due to acquisition............................. 675 400 --
------ ------ ------
Balance, end of year..................................... $1,223 $1,721 $2,897
====== ====== ======
</TABLE>

The components of inventories as of December 31, 1998 and 1999, are as
follows (in thousands):

<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Finished goods.............................................. $3,282 $ 6,421
Work-in-process............................................. 83 221
Raw materials and supplies.................................. 4,472 7,052
------ -------
Inventories............................................... $7,837 $13,694
====== =======
</TABLE>

Property and equipment, net as of December 31, 1998 and 1999, consists of
the following (in thousands):

<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Rental equipment............................................ $ 61,475 $ 97,883
Machinery and equipment..................................... 7,203 11,985
Automobiles and trucks...................................... 2,857 3,179
Office equipment, furniture and fixtures.................... 1,809 2,568
Leasehold improvements...................................... 1,498 4,394
-------- --------
Total............................................. 74,842 120,009
Less -- accumulated depreciation............................ (23,999) (36,774)
-------- --------
Property and equipment, net............................... $ 50,843 $ 83,235
======== ========
</TABLE>

Depreciation expense charged to operations totaled approximately
$5,348,000, $8,946,000 and $13,278,000 for the years ended December 31, 1997,
1998 and 1999, respectively.

Accrued liabilities as of December 31, 1998 and 1999, consist of the
following (in thousands):

<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Accrued compensation and benefits........................... $1,216 $ 2,219
Accrued interest............................................ 1,053 2,210
Other accrued liabilities................................... 2,858 6,696
------ -------
Total............................................. $5,127 $11,125
====== =======
</TABLE>

F-16
<PAGE> 88
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. DEBT:

Long-term debt as of December 31, 1998 and 1999 and June 30, 2000, consists
of the following (in thousands):

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------- --------------
1998 1999 2000
(UNAUDITED)
<S> <C> <C> <C>
CREDIT FACILITY:
Senior secured term A loan facility to financial
institutions payable in equal quarterly installments
equivalent to 5% of principal through August 1998, 10%
through August 1999, 15% through August 2000, 30% through
August 2001 and 40% through August 2002, bearing interest
at LIBOR (5.16% at December 31, 1999) plus 3.25% which is
payable monthly, maturing at August 11, 2002............. $ 18,500 $ 16,250 $ 14,750
Senior secured term B, term C and delayed term loan
facility to financial institutions payable in equal
quarterly installments equivalent to 1% of principal
annually through August 2002 and 95% of principal through
August 2003, bearing interest at LIBOR plus 3.75% which
is payable monthly, maturing at August 11, 2003.......... 64,275 63,625 63,300
Senior secured term D and term E loan facilities to
financial institutions payable in equal quarterly
installments equivalent to 1% of principal annually
through September 2004 and 95% of principal in December
2004, bearing interest at LIBOR plus 4.25% which is
payable monthly, maturing at December 31, 2004........... 34,913 34,562 34,387
Senior secured term F loan facility to financial
institutions payable in equal quarterly installments
equal to 1% of principal annually through March 2005, and
95% of principal in June 2005, bearing interest at LIBOR
plus 4.5%, which is payable monthly, maturing March
2005..................................................... -- 14,900 33,279
Revolving credit facility to financial institutions bearing
interest at LIBOR plus 3.25% which is payable monthly,
maturing at August 11, 2002.............................. 10,000 18,000 8,000
SUBORDINATED DEBT:
13% senior subordinated notes payable to DLJ Merchant
Banking Partners II, L.P. and its affiliated investment
funds (also a warrant holder; also a related party) due
on April 1, 2006, net of unamortized discount of $8,051,
bearing interest at an effective interest rate of 24%.
Interest is payable semi-annually on April 1 and October
1 and the related $2.275 million payment-in-kind notes
that bear interest at 14% per annum and mature April 1,
2006..................................................... -- 25,723 29,224
12 1/2% senior subordinated notes payable to JZ Equity
Partners PLC (affiliated with a warrant holder; also a
related party) with $12.0 million due at September 15,
2006 and 2007, respectively, bearing interest at 12 1/2%,
which is payable semiannually on March 15 and September
15 and the related $1.5 million payment-in-kind notes
that bear interest at 14 1/2% per annum and mature
September 15, 2007....................................... 24,000 24,000 25,500
</TABLE>

F-17
<PAGE> 89
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------- --------------
1998 1999 2000
(UNAUDITED)
<S> <C> <C> <C>
OTHER DEBT:
Notes payable to prior owners of Integrity, due October 1,
2001, bearing interest at 10%, which is payable annually
on
September 30............................................. 962 962 962
Notes payable to prior owners of GSI, due May 1, 2002,
bearing interest at 10% which is payable annually on
April 30................................................. 800 800 800
-------- -------- --------
Total long-term debt............................. 153,450 198,822 210,202
Less -- Current maturities of long-term debt............... (3,250) (4,900) (4,900)
-------- -------- --------
$150,200 $193,922 $205,302
======== ======== ========
</TABLE>

CREDIT FACILITY

In August 1997 and in connection with the recapitalization (see Note 9),
Perf-O-Log, Inc., a wholly owned subsidiary of W-H, entered into a senior
secured credit facility. The term A loan facility and term B loan facility were
used primarily to finance the recapitalization and related fees and expenses.
The delayed term loan facility was used to finance the acquisition of Integrity.
The credit facility was amended in 1998 to include a term C and term D loan
facility, which were used to fund the acquisitions of GSI and Agri-Empresa as
described in Note 3. Additionally, in 1998, W-H entered into an amended credit
facility that included a term E loan facility which was used to pay down the
revolving credit facility. In March 1999, in connection with the PathFinder
acquisition, W-H amended the credit facility to include a $15 million term F
loan facility which was primarily used for working capital purposes. As of
December 31, 1999 W-H has $1,661,250 additional borrowing capacity related to
the credit facility and is subject to a 0.5 percent commitment fee for all
unused balances on the revolving credit facility. The credit facility is secured
by substantially all of the assets of W-H.

SUBORDINATED DEBT

In connection with the PathFinder acquisition in March 1999, W-H issued
senior subordinated notes with a face value of $40 million to DLJ Merchant
Banking II, L.P. and its affiliated investment funds. The 13% senior
subordinated notes are unsecured and subordinated in the right of payment and
liquidation preference to the credit facility. Additionally, W-H issued the
noteholders warrants to purchase shares of its common stock (see Note 9). The
13% senior subordinated notes were recorded at a discount of $11.2 million from
face value which represented the amount allocated to the warrants.

In connection with the recapitalization in August 1997, W-H issued $24
million of 12 1/2% senior subordinated notes to JZ Equity Partners PLC. The
12 1/2% senior subordinated notes are unsecured and subordinated in right of
payment and liquidation preference to the credit facility.

The credit facility, 13% senior subordinated notes and 12 1/2% senior
subordinated notes contain restrictions which, among other things, require
maintenance of certain financial ratios and restrict encumbrances of assets,
incurrence of indebtedness, capital expenditures, investing activities and
payments of dividends.

F-18
<PAGE> 90
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Scheduled maturities of long-term debt are as follows (in thousands):

<TABLE>
<S> <C>
For the year ended December 31 --
2000.................................................... $ 4,900
2001.................................................... 8,612
2002.................................................... 25,950
2003.................................................... 62,175
2004.................................................... 33,312
Thereafter.............................................. 63,873
--------
Total........................................... $198,822
========
</TABLE>

6. COMMITMENTS AND CONTINGENCIES:

OPERATING LEASES

W-H leases certain real estate properties and automobiles under operating
leases that expire at various dates through 2004. Rental expense under operating
leases was approximately $933,000, $1,012,000, and $1,827,000 for the years
ended December 31, 1997, 1998 and 1999, respectively. Future minimum lease
payments under noncancelable operating leases are as follows (in thousands):

<TABLE>
<S> <C>
For the year ended December 31 --
2000..................................................... $ 3,488
2001..................................................... 2,876
2002..................................................... 2,696
2003..................................................... 2,102
2004..................................................... 1,346
-------
Total............................................ $12,508
=======
</TABLE>

EMPLOYMENT AGREEMENTS

W-H has entered into employment agreements with its corporate officers.
Under the agreements, each officer receives a set base salary, subject to
adjustment, an annual discretionary bonus based on specific objectives to be
determined by the compensation committee, an automobile allowance and certain
fringe benefits as may be available to such executive officers. The agreements
are subject to terms of two to three years, with certain automatic renewal
provisions and contain non-competition agreements. The agreements also provide
for a termination clause, which requires a two-year payment based on the
officer's salary, in the event of termination without cause.

W-H also has employment agreements with certain of its employees. These
agreements have initial expiration terms range from October 2000 through July
2003 and provide for a base annual salary ranging from approximately $54,000 to
$150,000. The agreements also provide for severance pay in the event of
involuntary termination.

W-H also has entered into a royalty agreement with an employee which
provides for a maximum future payment of approximately $1.3 million upon the
occurrence of certain events. This maximum payment is reduced over time by
royalties received from recurring operations. All amounts pursuant to this
royalty agreement are expensed as incurred.

LITIGATION

W-H is involved in various lawsuits arising from normal business
activities. Currently management is not able to estimate the liability, if any
associated with any pending litigation. Management has reviewed

F-19
<PAGE> 91
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

pending litigation with legal counsel and believes that the ultimate liability,
if any, resulting from such actions will not have a material adverse effect on
W-H's financial position or results of operations.

7. INCOME TAXES:

The components of W-H's income tax provision (benefit) are as follows (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998 1999
<S> <C> <C> <C>
Current
U.S. federal and state income taxes....................... $ (958) $126 $ 50
Foreign................................................... -- -- 332
------- ---- -----
Total Current..................................... (958) 126 382
------- ---- -----
Deferred
U.S. federal and state income taxes....................... (756) 26 (143)
Foreign................................................... -- -- --
------- ---- -----
Total Deferred.................................... (756) 26 (143)
------- ---- -----
Total provision (benefit)......................... $(1,714) $152 $ 239
======= ==== =====
</TABLE>

The provision (benefit) for income taxes differs from an amount computed at
the statutory rate as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998 1999
<S> <C> <C> <C>
Federal income tax at statutory rates..................... $(2,458) $(419) $(5,094)
State income taxes........................................ (217) 69 (328)
Foreign income tax........................................ -- -- (64)
Nondeductible items....................................... 74 231 240
Restricted stock.......................................... (210) -- --
Increase in valuation allowance........................... 871 248 5,439
Other..................................................... 226 23 46
------- ----- -------
$(1,714) $ 152 $ 239
======= ===== =======
</TABLE>

F-20
<PAGE> 92
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The significant components of the deferred tax assets and liabilities as of
December 31, 1998 and 1999, are as follows (in thousands):

<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Deferred tax assets --
Net operating loss carryforwards.......................... $ 6,520 $ 14,295
Accruals not currently deductible for tax purposes and
other.................................................. 269 1,129
Write-off of bad debts.................................... 259 703
Other..................................................... 19 36
------- --------
Total gross deferred tax assets................... 7,067 16,163
Less -- valuation allowance............................... (1,229) (6,489)
------- --------
Net deferred tax assets........................... 5,838 9,674
------- --------
Deferred tax liabilities --
Tax depreciation in excess of book depreciation........... (5,615) (8,819)
Other..................................................... (806) (1,295)
------- --------
Total gross deferred tax liabilities.............. (6,421) (10,114)
------- --------
Net deferred tax liabilities...................... $ (583) $ (440)
======= ========
</TABLE>

W-H has recorded a valuation allowance to reflect the estimated amount of
deferred tax assets which may not be realized due to the expiration of net
operating losses and tax credit carryforwards. The change in the valuation
allowance for the years ended December 31, 1998 and 1999, is as follows (in
thousands):

<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Balance at beginning of year................................ $ 981 $1,229
Increase in valuation allowance............................. 248 5,260
------ ------
Balance at end of year...................................... $1,229 $6,489
====== ======
</TABLE>

W-H files a consolidated federal tax return. As of December 31, 1999, W-H
had net operating loss (NOL) carryforwards for federal income tax purposes of
approximately $39.5 million. The NOL carryforwards are available through 2019 to
offset future taxable income. A change in ownership, as defined by federal
income tax regulations, could significantly limit W-H's ability to utilize its
NOL carryforwards. As a result of the material changes in the ownership of W-H,
the utilization of certain NOL carryforwards is subject to annual limitations
and has not been tax benefitted for financial statement purposes. In addition,
W-H has NOL carryforwards in various state jurisdictions in an aggregate amount
of approximately $28.0 million. The utilization of these losses is limited to
the jurisdiction in which they arose.

8. RELATED-PARTY TRANSACTIONS:

SUBORDINATED DEBT

In connection with the recapitalization, W-H issued $24,000,000 of 12 1/2%
senior subordinated notes to a merchant banking firm that is affiliated with two
partnerships which are shareholders of W-H. (See Note 5).

In connection with the PathFinder acquisition, W-H issued senior
subordinated notes with a face value of $40 million to DLJ Merchant Banking
Partners II, L.P. and its affiliated investment funds.

F-21
<PAGE> 93
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONSULTING AND ADVISORY AGREEMENTS

On March 29, 1999, W-H entered into an advisory agreement with Donaldson,
Lufkin & Jenrette Securities Corporation (DLJ), an investment banking firm whose
affiliates own W-H's 13% senior subordinated notes and warrants issued by W-H.
In the event W-H pursues any business combination, or debt or equity
transaction, DLJ has the right to act as W-H's lead or co-lead financial advisor
in reviewing strategic alternatives and sole lead manager on bank financings,
sole lead placement agent, sole lead initial purchaser, sole lead managing
underwriter or sole lead dealer manager, as the case may be, in connection with
any transaction occurring during the term of the agreement. This agreement
expires in March 2001.

On August 11, 1997, W-H entered into a consulting agreement with an
affiliate of The Jordan Company (Jordan), a private merchant banking firm that
is affiliated with two partnerships that are shareholders of W-H. The agreement
provides for an annual fee payable on a quarterly basis equal to 2.5% of W-H's
net income before interest, tax, depreciation and amortization and other
non-cash or non-recurring expenses; provided that from and after March 26, 1999,
such fee may not exceed $600,000 per annum for as long as the 13% senior
subordinated notes described in Note 5 are outstanding. Under this agreement,
W-H paid Jordan approximately $34,000, $341,000 and $145,000 for the years ended
December 31, 1997, 1998 and 1999. This agreement expires on December 31, 2007.

On August 11, 1997, W-H entered into a transaction advisory agreement with
an affiliate of Jordan which expires on December 31, 2007. The advisory
agreement provides for an investment banking and financial consulting fee
ranging up to 1% to 2% of the aggregate transaction size for equity, debt,
acquisitions, divestitures and other transactions. Under this agreement, W-H
paid Jordan approximately $1.4 million, $0.4 million and $0.5 million for the
years ended December 31, 1997, 1998 and 1999, respectively.

9. SHAREHOLDERS' EQUITY (DEFICIT):

STOCK DIVIDEND

In May 2000, W-H's Board of Directors declared a stock dividend to effect a
stock split of 33 shares for every one share of common stock then outstanding.
The accompanying consolidated financial statements and footnotes have been
restated to reflect the stock split, including an assumed increase in the
authorized shares of common stock. The par value of the shares of common stock
to be issued in connection with the stock dividend was credited to common stock
and a like amount charged to additional paid-in capital.

RECAPITALIZATION OF W-H ENERGY SERVICES, INC.

On August 11, 1997, W-H's board of directors approved a series of equity
and debt transactions which resulted in a recapitalization of W-H and a change
in controlling ownership of W-H's common stock outstanding (the
Recapitalization). In connection with the Recapitalization, W-H's board of
directors (i) approved the repurchase and retirement of 21,314,898 shares of
common stock and warrants for the purchase of 496,650 shares of common stock for
approximately $48.1 million, (ii) approved the repurchase of 8,299,500
outstanding options for approximately $13.5 million which was charged to
operating expenses in the accompanying consolidated statement of operations for
the year ending December 31, 1997, (iii) approved the execution of the credit
facility, which provided for borrowings up to $95.0 million and which was used
to fund the repurchase of the common stock, options, warrants and to retire the
outstanding borrowings under W-H's loan agreement with a bank (see Note 5), (iv)
approved the issuance of 7,260,000 new shares of common stock and warrants to
purchase 1,247,813 shares of common stock at an exercise price of $2.21 per
share for approximately $12.0 million, (v) approved the

F-22
<PAGE> 94
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

issuance of the 12 1/2% senior subordinated notes in the amount of $24.0 million
to an affiliate of Jordan, and (vi) approved the issuance of warrants to
purchase 1,020,937 shares of common stock to continuing members of management at
an exercise price of $2.21 per share. After the Recapitalization, 80% of the
outstanding common stock is held by new shareholders, with 20% being retained by
shareholders existing prior to the Recapitalization. Expenses of approximately
$5.9 million were incurred in connection with the Recapitalization, of which
$3.3 million was recorded as a reduction to equity and $2.6 million was
capitalized as debt offering costs, which is included in other assets in the
accompanying consolidated financial statements, and will be amortized over the
term of the applicable debt agreements. In connection with the Recapitalization,
$500,000 of convertible debentures were converted into 330,000 shares of common
stock.

CAPITAL STOCK

In March 1999, W-H shareholders approved an amendment to W-H's articles of
incorporation which reduced the par value of each share of common stock from
$1.00 per share to $0.01 per share. The change in par value did not affect any
of the existing rights of shareholders and has been recorded as an adjustment to
additional paid-in capital and common stock in 1999.

In May 2000, W-H amended its articles of incorporation to reclassify its
Class A common stock to common stock and eliminate its Class B common stock. In
addition, W-H authorized its Board of Directors to authorize up to 10,000,000
shares of preferred stock, par value $0.01, in one or more series.

STOCK OPTIONS AND STOCK PURCHASE WARRANTS

In August 1997, W-H adopted a stock option plan (the 1997 Option Plan) to
provide non-qualified stock options to employees and authorized the issuance of
up to 2,475,000 shares to be issued under the 1997 Option Plan. Each option
granted under the 1997 Option Plan will contain such terms and conditions as may
be approved by the Board of Directors or compensation committee (the Committee).
As of December 31, 1999, the Committee has granted options under the 1997 Option
Plan at exercise prices equal to the fair market value at W-H's common stock at
date of grant. These options vest over a four-year period and will expire ten
years from the date the options were granted. These options will vest in 25%
increments after each full year of service following the date of grant. If an
optionee's employment terminates for any reason, the option may be exercised
during the three-month period following such termination, but only to the extent
vested at the time of such termination.

In connection with issuance of its 13% senior subordinated notes (see Note
5), W-H issued warrants to purchase up to 6,115,263 shares of common stock at
$0.0003 per share. The warrants have a provision that if $5 million of the 13%
senior subordinated notes are redeemed by May 29, 1999, then the number of
warrants is reduced to 4,756,323, and if the 13% senior subordinated notes are
redeemed in whole by October 26, 2000, then the number of warrants are reduced
to 2,974,488. On May 29, 1999, W-H redeemed $5 million of the 13% senior
subordinated notes, reducing the outstanding warrants to 4,756,323. No warrants
have been exercised. The fair value of the warrants issued aggregated $11.2
million, and was recorded as a discount to the face amount of the 13% senior
subordinated notes and additional paid-in-capital upon issuance.

In connection with the acquisitions of GSI and Agri-Empresa, W-H issued
445,500 warrants to the former owners of the respective companies with exercise
prices ranging from $3.48 to $4.09. The fair value of the warrants were included
in the purchase price, and estimated on the date of grant using the Black-
Scholes option pricing model.

F-23
<PAGE> 95
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of W-H's stock options and warrants as of December 31, 1997, 1998
and 1999 is as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------- PRICE
OPTIONS WARRANTS PER SHARE
<S> <C> <C> <C>
Outstanding December 31, 1996................... 8,299,500 496,650 $0.30-1.21
Purchased in recapitalization................... (8,299,500) (496,650) 2.21
Granted......................................... 573,375 2,680,194 2.21
---------- ----------
Outstanding December 31, 1997................... 573,375 2,680,194 2.21
Granted......................................... 495,000 445,500 3.03-4.09
Expired/canceled................................ (330,000) -- 3.03
---------- ----------
Outstanding December 31, 1998................... 738,375 3,125,694 2.21-4.09
Granted......................................... 1,397,550 2,974,488 0.0003-4.55
Expired/canceled................................ (24,750) -- 2.21-4.55
---------- ----------
Outstanding December 31, 1999................... 2,111,175 6,100,182 0.0003-4.55
========== ==========
Exercisable at December 31, 1999................ 595,733 5,840,307 0.0003-4.55
========== ==========
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------ ------------------------------------
WEIGHTED AVERAGE
RANGE OF OUTSTANDING AS OF REMAINING CONTRACTUAL WEIGHTED AVERAGE EXERCISABLE AS OF WEIGHTED AVERAGE
EXERCISE PRICES DECEMBER 31, 1999 LIFE (IN YEARS) EXERCISE PRICE DECEMBER 31, 1999 EXERCISE PRICE
--------------- ----------------- --------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$2.21 - 3.48 614,625 7.7 $2.26 298,238 $2.24
3.48 - 4.55 1,496,550 9.2 4.51 297,495 4.50
--------- -------
$2.21 - 4.55 2,111,175 8.8 $3.86 595,733 $3.37
========= =======
</TABLE>

Under SFAS No. 123, the fair value of each option and warrant grant was
estimated on the date of grant using the Black-Scholes option pricing model. The
following assumptions were used for the grants in the years ended December 31,
1997, 1998 and 1999: risk-free interest rates of between 5.24%-5.99%; dividend
rates of zero; expected lives of ten years and expected volatilities of
41.32%-65.91%. The 2,111,175 options and 6,100,182 warrants outstanding as of
December 31, 1999 have a remaining contractual life of between 7.6 and 9.6
years.

The Black-Scholes option valuation model and other existing models were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of and are highly sensitive to subjective assumptions
including the expected stock price volatility. W-H's stock options have
characteristics significantly different from those of traded options, and
changes in the subjective input assumptions can materially affect the fair value
estimate.

F-24
<PAGE> 96
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Had compensation cost for the stock options and warrants granted to
employees been determined under SFAS No. 123, net loss and basic and diluted net
loss per share for the years ended December 31, 1997, 1998 and 1999 would have
changed as indicated in the following pro forma amounts:

<TABLE>
<CAPTION>
1997 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss --
As reported............................................ $(5,669) $(1,386) $(15,220)
Pro forma.............................................. (5,886) (1,494) (16,073)
Basic and diluted net loss per share --
As reported............................................ $ (0.32) $ (0.15) $ (1.35)
Pro forma.............................................. (0.34) (0.16) (1.42)
</TABLE>

W-H recorded approximately $158,000 in deferred compensation expense,
relating to options issued during the year ended December 31, 1999, for the
excess of the estimated fair value of the common stock on the date of grant over
the exercise price. The fair value of the common stock on the date of grant was
determined based on a third-party entity valuation and taking into consideration
certain industry and company-specific factors. The deferred compensation will be
amortized over the four-year vesting period of the options. During the year
ended December 31, 1999, W-H recognized $17,000 in compensation expense relating
to these options.

10. 401(K) PLAN:

W-H maintains a 401(k) plan that enables employees to contribute up to
specified percentages of their annual compensation. W-H may contribute a
matching amount for each participant equal to a discretionary percentage
determined annually by W-H. W-H may also contribute additional amounts at its
sole discretion. W-H matching contributions were approximately $107,000,
$210,000 and $456,000 for the years ended December 31, 1997, 1998, and 1999,
respectively.

11. SEGMENTS:

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires that companies report separately information about each
significant operating segment reviewed by the chief operating decision maker.
Management has elected to organize segments based on differences in each
segment's customers and the products and services offered without aggregating
operating segments. All segments that meet a threshold of 10% of revenues,
reported profit or loss, or combined assets are defined as significant segments.
Based on these requirements, management has identified three reportable
segments, drilling related products and services, completion and workover
related products and services, and maintenance and safety related products and
services.

DRILLING RELATED PRODUCTS AND SERVICES:

The drilling related products and services segment provides products and
services used by oil and natural gas companies, drilling contractors and other
oilfield service companies for the drilling of oil and natural gas wells. These
products and services are used primarily onshore in the Gulf Coast region and
offshore in the Gulf of Mexico and the North Sea. This segment consists of five
primary business lines: (i) LWD; (ii) MWD; (iii) rental tools; (iv) downhole
drilling motors; and (v) drilling fluids.

COMPLETION AND WORKOVER RELATED PRODUCTS AND SERVICES:

The completion and workover related products and services segment provides
products and services primarily to customers onshore in the Gulf Coast region
and offshore in the Gulf of Mexico. These

F-25
<PAGE> 97
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

products include: (i) wireline logging and perforating; (ii) polymers and
specialty chemicals; and (iii) tubing.

MAINTENANCE AND SAFETY RELATED PRODUCTS AND SERVICES:

The maintenance and safety related products and services segment provides
safety products and maintenance products and services primarily for refinery and
petrochemical plant applications and major and independent oil and natural gas
companies, including: (i) integrated on-site cleaning and waste management; and
(ii) safety equipment.

W-H recognizes revenues and cost of products and services by segment.
Selling, general and administrative, depreciation and amortization, interest
expense, and other income (expense) are not monitored by segment. Summarized
information for W-H's reportable segments is contained in the following tables
(in thousands):

As of and for the year ended December 31, 1999:

<TABLE>
<CAPTION>
MAINTENANCE
DRILLING COMPLETION AND SAFETY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 80,643 $27,436 $19,562 $ -- $127,641
Gross profit.................... 37,657 12,895 8,690 -- 59,242
Total assets.................... 130,629 39,310 17,693 3,972 191,604
Capital expenditures............ 16,080 5,450 2,194 125 23,849
</TABLE>

As of and for the year ended December 31, 1998:

<TABLE>
<CAPTION>
MAINTENANCE
DRILLING COMPLETION AND SAFETY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues......................... $46,368 $23,789 $20,136 $ -- $ 90,293
Gross profit..................... 23,834 12,440 10,588 -- 46,862
Total assets..................... 77,298 33,602 18,361 3,338 132,599
Capital expenditures............. 13,792 6,170 5,081 257 25,300
</TABLE>

As of and for the year ended December 31, 1997:

<TABLE>
<CAPTION>
MAINTENANCE
DRILLING COMPLETION AND SAFETY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues.......................... $29,149 $14,966 $15,718 $ -- $59,833
Gross profit...................... 17,420 8,902 7,622 -- 33,944
Total assets...................... 47,143 20,078 12,744 4,306 84,271
Capital expenditures.............. 13,079 3,601 3,922 208 20,810
</TABLE>

As of and for the six months ended June 30, 1999 (unaudited):

<TABLE>
<CAPTION>
MAINTENANCE
DRILLING COMPLETION AND SAFETY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues............................ $28,538 $11,890 $10,485 $ -- $50,913
Gross profit........................ 13,384 5,825 4,862 -- 24,071
Total assets........................ 118,481 35,203 18,493 3,462 175,639
Capital expenditures................ 8,274 1,290 1,168 53 10,785
</TABLE>

F-26
<PAGE> 98
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of and for the six months ended June 30, 2000 (unaudited):

<TABLE>
<CAPTION>
MAINTENANCE
DRILLING COMPLETION AND SAFETY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues............................ $68,053 $19,564 $11,793 $ -- $99,410
Gross profit........................ 30,586 8,690 5,454 -- 44,730
Total assets........................ 136,800 45,214 19,407 5,069 206,490
Capital expenditures................ 6,723 5,556 1,701 469 14,449
</TABLE>

W-H operates in both the United States and the North Sea. The following is
summary information by geographic region (in thousands):

Revenues:

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- -------------------
1997 1998 1999 1999 2000
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
The United States................... $59,833 $90,293 $113,506 $45,840 $92,462
The North Sea....................... -- -- 14,135 5,073 6,948
------- ------- -------- ------- -------
Total..................... $59,833 $90,293 $127,641 $50,913 $99,410
======= ======= ======== ======= =======
</TABLE>

Operating Profit (Loss):

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- -------------------
1997 1998 1999 1999 2000
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
The United States..................... $(2,658) $12,326 $4,807 $ (873) $11,567
The North Sea......................... -- -- 2,796 1,699 1,054
------- ------- ------ ------- -------
Total....................... $(2,658) $12,326 $7,603 $ 826 $12,621
------- ------- ------ ------- -------
</TABLE>

Long-Lived Assets:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- -----------
1998 1999 2000
(UNAUDITED)
<S> <C> <C> <C>
The United States..................................... $50,843 $73,993 $79,199
The North Sea......................................... -- 9,242 8,614
------- ------- -------
Total....................................... $50,843 $83,235 $87,813
======= ======= =======
</TABLE>

F-27
<PAGE> 99
W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. SUBSEQUENT EVENTS (UNAUDITED):

FINANCING

Effective March 24, 2000, W-H amended its credit facility (See Note 5) to
increase its term F loan facility by $18.5 million which was used to pay down
the revolving credit facility. In connection therewith, the credit facility
restricts W-H from paying any interest due on its 13% senior subordinated notes
or 12 1/2% senior subordinated notes in 2000 unless W-H consummates an initial
public offering resulting in gross proceeds of at least $50 million.
Concurrently therewith, W-H paid interest then due to its senior subordinated
note holders by delivering additional notes in the original principal amount of
$1.5 million and $2.275 million, respectively, due on September 15, 2007 and
April 1, 2006, respectively, and bearing interest initially at the rate of 14.5%
per annum and 14% per annum, respectively. In connection with this amendment,
W-H paid the subordinated debt holders $295,000 and DLJ Capital Funding
$277,500. As of June 30, 2000, W-H has $12 million of borrowing capacity under
its revolving credit facility. On September 15, 2000 in lieu of making the
interest payment on the 12 1/2% senior subordinated notes due on September 15,
2000 and on the 14 1/2% payment-in-kind notes, W-H issued to the holders of
these notes additional notes in an aggregate principal amount of $1.6 million,
bearing interest initially at the rate of 14 1/2% per annum, and maturing on
September 15, 2007. On October 1, 2000, in lieu of making the interest payment
on the 13% senior subordinated notes due on October 1, 2000 and the 14%
payment-in-kind notes issued in April 2000, W-H issued to the holders of these
notes additional notes in an aggregate principal amount of $2.4 million, bearing
interest at the rate of 14% per annum, and maturing on April 1, 2006.

STOCK OPTIONS

During January 2000, W-H issued options to purchase 190,575 shares of
common stock to employees. W-H recorded additional deferred compensation
totaling approximately $1.5 million for options granted in the first quarter of
2000. The additional deferred compensation expense will be amortized over the
four year vesting period of the individual stock options issued. W-H expects to
record additional amortization expense for deferred compensation as follows:
$344,000 during 2000, $375,000 during 2001, $375,000 during 2002, $375,000
during 2003 and $31,000 during 2004.

REGISTRATION STATEMENT

In May 2000, the Board of Directors of W-H authorized the filing of an
amendment to its pending registration statement with the Securities and Exchange
Commission permitting W-H to sell shares of its common stock to the public.

NEW CREDIT FACILITY

In September 2000, W-H obtained a commitment from DLJ Capital Funding, Inc.
to enter into a new credit facility at or prior to the closing of W-H's initial
public offering that will replace the existing credit facility. The new credit
facility will consist of a Term A credit facility of $50 million, a Term B
credit facility of $25 million and a revolving credit facility of up to $20
million. The Term A credit facility will mature on the sixth anniversary of the
closing of the new facility and require principal payments ranging from 0% of
the commitment amount in the first year to 30% in the sixth year. The Term B
credit facility will mature on the six and one-half year anniversary of the
closing of the new facility and require principal payments of 1% of the
commitment amount in the first six years with the outstanding balance being due
on the maturity date. At W-H's option, amounts borrowed under the new credit
facility will bear interest at a variable rate equal to the reserve-based LIBOR
or alternate base rate, plus, in each case, an applicable margin.

F-28
<PAGE> 100

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
W-H Energy Services, Inc.:

We have audited the accompanying combined statements of operations,
shareholders' equity and cash flows of Grinding and Sizing Company, Inc., and
Affiliates, all Texas corporations (Grinding and Sizing Company, Inc.), for the
years ended December 31, 1996 and 1997. These combined financial statements are
the responsibility of Grinding and Sizing Company, Inc. and Affiliates'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows of Grinding and Sizing Company, Inc., and Affiliates for the years ended
December 31, 1996 and 1997, in conformity with accounting principles generally
accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
May 29, 1998

F-29
<PAGE> 101

GRINDING AND SIZING COMPANY, INC., AND AFFILIATES

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------------- -----------------------
1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues..................................... $5,080,257 $7,598,908 $1,470,912 $2,049,944
Costs and Expenses:
Cost of revenues........................... 2,778,403 4,026,458 744,270 917,294
Depreciation and amortization.............. 106,562 140,281 23,595 26,199
Selling, general and administrative........ 732,958 958,812 242,667 232,407
---------- ---------- ---------- ----------
Income from Operations....................... 1,462,334 2,473,357 460,380 874,044
Other Income (Expense):
Interest expense........................... (27,281) (21,838) (3,990) (2,972)
Other...................................... 6,483 (23,798) 1,277 (113)
---------- ---------- ---------- ----------
Income Before Income Taxes................... 1,441,536 2,427,721 457,667 870,959
Provision for Income Taxes................... 64,025 115,568 21,102 40,049
---------- ---------- ---------- ----------
Net Income................................... $1,377,511 $2,312,153 $ 436,565 $ 830,910
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-30
<PAGE> 102

GRINDING AND SIZING COMPANY, INC., AND AFFILIATES

COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES PAR VALUE CAPITAL EARNINGS STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996.................... 38,523 $469,130 $ -- $ 646,708 $(423,938) $ 691,900
Net Income................ -- -- -- 1,377,511 -- 1,377,511
Contributed Capital....... -- 2,393 5,607 -- -- 8,000
Distributions to
Shareholders............ -- -- -- (1,089,973) -- (1,089,973)
------ -------- ------- ----------- --------- -----------
Balance, December 31,
1996.................... 38,523 471,523 5,607 934,246 (423,938) 987,438
Contributed Capital....... 100 100 21,900 -- -- 22,000
Net Income................ -- -- -- 2,312,153 -- 2,312,153
Distributions to
Shareholders............ -- -- -- (1,642,332) -- (1,642,332)
------ -------- ------- ----------- --------- -----------
Balance, December 31,
1997.................... 38,623 471,623 27,507 1,604,067 (423,938) 1,679,259
Net Income (Unaudited).... -- -- -- 830,910 -- 830,910
Distributions to
Shareholders
(Unaudited)............. -- -- -- (566,353) -- (566,353)
------ -------- ------- ----------- --------- -----------
Balance, March 31, 1998
(Unaudited)............. 38,623 $471,623 $27,507 $ 1,868,624 $(423,938) $ 1,943,816
====== ======== ======= =========== ========= ===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-31
<PAGE> 103

GRINDING AND SIZING COMPANY, INC., AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------------
1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................ $ 1,377,511 $ 2,312,153 $ 436,565 $ 830,910
Adjustments to reconcile net income to
cash provided by operating activities
--
Depreciation and amortization.......... 106,562 140,281 23,595 26,199
Loss on sale of assets.................... (999) 18,141 5,967 4,944
Change in Operating Assets and Liabilities:
Decrease (increase) in accounts
receivable............................. (155,590) (417,453) (211,666) 6,357
Increase in inventories................... (61,889) (54,147) (66,635) (103,280)
(Increase) decrease in prepaid expenses
and other assets....................... 2,375 (2,510) (25,051) 1,474
Increase in accounts payable and accrued
liabilities............................ 78,271 70,626 127,552 52,184
----------- ----------- --------- ---------
Net cash flows provided by
operating activities............ 1,346,241 2,067,091 290,327 818,788
----------- ----------- --------- ---------
Cash Flows from Investing Activities:
Purchases of machinery and equipment...... (186,258) (213,303) (49,328) --
Proceeds from sale of assets.............. 19,674 -- -- 4,000
----------- ----------- --------- ---------
Net cash flows (used in) provided
by investing activities......... (166,584) (213,303) (49,328) 4,000
----------- ----------- --------- ---------
Cash Flows from Financing Activities:
Payments on long-term debt................ (268,413) (327,778) (33,706) (80,285)
Borrowings of long-term debt.............. 92,199 149,309 50,000 --
Distributions to shareholders............. (1,089,973) (1,642,332) (278,649) (566,353)
----------- ----------- --------- ---------
Net cash flows used in financing
activities...................... (1,266,187) (1,820,801) (262,355) (646,638)
----------- ----------- --------- ---------
Net Increase (Decrease) in Cash............. (86,530) 32,987 (21,356) 176,150
Cash, beginning of period................... 480,515 393,985 393,985 426,972
----------- ----------- --------- ---------
Cash, end of period......................... $ 393,985 $ 426,972 $ 372,629 $ 603,122
=========== =========== ========= =========
Supplemental Disclosure of Cash Flow
Information:
Interest paid during the period........... $ 27,281 $ 21,838 $ 3,990 $ 2,972
=========== =========== ========= =========
Income taxes paid during the period....... $ 8,796 $ 63,960 $ -- $ 7,901
=========== =========== ========= =========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-32
<PAGE> 104

GRINDING AND SIZING COMPANY, INC., AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

1. BUSINESS ORGANIZATION AND BASIS OF PRESENTATION:

These financial statements represent the combined financial statements of
Grinding and Sizing Company, Inc., Houston Bagging and Blending, Inc. and
Reliable Equipment, Inc. and are herein referred to as the Combined Companies.
Each of the Combined Companies share common ownership. Grinding and Sizing
Company, Inc., incorporated on June 29, 1979, and Houston Bagging and Blending,
Inc., incorporated on April 5, 1994, are both Texas corporations and are
primarily engaged in the business of producing additives for drilling mud used
in the exploration for oil and natural gas. Reliable Equipment, Inc.,
incorporated on December 5, 1996, is primarily a metal fabrication company which
manufactures parts for the machinery used to produce, bag and blend the
additives. The majority of the Combined Companies sales are in Texas. All
significant transactions between the Combined Companies have been eliminated in
the combination.

On April 24, 1998, the shareholders of the Combined Companies completed the
sale of all of the outstanding stock of the Combined Companies to Drill Motor
Services, a subsidiary of W-H Energy Services, Inc. (W-H), for cash
consideration of $9,250,000, $800,000 in notes to be paid in April 2002 and
warrants to purchase W-H common stock that were valued at $110,000. The
shareholders of the Combined Companies placed in escrow $1,000,000 for a period
of two years following the closing date for potential claims and damages as
agreed to by the shareholders of the Combined Companies and W-H. The
accompanying combined financial statements were prepared in conjunction with the
acquisition by W-H. Effective April 29, 1998, as part of the acquisition by W-H,
Houston Bagging and Blending, Inc., and Reliable Equipment, Inc., were merged
into Grinding and Sizing Company, Inc.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL STATEMENTS

The interim financial statements for the three months ended March 31, 1998
and 1997, are unaudited, and certain information and footnote disclosures,
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the results of operations and cash flows with respect to the
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.

REVENUE RECOGNITION

The Combined Companies record revenue when inventory is shipped to the
customer for the production, bagging and blending of additives. The Combined
Companies ship inventory F.O.B. shipping point. Accounts receivable represent
amounts recorded for inventory shipped. Reliable Equipment, Inc., records
accounts receivable and recognizes revenue based on contractual terms with the
customer which approximates the percentage of completion method for contract
accounting.

DEPRECIATION

Depreciation is calculated using the double-declining balance method over
the estimated useful lives of the depreciable assets which range from five to 30
years.

FEDERAL INCOME TAXES

Grinding and Sizing Company, Inc. and Houston Bagging and Blending Company,
Inc., have individually elected S Corporation status, as defined by the Internal
Revenue Code, whereby they are not

F-33
<PAGE> 105
GRINDING AND SIZING COMPANY, INC., AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

subject to federal taxation. Under S Corporation status, the shareholders report
their proportionate share of taxable earnings on their personal tax returns.

Reliable Equipment, Inc. (REI) elected C Corporation status at start up and
effective January 1, 1998, changed their filing status to S Corporation status.
Federal income taxes for REI for the year ended December 31, 1997, are reported
in the statement of operations.

USE OF ESTIMATES

3. COMMITMENTS AND CONTINGENCIES:

Grinding and Sizing Company, Inc., has an agreement to pay a shareholder
royalties for use of a patent of $1 per each 25 pounds of pecan pith product (a
raw material input) sold expiring in 2013. Payments made under this agreement
totaled $15,768 and $29,544 for the years ended December 31, 1996 and 1997,
respectively.

Grinding and Sizing Company, Inc., has an agreement with an unrelated third
party for use of a license to produce a drilling additive from corn cob outers.
Payments made under this agreement totaled $151,013 and $200,591 for the years
ended December 31, 1996 and 1997, respectively.

The Combined Companies are involved in lawsuits from time to time arising
from normal business activities. Management has reviewed any pending litigation
with legal counsel and believes that the ultimate liability, if any, resulting
from such actions will not have a material adverse effect on the Combined
Companies' financial position or results of operations.

4. SHAREHOLDERS' EQUITY:

The components of capital stock as of December 31, 1997, are as follows:

<TABLE>
<CAPTION>
PAR
CLASS SHARES SHARES VALUE
COMPANY OF SHARES AUTHORIZED ISSUED PER SHARE
<S> <C> <C> <C> <C>
December 31, 1996
Grinding and Sizing Company, Inc. ......... Common 1,000,000 30,000 No Par
Houston Bagging and Blending, Inc. ........ Common 100,000 8,523
------
Total capital stock................ 38,523
======
December 31, 1997
Grinding and Sizing Company, Inc. ......... Common 1,000,000 30,000 No Par
Houston Bagging and Blending, Inc. ........ Common 100,000 8,523 $1
Reliable Equipment, Inc. .................. Common 100,000 100 $1
------
Total capital stock................ 38,623
======
</TABLE>

F-34
<PAGE> 106
GRINDING AND SIZING COMPANY, INC., AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. SIGNIFICANT SUPPLIERS AND CUSTOMERS:

The Combined Companies have one significant supplier that represents 13
percent of purchases for the year ended December 31, 1996, and two significant
suppliers that represent 16 percent and 14 percent of purchases for the year
ended December 31, 1997.

The Combined Companies have sales to two significant customers that
represent 31 percent and 10 percent of revenues for the year ended December 31,
1996. The Combined Companies had revenues to two significant customers that
represent 33 percent and 16 percent of revenues for the year ended December 31,
1997.

F-35
<PAGE> 107

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
W-H Energy Services, Inc.:

We have audited the accompanying combined statements of operations,
shareholders' equity and cash flows of Agri-Empresa, Inc., and Affiliates, all
Texas corporations, for the years ended December 31, 1996 and 1997. These
combined financial statements are the responsibility of Agri-Empresa, Inc., and
Affiliates' management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows of Agri-Empresa, Inc., and Affiliates for the years ended December 31,
1996 and 1997, in conformity with accounting principles generally accepted in
the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
August 28, 1998

F-36
<PAGE> 108

AGRI-EMPRESA, INC., AND AFFILIATES

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- -------------------------
1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................. $24,424,559 $31,187,087 $14,484,096 $13,858,389
Costs and Expenses:
Cost of revenues....................... 20,427,381 25,260,141 11,906,025 11,112,775
Depreciation........................... 443,475 529,376 245,257 291,872
Selling, general and administrative.... 2,378,325 1,985,243 865,027 782,586
----------- ----------- ----------- -----------
Income from Operations................... 1,175,378 3,412,327 1,467,787 1,671,156
Other (Expense) Income:
Interest expense....................... (161,627) (163,321) (82,161) (77,525)
Other income........................... 89,888 172,075 96,050 123,657
----------- ----------- ----------- -----------
Income Before Income Taxes............... 1,103,639 3,421,081 1,481,676 1,717,288
Provision for Income Taxes............... 453,595 191,421 87,056 57,006
----------- ----------- ----------- -----------
Net Income............................... $ 650,044 $ 3,229,660 $ 1,394,620 $ 1,660,282
=========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-37
<PAGE> 109

AGRI-EMPRESA, INC., AND AFFILIATES

COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES VALUE CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995............ 102,389 $3,389 $116,600 $ 4,868,756 $ 4,988,745
Net Income............................ -- -- -- 650,044 650,044
Issuance of Common Stock.............. 11,000 2,000 -- -- 2,000
------- ------ -------- ----------- -----------
Balance, December 31, 1996............ 113,389 5,389 116,600 5,518,800 5,640,789
Net Income............................ -- -- -- 3,229,660 3,229,660
Distributions to Shareholders......... -- -- -- (1,510,000) (1,510,000)
------- ------ -------- ----------- -----------
Balance, December 31, 1997............ 113,389 5,389 116,600 7,238,460 7,360,449
Net Income (unaudited)................ -- -- -- 1,660,282 1,660,282
Distributions to Shareholders
(unaudited)......................... -- -- -- (3,337,104) (3,337,104)
------- ------ -------- ----------- -----------
Balance, June 30, 1998 (unaudited).... 113,389 $5,389 $116,600 $ 5,561,638 $ 5,683,627
======= ====== ======== =========== ===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-38
<PAGE> 110

AGRI-EMPRESA, INC., AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- -------------------------
1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.......................................... $ 650,044 $ 3,229,660 $ 1,394,620 $ 1,660,282
Adjustments to reconcile net income to cash provided
by operating activities --
Depreciation...................................... 443,475 529,376 245,257 291,872
Loss (gain) on sale of assets....................... 44,116 (10,187) (10,187) 3,826
Deferred taxes...................................... (27,286) 30,556 12,604 (1,488)
Change in Operating Assets and Liabilities:
(Increase) decrease in accounts receivable........ (968,227) (2,158,147) (1,097,908) 2,206,367
(Increase) decrease in inventories................ (30,960) (302,024) 350,216 (138,259)
Increase in prepaid expenses and other assets..... 13,447 (27,888) (227,736) (97,758)
Decrease in income taxes receivable............... (108,005) 108,005 108,005 --
Increase in income taxes payable.................. 85,657 95,891 9,480 58,494
Increase (decrease) in accounts payable and
accrued liabilities............................. 650,205 757,935 454,890 (596,557)
----------- ----------- ----------- -----------
Net cash flows provided by operating
activities................................. 752,466 2,253,177 1,239,241 3,386,779
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Purchases of machinery and equipment................ (810,182) (684,845) (212,442) (73,414)
Proceeds from sale of assets........................ 110,000 -- -- --
----------- ----------- ----------- -----------
Net cash flows used in investing
activities................................. (700,182) (684,845) (212,442) (73,414)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Repayments of notes payable......................... (765,592) (1,501,553) (568,286) (200,478)
Repayments of related-party notes payable........... (211,789) (106,853) (63,412) (17,660)
Borrowings under notes payable...................... 1,504,000 1,325,000 660,000 111,466
Loans made to related parties....................... (412,071) (187,582) (36,031) (187,971)
Loan repayments from related parties................ 189,312 654,907 47,435 411,185
Advances received from related parties.............. 70,000 -- -- --
Repayment of advances from related parties.......... -- (70,000) (70,000) --
Issuance of common stock............................ 2,000 -- -- --
Distributions to shareholders....................... -- (1,510,000) (510,000) (3,337,104)
----------- ----------- ----------- -----------
Net cash flows used in financing
activities................................. 375,860 (1,396,081) (540,294) (3,220,562)
----------- ----------- ----------- -----------
Net Increase in Cash.................................. 428,144 172,251 486,505 92,803
Cash, beginning of period............................. 478,707 906,851 906,851 1,079,102
----------- ----------- ----------- -----------
Cash, end of period................................... $ 906,851 $ 1,079,102 $ 1,393,356 $ 1,171,905
=========== =========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period..................... $ 161,627 $ 163,321 $ 82,161 $ 77,525
=========== =========== =========== ===========
Income taxes paid (refunded) during the period...... $ 460,216 $ (37,113) $ 98,526 $ 94,388
=========== =========== =========== ===========
Supplemental Disclosure of Noncash Investing
Transaction:
Trade-in value received for trucks.................. $ -- $ 15,000 $ 15,000 $ --
=========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-39
<PAGE> 111

AGRI-EMPRESA, INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

1. BUSINESS ORGANIZATION AND BASIS OF PRESENTATION:

The accompanying combined financial statements include the accounts of
Agri-Empresa, Inc. (Agri), STG Transportation (STG), Agri-Empresa Transportation
(AET), Lonestar Distribution, Inc. (LDI), and Superior Packaging & Distribution
(SPD) (collectively, AEI or the Company). Each of the companies share common
ownership. Agri was founded and incorporated in Texas in 1977 and is the Permian
Basin's largest manufacturer, packager and distributor of chemicals used in
oilfield and industrial applications. Agri also operates in the Carlsbad, New
Mexico, area. STG, founded and incorporated in Texas in 1995, and AET, founded
and incorporated in Texas in 1987, offer delivery of oilfield chemicals in the
Permian Basin. LDI was founded and incorporated in Texas in 1981 to provide
outsourcing to oilfield companies of noncore activities including warehousing,
material handling and transportation. LDI operates in the Permian Basin, Abilene
and Jacksboro, Texas, and Hobbs, New Mexico. SPD, founded and incorporated in
Texas in 1996, provides chemical warehousing, bagging and export services in the
Houston, Texas, area. All significant transactions between the combined
companies have been eliminated.

On July 27, 1998, the shareholders of the Company completed the sale of all
of the outstanding stock of Agri, STG, AET, LDI and SPD to Drill Motor Services,
Inc., a subsidiary of W-H Energy Services, Inc. (W-H), for cash consideration of
$21,000,000 and warrants to purchase W-H common stock that were valued at
approximately $165,000. The shareholders of the Company have placed in escrow
$2,000,000 for a period of two years following the closing date to provide for
potential claims and damages as agreed to by the shareholders of the Company and
W-H. The accompanying combined financial statements were prepared in conjunction
with the acquisition by W-H.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL STATEMENTS

The interim combined financial statements for the six months ended June 30,
1997 and 1998, are unaudited and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the
accompanying combined financial statements for the six months ended June 30,
1997 and 1998, contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the Company's results of operations and
cash flows for the six months ended June 30, 1997 and 1998. The results of
operations and cash flows for the six months ended June 30, 1997 and 1998, are
not necessarily indicative of the operating results for the full years.

REVENUE RECOGNITION AND OPERATING EXPENSES

The Company records revenue when inventory is shipped to the customer. The
primary components of operating expenses are those salaries, expendable
supplies, repairs and maintenance and general operational costs that are
directly associated with the services performed by the Company for its
customers.

DEPRECIATION

Depreciation is calculated using the straight-line method over the estimate
useful lives of the assets as follows:

<TABLE>
<S> <C>
Buildings............................................ 12-31.5 years
Machinery and equipment.............................. 5-12 years
</TABLE>

F-40
<PAGE> 112
AGRI-EMPRESA, INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

FEDERAL INCOME TAXES

Effective January 1, 1997, Agri and LDI individually elected S Corporation
status, as defined by the Internal Revenue Code, whereby they are not subject to
federal taxation. Under S Corporation status, the shareholders report their
proportionate share of taxable earnings on their personal tax returns. SPD
elected S Corporation status in the year of its inception.

AET and STG are C Corporations for federal taxation purposes and, as such,
are subject to federal taxation.

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, the
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.

3. LEASES:

The minimum future lease payments for equipment and facilities under
noncancelable operating leases as of December 31, 1997, are as follows:

<TABLE>
<S> <C>
1998..................................................... $ 24,300
1999..................................................... 32,400
2000..................................................... 32,400
2001..................................................... 32,400
2002..................................................... 32,400
Thereafter............................................... 8,100
--------
$162,000
========
</TABLE>

4. SHAREHOLDERS' EQUITY:

The components of capital stock as of December 31, 1996 and 1997, are as
follows:

<TABLE>
<CAPTION>
PAR
CLASS SHARES SHARES VALUE
COMPANY OF SHARES AUTHORIZED ISSUED PER SHARE
<S> <C> <C> <C> <C>
Agri........................................ Common 10,000 1,389 $1.00
STG......................................... Common 1,000,000 10,000 $ .10
AET......................................... Common 1,000,000 100,000 $ .01
LDI......................................... Common 500,000 1,000 $1.00
SPD......................................... Common 100,000 1,000 $1.00
-------
Total capital stock....................................... 113,389
=======
</TABLE>

5. SIGNIFICANT SUPPLIERS AND CUSTOMERS:

The Company had one significant supplier that represented approximately 33
percent and 24 percent of purchases for the years ended December 31, 1996 and
1997, respectively.

The Company had sales to one significant customer that represented
approximately 17 percent and 20 percent of revenues for the years ended December
31, 1996 and 1997, respectively.

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<PAGE> 113
AGRI-EMPRESA, INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

6. RELATED-PARTY TRANSACTIONS:

The following transactions have occurred between the Company and related
parties:

(1) A shareholder's stepfather renders accounting and other consulting
services to the Company. The aggregate charges for these services during
1996 and 1997 were approximately $106,000 and $92,000, respectively.

(2) A company owned by two shareholders leases hunting land to the
Company for approximately $17,500 a year.

(3) SPD leases a warehouse from a corporation owned by two of the
Company's shareholders. Rent expense totaled approximately $140,000 and
$288,000 in 1996 and 1997, respectively.

7. INCOME TAXES:

Income tax expense consisted of the following:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
1996 1997
<S> <C> <C>
Federal --.................................................. $428,026 $ 2,472
Current................................................... (25,893) 33,441
-------- --------
Deferred.................................................. 402,133 35,913
-------- --------
State --.................................................... 52,855 158,393
Current................................................... (1,393) (2,885)
-------- --------
Deferred.................................................. 51,462 155,508
-------- --------
$453,595 $191,421
======== ========
</TABLE>

A reconciliation of the U.S. statutory tax rate to the effective income tax
rate is as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1996 1997
<S> <C> <C>
Income tax expense at the statutory rate.................... $408,939 $ 1,027,677
State income taxes, net of federal income tax benefit....... 32,513 157,239
Nondeductible expenses...................................... 12,143 116
Change in sales tax rate.................................... -- 72,662
Effect of S Corporation election............................ -- (1,066,273)
-------- -----------
$453,595 $ 191,421
======== ===========
</TABLE>

8. 401(K) PLAN:

Effective June 1, 1993, the Company established a 401(k) plan which covers
all employees who choose to contribute a portion of their salary to the plan.
All contributions from Company funds are discretionary. Company discretionary
contributions totaled $28,359 and $35,003 for the plan years ended December 31,
1996 and 1997, respectively.

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