OIL STATES INTERNATIONAL INC, S-1, 2000-08-10

OIL STATES INTERNATIONAL INC
S-1, 2000-08-10

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 2000
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
OIL STATES INTERNATIONAL, INC.
(Name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 3533 76-0476605
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
Of incorporation or Classification Code Number) Identification No.)
organization) THREE ALLEN CENTER
333 CLAY STREET, SUITE 3460
HOUSTON, TEXAS 77002
(713) 652-0582
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive officer)
CINDY B. TAYLOR
THREE ALLEN CENTER
333 CLAY STREET, SUITE 3460
HOUSTON, TEXAS 77002
(713) 652-0582
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
</TABLE>
---------------------

Copies to:
<TABLE>
<S> <C>
SCOTT N. WULFE JOE S. POFF
VINSON & ELKINS L.L.P. BAKER BOTTS L.L.P.
1001 FANNIN, SUITE 2300 910 LOUISIANA
HOUSTON, TEXAS 77002-6760 HOUSTON, TEXAS 77002
(713) 758-2222 (713) 229-1234
</TABLE>
---------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share...................... $201,250,000 $53,130
============================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.

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

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

EXPLANATORY NOTE

This registration statement contains two forms of prospectus to be used in
connection with the offering of common stock, par value $.01 per share, of Oil
States International, Inc.: one to be used in connection with an underwritten
offering of such stock in the United States and Canada and one to be used in a
concurrent international offering of such stock. The U.S. prospectus for the
offering in the United States and Canada follows immediately after this
explanatory note. After the U.S. prospectus are the alternate pages for the
international prospectus. A copy of the complete U.S. prospectus and
international prospectus in the forms in which they are used after effectiveness
will be filed with the Securities and Exchange Commission pursuant to Rule
424(b) under the Securities Act of 1933.
<PAGE> 3

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 10, 2000
PROSPECTUS

OIL STATES INTERNATIONAL, INC.
COMMON STOCK
----------------------

This is Oil States International, Inc.'s initial public offering. Oil
States International is selling shares, and Oil States International
stockholders are selling shares. The U.S. underwriters are offering
shares in the U.S. and Canada, and the international managers are
offering shares outside the U.S. and Canada.

We expect the public offering price to be between $ and $ per
share. Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will trade on the New York Stock Exchange
under the symbol "OIS."

INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Oil States International...... $ $
Proceeds, before expenses, to the selling stockholders...... $ $
</TABLE>

The U.S. underwriters may also purchase up to an additional
shares from Oil States International at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
additional shares from Oil States International.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The shares will be ready for delivery on or about , 2000.

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

MERRILL LYNCH & CO. CREDIT SUISSE FIRST BOSTON

SIMMONS & COMPANY
INTERNATIONAL

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

The date of this prospectus is , 2000.
<PAGE> 4

[DESCRIPTION OF GRAPHICS FOR INSIDE COVER]
<PAGE> 5

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 9
Cautionary Statement Regarding Forward-Looking Statements... 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Historical and Pro Forma Financial Information..... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 28
Management.................................................. 43
Related Party Transactions.................................. 50
Principal Stockholders...................................... 55
Selling Stockholders........................................ 56
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 61
Material United States Federal Tax Consequences to
Non-United States Holders of Common Stock................. 62
Underwriting................................................ 66
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find More Information......................... 69
Index to Financial Statements............................... F-1
</TABLE>

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

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.

(i)
<PAGE> 6

PROSPECTUS SUMMARY

The following summary highlights selected information from this prospectus
and may not contain all the information that is important to you. To learn more
about the offering and our business, you should read the entire prospectus,
including our pro forma and historical financial statements and related notes
appearing elsewhere in this prospectus. Unless we indicate otherwise, the
information contained in this prospectus assumes that the underwriters'
over-allotment options are not exercised.

Concurrently with the closing of this offering, Oil States International,
Inc. will combine with Sooner Inc., HWC Energy Services, Inc. and PTI Group
Inc., a transaction which we refer to as the "Combination." SCF-III, L.P.
currently owns a majority interest in Oil States, HWC and PTI, and SCF-IV, L.P.
currently owns a majority interest in Sooner. L.E. Simmons & Associates,
Incorporated is the ultimate general partner of SCF-III, L.P. and SCF-IV, L.P.,
each of which is a private equity fund that focuses on investments in the energy
industry. We refer to SCF-III, L.P. and SCF-IV, L.P. collectively as "SCF." In
this prospectus, the terms "we," "us" and "our" refer to Oil States
International, Inc. and, unless the context otherwise requires, its
subsidiaries, including Sooner, HWC and PTI, after giving effect to the
Combination. The term "Oil States" refers to Oil States International, Inc. and,
unless the context otherwise requires, its subsidiaries prior to the
Combination.

OUR COMPANY

We are a leading provider of specialty products and services to oil and gas
drilling and production companies throughout the world. We focus our business
and operations in a substantial number of the world's most active and fastest
growing oil and gas producing regions, including the Gulf of Mexico, Canada,
West Africa, the Middle East, South America and Southeast Asia. Our customers
include many of the major and independent oil and gas companies and other
oilfield services companies. During 1999, we had pro forma revenues of $487.4
million and earnings before interest, taxes, depreciation and amortization, or
EBITDA, of $35.5 million, and for the quarter ended March 31, 2000, we had pro
forma revenues of $158.7 million and EBITDA of $23.3 million, in each case
giving effect to the Combination.

We operate in three principal business segments and have established a
leadership position in each.

Offshore Products

Through our offshore products segment, we are a leading provider of
connection technology for offshore oil and gas development and production
systems and facilities. We provide to the offshore oil and gas drilling and
producing industry:

- technologically advanced bearings and connector products used in offshore
drilling and production systems;

- subsea pipeline fittings and remote pipeline intervention systems; and

- blow-out preventor stack assembly, integration, testing and repair
services.

Offshore development and production activities require specialized products and
services, including the ones we provide. With our connector technology,
developed through our history of technological innovation, and our research and
development capabilities, we have the ability to custom design and manufacture
components used in a wide range of offshore applications.

1
<PAGE> 7

Tubular Services

Through our tubular services segment, we are the largest distributor of
tubular goods, which consist of casing, production tubing and line pipe, and are
a provider of associated finishing and logistics services to the oil and gas
industry. We provide the following services:

- distribution of premium tubing and casing;

- threading, remediation, logistical and inventory management services; and

- e-commerce capabilities to facilitate pricing, ordering and tracking.

Our extensive inventory of tubulars enables us to quickly meet our customers'
requirements and minimizes their need to maintain their own tubular inventory.
Also, we have a proprietary inventory tracking system that allows us to operate
our tubular services segment more efficiently and provides the structure on
which our e-commerce capabilities are centered.

Well Site Services

Through our well site services segment, we are an industry leader in
hydraulic workover and well control services and a leading provider of remote
site accommodations, catering and logistics services in the United States and
Canada. We provide:

- workover services, which enhance oil and gas production flow;

- specialty drilling services;

- pressure control services and equipment;

- tool rentals;

- remote site accommodations, catering and logistics services; and

- the design, manufacture and installation of remote site accommodation
facilities.

We believe we have competitive advantages in our hydraulic workover and well
control operations over other means of well intervention due to lower
mobilization and demobilization costs, lower retrofit costs, reduced shut-in
time and small deckspace requirements for our hydraulic workover units.
Additionally, our remote site services offer our customers fully integrated
remote site operations. We believe our remote site service capability, coupled
with our extensive field service infrastructure and short response time, gives
us an advantage over our competitors.

Benefits of the Combination

We expect the combination of our existing operations to create additional
growth opportunities through geographic expansion and marketing leverage. Each
of our segments has exposure to some, but not all, of the industry's growth
markets. Our presence in these growth markets provides us an opportunity to
cross-sell our products and services to our customers using our existing
facilities and operations. Our leading positions in these diversified products
and services enable us to participate in each of the exploration, development
and production phases of the oil and gas cycle, which reduces our dependence on
any one phase. Our tubular services and well site services segments are
primarily used in the exploration and development phases of the oil and gas
cycle. Our offshore products are used primarily in the development and
production phases of the cycle.

We have a proven history of growth through acquisitions. Over the last four
years, we have completed acquisitions of over 15 different companies or business
units. These acquisitions allowed us to strengthen our positions in the tubular
services and well site services markets and to broaden our product lines in our
offshore products segment. We believe that with our increased size and access to
the capital markets, we will be able to further expand our operations and
product offerings through strategic acquisitions.

2
<PAGE> 8

OUR INDUSTRY

We operate in the oilfield service industry, which provides products and
services to oil and gas exploration and production companies for use in the
drilling for and production of oil and gas. Demand for our products and services
largely depends on the financial condition of our customers and their
willingness to spend capital on the exploration and development of oil and gas.
We believe that spending for incremental production will be driven by increased
demand for oil and gas throughout the world. The report of the Energy
Information Agency of the U.S. Department of Energy entitled "International
Energy Outlook 2000" (the "EIA Report") forecasts that world oil consumption
will increase at an annual rate of approximately 2% from 1997 through 2020 and
that world gas consumption will increase at an annual rate of approximately 3%
over the same period. The projected increase in demand for oil is based on
worldwide economic and population growth, primarily in developing countries. The
projected increase in gas consumption over this period is expected to result
from higher demand across residential, industrial and commercial sectors, as
well as from the increasing use of gas as a source of fuel for electric power
generation, particularly in North and South America. We believe that drilling
activity has the potential to grow faster than the demand for oil and gas due to
increasing depletion rates and the decreasing size of remaining hydrocarbon
reserves. Increasing depletion rates have the effect of requiring more wells to
be developed to maintain a given level of supply.

Oil and gas operators are increasingly focusing their exploration and
development efforts on frontier areas, particularly deepwater offshore areas.
According to One Offshore, Inc., a leader in offshore oil and gas news reporting
and analysis, the number of wells drilled in water depths greater than 1,500
feet has increased from 39 in 1990 to 211 in 1999. The number of hydrocarbon
discoveries in water depths greater than 1,500 feet has shown similar gains,
increasing from nine in 1990 to 66 in 1999.

We believe that oil and gas exploration and production companies will
respond to demand increases by expanding their activities and spending more
capital, particularly in frontier areas that offer potentially higher future
production and that have not yet been exploited, including deepwater Gulf of
Mexico, Canada, West Africa, the Middle East, South America and Southeast Asia.
We already have an established presence in these areas. In addition to what we
believe to be positive industry fundamentals, we believe the following
sector-specific trends enhance the growth potential of our business:

- Increased drilling in offshore areas, particularly deepwater areas,
increases the need for floating exploration and production systems. Our
offshore products segment provides technology critical to floating rigs
such as drill ships and semi-submersibles as well as floating production
systems such as tension leg platforms, Spars and floating production,
storage and offloading (FPSO) vessels.

- Increased drilling of deeper, horizontal and offshore wells positively
impacts demand for tubular products. Deeper wells generate considerably
more revenues for our tubular services segment than shallower wells since
deeper wells require more, higher quality and larger diameter pipe.
Generally, operators utilize higher grade, premium tubulars and
connectors for casing and tubing in deep wells, horizontal wells and
offshore wells since the cost of a pipe failure is higher than in a
shallow vertical land well and because the mechanical stresses on the
pipe in deeper, deviated or horizontal wells are much greater.

- Rising offshore rig utilization and day rates will benefit hydraulic
workover and well control services and cause our hydraulic units to
become more competitive for offshore workovers. We also expect to benefit
from trends towards underbalanced workovers since this technique results
in less damage to reservoir formations than conventional workovers, and
towards underbalanced drilling since it results in less formation damage,
higher rates of penetration and longer bit life.

- Increased exploration and development activities in frontier areas will
benefit our remote site accommodations, catering and logistics services.

3
<PAGE> 9

OUR GROWTH STRATEGY

We intend to grow our revenue and profitability while continuing to provide
our customers with consistent, superior services and dependable, high-quality
products. We believe we can implement our growth strategy using our existing
facilities and equipment without incurring significant capital costs because we
currently have available capacity to accommodate future growth. We describe the
key elements of our growth strategy below.

- Capitalize on activity in deepwater and frontier areas. To produce oil
and gas efficiently in deepwater and frontier regions, exploration and
production companies will require the types of specialized products and
services that we offer. Our engineering and manufacturing expertise and
the products and services we provide position us for growth in these
environments.

- Capitalize on increasing activity in our current geographic markets. We
currently have activities in several key growth areas, including the Gulf
of Mexico, Canada, West Africa, the Middle East, South America and
Southeast Asia. Our well-established presence and strong customer
relationships should allow us to capitalize on growth trends in these
geographic markets.

- Leverage our market presence to sell complementary products and
services. Because we are combining several business segments, we have an
opportunity provided by our presence in key areas around the world to
provide additional products and services to our customers. Each of our
segments has exposure to some, but not all, of these areas. We intend to
use our market strength to expand our product and service offerings to
our customers in these regions.

- Develop and provide technologically advanced products and services to our
customers. We are a technological leader in each of the business segments
in which we operate. As oil and gas exploration and production activities
move toward deeper water offshore and more remote areas onshore,
technological advances will become increasingly important to oil and gas
producers. We plan to maintain our leadership position in providing
highly engineered products and services to our customers to capitalize on
these market trends.

- Continue to make acquisitions in each of our business segments. We intend
to make selective acquisitions of companies and assets in geographic and
product markets that complement our existing operations. We have an
extensive history of completing strategic acquisitions. We intend to
continue to participate in the consolidation of the business segments in
which we operate to further increase our market share, streamline our
costs and expand our operating capabilities.

Our principal executive offices are located at Three Allen Center, 333 Clay
Street, Suite 3460, Houston, Texas 77002, and our telephone number at that
address is (713) 652-0582.

4
<PAGE> 10

THE OFFERING

<TABLE>
<S> <C>
Common stock offered:
By Oil States International
U.S. offering................................. shares
International offering........................ shares
-----------------
Total.................................... shares
By the selling stockholders
U.S. offering................................. shares
International offering........................ shares
-----------------
Total.................................... shares
Shares outstanding after the offering.............. shares
</TABLE>

Use of proceeds.................... We estimate that our net proceeds from
this offering without exercise of the
over-allotment options will be
approximately $138 million. We intend to
use these net proceeds as follows:

- approximately $103 million to retire
outstanding preferred stock of
subsidiaries and subordinated
indebtedness;

- approximately $31 million to upgrade
facilities and to expand our product
and service offerings; and

- the balance to repurchase shares in the
Combination from non-accredited
shareholders and to make payments to
certain persons in consideration for
the termination of their pre-emptive
stock purchase rights.

We will not receive any proceeds from the
sale of shares by the selling
stockholders.

Risk factors....................... See "Risk Factors" and other information
included in this prospectus for a
discussion of factors you should
carefully consider before deciding to
invest in shares of our common stock.

Proposed NYSE symbol............... "OIS"

The number of shares outstanding after the offering excludes 3,700,000
shares reserved for issuance under our 2000 Equity Participation Plan, of which
options to purchase 1,225,224 shares at a weighted average exercise price of
$7.44 per share have been issued as of June 30, 2000, giving effect to the
Combination. In connection with this offering, we intend to grant additional
options under this plan to purchase an aggregate of shares at an exercise
price equal to the initial public offering price. The number of shares
outstanding after the offering includes 2,985,805 shares to be issued for the
conversion of warrants to purchase shares of Sooner common stock, 1,781,734
shares to be issued for the conversion of preferred stock issued by HWC and
9,921,150 shares issuable upon the exchange of exchangeable shares issued to
former shareholders of PTI in the Combination. The number of shares outstanding
after the offering assumes that the underwriters' over-allotment options are not
exercised. If the over-allotment options are exercised in full, we will issue
and sell an additional shares.
5
<PAGE> 11

PRESENTATION OF FINANCIAL INFORMATION AND OTHER DATA

Prior to the offering, SCF owns majority interests in Oil States, Sooner,
HWC and PTI. Concurrently with the closing of the offering, the Combination will
close and HWC, PTI and Sooner will merge with wholly owned subsidiaries of Oil
States. As a result, HWC, PTI and Sooner will become our wholly owned
subsidiaries. The mergers of HWC and PTI into Oil States will be accounted for
using reorganization accounting for entities under common control. The
acquisition of the minority interests of Oil States, HWC and PTI and the merger
of Sooner will be accounted for using the purchase method of accounting. In
connection with the Combination and the offering, Oil States will effect a
three-for-one reverse stock split of its common stock.

HISTORICAL FINANCIAL INFORMATION AND OTHER DATA

The historical financial statements and related financial and other data
included in this prospectus reflect the businesses of Oil States, HWC, PTI and
Sooner, including its predecessor Sooner Pipe & Supply Co., prior to the
Combination. The historical information included in this prospectus does not
reflect the proposed three-for-one reverse stock split discussed above.

PRO FORMA FINANCIAL AND OTHER INFORMATION

In addition to the historical financial information and other data, this
prospectus includes our unaudited combined reorganized financial statements for
1997 and 1998 and our unaudited pro forma combined financial statements for 1999
and for the three months ended March 31, 2000, each reflecting the
reorganization of our company due to the mergers of HWC and PTI with wholly
owned subsidiaries of Oil States, each from the date on which it came under
common control with Oil States. Our unaudited pro forma combined financial
statements for 1999 and for the three months ended March 31, 2000 also reflect:

- our acquisitions of the minority interests of Oil States, HWC and PTI in
the Combination;

- our acquisition of Sooner in the Combination;

- the proposed three-for-one reverse stock split of Oil States common
stock; and

- our sale of shares of common stock in the offering and the
application of the net proceeds to us from the offering as described in
"Use of Proceeds."

Because these companies have historically been operated separately, the
historical and pro forma financial information and operating data included in
this prospectus may not provide an accurate indication of:

- what our actual results would have been if the transactions presented on
a pro forma basis had actually been completed as of the dates presented;
or

- what our future results of operations are likely to be.

6
<PAGE> 12

SUMMARY FINANCIAL INFORMATION

The following tables present selected unaudited pro forma financial
information of our company for the periods shown. The unaudited pro forma
statement of operations and other financial data give effect to:

- our offering of shares at $ per share and the
application of the net proceeds to us as described in "Use of Proceeds";

- the proposed three-for-one reverse stock split of Oil States common
stock;

- the combination of Oil States, HWC and PTI, excluding the minority
interest of each company, as entities under common control (from the
dates such common control was established) using reorganization
accounting ("as if" pooling of interest accounting);

- the acquisition of the minority interests of Oil States, HWC and PTI in
the Combination using the purchase method of accounting as if the
acquisition occurred on January 1, 1999 and 2000; and

- the acquisition of Sooner in the Combination using the purchase method of
accounting as if the acquisition occurred on January 1, 1999 and 2000.

The unaudited pro forma combined, acquisitions and offering balance sheet data
give effect to the Combination, acquisitions and to this offering as if each had
been completed on March 31, 2000.

The unaudited pro forma income statement and other financial data presented
below are not necessarily indicative of the results that actually would have
been achieved had these transactions been completed as described above or that
may be achieved in the future. You should read the following information with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the historical financial statements and related
notes and the unaudited pro forma combined financial statements and related
notes included elsewhere in this prospectus. The unaudited pro forma combined
amounts presented below were derived from related audited financial statements
and have been combined using reorganization accounting for Oil States, HWC and
PTI as entities under common control from the date common control was
established. For PTI, the date of common control was January 8, 1997, and for
HWC, the date was November 14, 1997.

<TABLE>
<CAPTION>
PRO FORMA COMBINED,
ACQUISITIONS AND
OFFERING(1)
------------------------
THREE PRO FORMA COMBINED(3)
MONTHS -------------------------------
ENDED YEAR ENDED YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, -------------------------------
2000 1999(2) 1999 1998 1997
--------- ------------ --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Revenue............................... $158,652 $487,380 $ 267,110 $359,034 $216,259
Expenses
Costs of sales...................... 122,741 400,609 194,822 261,767 151,012
Selling, general and
administrative................... 12,666 48,858 38,667 48,305 23,718
Depreciation and amortization....... 8,755 35,116 20,275 18,201 8,973
Other expense (income).............. (11) 2,448 2,448 4,928 (122)
-------- -------- --------- -------- --------
Operating income (loss)............... 14,501 349 10,898 25,833 32,678
-------- -------- --------- -------- --------
Net interest expense.................. (2,359) (7,518) (12,496) (15,301) (8,710)
Other income (expense)................ 61 (4,933) (1,297) 115 (368)
-------- -------- --------- -------- --------
Income (loss) before income taxes..... 12,203 (12,102) (2,895) 10,647 23,600
Income tax (expense) benefit.......... (3,956) 4,320 (4,654) (9,745) (11,319)
-------- -------- --------- -------- --------
Income (loss) from continuing
operations before minority
interest............................ 8,247 (7,782) (7,549) 902 12,281
Minority interest, net of taxes....... (7) (31) 501 2,988 (6,869)
-------- -------- --------- -------- --------
Income (loss) from continuing
operations.......................... $ 8,240 $ (7,813) $ (7,048) $ 3,890 $ 5,412
======== ======== ========= ======== ========
</TABLE>

footnotes on following page

7
<PAGE> 13

<TABLE>
<CAPTION>
PRO FORMA
COMBINED,
ACQUISITIONS PRO FORMA COMBINED(3)
AND OFFERING(1) ------------------------------
--------------- AT DECEMBER 31,
AT MARCH 31, ------------------------------
2000 1999 1998 1997
--------------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 5,615 $ 3,216 $ 6,034 $ 21,039
Net property and equipment...................... 180,589 142,242 138,374 95,033
Total assets.................................... 726,898 355,544 499,025 433,499
Total long-term debt............................ 99,233 120,290 109,495 171,002
Redeemable preferred stock...................... -- 25,064 20,150 22,650
Total stockholders' equity...................... 471,517 66,953 81,344 98,679
</TABLE>

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

(1) Includes the results of Sooner, the acquisition of the minority interests of
Oil States, HWC and PTI in the Combination and the offering and use of
proceeds on a pro forma combined basis assuming the transactions occurred on
January 1, 2000 and 1999, respectively, for statement of operations and
other data purposes and on March 31, 2000 for balance sheet purposes.

(2) Includes the pro forma adjustments for acquisitions completed by HWC and
Sooner during 1999 assuming those transactions occurred January 1, 1999.

(3) Includes the results of Oil States, HWC and PTI on a pro forma combined
basis using the reorganization method of accounting for entities under
common control from the dates common control was established for statement
of operations and other data purposes and on December 31, 1999, 1998 and
1997, respectively, for balance sheet purposes.

(4) EBITDA consists of operating income (loss) before depreciation and
amortization expense. EBITDA is not a measure of financial performance under
generally accepted accounting principles. You should not consider it in
isolation from or as a substitute for net income or cash flow measures
prepared in accordance with generally accepted accounting principles or as a
measure of profitability or liquidity. Additionally, our EBITDA calculation
may not be comparable to other similarly titled measures of other companies.
We have included EBITDA as a supplemental disclosure because it may provide
useful information regarding our ability to service debt and to fund capital
expenditures.

(5) Net income (loss) before goodwill amortization consists of net income (loss)
before amortization expense. Net income (loss) before goodwill amortization
is not a measure of financial performance under generally accepted
accounting principles. You should not consider it in isolation from or as a
substitute for net income or cash flow measures prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.

8
<PAGE> 14

RISK FACTORS

Before you invest in our common stock, you should understand the high
degree of risk involved. You should consider carefully the following risks and
other information in this prospectus before you decide to purchase shares of our
common stock. If any of the adverse events described below actually occur, our
business, financial condition and operating results could be materially
adversely affected. As a result, the trading price of our common stock could
decline and you may lose part or all of your investment.

RISKS RELATED TO OUR BUSINESS AND OPERATIONS

DEMAND FOR OUR PRODUCTS AND SERVICES DEPENDS ON OIL AND GAS INDUSTRY ACTIVITY
AND EXPENDITURE LEVELS.

We depend upon the oil and gas industry and its willingness to make
expenditures to explore for, develop and produce oil and gas. If these
expenditures decline, our business will suffer. The industry's willingness to
explore, develop and produce depends largely upon the prevailing view of future
product prices. Many factors affect the supply and demand for oil and gas and
therefore influence product prices, including:

- the level of production;

- the levels of oil and gas inventories;

- the expected cost of developing new reserves;

- the cost of producing oil and gas;

- the level of drilling activity;

- worldwide economic activity;

- national government political requirements, including the ability of the
Organization of Petroleum Exporting Companies (OPEC) to set and maintain
production levels and prices for oil;

- the cost of developing alternate energy sources;

- environmental regulation; and

- tax policies.

If there is a significant reduction in demand for drilling services, in cash
flows of drilling contractors or in drilling rig utilization rates, then demand
for our products and services will decrease.

BECAUSE THE OIL AND GAS INDUSTRY IS CYCLICAL, OUR RESULTS MAY FLUCTUATE.

Oil prices have been volatile over the last ten years, ranging from less
than $11 per barrel to over $40 per barrel. Spot gas prices have also been
volatile, ranging from less than $1.00 per Mcf to above $4.00 per Mcf. These
price changes have caused oil and gas companies and drilling contractors to
change their strategies and expenditure levels. While oil and gas commodity
prices have been on an upward trend in 1999 and 2000, oil and gas prices could
decrease in the future, and exploration and development activities and
expenditures could decrease or not increase in proportion to increases in oil
and gas prices. In addition, Oil States, Sooner, HWC and PTI have experienced in
the past, and we may experience in the future, significant fluctuations in
operating results.

WE HAVE INCURRED LOSSES IN THE PAST. WE MAY INCUR LOSSES IN THE FUTURE.

We incurred a loss from continuing operations in 1999. We cannot assure you
that we will be profitable in the future.

OUR INDUSTRY IS HIGHLY COMPETITIVE.

We sell our products and services in highly competitive markets. In some of
our business segments, we compete with the oil and gas industry's largest
integrated oilfield services providers. These companies have

9
<PAGE> 15

greater financial resources than we do. In addition, some of our business
segments may face competition from Internet business-to-business service
providers. We expect the number of these providers to increase in the future.
Our business will be adversely affected to the extent that these providers are
successful in reducing purchases of our products and services.

We believe that the principal competitive factors in the market areas that
we serve are price, product and service quality, safety, availability of
equipment and technical proficiency. Our operations may be adversely affected if
our current competitors or new market entrants introduce new products or
services with better prices, features, performance or other competitive
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.

DISRUPTIONS IN THE POLITICAL AND ECONOMIC CONDITIONS OF THE FOREIGN COUNTRIES IN
WHICH WE OPERATE COULD ADVERSELY AFFECT OUR INCOME.

Like most multinational oilfield service companies, we have operations in
various international areas, including parts of West Africa and South America.
Our operations in these areas increase our exposure to risks of war, local
economic conditions, political disruption, civil disturbance and governmental
policies that may:

- disrupt our operations;

- restrict the movement of funds or limit repatriation of profits;

- lead to U.S. government or international sanctions; and

- limit access to markets for periods of time.

Some areas, including West Africa and parts of South America, have experienced
political disruption in the past. Disruptions may occur in the future in our
foreign operations, and losses caused by these disruptions may occur that will
not be covered by insurance.

WE ARE SUSCEPTIBLE TO SEASONAL EARNINGS VOLATILITY DUE TO ADVERSE WEATHER
CONDITIONS IN OUR REGIONS OF OPERATIONS.

Our operations are directly affected by seasonal differences in weather in
the areas in which we operate, most notably in Canada and the Gulf of Mexico.
Our Canadian remote site logistics operations are significantly focused on the
winter months when the winter freeze in remote regions permits exploration and
production activity to occur. The spring thaw in these frontier regions
restricts operations in the spring months and, as a result, adversely affects
our operations and sales of products and services in the second and third
quarters. Our operations in the Gulf of Mexico are also affected by weather
patterns. Weather conditions in the Gulf Coast region generally result in higher
drilling activity in the spring, summer and fall months with the lowest activity
in the winter months. In addition, summer and fall drilling activity can be
restricted due to hurricanes and other storms prevalent in the Gulf of Mexico
and along the Gulf Coast. As a result, full year results are not likely to be a
direct multiple of any particular quarter or combination of quarters.

WE DEPEND ON TECHNICAL PERSONNEL.

We believe that our success depends upon our ability to employ and retain
technical personnel. Our ability to expand our operations depends in part on our
ability to increase our skilled labor force. The demand for skilled workers is
high, and the supply is limited. A significant increase in the wages paid by
competing employers could result in a reduction of our skilled labor force,
increases in the wage rates that we must pay or both. If either of these events
were to occur, our cost structure could increase and our growth potential could
be impaired.

10
<PAGE> 16

IF WE DO NOT DEVELOP NEW COMPETITIVE TECHNOLOGIES AND PRODUCTS, OUR REVENUES MAY
DECLINE.

The markets for some of our products and services, particularly our
offshore products, are characterized by continual technological developments. As
a result, substantial improvements in the scope and quality of product function
and performance can occur over a short period of time. If we are not able to
design, develop and produce commercially competitive products in a timely manner
in response to changes in technology, our business and revenues will be
adversely affected.

THE LEVEL AND PRICING OF TUBULAR GOODS IMPORTED INTO THE UNITED STATES COULD
DECREASE DEMAND FOR OUR TUBULAR GOODS INVENTORY AND ADVERSELY IMPACT OUR RESULTS
OF OPERATIONS.

U.S. law currently restricts imports of low-cost tubular goods from a
number of foreign countries into the U.S. tubular goods market, resulting in
higher prices for tubular goods than might otherwise be obtained in the absence
of these restrictions. If these restrictions were to be lifted or if the level
of imported low-cost tubular goods were to otherwise increase, our tubular
services segment could be adversely affected to the extent that we then have
higher-cost tubular goods in inventory. If prices were to decrease
significantly, we might not be able to profitably sell our inventory of tubular
goods. In addition, significant price decreases could result in a longer holding
period for some of our inventory, which could also have a material adverse
effect on our tubular services segment.

IF WE WERE TO LOSE A SIGNIFICANT SUPPLIER OF OUR TUBULAR GOODS, WE COULD BE
ADVERSELY AFFECTED.

In 1999, we purchased from a single supplier approximately 17% of the
tubular goods we distributed and from three suppliers approximately 36% of such
tubular goods. If we were to lose any of these suppliers or if production at one
or more of the suppliers were interrupted, our tubular services segment and our
overall business, financial condition and results of operations could be
adversely affected. If the extent of the loss or interruption were sufficiently
large, the impact on us would be material.

WE ARE SUBJECT TO EXTENSIVE AND COSTLY ENVIRONMENTAL LAWS AND REGULATIONS WHICH
MAY REQUIRE US TO TAKE ACTIONS THAT WILL ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.

Our business is significantly affected by stringent and complex foreign,
federal, state and local laws and regulations governing the discharge of
substances into the environment or otherwise relating to environmental
protection. We could be exposed to liability for cleanup costs, natural resource
damages and other damages as a result of our conduct that was lawful at the time
it occurred or the conduct of, or conditions caused by, prior operators or other
third parties. Environmental laws and regulations have changed in the past, and
it is reasonable to expect additional changes in the future. If existing
regulatory requirements or enforcement policies change, we may be required to
make significant unanticipated capital and operating expenditures.

Any failure by us to comply with applicable environmental laws and
regulations may result in governmental authorities taking actions against our
business that could adversely impact our operations and financial condition,
including the:

- issuance of administrative, civil and criminal penalties;

- denial or revocation of permits or other authorizations;

- reduction or cessation in operations; and

- performance of site investigatory, remedial or other corrective actions.

Our business exposes us to the risk that harmful substances may escape into
the environment, which could result in personal injury or loss of life and
damage to or destruction of property. Moreover, our current and past activities
could result in our facing substantial environmental, regulatory and other
liabilities, including the costs of cleanup of contaminated sites and site
closure obligations. While we believe that our business is in substantial
compliance with applicable environmental laws and regulations, we cannot assure
you that our operations will continue to comply with all such laws and
regulations in the future.

11
<PAGE> 17

WE MAY NOT HAVE ADEQUATE INSURANCE FOR POTENTIAL LIABILITIES.

Our operations are subject to many hazards. We face the following risks
under our insurance coverage:

- we may not be able to continue to obtain insurance on commercially
reasonable terms;

- we may be faced with types of liabilities that will not be covered by our
insurance, such as damages from environmental contamination;

- our insurance carriers may not be able to meet their obligations under
the policies;

- the dollar amount of any liabilities may exceed our policy limits; and

- we do not maintain full coverage against the risk of interruption of our
business.

Even a partially uninsured claim, if successful and of significant size, could
have a material adverse effect on our results of operations or consolidated
financial position.

WE ARE SUBJECT TO LITIGATION RISKS THAT MAY NOT BE COVERED BY INSURANCE.

In the ordinary course of business, we become the subject of various claims
and litigation. We maintain insurance to cover many of our potential losses, and
we are subject to various self-retentions and deductibles under our insurance.
It is possible, however, that an unexpected judgment could be rendered against
us in cases in which we could be uninsured and beyond the amounts that we
currently have reserved or anticipate incurring for such matters.

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

We depend on the continued employment and performance of Douglas E. Swanson
and other key members of management. If any of our key managers resign or become
unable to continue in their present roles and are not adequately replaced, our
business operations could be materially adversely affected. We do not maintain
any "key man" life insurance for any of our officers. See "Management."

IF WE HAVE TO WRITE OFF A SIGNIFICANT AMOUNT OF GOODWILL, OUR EARNINGS WILL BE
NEGATIVELY AFFECTED.

Our pro forma balance sheet as of March 31, 2000 included goodwill
representing 45% of our total assets giving effect to the Combination and the
offering. We have recorded goodwill because we paid more for some of our
businesses than the fair market value of the tangible and separately measurable
intangible net assets of those businesses. Generally accepted accounting
principles require us to amortize goodwill over the periods we benefit from the
acquired assets, to review unamortized goodwill for impairment in value
periodically and to charge against earnings portions of our goodwill if
circumstances indicate that the carrying amount will not be recoverable. If we
were to determine that the remaining balance of goodwill was impaired, we would
be required to take an immediate non-cash charge to earnings with a
corresponding effect on stockholders' equity.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.

We rely on a variety of intellectual property rights that we use in our
offshore products and well site services segments. We may not be able to
successfully preserve these intellectual property rights in the future and these
rights could be invalidated, circumvented or challenged. Technological
developments may also reduce the value of our intellectual property. In
addition, the laws of some foreign countries in which our products and services
may be sold do not protect intellectual property rights to the same extent as
the laws of the United States. The failure of our company to protect our
proprietary information and any successful intellectual property challenges or
infringement proceedings against us could adversely affect our competitive
position.

12
<PAGE> 18

RISKS RELATED TO THE COMBINATION AND OUR RELATIONSHIP WITH SCF

BECAUSE WE WILL BE A NEWLY COMBINED COMPANY WITH NO COMBINED OPERATING HISTORY,
NEITHER OUR HISTORICAL NOR OUR PRO FORMA FINANCIAL AND OPERATING DATA MAY BE
REPRESENTATIVE OF OUR FUTURE RESULTS.

We are a newly combined company with no combined operating history. Our
lack of a combined operating history may make it difficult to forecast our
future operating results. The historical financial statements included in this
prospectus reflect the separate historical results of operations, financial
position and cash flows of Oil States, Sooner, HWC and PTI prior to the
Combination. The unaudited pro forma financial information included in this
prospectus is based on the separate businesses of Oil States, Sooner, HWC and
PTI prior to the Combination. As a result, the historical and pro forma
information may not give you an accurate indication of what our actual results
would have been if the Combination had been completed at the beginning of the
periods presented or of what our future results of operations are likely to be.
In addition, our future results will depend on our ability to integrate our
operations, efficiently manage our combined facilities and execute our business
strategy.

WE MAY NOT BE ABLE TO INTEGRATE OUR OPERATIONS EFFECTIVELY AND EFFICIENTLY.

Integrating the operations and management of Oil States, Sooner, HWC and
PTI will be a complex process, and we cannot assure you that this integration
will be completed rapidly or will achieve the benefits we expect from the
Combination. Moreover, the integration will require significant management
attention, which may temporarily distract us from our focus on the daily
operations of the combined company. If we do not successfully integrate the
operations of Oil States, Sooner, HWC and PTI, or if there is any significant
delay in achieving this integration, our business could suffer after the
Combination.

SCF WILL CONTROL THE OUTCOME OF STOCKHOLDER VOTING AND MAY EXERCISE ITS VOTING
POWER IN A MANNER ADVERSE TO YOU.

After the offering, SCF will hold approximately % of the outstanding
common stock of our company. Accordingly, SCF will be in a position to control
the outcome of matters requiring a stockholder vote, including the election of
directors, adoption of amendments to our certificate of incorporation or bylaws
or approval of transactions involving a change of control. The interests of SCF
may differ from yours, and it may vote its common stock in a manner that may
adversely affect you.

SCF'S OWNERSHIP INTEREST AND PROVISIONS CONTAINED IN OUR CERTIFICATE OF
INCORPORATION COULD DISCOURAGE A TAKEOVER ATTEMPT, WHICH MAY REDUCE OR ELIMINATE
THE LIKELIHOOD OF A CHANGE OF CONTROL TRANSACTION AND, THEREFORE, YOUR ABILITY
TO SELL YOUR SHARES FOR A PREMIUM.

In addition to SCF's controlling position, provisions contained in our
certificate of incorporation, such as a classified board, limitations on the
removal of directors, on stockholder proposals at meetings of stockholders and
on stockholder action by written consent and the inability of stockholders to
call special meetings, could make it more difficult for a third party to acquire
control of our company. Our certificate of incorporation also authorizes our
board of directors to issue preferred stock without stockholder approval. If our
board of directors elects to issue preferred stock, it could increase the
difficulty for a third party to acquire us, which may reduce or eliminate your
ability to sell your shares of common stock at a premium. See "Description of
Capital Stock."

TWO OF OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST BECAUSE THEY ARE ALSO
DIRECTORS OF SCF.

After completion of the offering, two of our directors also will be current
directors or officers of the general partner of SCF. This may create conflicts
of interest because these directors have responsibilities to SCF and its owners.
Their duties as directors or officers of the general partner of SCF may conflict
with their duties as directors of our company regarding corporate opportunities,
business dealings between SCF and us and other matters. For example, SCF has
investments in other oilfield service companies that may compete with us, and
SCF or its affiliates may invest in other such companies in the future. As a
result, conflicts may arise if opportunities that may be beneficial to more than
one company are presented to our directors who are

13
<PAGE> 19

also directors or officers of the general partner of SCF. The resolution of
these conflicts may not always be in our or your best interest.

SCF HAS NO OBLIGATION TO OFFER US CORPORATE OPPORTUNITIES.

If an opportunity in the oilfield services industry is presented to a
person who is an officer or director of both SCF and our company, SCF has no
obligation to communicate or offer the opportunity to us and may pursue the
opportunity as it sees fit, unless it was presented to that person solely in,
and as a direct result of, that person's service as a director or officer of our
company.

RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

The initial public offering price is substantially higher than the
pre-offering pro forma net tangible book value per share of our common stock. If
you buy our common stock in the offering, you will experience immediate and
substantial dilution. The dilution will be approximately $ per share in pro
forma net tangible book value. See "Dilution."

THE PRICE OF OUR STOCK MAY BE SUBJECT TO FLUCTUATIONS.

The initial public offering price was determined by negotiations among us
and the underwriters based on numerous factors. The market price of our common
stock after this offering may vary from the initial public offering price, and
you may not be able to resell your shares at or above the initial public
offering price.

The market price of our common stock is likely to be volatile and could
change for a variety of reasons, such as:

- the volatility of the oil and gas industry;

- operating results that vary from the expectations of securities analysts
and investors;

- changes in expectations as to our future financial performance, including
financial estimates by securities analysts and investors;

- the operational, regulatory, market and other risks discussed in this
section;

- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;

- volatility in the securities markets; and

- changes in general economic conditions and interest rates.

We cannot control many of these factors.

THE AVAILABILITY OF SHARES OF OUR COMMON STOCK FOR FUTURE SALE COULD DEPRESS OUR
STOCK PRICE.

The availability of a substantial number of shares of our common stock for
sale after the offering could adversely affect the market price of our common
stock by significantly increasing the supply of common stock to the market. This
increased supply could cause the market price of our common stock to decline
significantly.

After the offering, we will have outstanding shares of our common
stock (including 2,985,805 shares to be issued for the conversion of warrants to
purchase shares of Sooner common stock and 1,781,734 shares to be issued for the
conversion of shares of preferred stock issued by HWC), and we will have
reserved 3,700,000 shares of our common stock for issuance under our 2000 Equity
Participation Plan. In addition, 9,921,150 shares will be issuable upon the
exchange of exchangable shares issued to former shareholders of PTI in the
Combination. All of the shares of common stock sold in the offering will be
freely tradable without restriction under the federal securities laws unless
purchased by one of our affiliates. The

14
<PAGE> 20

remaining shares of outstanding common stock, including shares held by SCF and
its affiliates, will be "restricted securities" under the Securities Act and
will be subject to restrictions on the timing, manner and volume of sales.

We, our officers and directors, SCF and other shareholders have agreed not
to sell any shares of common stock for a period of 180 days after the date of
the prospectus without the prior written consent of Merrill Lynch & Co. The
lock-up to which we are a party does not restrict us from issuing common stock
under our existing benefit plans, including our 2000 Equity Participation Plan.
Merrill Lynch & Co. has sole discretion to waive any of the provisions of any of
these lock-up agreements. Upon expiration of the lock-up period, the shares
outstanding and owned by SCF and any of its or our affiliates may be sold in the
future without registration under the Securities Act to the extent permitted by
Rule 144 or any applicable exemption under the Securities Act. Under a
registration rights agreement between SCF and our company, among others, SCF and
its affiliates have the right to require us to register their shares following
the lock-up period, and other shareholders have the right to include their
shares in registration statements that we file. The possibility that SCF or any
of its or our affiliates may dispose of shares of our common stock, or the
announcement or completion of any such transaction, could have an adverse effect
on the market price of our common stock. See "Shares Eligible for Future Sale."

THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK.

No market for our common stock existed prior to this offering. Although we
intend to apply to have our shares of common stock listed on the New York Stock
Exchange, we cannot assure you that a viable trading market for our common stock
will be developed or be sustained.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains statements that do not directly or exclusively
relate to historical facts. Such statements are "forward-looking statements."
You can typically identify forward-looking statements by the use of
forward-looking words, such as "may," "will," "could," "project," "believe,"
"anticipate," "expect," "estimate," "potential," "plan," "forecast" and other
similar words.

All statements other than statements of historical facts contained in this
prospectus, including statements regarding our future financial position,
business strategy, budgets, projected costs and plans and objectives of
management for future operations, are forward-looking statements.

The forward-looking statements in this prospectus reflect our intentions,
plans, expectations, assumptions and beliefs about future events and are subject
to risks, uncertainties and other factors, many of which are outside our
control. Important factors that could cause actual results to differ materially
from the expectations expressed or implied in the forward-looking statements
include known and unknown risks. Known risks include, but are not limited to,
those listed in the "Risk Factors" section and elsewhere in this prospectus.

In light of these risks, uncertainties and assumptions, the events
described in the forward-looking statements in this prospectus might not occur
or might occur to a materially different extent or at a materially different
time than described in this prospectus. Except as required by law, we undertake
no obligation to update or revise our forward-looking statements, whether as a
result of new information, future events or otherwise.

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<PAGE> 21

USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, based upon an
assumed initial public offering price of $ , will be approximately $138
million, after deducting underwriting discounts and commissions and estimated
offering expenses. If the underwriters' over-allotment options are exercised in
full, our net proceeds will be approximately $ million. We will not receive
any of the proceeds from the sale of shares by the selling stockholders. We
intend to use the net proceeds to us as follows:

- approximately $103 million to purchase and retire outstanding preferred
stock of subsidiaries and subordinated indebtedness, bearing dividends or
interest at rates ranging from 3.1% to 13.5% per year (with a weighted
average rate of 8.1% per year at July 31, 2000) and having maturities
ranging from April 30, 2001 to June 30, 2008;

- approximately $31 million to upgrade facilities and to expand our product
and service offerings; and

- the balance to repurchase shares in the Combination from non-accredited
shareholders and to make payments to certain persons in consideration for
the termination of their pre-emptive stock purchase rights.

Pending these uses, we intend to invest the net proceeds in short-term
interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have not declared or paid cash dividends on our common stock since our
inception, although we have declared a dividend payable in the form of a
promissory note. We do not, however, intend to declare or pay any cash dividends
on our common stock in the foreseeable future. Instead, we currently intend to
retain our earnings, if any, to finance our business and to use for general
corporate purposes. Our board of directors has the authority to declare and pay
dividends on the common stock, in its discretion, as long as there are funds
legally available to do so. Our existing credit facilities restrict the payment
of dividends. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

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<PAGE> 22

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2000:

- on a pro forma combined basis giving effect to the Combination; and

- as adjusted for our sale of shares of our common stock in the
offering at an assumed initial public offering price of $ and the
application of the estimated net proceeds to us from the offering of $138
million.

You should read the information below in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our unaudited pro forma combined financial statements and related
notes and the historical financial statements and related notes included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
AT MARCH 31, 2000
-----------------------
PRO FORMA
COMBINED AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.............................................. $176,204 $
Redeemable preferred stock.................................. 25,211
Stockholders' equity:
Preferred stock........................................... 1,625
Common stock, par value $.01 per share, 200,000,000 shares
authorized; shares issued and outstanding pro
forma combined; shares issued and outstanding, as
adjusted(1)............................................ 60,065
Additional paid-in capital................................ 286,272
Retained earnings (loss).................................. (23,614)
Cumulative translation adjustment......................... (1,790)
-------- --------
Total stockholders' equity........................ 322,558
-------- --------
Total capitalization.............................. $523,973 $
======== ========
</TABLE>

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

(1) Does not include shares of common stock issuable upon exercise of
options to be outstanding under our 2000 Equity Participation Plan upon
completion of the offering.

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<PAGE> 23

DILUTION

If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share and the net
tangible book value per share after this offering. Our unaudited pro forma
combined net tangible book value as of March 31, 2000 was $ per share of
common stock, after giving effect to the Combination. Net tangible book value
per share is determined by dividing our tangible net worth, which is our
tangible assets less total liabilities, by the total number of outstanding
shares of common stock. After giving effect to the sale of shares of common
stock in this offering and our receipt of the estimated net proceeds, our pro
forma net tangible book value at March 31, 2000 would have been $ per share.
This represents an immediate increase in the pro forma combined net tangible
book value of $ per share to existing stockholders, including those
receiving shares in the Combination, and an immediate dilution to you. The
following table illustrates the per share dilution to you:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma combined net tangible book value per share at
March 31, 2000.........................................
Increase per share attributable to new investors..........
------
Pro forma combined net tangible book value per share after
this offering.............................................
------
Dilution per share to new investors......................... $
======
</TABLE>

The following table sets forth, as of March 31, 2000, on the pro forma
combined basis described above, the number of shares of common stock purchased
from us, the total consideration paid for those shares and the average price per
share paid by existing stockholders and by new investors:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------- ------- -------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders............... % $ % $
New investors.......................
------- --- -------- ---
Total..................... 100% $ 100%
======= === ======== ===
</TABLE>

These computations assume that no additional shares are issued upon
exercise of the underwriters' over-allotment options or outstanding stock
options granted under our 2000 Equity Participation Plan. As of June 30, 2000,
options to purchase 1,225,224 shares of common stock at a weighted average
exercise price of $7.44 per share have been granted under the 2000 Equity
Participation Plan, giving effect to the Combination. See "Management -- Equity
Participation Plan." In the event the remaining shares currently
subject to the underwriters' over-allotment options and outstanding options
under the 2000 Equity Participation Plan were included in the calculations
above, the unaudited pro forma combined net tangible book value per share before
this offering would be $ , the unaudited pro forma net tangible book value
per share after this offering would be $ and the dilution per share to new
investors would be $ . In addition, the average price per share paid by
existing stockholders would increase to $ per share.

18
<PAGE> 24

SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following tables set forth selected historical and unaudited pro forma
financial information of our company for the periods shown. The pro forma
statement of operations and other financial data give effect to:

- our offering of shares at $ per share and the
application of the net proceeds to us as described in "Use of Proceeds";

- the proposed three-for-one reverse stock split of Oil States common
stock;

- the acquisition of the minority interests of Oil States, HWC and PTI in
the Combination using the purchase method of accounting as if the
acquisition occurred on January 1, 1999 and 2000; and

- the acquisition of Sooner in the Combination using the purchase method of
accounting as if the acquisition occurred on January 1, 1999 and 2000.

The unaudited pro forma combined balance sheet data give effect to the
Combination and to this offering as if each had been completed on March 31,
2000.

The pro forma statement of operations and other financial data presented
below are not necessarily indicative of the results that actually would have
been achieved had these transactions been completed as described above or that
may be achieved in the future. You should read the following information with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the historical financial statements and related
notes and the unaudited pro forma combined financial statements and related
notes included elsewhere in this prospectus. The historical amounts for 1995 and
1996, presented below, represent financial information of Oil States and its
predecessor derived from audited financial statements as of December 31, 1996
and 1995 and for the year ended December 31, 1996 and the five months ended
December 31, 1995. The pro forma combined amounts presented below were derived
from related audited financial statements and have been combined using
reorganization accounting for Oil States, HWC and PTI as entities under common
control from the date common control was established. For PTI, the date of
common control was January 8, 1997, and for HWC, the date was November 14, 1997.
<TABLE>
<CAPTION>

PRO FORMA COMBINED,
ACQUISITIONS AND OFFERING(1) PRO FORMA
----------------------------- COMBINED(3)
THREE MONTHS -----------------
PRO FORMA COMBINED(3)
THREE MONTHS ------------------------------
ENDED YEAR ENDED ENDED MARCH 31, YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, ----------------- ------------------------------
2000 1999(2) 2000 1999 1999 1998 1997
------------- ------------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS
DATA:
Revenue........................... $158,652 $487,380 $88,226 $71,314 $267,110 $359,034 $216,259
Expenses
Costs of sales.................. 122,741 400,609 59,018 50,439 194,822 261,767 151,012
Selling, general and
administrative................ 12,666 48,858 10,487 10,791 38,667 48,305 23,718
Depreciation and
amortization(6)............... 8,755 35,116 5,188 4,873 20,275 18,201 8,973
Other expense (income).......... (11) 2,448 (11) (33) 2,448 4,928 (122)
-------- -------- ------- ------- -------- -------- --------
Operating income (loss)........... 14,501 349 13,544 5,244 10,898 25,833 32,678
-------- -------- ------- ------- -------- -------- --------
Net interest income (expense)..... (2,359) (7,518) (2,777) (3,008) (12,496) (15,301) (8,710)
Other income (expense)............ 61 (4,933) 61 (61) (1,297) 115 (368)
-------- -------- ------- ------- -------- -------- --------
Income (loss) before income
taxes........................... 12,203 (12,102) 10,828 2,175 (2,895) 10,647 23,600
Income tax (expense) benefit...... (3,956) 4,320 (5,226) (1,833) (4,654) (9,745) (11,319)
-------- -------- ------- ------- -------- -------- --------
Income (loss) from continuing
operations before minority
interest........................ 8,247 (7,782) 5,602 342 (7,549) 902 12,281
Minority interest................. (7) (31) (2,576) (8) 501 2,988 (6,869)
-------- -------- ------- ------- -------- -------- --------
Income (loss) from continuing
operations...................... $ 8,240 $ (7,813) $ 3,026 $ 334 $ (7,048) $ 3,890 $ 5,412
======== ======== ======= ======= ======== ======== ========
Income (loss) from continuing
operations per common share(7)
Basic........................... $ $ $ 0.09 $ -- $ (0.21) $ 0.11 $ 0.16
======== ======== ======= ======= ======== ======== ========
Diluted......................... $ $ $ 0.09 $ -- $ (0.20) $ 0.11 $ 0.16
======== ======== ======= ======= ======== ======== ========
Average shares outstanding(7)
Basic........................... 34,067 34,067 34,067 34,067 34,067
======== ======== ======= ======= ======== ======== ========
Diluted......................... 34,848 34,848 34,848 34,848 34,848
======== ======== ======= ======= ======== ======== ========

<CAPTION>
HISTORICAL
----------------------------------------

SEVEN
FIVE MONTHS MONTHS

YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
1996(4) 1995(4)(5) 1995(4)(5)
------------ ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS
DATA:
Revenue........................... $580,255 $170,030 $179,241
Expenses
Costs of sales.................. 484,403 141,496 147,127
Selling, general and
administrative................ 88,147 26,015 27,134
Depreciation and
amortization(6)............... -- -- 2,008
Other expense (income).......... -- 1,062 --
-------- -------- --------
Operating income (loss)........... 7,705 1,457 2,972
-------- -------- --------
Net interest income (expense)..... (5,988) (481) 1,029
Other income (expense)............ 750 -- (626)
-------- -------- --------
Income (loss) before income
taxes........................... 2,467 976 3,375
Income tax (expense) benefit...... (4,510) (334) (773)
-------- -------- --------
Income (loss) from continuing
operations before minority
interest........................ (2,043) 642 2,602
Minority interest................. (1,807) (52) --
-------- -------- --------
Income (loss) from continuing
operations...................... $ (3,850) $ 590 $ 2,602
======== ======== ========
Income (loss) from continuing
operations per common share(7)
Basic...........................
Diluted.........................
Average shares outstanding(7)
Basic...........................
Diluted.........................
</TABLE>

footnotes on following page

19
<PAGE> 25
<TABLE>
<CAPTION>

<CAPTION>
HISTORICAL
------------------------------------

SEVEN
FIVE MONTHS MONTHS

ENDED ENDED
DECEMBER 31, JULY 31,
1996(4) 1995(4)(5) 1995(4)(5)
-------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
OTHER DATA:
EBITDA(8)............................ $ 15,000 $ 3,717 $ 4,980
Net income (loss) before goodwill
amortization(9).................... (3,471) 671 2,602
Capital expenditures................. 9,737 552
Net cash provided by (used in)
operating activities............... (1,062) (2,641)
Net cash provided by (used in)
investing activities............... (26,522) (64,425)
Net cash provided by (used in)
financing activities............... 32,240 69,516
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
COMBINED,
ACQUISITIONS AND PRO FORMA PRO FORMA COMBINED(3) HISTORICAL
OFFERING(1) COMBINED(3) ------------------------------ -------------------
---------------- ------------ AT DECEMBER 31,
AT MARCH 31, AT MARCH 31, ----------------------------------------------------
2000 2000 1999 1998 1997 1996(4) 1995(4)
---------------- ------------ -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $ 5,615 $ 3,668 $ 3,216 $ 6,034 $ 21,039 $ 6,834 $ 2,450
Net property and equipment............... 180,589 144,419 142,242 138,374 95,033 37,905 16,856
Total assets............................. 726,898 379,259 355,544 499,025 433,499 278,579 191,773
Long-term debt and capital leases,
excluding current portion.............. 99,233 119,851 120,290 109,495 171,002 75,606 51,726
Redeemable preferred stock of
subsidiaries........................... -- 25,211 25,064 20,150 22,650 14,300 14,300
Total stockholders' equity............... 471,517 69,898 66,953 81,344 98,679 32,969 29,122
</TABLE>

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

(2) Includes the pro forma adjustments for acquisitions completed by HWC and
Sooner during 1999 assuming those transactions occurred January 1, 1999.

(4) Includes results of operations associated with entities sold in 1999.
Operations for these entities were segregated as discontinued operations in
the 1997, 1998 and 1999 statements of operations.

(5) On August 1, 1995, we acquired all of the outstanding common stock of
Continental Emsco from LTV Corporation. The financial information for the
seven months ended July 31, 1995 relates to the predecessor operations.

(6) Depreciation and amortization was not separately disclosed in the audited
consolidated statement of operations for the five-month period ended
December 31, 1995 and the year ended December 31, 1996. The amount of
depreciation and amortization, as disclosed in the audited consolidated
statement of cash flows, was $2,260 and $7,295, respectively.

(7) Share and per share data have been retroactively restated to reflect a
three-for-one reverse stock split for Oil States and also to reflect the
effects of the Combination. Share and per share data are not presented for
the predecessor entities prior to the Combination as such data are not
meaningful.

(8) EBITDA consists of operating income (loss) before depreciation and
amortization expense. EBITDA is not a measure of financial performance under
generally accepted accounting principles. You should not consider it in
isolation from or as a substitute for net income or cash flow measures
prepared in accordance with generally accepted accounting principles or as a
measure of profitability or liquidity. Additionally, the EBITDA calculation
herein may not be comparable to other similarly titled measures of other
companies. We have included EBITDA as a supplemental disclosure because it
may provide useful information regarding our ability to service debt and to
fund capital expenditures.

(9) Net income (loss) before goodwill amortization consists of net income (loss)
before amortization expense. Net income (loss) before goodwill amortization
is not a measure of financial performance under generally accepted
accounting principles. You should not consider it in isolation from or as a
substitute for net income or cash flow measures prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.

20
<PAGE> 26

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

The information contained in this section has been derived from our
historical financial statements and should be read together with our historical
financial statements and related notes included elsewhere in this prospectus.
The discussion below contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those expressed or
implied in these forward-looking statements as a result of various factors,
including those described in "Risk Factors" and elsewhere in this prospectus.

OVERVIEW

We provide a broad range of products and services to the oil and gas
industry through our offshore products, tubular services and well site services
business segments. Demand for our products and services is cyclical and
substantially dependent upon activity levels in the oil and gas industry,
particularly our customers' willingness to spend capital on the exploration and
development of oil and gas reserves. Demand for our products and services by our
customers is highly sensitive to current and expected oil and natural gas
prices. Our offshore products segment is a leading provider of highly engineered
and technically designed products for offshore oil and gas development and
production systems and facilities. Sales of our offshore products and services
depend upon repairs and upgrades of existing drilling rigs, construction of new
drilling rigs and the development of offshore production systems. We are
particularly influenced by deepwater drilling and production activities. Through
our tubular services division, we distribute premium tubing and casing. Sales of
tubular products and services depend upon the overall level of drilling activity
and the mix of wells being drilled. Demand for tubular products is positively
impacted by increased drilling of deeper horizontal and offshore wells that
generally require premium tubulars and connectors, large diameter pipe and
longer and additional tubular and casing strings. In our well site services
business segment, we provide hydraulic well control services, pressure control
equipment and rental tools and remote site accommodations, catering and
logistics services. Demand for our well site services depends upon the level of
worldwide drilling and workover activity.

Beginning in late 1996 and continuing through the early part of 1998,
stabilization of oil and gas prices led to increases in drilling activity as
well as the refurbishment and new construction of drilling rigs. In the second
half of 1998, crude oil prices began a precipitous fall and reached levels below
$11 per barrel in early 1999. With this decline in pricing, many of our
customers substantially reduced their capital spending and related activities.
This industry downturn continued through most of 1999. The rig count in the
United States and Canada, as measured by Baker Hughes Incorporated, fell from
1,481 rigs in February 1998 to 558 rigs in April 1999. This downturn in activity
had a material adverse effect on demand for our products and services, and our
operations suffered as a result.

The price of crude oil has increased significantly over the last 12 months
due to improved demand for oil and supply reductions by OPEC member countries.
This improvement in crude oil pricing has led to increases in the rig count,
particularly in Canada and the United States. As of July 14, 2000, the rig count
in the United States and Canada, as measured by Baker Hughes, was 1,216. Demand
for our well site services has begun to recover with the overall improvement in
industry fundamentals. Our offshore products segment has not recovered with the
general market. We believe that our offshore products segment lags the general
market recovery because its sales related to offshore construction and
production facility development generally occur later in the cycle. Worldwide
construction activity continues at a very low level currently, but we expect it
to increase substantially as construction activity in the shallow water regions
of the Gulf of Mexico resumes and as the industry increasingly pursues deeper
water drilling and development projects.

Consolidation among both major and independent oil and gas companies has
affected exploration, development and production activities, particularly in
international areas. These companies have focused on integration activities and
cost control measures over the last several months. As a result, we believe that
capital spending within the industry has lagged the improvement in crude oil
prices.

21
<PAGE> 27

RECENT EVENTS

Prior to the offering, SCF-III, L.P. owns majority interests in Oil States,
HWC and PTI and SCF-IV, L.P. owns a majority interest in Sooner. Concurrently
with the closing of the offering, the Combination will close, and HWC, PTI and
Sooner will merge with wholly owned subsidiaries of Oil States. As a result,
HWC, Sooner and PTI will become our wholly owned subsidiaries. The financial
results of Oil States, HWC and PTI have been combined for the three years in the
period ended December 31, 1999 using reorganization accounting ("as if" pooling
of interests method). These operations represent two of our business segments,
offshore products and well site services. Concurrent with the closing of the
offering, Oil States will acquire Sooner, and the acquisition will be accounted
for using the purchase method of accounting. The pro forma combined financial
statements for the year ended December 31, 1999 and the quarter ended March 31,
2000 reflect the acquisition of Sooner. After consummation of the Sooner
acquisition, we will report under three business segments.

RESULTS OF OPERATIONS

Prior to consummation of the Sooner acquisition, we reported under two
business segments, offshore products and well site services. Information for
these two segments is presented below.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------ --------------------------
2000 1999 1999 1998 1997
------- ------- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues
Offshore Products................... $ 27.9 $ 38.5 $154.3 $230.0 $113.9
Well Site Services.................. 60.3 32.8 112.8 129.0 102.4
------ ------ ------ ------ ------
Total....................... $ 88.2 $ 71.3 $267.1 $359.0 $216.3
====== ====== ====== ====== ======
Operating Income (Loss)
Offshore Products................... $ 5.3 $ 5.8 $ 22.6 $ 46.7 $ 26.7
Well Site Services.................. 18.7 10.2 27.0 27.4 29.7
Selling, General and Administrative
Expense.......................... (10.5) (10.8) (38.7) (48.3) (23.7)
------ ------ ------ ------ ------
Total....................... $ 13.5 $ 5.2 $ 10.9 $ 25.8 $ 32.7
====== ====== ====== ====== ======
</TABLE>

Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31,
1999.

Revenues. Revenues increased by $16.9 million, or 23.7%, to $88.2 million
for the three months ended March 31, 2000 from $71.3 million for the three
months ended March 31, 1999. Well site services revenues increased by $27.5
million, or 83.8%, partially offset by a decrease in offshore products revenues
of $10.6 million, or 27.5%. Of the $27.5 million increase in well site services
revenues, $18.5 million was generated from our remote site accommodations,
catering and logistics services and modular building construction services, $3.7
million was generated from our hydraulic workover units, $2.8 million was
generated from our drilling operations and $2.5 million was generated from our
rental tool operations. The significant improvement in revenues from our remote
site accommodations, catering and logistics services and modular building
construction services was due to the strong level of Canadian drilling activity
during the first quarter of 2000, which resulted in increased demand for our
drilling camps and related catering services. The increased revenues in our
hydraulic workover units and drilling rigs resulted from higher utilization
during the period and contributions from the operation of various hydraulic
workover assets that were acquired in the fourth quarter of 1999 and were not,
therefore, in operation for us in the prior period. The acquisitions contributed
$2.4 million of the $3.7 million revenue increase in our hydraulic workover
operations. The $2.5 million increase in our rental tool revenues was largely
due to increases in activity levels and the acquisition of additional rental
tool facilities on March 31, 1999. These revenue increases were partially offset
by declines in our offshore products segment due to a significant downturn in
construction related activity.

Cost of Goods Sold. Cost of goods sold increased by $8.6 million, or 17.1%,
to $59.0 million for the three months ended March 31, 2000 from $50.4 million
for the three months ended March 31, 1999. Cost of goods
22
<PAGE> 28

sold increased in our well site services segment by $18.5 million, but was
partially offset by a decrease of $9.9 million in our offshore products segment.
The changes from the 1999 period to the 2000 period were caused by the same
factors influencing revenues. Our gross profit margin improved from 29.3% during
the quarter ended March 31, 1999 to 33.1% during the quarter ended March 31,
2000 due to cost reductions in our offshore products segment made in response to
the market downturn in offshore construction activity.

Selling, General and Administrative Expenses. During the quarter ended
March 31, 2000, selling, general and administrative expenses decreased $0.3
million, or 2.8%, to $10.5 million compared to $10.8 million during the quarter
ended March 31, 1999. Selling, general and administrative expenses in our
offshore products segment declined $0.8 million, partially offset by a $0.5
million increase in our well site services segment. We reduced costs in our
offshore products segment in response to the market downturn in offshore
construction activity.

Depreciation and Amortization. Depreciation and amortization totaled $5.2
million during the quarter ended March 31, 2000 compared to $4.9 million in the
quarter ended March 31, 1999. The 6.5% increase was primarily related to asset
acquisitions and capital expenditures made in our well site services segment on
March 31, 1999 and in the fourth quarter of 1999.

Operating Income (Loss). Our operating income (loss) equals revenues less
cost of goods sold, selling, general and administrative expense and depreciation
and amortization. Operating income (loss) is comprised of the operating income
of each of our segments and the portion of selling, general and administrative
expenses which are not allocated to the segments. Our operating income increased
by $8.3 million to $13.5 million for the three months ended March 31, 2000 from
$5.2 million for the same period in 1999. Operating income for the first quarter
of 2000 for our offshore products segment decreased $0.5 million to $5.3 million
from $5.8 million during the same period in 1999, and operating income from our
well site services segment increased $8.5 million from $10.2 million for the
three months ended March 31, 1999 to $18.7 million for the same period in 2000.
Selling, general and administrative expense was $10.5 million in the first
quarter of 2000 compared to $10.8 million incurred during the first quarter of
1999.

Interest Expense. Interest expense totaled $2.8 million during the quarter
ended March 31, 2000 compared to $3.0 million during the quarter ended March 31,
1999. The $0.2 million decrease in interest expense primarily related to a
reduction in average debt balances outstanding in our offshore products segment
with funds generated from asset sales.

Other Income and Expense. Other income consisted primarily of interest
income received on invested cash and was not significant in either quarter
during 1999 or 2000.

Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998.

Revenues. Revenues decreased by $91.9 million, or 25.6%, to $267.1 million
for the year ended December 31, 1999 from $359.0 million for the year ended
December 31, 1998. Offshore products revenues decreased by $75.7 million, or
32.9%, and well site services revenues decreased by $16.2 million, or 12.6%. The
decrease in our offshore products revenues resulted from an overall market
downturn during 1999 and affected all of our offshore products business lines,
including our connector products, marine construction activities and marine
winches. The decrease in our well site services revenues was primarily due to
lower demand for our remote accommodations, catering and logistics services.

Cost of Goods Sold. Cost of goods sold decreased by $67.0 million, or
25.6%, to $194.8 million for the year ended December 31, 1999 from $261.8
million for 1998. Cost of goods sold decreased by $54.1 million, or 30.8%, in
our offshore products segment and by $12.9 million, or 15.0%, in our well site
services segment. The changes in cost of goods sold were the same as the factors
influencing revenues. Our gross profit margin remained level at 27.1% in both
1998 and 1999 despite the reduction in activity over the period. Margins
deteriorated somewhat in offshore products, but were offset by margin
improvements in well site services, particularly in our accommodations, catering
and logistics services.

Selling, General and Administrative Expenses. During the year ended
December 31, 1999, selling, general and administrative expenses decreased $9.6
million, or 19.9%, to $38.7 million compared to
23
<PAGE> 29

$48.3 million incurred during 1998. Selling, general and administrative expenses
in our offshore products segment declined $7.5 million, or 22.9%, while expenses
in our well site services segment declined $2.1 million, or 13.8%. We reduced
costs in all segments in response to the general industry downturn that occurred
during 1999.

Depreciation and Amortization. Depreciation and amortization totaled $20.3
million during 1999 compared to $18.2 million during 1998. The increase of $2.1
million, or 11.5%, was primarily related to an expansion of our well site
services operations. We acquired our rental tool operations during May 1998 and
expanded our operations through an acquisition in April 1999.

Operating Income (Loss). Our operating income decreased by $14.9 million to
$10.9 million during the year ended December 31, 1999 compared to $25.8 million
for the same period in 1998. Operating income for our offshore products segment
during 1999 decreased $24.1 million to $22.6 million from $46.7 million during
1998. Operating income for our well site services segment decreased $0.4 million
during the same period. Selling, general and administrative expense was $38.7
million during 1999 compared to $48.3 million during 1998, a decrease of $9.6
million.

Interest Expense. Interest expense totaled $12.8 million during 1999
compared to $15.9 million during 1998. Of the $3.1 million decrease in interest
expense, $2.5 million resulted from a decrease in average debt balances
outstanding in our offshore products segment due to the proceeds from asset
sales being used to repay debt.

Other Income and Expense. Other income consisted of interest income
received on invested cash in 1998 and 1999. In addition, $1.3 million of other
expense was recorded during 1999 in our offshore products segment related to the
net loss on sale of certain assets and securities.

Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997.

Revenues. Revenues increased by $142.7 million, or 66.0%, to $359.0 million
for the year ended December 31, 1998 from $216.3 million in 1997. Our offshore
products revenues increased by $116.1 million, or 101.9%, to $230.0 million for
1998 compared to $113.9 million in 1997. This significant revenue increase
resulted from a strong market recovery during 1998 that affected almost all of
our offshore products business lines, including our connector products, marine
construction activity and marine winches, and from acquisitions made during the
third quarter of 1997 and the first quarter of 1998. Our well site services
revenues increased $26.6 million, or 26.0%, to $129.0 million for the year ended
December 31, 1998 from $102.4 million during 1997. This revenue increase
resulted primarily from our hydraulic well control and drilling operations,
which were both acquired in November 1997 and contributed very little to 1997
operating results. This increase in revenues was partially offset by an $8.4
million reduction in our accommodations, catering and logistics operations due
to reductions in activity levels over the period.

Cost of Goods Sold. Cost of goods sold increased by $110.8 million, or
73.4%, to $261.8 million for the year ended December 31, 1998 from $151.0
million during 1997. Cost of goods sold increased by $94.3 million, or 115.6%,
in our offshore products segment and by $16.5 million, or 23.7%, in our well
site services segment. The changes in cost of goods sold resulted from the same
factors that affected revenues during the period. However, our gross profit
margin decreased from 30.2% during 1997 to 27.1% during the year ended December
31, 1998. Margins deteriorated in our offshore products segment from 28.4%
during 1997 to 23.5% during 1998, primarily due to cost increases in marine
construction activities and our marine winch business.

Selling, General and Administrative Expenses. During the year ended
December 31, 1998, selling, general and administrative expenses increased by
$24.6 million, or 103.7%, to $48.3 million compared to $23.7 million incurred
during 1997. Selling, general and administrative expenses in our offshore
products and well site services segments increased $16.1 million and $8.5
million, or 96.1% and 121.6%, respectively, over the same period. Costs
increased in all areas as the market activity increased. Of the $8.5 million
increase in our well site services segment, $6.6 million was related to our
hydraulic well control and drilling operations, both of which were acquired in
November 1997, and our rental tool operations, which were acquired in May 1998.
24
<PAGE> 30

Depreciation and Amortization. Depreciation and amortization totaled $18.2
million during the year ended December 31, 1998 compared to $9.0 million during
1997. Of the increase of $9.2 million, $7.2 million related to increases in our
well site services segment and the remaining $2.0 million increase was from our
offshore products segment. The $7.2 million increase in our well site services
segment was related to asset acquisitions and additional capital expenditures
made for hydraulic workover assets, rental tools and drilling rigs.

Operating Income (Loss). Our operating income decreased by $6.9 million to
$25.8 million during the year ended December 31, 1998 compared to $32.7 million
during 1997. Our operating income decreased even though our revenues increased
$142.7 million. Operating income for our offshore products segment increased by
$20.0 million from 1997 to 1998, partially offset by a $2.3 million reduction in
operating income from our well site services segment over the same period.
Included in the 1998 results is a $5.3 million charge related to a write-down of
an investment in our Chilean operations by our well site services segment.
Selling, general and administrative expense was $48.3 million during 1998
compared to $23.7 million during 1997, an increase of $24.6 million.

Interest Expense. Interest expense totaled $15.9 million during 1998
compared to $8.8 million during 1997. Of the $7.1 million increase in interest
expense, $4.1 million related to our well site services segment and $3.0 million
related to our offshore products segment. The increases resulted from higher
average debt balances outstanding during the period resulting from acquisitions.

Other Income and Expenses. Other income consisted primarily of interest
income received on invested cash in 1997 and 1998.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund capital expenditures, such as
expanding and upgrading our manufacturing facilities and equipment, increasing
our rental tool and workover assets, increasing our accommodation units, and
funding new product developments, and to fund general working capital needs. In
addition, capital is needed to fund strategic business acquisitions. Our primary
sources of funds have been cash flow from operations, proceeds from borrowings
under our bank facilities and private capital investments.

Cash was provided from operations during 1999, 1998 and 1997 in the amounts
of $5.2 million, $7.5 million and $19.3 million, respectively. Cash provided by
operations funded ongoing and increased needs for working capital over the
period. During the first quarter of 2000, cash of $2.4 million was used in
operations primarily due to a net loss in our offshore products segment and
working capital increases in our well site services segment used to fund our
activities in Canada during a period of peak drilling activities.

Capital expenditures were $11.3 million, $36.1 million and $14.4 million in
1999, 1998 and 1997, respectively. In addition, $3.7 million was spent for
capital expenditures during the three months ended March 31, 2000. Capital
expenditures during the three year period from 1997 to 1999 consisted
principally of purchases of rental assets for our well site services segment,
the purchase of certain offshore products equipment and the expansion of our
offshore products facility in Houma, Louisiana.

During 1999, we sold all of the operating assets of CE Distribution
Services, Inc. (CEDS), CE Drilling Products, Inc., CE Mobile Equipment, Inc.,
and our 51.8% investment in CE Franklin. Accordingly, for the periods presented,
the results of CEDS, CE Drilling, CE Mobile and CE Franklin are shown as
discontinued operations. Proceeds from the sale of these discontinued operations
was $102.4 million. In addition, the marketable securities acquired in
connection with the sale of our investment in CE Franklin were sold for $24.4
million. Proceeds from these asset sales were applied to reduce outstanding bank
debt.

Net cash was provided by investing activities in the amount of $112.2
million during 1999, primarily as a result of the asset sales referred to above.
Net cash was used in investing activities in the amounts of $61.9 million and
$67.2 million during 1998 and 1997, respectively. The cash used related
primarily to capital expenditures and acquisitions during the periods.

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Net cash was used in financing activities in the amount of $116.1 million
during 1999, primarily as a result of reductions in bank debt outstanding. Net
cash was provided by financing activities in 1998 and 1997 in the amounts of
$42.5 million and $101.7 million, respectively. Cash raised during this period
was used to fund capital expenditures and acquisitions.

In connection with the offering, we plan to repay $81.1 million of
subordinated debt of Oil States and Sooner that was outstanding at March 31,
2000. In addition, we plan to retire a total of $21.8 million of preferred stock
of Oil States that was outstanding at March 31, 2000.

We currently have several credit agreements in place. In our offshore
products segment, we have a credit agreement that provides for borrowings
totaling $25.9 million for our U.S. operations. The agreement provides for $4.9
million of term advances and up to $21.0 million of borrowings on a revolving
basis. The agreement has a scheduled maturity date of March 1, 2003. Borrowings
under the agreement carry variable interest rates payable monthly based upon the
prime rate or the Eurodollar rate plus 2.25% for the revolving loans. As of June
30, 2000, $9.7 million was outstanding under the facility in our offshore
products segment. Our offshore products segment has an overdraft credit facility
which provides for borrowings of up to 5.0 million pounds sterling to support
its operations in the United Kingdom. The facility has a renewal date of March
2, 2001 and provides for interest payable quarterly at the bank's variable base
interest rate plus 1.9%. As of June 30, 2000, $3.6 million was outstanding under
the United Kingdom facility. In our well site services segment, we have three
facilities. One of the facilities is a bank line of credit for up to $20.0
million based upon a borrowing base, of which $11.9 million was outstanding as
of June 30, 2000. The facility matures on May 1, 2003. Interest is payable
monthly at the banks' prime rate or LIBOR plus a margin ranging from 0% for base
rate debt to up to 3% for LIBOR based loans. In addition, we have bank term debt
with the same maturity date and interest terms as the $20.0 million line of
credit. At June 30, 2000, $13.5 million was outstanding on the term facility. We
also have two credit facilities, one in Canada and one in the U.S., covering our
accommodations, catering and logistics services business. A portion of the
Canadian facility is designated as an overdraft facility, and the remainder is
restricted based upon the level of trade accounts receivable and inventory. This
facility provides for up to $44.5 million in borrowings. Interest is calculated
at the Canadian prime rate plus a margin of up to 0.5% per year or the bankers
acceptance rate plus a margin ranging from 1% to 1.5% per year. As of June 30,
2000, $23.1 million was outstanding under the Canadian facility. The U.S.
facility, on which $3.5 million is currently drawn, is structured as a bridge
term loan. Interest is calculated at the U.S. prime rate plus a margin of up to
0.25% per year or Libor plus a margin ranging from 2.25% to 3.25% per year. Our
tubular products segment also has a $50.0 million credit agreement, which
includes a $5.0 million term note. The revolving line of credit agreement
expires on July 2, 2003. This line of credit is subject to a borrowing base of
eligible accounts receivable and inventory. The credit agreement bears interest
at prime or adjusted Eurodollar rate plus 1.75%. As of June 30, 2000, $27.7
million was outstanding under this facility.

We intend to consolidate the above credit agreements into one consolidated
facility in connection with the Combination and the offering. We anticipate
securing a facility that provides for $150 million to $175 million in available
credit capacity. If we are unable to secure this facility on terms we find
acceptable, we will be required to obtain consents under the facilities
described above in connection with the Combination and the offering.

As of December 31, 1999 and June 30, 2000, we were in compliance with all
covenants and financial tests under our various credit facilities. At June 30,
2000, $46.1 million was available to be drawn under our existing facilities.

We believe that the proceeds of this offering, cash from operations, and
available borrowings under our credit facilities will be sufficient to meet our
liquidity needs for the foreseeable future. If our plans or assumptions change
or are inaccurate, or we make any acquisitions, we may need to raise additional
capital. We may not be able to raise additional funds, or may not be able to
raise such funds on favorable terms.

TAX MATTERS

For the year ended December 31, 1999, we had deferred tax assets, net of
deferred tax liabilities, of approximately $29 million for federal income tax
purposes before application of valuation allowances. Our primary deferred tax
assets are net operating loss carry forwards, or NOLs, which total approximately
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$122 million. A valuation allowance is currently provided against the majority
of our NOLs. The NOLs expire over the period through 2018. Our NOLs are
currently limited under Section 382 of the Internal Revenue Code due to a change
of control that occurred during 1995. However, approximately $55 million of NOLs
are available for use currently if sufficient income is generated. We anticipate
that the Combination will enable us to use a portion of our NOLs that have
previously been reserved with a valuation allowance.

RECENT ACCOUNTING PRONOUNCEMENTS

In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.

SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. A
company may also implement the statement as of the beginning of any fiscal
quarter after issuance; however, SFAS No. 133 cannot be applied retroactively.
We have not yet determined the timing of adoption of SFAS No. 133. We believe
that SFAS No. 133 will not have a material impact on our results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest rate risk. We have long-term debt and revolving lines of credit
subject to the risk of loss associated with movements in interest rates.

At December 31, 1999, we had floating rate obligations totaling
approximately $94 million which include amounts borrowed under our U.S.
revolving lines of credit and long-term notes payable. These floating-rate
obligations expose us to the risk of increased interest expense in the event of
increases in short-term interest rates. If the floating interest rate were to
increase by 1% from December 31, 1999 levels, our combined interest expense
would increase by a total of approximately $55,000 per month.

At December 31, 1999, we had one interest rate swap arrangement in the
amount of $1.7 million that effectively fixed the interest rate at 6.8%. This
arrangement expired as of March 31, 2000.

Foreign currency exchange rate risk. Our operations are conducted in
various countries around the world in a number of different currencies. As such,
our earnings are subject to change due to movements in foreign currency exchange
rates when transactions are denominated in currencies other than the U.S.
dollar, which is our functional currency. In order to mitigate the effects of
exchange rate risks, we generally pay a portion of our expenses in local
currencies and a substantial portion of our contracts provide for collections
from customers in U.S. dollars. As of December 31, 1999, we had Canadian
dollar-denominated debt totaling approximately $34 million.

We have not hedged any foreign currency exposure at December 31, 1999 or
March 31, 2000.

CHANGE OF ACCOUNTANTS

The financial statements of Oil States as of December 31, 1998 and 1999 and
for the three years ended December 31, 1999 were audited by Arthur Andersen LLP.
We have engaged Ernst & Young LLP to audit our consolidated financial statements
in the future. The reports of Arthur Andersen LLP for the past two years did not
contain an adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles. The engagement
of Ernst & Young LLP has been approved by our board of directors. Ernst & Young
LLP have audited the consolidated financial statements of Sooner Inc. as of June
30, 1999 and for the year ended June 30, 1999 and Sooner Pipe & Supply
Corporation as of July 2, 1998 and for the period from August 1, 1997 to July 2,
1998.

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BUSINESS

OUR COMPANY

We are a leading provider of specialty products and services to oil and gas
drilling and production companies throughout the world. We focus our business
and operations in a substantial number of the world's most active and fastest
growing oil and gas producing regions, including the Gulf of Mexico, Canada,
West Africa, the Middle East, South America and Southeast Asia. Our customers
include many of the major and independent oil and gas companies and other
oilfield service companies. We operate in three principal business segments,
offshore products, tubular services and well site services, and have established
a leadership position in each.

We expect the combination of our existing operations to create additional
growth opportunities through geographic expansion and marketing leverage. Each
of our segments has exposure to some, but not all, of the industry's growth
markets. Our presence in these growth markets provides us an opportunity to
cross-sell our products and services to our customers using our existing
facilities and operations. Our leading positions in these diversified products
and services enable us to participate in each of the exploration, development
and production phases of the oil and gas cycle, which reduces our dependence on
any one phase. Our tubular services and well site services segments are
primarily used in the drilling and workover phases of the oil and gas cycle. Our
offshore products are used primarily in the construction and development phases
of the cycle.

OUR INDUSTRY

We operate in the oilfield service industry, which provides products and
services to oil and gas exploration and production companies for use in the
drilling for and production of oil and gas. Demand for our products and services
largely depends on the financial condition of our customers and their
willingness to spend capital on the exploration and development of oil and gas.
We believe that spending for incremental production will be driven by increased
demand for oil and gas throughout the world. The EIA Report forecasts that world
oil consumption will increase at an annual rate of approximately 2% from 1997
through 2020 and that world gas consumption will increase at an annual rate of
approximately 3% over the same period. The projected increase in demand for oil
is based on worldwide economic and population growth, primarily in developing
countries. The projected increase in gas consumption over this period is
expected to result from higher demand across residential, industrial and
commercial sectors, as well as from the increasing use of gas as a source of
fuel for electric power generation, particularly in North and South America. We
believe that drilling activity has the potential to grow faster than the demand
for oil and gas due to increasing depletion rates and the decreasing size of
remaining hydrocarbon reserves. Increasing depletion rates have the effect of
requiring more wells to be developed to maintain a given level of supply.

Oil and gas operators are increasingly focusing their exploration and
development efforts on frontier areas, particularly deepwater offshore areas.
According to One Offshore, Inc., the number of wells drilled in water depths
greater than 1,500 feet has increased from 39 in 1990 to 211 in 1999. The number
of hydrocarbon discoveries in water depths greater than 1,500 feet has shown
similar gains, increasing from nine in 1990 to 66 in 1999.

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- Increased exploration and development activities in frontier areas will
benefit our remote site accommodations, catering and logistics services.

OUR GROWTH STRATEGY

We intend to grow our revenue and profitability while continuing to provide
our customers with consistent, superior services and dependable, high-quality
products. We believe we can implement our growth strategy using our existing
facilities and equipment and without incurring significant capital costs,
because we currently have available capacity to accommodate future growth. We
describe the key elements of our growth strategy below.

- Continue to make acquisitions in each of our business segments. We intend
to make selective acquisitions of assets in geographic and product
markets that complement our existing operations. We have an extensive
history of completing strategic acquisitions. We intend to continue to
participate in the consolidation of the business segments in which we
operate to further increase our market share, streamline our costs and
expand our operating capabilities.

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products segment. We believe that with our increased size and access to the
capital markets, we will be able to further expand our operations and product
offerings through strategic acquisitions.

OFFSHORE PRODUCTS

Overview

Through our offshore products segment, we design and manufacture
cost-effective, technologically advanced products for the offshore energy
industry. Our products are used in both shallow and deepwater producing regions
and include flex-element technology, advanced connector systems, blow-out
preventor stack integration and repair services, offshore equipment and
installation services and subsea pipeline products. We have facilities in
Arlington, Houston and Lampasas, Texas; Houma, Louisiana; Scotland; Brazil;
England and Singapore.

Offshore Products Market

The market for our offshore products and services depends primarily upon
drilling rig refurbishments and upgrades, new rig construction and development
of infrastructure for offshore production activities. As demand for oil and gas
increases and related drilling and production increases in offshore areas
throughout the world, particularly in deeper water, we expect spending on these
activities to increase, resulting in improved demand for our offshore products
and services. We expect offshore drilling and production to increase as a result
of a number of factors that continue to enhance the economics of offshore
drilling and production, including:

- the opportunity to discover larger oil and gas reservoirs in these areas
as compared to previously exploited regions;

- technological advances in complex well drilling and production equipment
that is required in these areas, including those introduced by our
company;

- improved seismic data collection and interpretation techniques; and

- improved drilling techniques.

We believe that these factors will facilitate the exploration for and
development of new reserves in deepwater areas, promote the development of oil
and gas fields that were previously considered commercially marginal and extend
development and production of reserves from existing fields.

The upgrade of existing rigs to equip them with the capability to drill in
deeper water and the construction of new deepwater-capable rigs require
specialized products and services like the ones we provide. According to
information from One Offshore, Inc., construction of deepwater-capable rigs,
tension leg platforms, Spars and FPSO vessels is currently expected to increase
significantly in the next three years. At June 30, 2000, there were
approximately 57 semisubmersible rigs and 26 drillship-type rigs worldwide
capable of drilling in greater than 2,450 feet of water. It is anticipated that
by the year 2001 there will be 70 semi-submersible rigs and 30 drillship-type
rigs capable of this deepwater drilling. In addition, there are three new
tension leg platforms and five new Spars scheduled for completion by the year
2003. At the end of 1999, there were only 11 tension leg platforms and three
Spars in operation worldwide. The number of FPSO vessels is currently expected
to increase from 58 FPSOs in operation worldwide at the end of 1999 to 86 by the
year 2003, and the number of floating production semisubmersibles is anticipated
to increase from 34 to 39 over the same period. We believe that the
construction, installation, operation and refurbishment from time to time of
these facilities will result in increased demand for many of the products and
services provided by our offshore products segment. An increase in the number of
wells drilled and produced in deepwater is anticipated to increase the demand
for our deepwater offshore equipment and services.

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Products and Services

Our offshore products segment provides a broad range of highly engineered
technical products and services for use in offshore drilling and development
activities. In addition, this segment provides onshore oil and gas, defense and
general industrial products and services.

Our offshore products segment has a history of innovation and creative
applications of existing technologies. For example:

- in 1955, we developed the first flexible load bearings for bridges, which
represents the first use of a laminated bearing for a structural
application;

- in 1966, we invented HydroCouple, the first coupling for connecting
plain-end pipe under water;

- in the 1970s, we applied our laminated bearing technology to create
laminated bearings and seals for flexible pipeline bearings, flexible
drilling risers and nuclear submarines;

- in the 1980s, we developed a number of new technologically innovative
products, including our Merlin connector, a non-rotational connector that
is widely used in tension leg platform tethers, and Hydra-Lok, a system
for installing pile-to-structure connections in offshore platforms and
templates; and

- in the 1990s, we developed a diverless connection for use in depths of
over 5,000 feet and we analyzed, constructed and installed the first
rigid, extended length, free-hanging riser.

We have the capability to design and build manufacturing and testing systems for
many of our new products and services. These testing and manufacturing
facilities enable us to provide reliable, technologically advanced products and
services. Our Aberdeen facility provides a wide range of structural testing
including full-scale product simulations.

Offshore Development and Drilling Activities. We design, manufacture,
fabricate, inspect, assemble, repair, test and market subsea equipment and
offshore vessel and rig equipment. Our products are components of equipment used
on marine vessels, floating rigs and jack-ups, and for the drilling and
production of oil and gas wells on offshore fixed platforms and mobile
production units including floating platforms and FPSO vessels. We believe that
sales of our equipment for new rig building and offshore infrastructure
development will be important sources of future revenues. Our products and
services include:

- flexible bearings and connector products;

- subsea pipeline products;

- marine winches, mooring systems and rig equipment;

- blowout preventor stack assembly, integration, testing and repair
services; and

- fixed platform products and services.

FLEXIBLE BEARINGS AND CONNECTOR PRODUCTS. We are the principal supplier of
flexible bearings, or FlexJoints(TM), to the offshore oil and gas industry. We
also supply connections and fittings that join lengths of large diameter
conductor or casing used in offshore drilling operations. FlexJoints(TM) are
flexible bearings that permit movement of riser pipes or tension leg platform
tethers under high tension and pressure. They are used on drilling, production
and export risers and are used increasingly as offshore production moves to
deeper water areas. Drilling riser systems provide the vertical conduit between
the floating drilling vessel and the subsea wellhead. Through the drilling
riser, equipment is guided into the well and drilling fluids are returned to the
surface. Production riser systems provide the vertical conduit from the subsea
wellhead to the floating production platform. Oil and gas flows to the surface
for processing through the production riser. Export risers provide the vertical
conduit from the floating production platform to the subsea export pipelines.
FlexJoints(TM) are a critical element in the construction and operation of
production and export risers on floating production systems in deepwater.

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Floating production systems, including tension leg platforms, Spars and
FPSO systems, are a significant means of producing oil and gas, particularly in
deepwater environments. We provide many important products for the construction
of these systems. A tension leg platform is a floating platform that is moored
by vertical pipes, or tethers, attached to both the platform and the sea floor.
Our FlexJoint(TM) tether bearings are used at the top and bottom connections of
each of the tethers, and our Merlin connectors are used to join shorter pipe
segments to form long pipes offshore. A Spar is a floating vertical cylindrical
structure which is approximately six to seven times longer than its diameter and
is anchored in place.

SUBSEA PIPELINE PRODUCTS. We design and manufacture a variety of fittings
and connectors used in offshore oil and gas pipelines. Our products are used for
new construction, maintenance and repair applications. New construction fittings
include:

- forged steel Y-shaped connectors for joining two pipelines into one;

- pressure-balanced safety joints for protecting pipelines from anchor
snags or a shifting sea-bottom;

- electrical isolation joints; and

- hot tap clamps that allow new pipelines to be joined into existing lines
without interrupting the flow of petroleum product.

We provide diverless connection systems for subsea flowlines and pipelines.
Our proprietary metal-to-metal sealing system is preferred by many oil
companies. Our HydroTech connectors are most commonly used for final hook-up of
subsea production systems and allow pipelines and flowlines to be connected to
production equipment on the sea floor. They also are used in diverless pipeline
repair systems and in future pipeline tie-in systems. Our lateral tie-in sled,
which is installed with the original pipeline, allows a subsea tie-in to be made
quickly and efficiently using proven HydroTech connectors without costly
offshore equipment mobilization and without shutting off product flow.

We are a leader in providing pipeline repair hardware, especially in
deepwater applications beyond the depth of diver intervention. Our products
include:

- repair clamps used to seal leaks and restore the structural integrity of
a pipeline;

- mechanical connectors used in repairing subsea pipelines without having
to weld;

- misalignment flanges and swivel ring flanges; and

- pipe recovery tools for recovering dropped or damaged pipelines.

MARINE WINCHES, MOORING SYSTEMS AND RIG EQUIPMENT. We design, engineer and
manufacture marine winches, mooring systems and rig equipment. Our Skagit
winches are specifically designed for mooring floating and semi-submersible
drilling rigs and positioning pipelay and derrick barges, anchor handling boats
and jack-ups. We also design and fabricate rig equipment such as automatic pipe
racking and blow-out preventor handling equipment. Our engineering teams and
manufacturing capability, coupled with skilled service technicians who install
and service our products, provide our customers with a broad range of equipment
and services to support their operations.

BOP STACK ASSEMBLY, INTEGRATION, TESTING AND REPAIR SERVICES. We design and
fabricate lifting and protection frames and offer system integration of blow-out
preventor stacks and subsea production trees. We can provide complete turnkey
and design fabrication services. We also design and manufacture a variety of
custom subsea equipment, such as riser flotation tank systems, guide bases,
running tools, and manifolds. We also offer blow-out preventor and drilling
riser testing and repair services.

FIXED PLATFORM PRODUCTS AND SERVICES. We provide equipment for securing
subsea structures and offshore platform jackets, including our Hydra-Lok
hydraulic system. The Hydra-Lok tool, which has been successfully used at depths
of 3,000 feet, does not require diver intervention or guidelines.

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We also provide cost-effective, standardized leveling systems for offshore
structures that are anchored by foundation piles, including subsea templates,
subsea manifolds and platform jackets.

Other Products and Services. Our offshore products segment also produces a
variety of products for use in applications beyond the offshore oil and gas
industry. For example, we provide:

- downhole products for onshore drilling and production;

- elastomer products for use in both offshore and onshore oilfield
activities;

- metal-elastomeric FlexJoints(TM) used in a variety of military, marine
and aircraft applications; and

- technology used in drum-clutches and brakes for heavy-duty power
transmission in the mining, paper, logging and marine industries.

Backlog. Backlog in our offshore products segment at June 30, 2000 was
$38.0 million compared to backlog of $53.9 million at June 30, 1999. Our backlog
consists of firm customer purchase orders for which satisfactory credit or
financing arrangements exist and delivery is scheduled. Our backlog has
decreased $15.9 million from June 30, 1999 due primarily to a $12.0 million
reduction of our marine winches, mooring systems and drilling equipment backlog.
The reduction in backlog reflects the current low activity level for new
drilling rig construction.

Regions of Operations

Our offshore products segment provides products and services to customers
in the major offshore oil and gas producing regions of the world, including the
Gulf of Mexico, the North Sea, Brazil, Southeast Asia and West Africa.

Customers and Competitors

Our three largest customers in the offshore products markets in 1999 were
Global Marine Inc., Noble Drilling Corporation and FMC Corporation. Our main
competitors include AmClyde Engineered Products Company, Inc., Dril-Quip, Inc.,
Cooper Cameron Corporation, Stolt Offshore and Coflexip Stena Offshore.

Growth Initiatives

We intend to grow our offshore products segment by pursuing the following
initiatives:

- Product Line Development. We intend to continue developing our product
line by finding new applications for our existing technologies and by
developing new products. New applications for our existing products could
include new FlexJoint(TM) applications, the use of our Merlin connector
in subsea pipelines and new Hydra-Lok applications. New products
currently under development include diverless subsea pipeline products.

- Expand Project Workscope. We intend to expand the range of services that
we offer in connection with our offshore products. We believe that we can
obtain higher margins and provide more complete customer service by
participating in all aspects of our customers' purchasing decisions,
including design, engineering, installation and service.

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TUBULAR SERVICES

Overview

Through our tubular services segment, we are the largest distributor of oil
country tubular goods, or OCTG, and are a provider of associated finishing and
logistics services to the oil and gas industry. Oil country tubular goods
consist of casing, production tubing and line pipe. Through our tubular services
segment, we:

- distribute premium tubing and casing;

- provide threading, remediation, logistical and inventory services; and

- offer e-commerce pricing, ordering and tracking capabilities.

In 1999, we acquired the tubular divisions of Continental Emsco, Wilson
Supply and National-Oilwell, Inc. These transactions expanded our presence in
key market segments and increased our coverage of the diversified marketplace
for OCTG. We believe we now serve one of the widest customer bases in the
industry, ranging from major oil companies to small independents.

Through our key relationships with more than 20 manufacturers of oilfield
specialty and line pipe, we deliver tubular products and ancillary services to
oil and gas companies, drilling contractors and consultants around the world. We
estimate that we currently have the largest OCTG distribution market share in
the United States, based on tonnage shipped as a percentage of estimated OCTG
consumed in the marketplace. Despite being a leading distributor of OCTG, we
estimate that our U.S. market share is currently approximately 20%. Because the
United States OCTG distribution market is fragmented and composed of many small
companies, we believe that there are opportunities for us to increase our market
share.

OCTG Market

Our tubular services segment primarily provides casing and tubing. Casing
forms the structural wall in oil and gas wells to provide support and prevent
caving during drilling operations. Casing is used to protect water-bearing
formations during the drilling of a well. Casing is generally not removed after
it has been installed in a well. Production tubing, which is used to bring oil
and gas to the surface, may be replaced during the life of a producing well.

A key indicator of domestic demand for OCTG is the average number of
drilling rigs operating in the United States. According to Baker Hughes, the
average United States rig counts in 1997, 1998 and 1999 were 943, 843 and 625,
respectively. The active rig count in the United States fell to 488 in April
1999. However, drilling activity accelerated in the second half of 1999, and by
year-end 771 rigs were active, compared to 621 at the end of 1998. As of July
14, 2000, 928 rigs were active in the United States. The OCTG market at any
point in time is also affected by the level of inventories maintained by
manufacturers, distributors and end users. In addition, in recent years the
focus of drilling activity has been shifting towards less explored, deeper
geological formations and deepwater locations which offer potentially prolific
reserves. Demand for tubular products is positively impacted by increased
drilling of deeper, horizontal and offshore wells. Deeper wells require
incremental tubular feet and enhanced mechanical capabilities to ensure the
integrity of the well. Deeper wells generate more revenues for our tubular
services segment than shallower wells since deeper wells require more, higher
quality and larger diameter pipe. Premium tubulars are used in horizontal
drilling to withstand the increased bending and compression loading associated
with a horizontal well. Since the cost of a pipe failure is typically higher in
an offshore well than in a land well, offshore operators typically specify
premium tubulars, which provide us with higher margins, for the completion of
offshore wells.

Products and Services

Tubular Products and Services. We distribute all types of OCTG produced by
both domestic and foreign manufacturers to major and independent oil and gas
exploration and production companies and other OCTG distributors. We do not
manufacture any of the tubular goods that we distribute. We operate our tubular

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services segment from a total of 11 facilities and have offices strategically
located near areas of oil and gas exploration and development activity in the
United States, Scotland and Nigeria.

We maintain the industry's largest on-the-ground inventory in more than 75
yards in the United States, Scotland and Nigeria, giving us the flexibility to
fill our customers' orders from our own stock or directly from the manufacturer.
We have a proprietary inventory management system, designed specifically for the
OCTG industry, that enables us to track our product shipments down to the
individual pipe stem. This proprietary system integrates our main domestic
facility, the A-Z Terminal in Crosby, Texas, with our overseas facilities in
Nigeria and Scotland.

The purchasing volumes, customer base and management experience of our
tubular services segment provides us with financial and commercial advantages in
our dealings with tubular manufacturers. As a leading distributor of tubular
goods, we believe that we are able to negotiate more favorable supply contracts
with manufacturers. We have distribution relationships with all major domestic
and international steel mills and believe we have good working relationships
with leading mills such as U.S. Steel Group, Lone Star Technologies, Inc. and
Maverick Tube Corporation.

A-Z Terminal. Our A-Z Terminal pipe maintenance and storage facility in
Crosby, Texas is equipped to provide a full range of tubular services, giving us
a customer service capability that we believe is unique in the industry. Set on
109 acres, the ISO 9002-certified facility has more than 1,400 pipe racks and
two double-ended thread lines. We have exclusive use of a permanent third-party
inspection center within the facility. The facility also includes indoor chrome
storage capability and patented pipe cleaning machines.

We offer services at our A-Z Terminal facility typically outsourced by
other distributors, including the following: threading, inspection, cleaning,
cutting, logistics, rig returns, installation of float equipment and
non-destructive testing. In addition, we have the use of two rail spurs, one of
which allows us to deliver tubular products from our facility directly to the
Alaskan North Slope.

E-commerce. On February 14, 2000, we launched the website
www.soonerpipe.com. The website allows customers to access the features provided
by our proprietary inventory management system which is designed specifically to
handle tubular products. The key features of www.soonerpipe.com are as follows:

- real-time order tracking from the originating steel mill, through
logistical services to final delivery;

- confidential price and delivery quotation requests from up to five
different tubular distributors, which save the customer time and effort
in obtaining the best value for a particular order;

- our entire catalog of in-stock and special order OCTG and line pipe;

- product catalog searches by several different criteria, including size,
weight and grade of pipe;

- ability to select a number of value-added pipe logistics services,
including threading, third-party inspection, cleaning, cutting and
accessory equipment available from our A-Z Terminal facility; and

- extensive customer reporting features and financial information and
invoicing.

The operation of www.soonerpipe.com provides us with the capability to
serve customers around the world 24 hours a day, seven days a week.

Tubular Products and Services Sales Arrangements. We provide our tubular
products and logistics services through a variety of arrangements, including
spot market sales, alliance agreements and international supply/logistics
agreements. During 1999, the spot market accounted for a majority of our sales
of tubular products and logistics services.

We also provide our tubular products and services to independent and major
oil and gas companies under alliance agreements. Although our alliance
agreements are not as profitable as the spot market, they provide us with more
stable and predictable revenues and an improved ability to forecast required
inventory levels, which allows us to manage our inventory more efficiently.
These agreements also provide us with the opportunity to grow our tubular
services segment within our alliance customer base.

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<PAGE> 41

Regions of Operations

Our tubular services segment provides tubular products and services to
customers in the United States, the Gulf of Mexico, Canada, Nigeria, Venezuela,
Ecuador, Colombia, Guatemala and the United Kingdom.

Customers, Suppliers and Competitors

Our three largest customers in the tubular distribution market in 1999 were
Exxon Mobil Corporation, Unocal Corporation and Conoco Inc., and our three
largest suppliers were U.S. Steel Group, Maverick Tube Corporation and Lone Star
Technologies, Inc. The tubular services distribution market is fragmented, and
our main competitors are Vinson Supply Co., Red Man Pipe & Supply Co., Inc. and
Total Premier.

Growth Initiatives

We intend to pursue the following initiatives to grow our tubular services
segment:

- Expand E-Commerce Initiative. We believe that www.soonerpipe.com has the
potential to deliver incremental revenues through the addition of
customers and through the introduction of efficiencies into the ordering
process. We intend to optimize the website and to educate our current and
prospective customers on the benefits of e-commerce applications in the
tubular goods industry.

- Partner with Small Brokerage Suppliers. A subset of the tubular goods
distribution market is composed of small brokerage-type suppliers who
broker tubular products and services for their customers. We intend to
pursue arrangements with these broker-dealers under which we would become
their sole supplier of tubular products and services at prices lower than
they could otherwise obtain in the market.

- Expand Internationally. Our United States operations essentially provide
for the outsourcing of tubular inventory logistics, management and
storage functions by our customers. We believe that similar outsourcing
arrangements can be developed in international locations and that these
arrangements could create an area of potential growth for the tubular
goods we distribute.

WELL SITE SERVICES

Overview

Our well site services segment provides a broad range of products and
services that are used to establish and maintain the flow of oil and gas from a
well throughout its lifecycle. Our services include workover services, drilling
services, rental equipment, remote site accommodations, catering and logistics
services and modular building construction services. We use our fleet of
workover and drilling rigs, rental equipment, remote site accommodation
facilities and related equipment to service well sites for oil and natural gas
companies. Our products and services are used in both onshore and offshore
applications through the exploration, development, production and abandonment
phases of a well's life. Additionally, our remote site accommodations, catering
and logistics services are employed in a variety of mining and related natural
resource applications.

Well Site Services Market

Recently, demand for our workover and drilling rigs, rental equipment and
remote site accommodations, catering and logistics services has increased due to
improved cash flow of oil and gas producers. We expect activity levels to
continue to improve with favorable oil and gas prices for producers.

Demand for our workover services is impacted significantly by offshore
activity both in the United States and international areas. Our hydraulic
workover units compete with jackup rigs for shallow water workover projects.
With the recent increases in dayrates of jackup rigs, our hydraulic workover
units are more attractive to operators due to their cost and performance
attributes relative to our competitors.

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<PAGE> 42

Demand for our drilling services is influenced by both oil and gas shallow
onshore United States drilling activity. According to Baker Hughes, the average
United States rig counts in 1997, 1998 and 1999 were 943, 843 and 625,
respectively. The active rig count in the United States fell to 488 in April
1999. However, drilling activity accelerated in the second half of 1999, and by
year-end 771 rigs were active, compared to 621 at the end of 1998. As of July
14, 2000, 928 rigs were active in the United States. Increased drilling activity
typically leads to higher drilling rates. Given the cost advantages of our
semi-automated drilling rigs, we believe our drilling fleet is well positioned
to benefit from further increases in drilling activity.

Our hydraulic drilling and workover rigs are capable of providing
underbalanced drilling and workover services. Underbalanced drilling and
workover can lead to increased rates of penetration, longer drill bit life and
reduced risk of damage to the formation. In recent years, oil and gas operators
have increasingly utilized underbalanced services, a trend which we believe will
continue in the future.

We expect demand for our rental services to benefit from increasing
exploration and development activity in the U.S. Gulf Coast area and the Gulf of
Mexico.

We expect a large portion of incremental spending by oil and gas producers
to be directed toward oil and gas development in the remote locations of Western
Canada and the deepwater areas of the Gulf of Mexico. Our remote accommodations,
catering and logistics business supplies products and services to companies
engaged in operations in these frontier areas.

Products and Services

Workover Services. We provide a broad range of workover products and
services primarily to customers in the U.S., Canada, Venezuela, the Middle East
and West Africa. Workover products and services are used in operations on a
producing well to restore or increase production. Workover services are
typically used during the development, production and abandonment stages of the
well. These products and services include hydraulic workover units for offshore
workover operations and snubbing operations in pressure situations.

A hydraulic workover unit is a specially designed rig used for vertically
moving tubulars in and out of a wellbore using hydraulic pressure. This unit is
used for servicing wells with no pressure at the surface and also has the unique
ability of working safely on wells under pressure. This feature allows these
units to be used for underbalanced drilling and workover and also in well
control applications. When the unit is snubbing, it is pushing pipe or tubulars
into the well bore against well bore pressures. Because of their small size and
ability to work on wells under pressure, hydraulic workover units offer several
advantages over traditional well servicing methods, including:

- reduced mobilization and demobilization costs;

- reduced cost and time of retrofit to offshore platforms;

- reduced production shut-in time;

- reduced deck space requirement; and

- live well intervention capability for underbalanced drilling situations.

We currently have 31 hydraulic workover units, 27 of which are "stand
alone" units and four of which are "rig assist" units. Of these 31 units, 16 are
located in the U.S., four are located in each of the Middle East, Venezuela and
Canada and three are located in West Africa. Utilization of our hydraulic
workover units varies from period to period. As of June 30, 2000, eight of our
hydraulic workover units were working or under contract. Typically, our
hydraulic workover units are contracted on a short-term dayrate basis. The
length of time to complete a job depends on many factors, including the number
of wells and the type of workover or pressure control situation involved. Usage
of our hydraulic workover units is also affected by the availability of trained
personnel. With our current level of trained personnel, we estimate that we have
the capability to crew and operate 14 to 17 simultaneous jobs involving our
hydraulic workover units.

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<PAGE> 43

Our three largest customers in workover services in 1999 were Chevron
Corporation, Petroleos de Venezuela, S.A. and Operaciones de Produccion y
Exploracion Nacionales, S.A. We have also entered into a non-exclusive preferred
supplier alliance agreement with Schlumberger Oilfield Services Group under
which we provide hydraulic workover services to Schlumberger, as and when deemed
mutually beneficial, on a worldwide basis. Our main competitors in workover
services are Halliburton Company, Cudd Pressure Control, Inc. and Nabors
Industries, Inc.

Drilling Services. Our drilling services business is located in Odessa,
Texas and Wooster, Ohio and provides drilling services for shallow to medium
depths ranging from 2,000 to 9,000 feet. Drilling services are typically used
during the exploration and development stages of a field. We have a total of 12
semi-automatic drilling rigs with hydraulic pipe handling booms and lift
capacities ranging from 200,000 to 300,000 pounds. Nine of these drilling rigs
are located in Odessa, Texas and three are located in Wooster, Ohio. As of June
30, 2000, 11 of the 12 rigs were in operation.

We market our drilling services directly to a diverse customer base,
consisting of both major and independent oil companies. Our semi-automatic rigs
offer several competitive advantages, including:

- our rigs operate with a two-man crew rather than the four-man crew
typically required by others;

- our rigs require only 60 feet by 100 feet of deckspace;

- our rigs require significantly fewer truck loads for delivery to the well
site;

- our rigs do not require casing crews;

- our top drive units offer better drilling efficiency than conventional
rotary units; and

- our rigs offer various safety benefits, including minimal pipehandling,
no derrick man and no rotary table and chains.

Our largest customers in drilling services in 1999 included Anadarko
Petroleum Corporation and Chevron Corporation. Our main competitors are Nabors
Industries, Inc., Patterson Energy Inc. and Key Energy Services, Inc. The land
drilling business is very fragmented and consists of a small number of large
companies and many smaller companies.

Rental Services. Our rental services business provides a wide range of
products for use in the offshore and onshore oil and gas industry, including:

- wireline and coiled tubing pressure control equipment;

- pipe recovery systems; and

- surface-based pressure control equipment used in production operations.

Our rental services are used during the exploration, development,
production and abandonment stages. We provide rental services at 12 U.S.
distribution points in Texas, Louisiana and Oklahoma. We provide rental services
on a day rental basis with rates varying depending on the type of equipment and
the length of time rented.

Our three largest customers in rental services in 1999 were Schlumberger
Ltd., Baker Hughes Incorporated and Halliburton Company.

Remote Site Accommodations, Catering and Logistics and Modular Building
Construction. We are a leading provider of fully integrated products and
services required to support a workforce at a remote location, including
workforce accommodations, food services, remote site management services and
modular building construction. We provide complete design, manufacture,
installation, operation and redeployment logistics services for oil and gas
drilling, oil sands mining, diamond mining, pipeline construction, offshore
construction, disaster relief services or any other industry that requires
remote site logistics projects. Our remote site products and services operations
are primarily focused in Canada and the Gulf of Mexico. During the peak of

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<PAGE> 44

our operating season, we typically provide logistics services in over 200
separate locations throughout the world to remote sites with populations of 20
to 2,000 persons.

Our remote site logistics products and services business offers several
competitive advantages, including:

- an extensive inventory of over 2,400 building units in Canada and the
Gulf of Mexico;

- established field service infrastructure;

- extensive remote site logistics capabilities; and

- the ability to mobilize equipment to remote sites on short notice.

Remote Site Accommodations, Catering and Logistics Services. We sell and
lease portable living quarters, galleys, diners and offices and provide portable
generator, water sewage systems and catering services as part of our remote site
logistics services. We provide various client-specific building configurations
to customers for use in both onshore and offshore applications. We provide our
integrated remote site logistics services to customers under long-term and
short-term contractual arrangements which include the provision of:

- sanitation, janitorial and laundry services;

- security services;

- maintenance services;

- installation services and planning;

- transportation and communications; and

- power, fuel supply, lighting and refrigeration services.

Modular Building Construction. We design, construct and install a variety
of portable modular buildings, including housing, kitchens, recreational units
and offices for the Canadian and Gulf of Mexico markets. Our designers work
closely with our clients to build structures that best serve their needs.

Our Canadian manufacturing operations primarily support our Canadian remote
site logistics business through the construction and refurbishing of remote site
rental units.

We also design and construct steel and ultra-light weight aluminum modular
buildings and accommodation units for lease or sale to the offshore oil and gas
industry located primarily in the Gulf of Mexico. These buildings are designed
to meet the challenges encountered in harsh saltwater environments and include
U.S. Coast Guard-approved buildings. These modular buildings save valuable deck
space because they can be stacked three high, while still maintaining their
structural integrity in high winds. The structural integrity of our metal
accommodation units provide significant safety advantages over the wood and
fiberglass composite units that some of our competitors provide.

In 1999, our three largest customers in remote site accommodations,
catering and logistics and modular building construction were Syncrude Canada,
Ltd., Ensign Resource Service Group Inc. and Precision Drilling Corporation. Our
main competitors are Atco Structures Limited, Great West Catering Ltd. and
Abbeyville Offshore Inc. However, we do not believe that any of our competitors
provides fully integrated remote site logistics services to the same extent as
we currently provide.

Growth Initiatives

We intend to pursue the following initiatives to grow our well site
services business:

- Develop new products. New product developments, such as offshore skidable
racking structures, can be built around the hydraulic workover unit to
improve the competitiveness for both multiple well projects and higher
level workovers.

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<PAGE> 45

- Improve market share in well control projects. We believe that we can
improve our market share in emergency well control projects through the
use of partnerships with engineering companies, major service providers
and providers of emergency response services.

- Expand our rental fleet. We plan to expand our rental fleet to target
deepwater operations.

- Provide additional services and equipment. We plan to provide additional
services and equipment to onshore and offshore remote sites in various
geographic locations.

GOVERNMENT REGULATION

Our business is significantly affected by foreign, federal, state and local
laws and regulations relating to the oil and natural gas 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, could significantly affect our business. We cannot predict changes
in the level of enforcement of existing laws and regulations or how these laws
and regulations may be interpreted or the effect changes in these laws and
regulations may have on us or our future operations or earnings. 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. This demand is affected by changing taxes, price controls and
other laws and regulations relating to the oil and gas industry generally,
including those specifically directed to oilfield and offshore operations. The
adoption of laws and regulations curtailing exploration and development drilling
for oil and natural gas in our areas of operation could also adversely affect
our operations by limiting 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 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 states' workers' compensation laws inapplicable to
these employees and permit them or their representatives generally to pursue
actions against us for damages or job-related injuries with no limitations on
our potential liability.

Our operations are subject to numerous foreign, federal, state and local
environmental 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, for which compliance is often costly and
difficult. The violation of these laws may result in the denial or revocation of
permits, issuance of corrective action orders, assessment of administrative and
civil penalties and even criminal prosecution. We believe that we are in
compliance in all material respects with applicable environmental laws and
regulations. Further, we do not anticipate that compliance with existing laws
and regulations will have a material effect on our consolidated financial
statements.

We generate wastes, including hazardous wastes, that are subject to the
federal Resource Conservation and Recovery Act, or RCRA, and comparable state
statutes. The United States Environmental Protection Agency, or EPA, and state
agencies have limited the approved methods of disposal for some types of
hazardous and nonhazardous wastes. Some wastes handled by us in our 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. This would subject us to more rigorous and costly operating
and disposal requirements.

The federal Comprehensive Environmental Response, Compensation, and
Liability Act, or CERCLA or 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
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<PAGE> 46

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 may operate 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. Under these laws and
related 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 to waters. The
Federal Water Pollution Control Act 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 is prohibited unless
permitted by the EPA or applicable state agencies. In addition, the Oil
Pollution Act of 1990 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 Federal Water Pollution Control Act and analogous state laws
provide for administrative, civil and criminal penalties for unauthorized
discharges and, together with the Oil Pollution Act, 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.

Although we believe that we are in substantial compliance with existing
laws and regulations, there can be no assurance that substantial costs for
compliance will not be incurred in the future. Moreover, it is possible that
other developments, such as the adoption of stricter environmental laws,
regulations and enforcement policies, could result in additional costs or
liabilities that we cannot currently quantify.

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FACILITIES

The following table presents information about our principal facilities.
Except as indicated below, we own all of these facilities.

<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION FOOTAGE/ACREAGE DESCRIPTION
-------- --------------- -----------
<S> <C> <C>
United States
Houston, Texas (lease).................... 3,095 Principal executive offices
Arlington, Texas.......................... 11,264 Offshore products business office
Arlington, Texas.......................... 55,853 Offshore products manufacturing facility
Arlington, Texas (lease).................. 42,491 Offshore products manufacturing facility
Arlington, Texas.......................... 44,780 Elastomer Technology Center
Arlington, Texas.......................... 60,000 Molding and aerospace facilities
Houston, Texas (lease).................... 16,000 Offshore products manufacturing facility
Houston, Texas............................ 65,105 Offshore products manufacturing facility
Houston, Texas (lease).................... 54,050 Offshore products manufacturing facility
Lampasas, Texas........................... 47,500 Molding facility for offshore products
Crosby, Texas............................. 109 acres Tubular yard
Belle Chasse, Louisiana (lease)........... 20,000 Accommodations manufacturing facility
Lafayette, Louisiana (lease).............. 9 acres Accommodations equipment yard
Houma, Louisiana (lease).................. 24,000 Accommodations manufacturing facility
Houma, Louisiana.......................... 24,000 Hydraulic well control yard and office
Houma, Louisiana.......................... 8,400 Well control office and training facility
Houma, Louisiana.......................... 64,659 Offshore products manufacturing facility
Broussard, Louisiana...................... 19,000 Rental tool warehouse
Odessa, Texas............................. 14,240 Tubular warehouse
Odessa, Texas............................. 7,500 Office and warehouse in support of
drilling operations
Alvin, Texas.............................. 20,450 Rental tool warehouse
International
Nisku, Alberta............................ 33,000 Accommodations manufacturing facility
Edmonton, Alberta......................... 31,000 Accommodations office and warehouse
Aberdeen, Scotland (lease)................ 56,021 Offshore products manufacturing facility
Bathgate, Scotland........................ 28,000 Offshore products manufacturing facility
Spruce Grove, Alberta..................... 15,000 Accommodations facility and equipment yard
Grande Prairie, Alberta................... 18,000 Accommodations facility and equipment yard
Peace River, Alberta...................... 80 acres Accommodations equipment yard
Aberdeen, Scotland (lease)................ 6,260 Tubular yard
Barrow, England........................... 14,551 Offshore products manufacturing facility
Singapore, Asia (lease)................... 13,411 Offshore products warehouse and yard
Macae, Brazil (lease)..................... 18,729 Offshore products manufacturing facility
Port Harcourt, Nigeria (lease)............ 376,727 Tubular yard
</TABLE>

We have five tubular sales offices and a total of 12 rental supply and
distribution points in Texas, Louisiana and Oklahoma. Most of these office
locations provide sales, technical support and personnel services to our
customers. We also have various offices supporting our business segments which
are both owned and leased.

LEGAL PROCEEDINGS

We are a party to various pending or threatened claims, lawsuits and
administrative proceedings seeking damages or other remedies concerning our
commercial operations, products, employees and other matters. Although we can
give no assurance about the outcome of these or any other pending legal and
administrative

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<PAGE> 48

proceedings and the effect such outcomes may have on us, we believe that any
ultimate liability resulting from the outcome of such proceedings, to the extent
not otherwise provided for or covered by insurance, will not have a material
adverse effect on our financial condition or results of operations.

EMPLOYEES

As of June 30, 2000, we had 1,847 full-time employees, 865 of whom are in
our offshore products segment, 93 of whom are in our tubular services segment
and 889 of whom are in our well site services segment. In addition, we are party
to collective bargaining agreements covering approximately 275 employees located
in Canada. We believe relations with our employees are good.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table provides information regarding our executive officers
and directors:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
L.E. Simmons.......................... 53 Chairman of the Board

Douglas E. Swanson.................... 61 Director, President and Chief
Executive Officer

Cindy B. Taylor....................... 38 Senior Vice President -- Chief
Financial Officer and Treasurer

Robert W. Hampton..................... 48 Vice President -- Finance and
Accounting

Michael R. Chaddick................... 53 Vice President -- Tubular Services

Christopher E. Cragg.................. 39 Vice President -- Tubular Services

Howard Hughes......................... 57 Vice President -- Offshore Products

Sandy Slator.......................... 56 Vice President -- Well Site Services

Jay Trahan............................ 54 Vice President -- Well Site Services

Mark G. Papa(1)....................... 53 Director

Gary L. Rosenthal(1).................. 50 Director

Andrew L. Waite....................... 39 Director

Stephen A. Wells...................... 56 Director
</TABLE>

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

(1) Mr. Papa and Mr. Rosenthal will be appointed to our board of directors in
connection with the closing of the Combination and the offering.

We describe briefly below the business experience of our executive officers
and directors.

L.E. Simmons is Chairman of the Board of our company. Mr. Simmons is the
founder, Chairman of the Board and President of L.E. Simmons & Associates,
Incorporated, a private equity fund manager and the ultimate general partner of
SCF. Mr. Simmons has held these positions since 1989. Prior to founding L.E.
Simmons & Associates, Incorporated, he co-founded Simmons & Company
International and served as President of Energy Ventures. Mr. Simmons also
serves as a director of Varco International, Inc. and Zions Bancorporation. He
received a M.B.A. from the Harvard University Graduate School of Business
Administration.

Douglas E. Swanson is a director of our company and has served as President
and Chief Executive Officer since January 2000. From January 1992 to August
1999, Mr. Swanson served as Chairman of the Board and Chief Executive Officer of
Cliffs Drilling Company. He currently serves as a director of HWC, Sooner, R&B
Falcon Corporation and Varco International, Inc. He holds a degree from Cornell
College and is a Certified Public Accountant.

Cindy B. Taylor is Senior Vice President -- Chief Financial Officer and
Treasurer of our company. She has held this position since May 2000. From August
1999 to May 2000, Mrs. Taylor was the Chief Financial

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<PAGE> 49

Officer of L.E. Simmons & Associates, Incorporated. Mrs. Taylor served as the
Vice President -- Controller of Cliffs Drilling Company from July 1992 to August
1999 and as a senior manager with Ernst & Young, LLP from January 1984 to July
1992. She received a B.B.A. from Texas A&M University and is a Certified Public
Accountant.

Robert W. Hampton will be appointed Vice President -- Finance and
Accounting of our company upon completion of the offering. Mr. Hampton is Vice
President and Chief Financial Officer of HWC Energy Services Inc., a position he
has held since February 1998. Mr. Hampton joined HWC from Tidewater Inc., where
he was based in Aberdeen and was Area Manager for the North Sea Operations from
March 1996 to February 1998. He served as Vice President, Treasurer and Chief
Financial Officer of Hornbeck Offshore from 1990 to March 1996, when it was
acquired by Tidewater. Mr. Hampton worked at Price Waterhouse from 1973 to 1986.
Mr. Hampton is a Certified Public Accountant and received his B.S. degree from
the Pennsylvania State University.

Michael R. Chaddick will be appointed Vice President -- Tubular Services of
our company upon completion of the offering. Mr. Chaddick is Executive Vice
President -- Chief Operating Officer of Sooner, a position he has held since
June 1999. From May 1992 to June 1999, he served as President of the Wilson
Supply Company Division of Wilson Industries, Inc. He served as Vice
President -- Tubular Services for Wilson from February 1982 until May 1992 and
was the General Manager of Tubular Services from November 1980 until February
1982. Prior to joining Wilson, Mr. Chaddick spent 11 years with U.S. Steel in
various sales and management capacities. He currently serves as a director of
Sooner. He received a B.B.A. degree from the University of Texas at Arlington.

Christopher E. Cragg will be appointed Vice President -- Tubular Services
of our company upon completion of the offering. Mr. Cragg is Executive Vice
President -- Chief Financial Officer of Sooner, a position he has held since
December 1999. From April 1994 to June 1999, he was Vice President and
Controller of Ocean Energy, Inc. and its predecessor companies. Mr. Cragg served
as Manager -- Internal Audit with Cooper Industries from April 1993 to April
1994 and as a senior manager with Price Waterhouse from August 1982 to April
1992. He currently serves as a director of Sooner. He received a B.B.A. degree
from Southwestern University and is a Certified Public Accountant.

Howard Hughes will be appointed Vice President -- Offshore Products of our
company upon completion of the offering. Mr. Hughes is President of Oil States,
a position he has held since September 1989. Prior to that, Mr. Hughes served in
various managerial and executive positions with Oil States since April 1976. He
holds a B.S. degree from the University of Houston.

Sandy Slator will be appointed Vice President -- Well Site Services of our
company upon completion of the offering. Mr. Slator is President and Chief
Executive Officer of PTI, a position he has held since January 2000. From
February 1999 to November 1999, Mr. Slator was a founding partner of River View
Venture Partners, an Edmonton-based venture capital group. From March 1998 to
January 1999, Mr. Slator was an associate of Lambridge Capital Partners, an
Edmonton-based investment banking group. From September 1996 to June 1997, Mr.
Slator was a founding partner of NetCovergence, Inc., a private technology
related company. From 1989 to April 1996, Mr. Slator served as President and
Chief Executive Officer of Vencap Equities Alberta Ltd., a publicly traded
venture capital company. Mr. Slator served on the board of PTI from 1984 until
1994.

Jay Trahan will be appointed Vice President -- Well Site Services of our
company upon completion of the offering. Mr. Trahan is President and Chief
Executive Officer of HWC, a position he has held since January 1998. He has 30
years of experience in the oil and gas industry. From 1996 to January 1998, Mr.
Trahan served as President of Baker Hughes Solutions; from 1993 to 1996, he
served as President to Baker Hughes Inteq; from 1990 to 1993, he served as
President of Baker Sand Control; and from 1988 to 1990 he served as Vice
President of Worldwide Operations for Baker Sand Control. He currently serves as
a director of HWC.

Mark G. Papa will become a director of our company upon the completion of
the offering. Mr. Papa has served as Chairman of the Board and Chief Executive
Officer of EOG Resources, Inc., an exploration and

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<PAGE> 50

production company, since August 1999. From February 1994 to August 1999, he
held a number of management positions with EOG Resources, Inc. He has a
petroleum engineering degree from the University of Pittsburgh and a M.B.A.
degree from the University of Houston.

Gary L. Rosenthal will become a director of our company upon the completion
of the offering. Mr. Rosenthal is co-founder and President of Heaney Rosenthal
Inc., a private investment company, a position he has held since October 1994.
He also serves as Chairman of the Board, Chief Executive Officer and President
of AXIA Inc., a diversified manufacturing company. He has held these positions
since July 1998. He currently serves as a director of HWC, Diamond Products
International, Inc. and Texas Petrochemical Holdings, Inc. He holds J.D. and
A.B. degrees from Harvard University.

Andrew L. Waite is a director of our company. Mr. Waite is a Managing
Director of L.E. Simmons & Associates, Incorporated and has been an officer of
that company since October 1995. He was previously Vice President of Simmons &
Company International, where he served from August 1993 to September 1995. From
1984 to 1991, Mr. Waite held a number of engineering and management positions
with the Royal Dutch/Shell Group. He currently serves as a director of HWC,
Sooner, WorldOil.com Inc. and Canyon Offshore, Inc. He received a M.B.A. from
the Harvard University Graduate School of Business Administration and a M.S.
degree from the California Institute of Technology.

Stephen A. Wells is a director of our company. Mr. Wells is the president
of Wells Resources, Inc., a privately owned oil, gas and ranching company, and
has served in that position since 1983. From April 1999 to October 1999, Mr.
Wells served as a director and Chief Executive Officer of Avista Resources, Inc.
From October 1993 to February 1996, he was a director and Chief Executive
Officer of Coastwide Energy Services, Inc. From March 1992 to September 1994, he
was a director and Chief Executive Officer of Grasso Corporation. Mr Wells
currently is a director of Pogo Producing Company and is the Chairman of the
Board of GRT Inc.

CLASSIFIED BOARD

Our board of directors will be divided into three classes. The directors
will serve staggered three-year terms. Terms of the Class I directors will
expire at the annual meeting of stockholders to be held in 2001. The terms of
the directors of the other two classes will expire at the annual meetings of
stockholders to be held in 2002 (Class II) and 2003 (Class III). At each annual
meeting of stockholders, one class of directors will be elected for a full term
of three years to succeed that class of directors whose terms are expiring. The
directors so elected may be removed only for cause. Upon the completion of the
offering, the classification of directors will be as follows:

- Class I -- Mr. Simmons and Mr. Swanson;

- Class II -- Mr. Rosenthal and Mr. Waite;

- Class III -- Mr. Papa and Mr. Wells.

COMMITTEES OF THE BOARD OF DIRECTORS

Upon completion of this offering, our board of directors will establish an
audit committee and a compensation committee.

The functions of the audit committee will be to:

- recommend annually to our board of directors the appointment of our
independent auditors;

- discuss and review in advance the scope and the fees of our annual audit
and review the results of the annual audit with our independent auditors;

- review and approve non-audit services of our independent auditors;

- review the adequacy of and compliance with our major accounting and
financial reporting policies;

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<PAGE> 51

- review our management's procedures and policies relating to the adequacy
of our internal accounting controls and compliance with applicable laws
relating to accounting practices; and

- review our risk management policies and activities.

The audit committee will consist solely of independent directors.

The functions of the compensation committee will be to review and approve:

- annual salaries;

- bonuses;

- grants of restricted stock and stock options under our 2000 Equity
Participation Plan and other stock incentive plans adopted from time to
time for all executive officers and key members of our management staff;
and

- the terms and conditions of all employee benefit plans or changes to
these plans.

The compensation committee will consist solely of non-employee directors.

BOARD COMPENSATION

Directors who are also our employees do not receive a retainer or fees for
service on our board of directors or any committees. Directors who are not
employees will receive after the offering an annual fee of $15,000 and fees of
$1,500 for attendance at each meeting of our board of directors, $1,000 for each
committee meeting attended in person and $500 for each committee meeting
attended telephonically. Directors who are not employees will receive options to
purchase 5,000 shares of our common stock upon election to the board of
directors (or, for our non-employee directors who will continue on the board of
directors, upon completion of the offering) and additional options to purchase
5,000 shares at each annual meeting after which they continue to serve. These
options will be granted under the 2000 Equity Participation Plan, will vest in
four annual installments and will expire ten years from the date of grant. In
the event of a change in control, the options will vest in accordance with the
plan. The exercise price of these options will be the fair market value at the
date of grant. All of our directors are reimbursed for reasonable out-of-pocket
expenses incurred in attending meetings of our board of directors or committees
and for other reasonable expenses related to the performance of their duties as
directors.

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<PAGE> 52

EXECUTIVE COMPENSATION

The following table presents information regarding the compensation of our
Chief Executive Officer and our four other most highly compensated executive
officers. These five persons are collectively referred to in this prospectus as
the "named executive officers."

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
Douglas E. Swanson(1)...................................... $375,000
President and Chief Executive Officer
Cindy B. Taylor(1)......................................... $200,000
Senior Vice President --
Chief Financial Officer and Treasurer
Howard Hughes(2)........................................... $225,000 $73,163 $10,890(3)
Vice President --
Offshore Products
Jay Trahan(2).............................................. $200,000 -- --
Vice President --
Well Site Services
Robert W. Hampton(2)....................................... $135,000 -- --
Vice President --
Finance and Accounting
</TABLE>

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

(1) Reflects expected annualized salary for 2000. Mr. Swanson and Ms. Taylor
joined our company in January 2000 and May 2000, respectively.

(2) Reflects compensation paid for 1999.

(3) Reflects payments made to the Oil States 401(k) plan on behalf of Mr. Hughes
to fund base retirement contributions, 401(k) matching contributions and
discretionary profit sharing contributions.

2000 EQUITY PARTICIPATION PLAN

We have adopted an Equity Participation Plan. The plan provides for the
grant of any combination of:

- stock options (including both incentive stock options and nonqualified
stock options);

- restricted stock;

- performance awards;

- dividend equivalents;

- deferred stock; and

- stock payments.

The purpose of the plan is to strengthen our ability to attract, motivate and
retain directors and employees. The principal features of the plan are described
below.

Reservation of Shares. We have reserved 3,700,000 shares of common stock
for issuance under the plan. The shares available under the plan may be either
previously unissued shares or treasury shares. In the event of certain corporate
reorganizations, recapitalizations or other specified corporate transactions
affecting us or our common stock, proportionate adjustments may be made to the
number of shares available for grant under the plan, the applicable maximum
share limitations under the plan, and the number of shares and prices

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<PAGE> 53

under outstanding awards at the time of the event. If any portion of an award
expires, lapses or is canceled without being fully exercised, the shares which
were subject to the unexercised portion of the award will continue to be
available for issuance under the plan. The maximum number of shares which may be
subject to options, restricted stock or deferred stock granted under the plan to
any individual in any calendar year is 400,000. The maximum value of any
performance awards which may be granted under the plan to any individual in any
calendar year is $2,500,000. As of June 30, 2000, giving effect to the
Combination, options to purchase 1,225,224 shares at a weighted average exercise
price of $7.44 per share were outstanding. In connection with the offering, we
intend to grant additional options under the plan to purchase an aggregate of
shares at an exercise price equal to the initial public offering price.

Administration. The plan will be administered by the compensation
committee. Subject to limitations, the compensation committee has the authority
to determine:

- the persons to whom awards are granted,

- the types of awards to be granted,

- the time at which awards will be granted,

- the number of shares, units or other rights subject to each award,

- the exercise, base or purchase price of an award (if any),

- the time or times at which the award will become vested, exercisable or
payable, and

- the duration of the award.

The compensation committee also has the power to interpret the plan and make
factual determinations and may provide for the acceleration of the vesting or
exercise period of an award at any time prior to its termination or upon the
occurrence of specified events.

Change of Control. Unless otherwise provided in a particular award
agreement, in the event of a "change of control" (as defined in the plan):

- all outstanding awards automatically will become fully vested immediately
prior to the change of control, or at an earlier time set by the
committee;

- all restrictions, if any, with respect to all outstanding awards will
lapse; and

- all performance criteria, if any, with respect to all outstanding awards
will be deemed to have been met at their target level.

Amendment. Stockholder approval is required to amend the plan to increase
the number of shares as to which awards may be granted, except for adjustments
resulting from stock splits and the like. The compensation committee can amend,
modify, suspend or terminate the plan in all other respects, unless the action
would otherwise require stockholder approval. Amendments of the plan will not,
without the consent of the participant, affect a participant's rights under an
award previously granted, unless the award itself otherwise expressly so
provides. The plan expires in 2010.

DEFERRED COMPENSATION PLAN

We have adopted a nonqualified deferred compensation plan that will permit
our directors and selected key employees to elect to defer all or a part of
their cash compensation from us until the termination of their status as a
director or employee. The plan will be administered by the compensation
committee. Our directors will be eligible to participate in the plan, and we
expect that all of our officers will be eligible to participate. Participating
employees who are not also one of our directors will be eligible to receive from
us a matching deferral under the nonqualified deferred compensation plan that
will compensate them for contributions they could not receive from us under our
401(k) plan due to the various limits imposed on 401(k) plans by the U.S.
federal income tax laws.

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<PAGE> 54

Participants in our nonqualified deferred compensation plan will be able to
invest contributions made to the nonqualified deferred compensation plan in
investment funds to be selected by the compensation committee. We may establish
a grantor trust to hold the amounts deferred under the plan by our officers and
directors. All amounts deferred under the plan will remain subject to the claims
of our creditors.

Participants will receive a lump sum distribution only upon termination of
the participant's service with us and our affiliates. The compensation committee
may, however, approve in-service withdrawals by participants to cover an
unforeseen financial emergency of the participant.

ANNUAL INCENTIVE COMPENSATION PLAN

We also intend to adopt an annual incentive compensation plan to be
effective January 1, 2001. The annual incentive compensation plan will be
administered by the compensation committee and will be available to our
executive officers and certain key members of management. Awards under the plan
will be based on meeting annual objective performance standards relating to our
performance or, in some cases, to the performance of a particular business
segment or individual performance. At least 80% of the performance standards for
our executive officers are expected to be based on our earnings before interest,
taxes, depreciation and amortization.

EXECUTIVE AGREEMENTS

Prior to the Combination, Mr. Trahan and Mr. Hampton have employment
agreements with HWC. In connection with the closing of the Combination and the
offering, their employment agreements will be terminated, and we will enter into
separate executive agreements with the named executive officers, including Mr.
Trahan and Mr. Hampton.

These new agreements will provide protection in the event of a qualified
termination, which is defined as an involuntary termination of the executive
officer by us other than for cause or a voluntary termination by the executive
for good reason. If the qualified termination occurs during the 24-month period
following a change of control, the agreements will provide for a lump sum
payment to the executive officer based on the executive officer's base salary
and target annual bonus amount. In addition, in that circumstance, the
agreements will provide that all restricted stock awards will become vested,
that all restrictions on such awards will lapse and that outstanding stock
options will vest and remain exercisable for the remainder of their terms. The
executive officer will also be entitled to certain health benefits, vesting of
all deferred compensation amounts, outplacement services and to be made whole
for any excise taxes incurred with respect to severance payments that are excess
parachute payments under the Internal Revenue Code. If a qualified termination
occurs other than during the 24-month period following a change of control, the
executive agreements will provide for payments based on the executive officer's
base salary and target annual bonus amount.

The executive agreements will have an initial term ranging from one to
three years and will be extended automatically on a daily basis for a maximum
additional period of three years, unless notice of non-extension is given, in
which case the agreement will terminate on the anniversary of the date notice is
given. To receive benefits under the executive agreement, the executive officer
will be required to execute a release of certain claims against us. The terms of
Mr. Swanson's executive agreement are summarized below.

Douglas E. Swanson. Under the terms of Mr. Swanson's executive agreement,
he will be entitled to receive a lump sum payment equal to three times his base
salary and target annual bonus amount if a qualified termination occurs during
the 24-month period following a change of control. If a qualified termination
occurs other than during the 24-month period following a change of control, Mr.
Swanson will be entitled to receive a lump sum payment equal to two times his
base salary and target annual bonus amount. In addition, we intend to award to
Mr. Swanson restricted stock with a value of approximately $2.5 million in
connection with the Combination and the offering.

Cindy B. Taylor. Under the terms of Ms. Taylor's executive agreement, she
will be entitled to receive a lump sum payment equal to two times her base
salary and target annual bonus amount if a qualified termination occurs during
the 24-month period following a change of control. If a qualified termination
occurs

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<PAGE> 55

other than during the 24-month period following a change of control, Ms. Taylor
will be entitled to receive a lump sum payment equal to one and a half times her
base salary and target annual bonus amount.

All Other Named Executive Officers. Under the terms of each other named
executive officer's executive agreement, the named executive officer will be
entitled to receive a lump sum payment equal to one and a half times his base
salary and target annual bonus amount if a qualified termination occurs during
the 24-month period following a change of control. If a qualified termination
occurs other than during the 24-month period following a change of control, the
executive officer will be entitled to receive a lump sum payment equal to his
base salary and target annual bonus amount.

OPTION GRANTS

In connection with the Combination, all outstanding options under the Oil
States, HWC, Sooner and PTI option plans will be converted into options issued
under our 2000 Equity Participation Plan. In connection with this offering, we
intend to grant additional options under this plan to purchase an aggregate of
shares at an exercise price equal to the initial public offering
price. Following the Combination and the offering, options to purchase
shares of our common stock will be outstanding under the 2000 Equity
Participation Plan.

The following table contains information concerning stock options held by
the named executive officers as of December 31, 1999, giving effect to the
Combination. No stock options were exercised in 1999 by any named executive
officer.

OPTION VALUES AT DECEMBER 31, 1999

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS (NUMBER OF SHARES) IN-THE-MONEY OPTIONS(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Douglas E. Swanson............................ -- -- -- --
Cindy B. Taylor............................... -- -- -- --
Howard Hughes................................. 33,050 9,167 $ $
Jay Trahan.................................... 52,038 156,017
Robert W. Hampton............................. 21,669 65,007
</TABLE>

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

(1) Prior to this offering, there was no public market for common stock and,
therefore, the values of each unexercised in-the-money stock option is
calculated as the difference between the estimated initial public offering
price of $ per share and the exercise price of the stock option.

RELATED PARTY TRANSACTIONS

OFFERING BY SELLING STOCKHOLDERS

We are paying the expenses of the offering by the selling stockholders,
other than the underwriting discounts, commissions and transfer taxes with
respect to shares of stock sold by the selling stockholders and the fees and
expenses of any attorneys, accountants and other advisors separately retained by
them.

THE COMBINATION

The Combination will close concurrently with the closing of the offering.
Prior to the Combination, SCF owns a majority interest in each of Oil States,
HWC, Sooner and PTI. In the Combination, subsidiaries of Oil States will merge
into each of HWC and Sooner. Most of the current shareholders of HWC and Sooner
(including SCF) will receive shares of Oil States common stock, and a few
non-accredited shareholders will receive cash. In addition, PTI will merge into
a Canadian subsidiary of Oil States, the current PTI

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<PAGE> 56

shareholders that are located in the United States (including SCF) will receive
cash or shares of Oil States common stock and the current PTI shareholders that
are located in Canada will receive exchangeable shares of that Canadian
subsidiary that are exchangeable for shares of our common stock. For more
information on the PTI exchangeable share transaction, see "Description of
Capital Stock -- Special Voting Stock" and "-- Exchangeable Shares." Following
the closing of the Combination and the offering, none of HWC, Sooner or PTI or
any of their shareholders will have any obligations to indemnify us for losses
that we suffer relating to the Combination. Following the closing of the
Combination and the offering:

- HWC, Sooner and PTI will be our wholly owned subsidiaries;

- the former shareholders of HWC, Sooner and PTI, other than those that
receive cash, will hold shares of our common stock or shares of one of
our Canadian subsidiaries exchangeable for shares of our common stock;
and

- SCF will hold approximately % of our outstanding common stock.

The following table illustrates the consideration to be paid in shares of
our common stock upon the closing of the Combination, on a fully diluted basis,
to the shareholders (including SCF) of each of HWC, Sooner, and PTI.

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL OUTSTANDING
----------------------------------
COMPANY SHARES BEFORE OFFERING AFTER OFFERING
------- ---------- ---------------- ---------------
<S> <C> <C> <C>
HWC.......................................... 7,936,920 22.8% %
Sooner....................................... 7,874,913 22.6% %
PTI.......................................... 9,921,150 28.4% %
</TABLE>

Prior to the Combination, SCF owns 7,657,327 shares of Oil States common stock,
after taking into account a three-for-one reverse stock split. In the
Combination, SCF will receive, in consideration of its ownership interests in
HWC, PTI and Sooner, 18,534,971 additional shares for a total of 26,192,298
shares, or % of the total outstanding after the Combination and the offering
on a fully diluted basis.

TRANSACTIONS BEFORE THE COMBINATION

Transactions with our Directors and Officers

L.E. Simmons, the Chairman of our board of directors, is also the majority
owner, Chairman of the Board and President of L.E. Simmons & Associates,
Incorporated, the ultimate general partner of SCF, our majority shareholder.
Andrew L. Waite, one of our directors, is also a Managing Director and an
officer of L.E. Simmons & Associates, Incorporated. Cindy B. Taylor, our Chief
Financial Officer, was also the Chief Financial Officer of L.E. Simmons &
Associates, Incorporated from August 1999 until May 2000. As a majority
shareholder of each of Oil States, HWC, Sooner and PTI prior to the Combination,
SCF has been involved in a number of transactions with each of these companies,
as described further below.

Transactions with Significant Shareholders

Oil States. During 1997, Oil States entered into loan agreements for
unsecured promissory notes totaling $24.8 million with EnSerCo, L.L.C., a
limited liability company that is owned 50% by SCF. Oil States also paid
commitment fees totaling $400,000 to EnSerCo during 1997. These notes, which
were paid in full in March 1998, accrued interest at rates ranging from 10% to
12% per year.

Effective December 31, 1997, Oil States acquired from SCF and other
stockholders options to purchase from Oil States its common shares of CE
Franklin, Ltd., a former majority-owned subsidiary of Oil States that was sold
in 1999. Oil States issued 500,000 shares (before consideration of the proposed
three-for-one reverse stock split) of its Class A common stock, valued at $2.0
million, in exchange for these options. Oil States issued an additional 500,000
shares (before consideration of the proposed three-for-one reverse stock

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<PAGE> 57

split) of its common stock to SCF and the other stockholders in March 2000 due
to certain performance conditions specified in the transaction which were not
attained.

In August and December 1997, SCF acquired 2,001,550 shares (before
consideration of the proposed three-for-one reverse stock split) of Oil States
at a weighted average price of $7.94 per share through two rights offerings
extended to all Oil States shareholders. In February and March 1998, SCF
acquired 910,600 shares (before consideration of the proposed three-for-one
reverse stock split) of Oil States at a weighted average price of $10.00 per
share through two rights offerings extended to all Oil States shareholders. In
2000, Oil States issued 3,642,400 shares (before consideration of the proposed
three-for-one reverse stock split) of its common stock to SCF due to certain
performance conditions specified in the 1998 rights offerings which were not
attained.

In December 1998, Oil States declared a $25.0 million dividend to the
holders of Oil States common stock in the form of a subordinated note payable to
SCF-III, L.P., acting as agent for such holders. Interest accrues at the rate of
6% per year. Principal and interest are due on December 31, 2005. At June 30,
2000, the outstanding balance of the note, including principal and accrued
interest, was approximately $27.3 million. We intend to pay the entire balance
of the note with proceeds from the offering. See "Use of Proceeds."

L.E. Simmons & Associates, Incorporated, the ultimate general partner of
SCF, has served as financial advisor to Oil States from time to time before the
Combination. Oil States paid professional advisory fees and out-of-pocket
expenses of approximately $118,000 in 1999, $11,000 in 1998 and $217,000 in 1997
to L.E. Simmons & Associates, Incorporated. We do not anticipate that we will
continue to use these services following the offering and the Combination.

Between May 1996 and June 1997, Oil States issued three subordinated
promissory notes, totaling $10.9 million, to entities affiliated with Hunting
Oilfield Services (International), Ltd. in connection with the acquisition of
assets. Prior to the Combination, an affiliate of Hunting Oilfield Services is
the holder of greater than 5% of the common stock of Oil States. Of the total of
$10.9 million, $10.4 million is due on May 17, 2001, and the remaining $500,000
is due September 30, 2001. These notes accrue interest at rates of 7.75% in
1998, 8.25% in 1999, and 8.50% thereafter. Accrued interest is payable on March
31 of each year; however, interest payments are only required to be made if
cumulative EBITDA thresholds are met. Oil States did not meet EBITDA thresholds
for 1999. As of December 31, 1999, interest of $903,000 had been accrued but not
paid. Interest does not accrue on any accrued interest that is not paid due to
the failure to meet any EBITDA threshold. All unpaid accrued interest is payable
on the maturity date of the notes. We intend to pay the entire balance of the
notes with proceeds from the offering. See "Use of Proceeds".

In February and March 1998, Hunting Oilfield services purchased 104,867
shares (before consideration of the proposed three-for-one reverse stock split)
of Oil States at a weighted average price of $10.00 per share through two rights
offerings extended to all Oil States shareholders. In January 1998, Hunting
purchased an additional 44,900 shares (before consideration of the proposed
three-for-one reverse stock split) of Oil States at $10.00 per share pursuant to
the November 1997 rights offering. In 2000, Oil States issued 419,468 shares
(before consideration of the proposed three-for-one reverse stock split) of its
common stock to Hunting due to certain performance conditions specified in the
two rights offerings which were not attained.

During 1999, Hunting Oilfield Services provided indemnification payments to
Oil States in the amount of $1.8 million for a liability incurred in 1998
relating to assets sold to Oil States in 1996.

During 1998, Oil States acquired assets from Sooner Pipe & Supply
Corporation, the predecessor of Sooner and an entity under common control with
Oil States, for $3.8 million. Oil States issued a promissory note in the amount
of $2.0 million to Sooner Pipe & Supply in connection with the acquisition. In
May 1999, Oil States sold all of its tubular assets to Sooner Pipe & Supply for
$7.4 million in cash and other noncash consideration of $5.1 million, including
the cancellation of the $2.0 million promissory note.

HWC. In November 1997, HWC issued 20,400 shares of its common stock to SCF
for an aggregate purchase price of $20.4 million. HWC issued an additional 4,000
shares of common stock to SCF in May 1998 for an aggregate purchase price of
$6.0 million.

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In April 1999, HWC issued 2,000 shares of its Series A Convertible
Preferred Stock to SCF for an aggregate purchase price of $2.0 million. The
preferred stock accrues dividends at an annual rate of 6.5%. SCF can convert the
preferred stock, including accrued but unpaid dividends through June 30, 2000,
at any time into shares of HWC common stock. In connection with the Combination,
SCF will convert the preferred stock, including accrued but unpaid dividends
through June 30, 2000, into shares of HWC common stock.

In November 1999, HWC issued 2,650 shares of its Series B Convertible
Preferred Stock to SCF for an aggregate purchase price of $2.7 million. The
preferred stock accrues dividends at an annual rate of 6.5%. SCF can convert the
preferred stock, including accrued but unpaid dividends through June 30, 2000,
at any time into shares of HWC common stock. In connection with the Combination,
SCF will convert the preferred stock, including accrued but unpaid dividends
through June 30, 2000, into shares of HWC common stock.

Sooner. In July 1998, Sooner issued a junior subordinated promissory note
to SCF in the original principal amount of $15.1 million, 15,137 shares of
common stock and 15,137 warrants to purchase common stock in return for $30.2
million from SCF. In May and June 1999, Sooner issued additional promissory
notes to SCF in the aggregate principal amount of $6.3 million, 6,250 shares of
common stock and 6,250 warrants to purchase common stock in return for $12.5
million from SCF. The notes mature on June 30, 2008 and accrue interest annually
at the rate of 6%. As of June 30, 2000, the outstanding balance, including
principal and accrued interest, was $23.6 million. We intend to pay the entire
balance of the notes with proceeds from the offering. See "Use of Proceeds."

In 1998 and 1999, Sooner issued warrants to SCF to purchase shares of
Sooner common stock. The warrants are exercisable into an aggregate of 21,387
shares of Sooner common stock at an exercise price of $1,000 per share, subject
to adjustment upon the occurrence of specified events. In connection with the
closing of the Combination, the SCF warrants will be exchanged for Sooner common
stock.

REGISTRATION RIGHTS

Former Shareholders of Oil States, HWC, Sooner and PTI. Upon completion of
the offering, we will enter into an amended and restated registration rights
agreement with SCF, other stockholders of Oil States and the former shareholders
of HWC and Sooner that held registration rights with respect to their shares of
common stock of these companies. This agreement will give SCF the right, on five
occasions, to demand that we register all or any portion of their shares of our
common stock for sale under the Securities Act. SCF may not make a demand prior
to the expiration of the 180 day lock-up period. The shares to be included in
any demand registration by SCF must have an estimated aggregate gross offering
price of at least $50.0 million. Despite a registration demand by SCF, we may
delay filing of the registration statement to register its shares of our common
stock for a maximum of 45 days from the date we receive the registration demand
if:

- at the time we receive the registration demand, we are engaged in
confidential negotiations or other confidential business activities that
we would be required to disclose in the registration statement (and that
we would not otherwise be required to disclose) and our board of
directors determines in good faith that such disclosure would not be in
our best interests or the best interests of our stockholders; or

- prior to receiving the registration demand, our board of directors has
determined to undertake a registered public offering of our securities
and we have taken substantial steps and are proceeding with reasonable
diligence to effect the offering.

In addition, SCF may not require us to file a registration statement within 180
days after the effectiveness of a registration statement related to a demand
registration made by SCF. Further, if we propose to register any of our common
stock under the Securities Act (except for shares of common stock issued in
connection with acquisitions and benefits plans) or if SCF exercises a demand,
the other holders of registration rights under the registration rights agreement
will have the right to include their shares of common stock in the registration,
subject to limitations. The registration rights agreement also gives the former
shareholders of PTI the right to register their shares of common stock in the
registration, subject to the same limitations.
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The agreement provides customary registration procedures. We have agreed to
pay all costs and expenses (other than fees, discounts and commissions of
underwriters, brokers and dealers and capital gains, income and transfer taxes,
if any) related to the registration and sale of shares of our common stock by
any holder of registration rights under the registration rights agreement in any
registered offering. The rights of the holders of registration rights under the
registration rights agreement are assignable under limited circumstances and
terminate, other than the demand rights held by SCF, at any time when they and
their affiliates own less than 2% of our outstanding common stock and are
eligible to sell such common stock pursuant to Rule 144(k) under the Securities
Act or, in the case of the former shareholders of PTI, when a registration
statement for their benefit has been declared effective by the Securities and
Exchange Commission. The demand rights held by SCF terminate on the tenth
anniversary of the agreement.

The registration rights agreement contains customary indemnification and
contribution provisions by us for the benefit of the selling stockholders and
any underwriters. Each selling stockholder has agreed to indemnify us and any
underwriter solely with respect to information provided by the stockholder, with
such indemnification being limited to the net proceeds from the offering
received by the stockholder.

Former Shareholders of PTI. We have agreed with the former shareholders of
PTI that if any of our shares of common stock to be issued to them in exchange
for the exchangeable shares of our Canadian subsidiary require us to take any
action under any Canadian or United States law before those shares of common
stock may be issued or in order that those shares of common stock may be freely
traded after issuance (other than any restrictions on transfer by reason of a
holder being a "control person" under Canadian law or an "affiliate" under
United States law), we will, beginning after the first anniversary date of the
closing of this offering or earlier under limited circumstances, take all such
actions as are necessary and permitted by law.

CONFLICTS OF INTEREST

Generally, directors and officers have a fiduciary duty to manage their
company in a manner beneficial to the company and its stockholders. Two of our
directors are current directors or officers of the ultimate general partner of
SCF. In certain circumstances, an action beneficial to the general partner of
SCF may be detrimental to our interests, which may create conflicts of interest.
See "Risk Factors -- Risks Related to the Combination and Our Relationship with
SCF."

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<PAGE> 60

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of June 30, 2000, information regarding
shares beneficially owned, giving effect to the Combination and as adjusted to
reflect the sale of the common stock offered by this prospectus, by:

- each person who we know to be the beneficial owner of more than five
percent of our outstanding shares of common stock;

- each of the named executive officers;

- each of our directors; and

- all current directors and executive officers as a group.

To our knowledge, except as indicated in the footnotes to this table or as
provided by applicable community property laws, upon consummation of this
offering, the persons named in the table have sole voting and investment power
with respect to the shares of common stock indicated.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
---------------------------------------------
PERCENTAGE
--------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) SHARES BEFORE OFFERING AFTER OFFERING
---------------------------------------- ---------- --------------- --------------
<S> <C> <C> <C>
SCF-III, L.P........................................... 19,712,221 56.6% %
600 Travis, Suite 6600
Houston, Texas 77002
SCF-IV, L.P............................................ 6,480,077 18.6% %
600 Travis, Suite 6600
Houston, Texas 77002
L.E. Simmons(2)........................................ 26,192,298 75.2% %
Douglas E. Swanson..................................... -- -- --
Cindy B. Taylor........................................ -- -- --
Michael R. Chaddick(3)................................. 39,712 * *
Christopher E. Cragg(3)................................ 17,650 * *
Howard Hughes(3)....................................... 70,900 * *
Sandy Slator(3)........................................ 37,730 * *
Jay Trahan(3).......................................... 197,910 * *
Robert W. Hampton(3)................................... 82,370 * *
Mark G. Papa........................................... -- -- --
Gary L. Rosenthal(3)................................... 15,288 * *
Andrew L. Waite(4)..................................... -- -- --
Stephen A. Wells(3).................................... 18,678 * *
All directors and executive officers as a group (12
persons)(2)(3)(4).................................... 26,672,536 76.5% %
</TABLE>

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

* Less than one percent.

(1) Unless otherwise indicated, the address of each beneficial owner is c/o Oil
States International, Inc., Three Allen Center, 333 Clay Street, Suite 3460,
Houston, Texas 77002.

(2) The shares indicated as being beneficially owned by Mr. Simmons are owned
directly by SCF-III, L.P. and SCF-IV, L.P. Mr. Simmons serves as Chairman of
the Board and President of L.E. Simmons & Associates, Incorporated, the
ultimate general partner of both SCF-III, L.P. and SCF-IV, L.P. As such, Mr.
Simmons may be deemed to have voting and dispositive power over the shares
beneficially owned by SCF-III, L.P. and SCF-IV, L.P. Mr. Simmons disclaims
beneficial ownership of the shares owned by SCF-III, L.P. and SCF-IV, L.P.

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<PAGE> 61

(3) Includes shares issuable upon exercise of options to purchase shares of our
common stock as follows: Messrs. Chaddick - 39,712; Cragg - 17,650;
Hughes - 37,633; Slator - 12,577; Trahan - 104,012; Hampton - 43,338;
Rosenthal - 1,156 and Wells - 2,383.

(4) Mr. Waite serves as Managing Director of L.E. Simmons & Associates,
Incorporated, the ultimate general partner of both SCF-III, L.P. and SCF-IV,
L.P. As such, Mr. Waite may be deemed to have voting and dispositive power
over the shares beneficially owned by SCF-III, L.P. and SCF-IV, L.P. Mr.
Waite disclaims beneficial ownership of the shares owned by SCF-III, L.P.
and SCF-IV, L.P.

SELLING STOCKHOLDERS

The following table sets forth, as of June 30, 2000, information regarding
shares beneficially owned by all selling stockholders, giving effect to the
issuance of shares of Oil States common stock in the Combination and as adjusted
to reflect the sale of the common stock offered by the prospectus.

To our knowledge, except as indicated in the footnotes to this table or
pursuant to applicable community property laws, upon consummation of this
offering, the persons named in the table have sole voting and investment power
with respect to the shares of common stock indicated.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING
NAME AND ADDRESS OF ------------------- NUMBER OF SHARES -------------------
BENEFICIAL OWNERS NUMBER PERCENT BEING OFFERED NUMBER PERCENT
------------------- -------- -------- ---------------- -------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>

DESCRIPTION OF CAPITAL STOCK

After this offering, our authorized capital stock will consist of
200,000,000 shares of common stock, par value $.01 per share, and 25,000,000
shares of preferred stock, par value $.01 per share. Upon completion of this
offering, we will have outstanding shares of common stock (including
2,985,805 and 1,781,734 shares, respectively, to be issued for the conversion of
warrants to purchase shares of Sooner common stock and preferred stock issued by
HWC), and one share of preferred stock issued and outstanding.

COMMON STOCK

Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Because holders of common stock do not
have cumulative voting rights, the holders of a majority of the shares of common
stock can elect all of the members of the board of directors standing for
election, subject to the rights, powers and preferences of any outstanding
series of preferred stock. Subject to the rights and preferences of any
preferred stock that we may issue in the future, the holders of common stock are
entitled to receive:

- dividends as may be declared by our board of directors; and

- all of our assets available for distribution to our common stockholders
in liquidation, pro rata, based on the number of shares held.

There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are fully paid and non-assessable.

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<PAGE> 62

PREFERRED STOCK

Subject to the provisions of our certificate of incorporation and legal
limitations, our board of directors has the authority, without further vote or
action by the stockholders:

- to issue up to 25,000,000 shares of preferred stock in one or more
series; and

- to fix the rights, preferences, privileges and restrictions of our
preferred stock, including provisions related to dividends, conversion,
voting, redemption, liquidation and the number of shares constituting the
series or the designation of that series, which may be superior to those
of the common stock.

Other than the share of special voting stock to be issued in connection with the
Combination as described below in "-- Special Voting Stock," there will be no
shares of preferred stock outstanding upon the closing of the offering, and we
have no present plans to issue any other preferred stock.

The issuance of shares of preferred stock by our board of directors as
described above may adversely affect the rights of the holders of our common
stock. For example, preferred stock may rank prior to the common stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of common stock. The issuance of
shares of preferred stock may discourage third-party bids for our common stock
or may otherwise adversely affect the market price of the common stock. In
addition, the preferred stock may enable our board of directors to make more
difficult or to discourage attempts to obtain control of our company through a
hostile tender offer, proxy contest, merger or otherwise, or to make changes in
our management.

EXCHANGEABLE SHARES

In the Combination, the outstanding common shares of PTI held by Canadian
residents will ultimately be exchanged for exchangeable shares to be issued by
PTI HoldCo, one of our wholly owned Canadian subsidiaries that, upon the closing
of the Combination, will indirectly hold all the outstanding capital stock of
PTI. The exchangeable shares may generally be exchanged at any time after the
first anniversary of the closing of the Combination at the option of the holders
for our common stock on a share-for-share basis subject to adjustment in the
case of alterations to our common stock, plus the amount of any declared but
unpaid dividends on our common stock. Upon the closing of the Combination, there
will be 9,921,150 exchangeable shares outstanding, which will be exchangeable
for a total of 9,921,150 shares of our common stock. The following is a summary
of the principal terms and rights of the exchangeable shares which affect us and
the holders of our common stock.

Holders of exchangeable shares are entitled to:

- receive dividends equal to the dividends paid by us on shares of our
common stock;

- provide directions to the holder of our special voting stock as to the
manner in which the special voting stock should be voted on any matter on
which holders of our common stock are entitled to vote. See "-- Special
Voting Stock" below.

Subject to applicable law, exchangeable shares will be exchanged for shares of
our common stock on a share-for-share basis, plus an amount equal to all
declared and unpaid dividends on such exchangeable shares, whenever:

- the holders of exchangeable shares request us or PTI HoldCo to exchange
or redeem their exchangeable shares;

- PTI HoldCo is liquidated, dissolved or wound-up;

- PTI HoldCo becomes insolvent or bankrupt, has a receiver appointed or a
similar event occurs;

- we become involved in voluntary or involuntary liquidation, dissolution
or winding-up proceedings;

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<PAGE> 63

- PTI HoldCo elects to redeem all of the exchangeable shares, provided the
request is made after the fifth anniversary of the closing of the
offering;

- PTI HoldCo elects to redeem all of the exchangeable shares, provided the
request is made after either the third anniversary of the closing of the
offering and the number of outstanding exchangeable shares is less than
10% of the number outstanding upon the closing of the Combination or the
fourth anniversary of the closing of the offering and the number of
outstanding exchangeable shares is less than 20% of the number
outstanding upon the closing of the Combination;

- a change of control transaction occurs and the board of directors of PTI
HoldCo determines in good faith and in its sole discretion, that it is
not reasonable to substantially replicate the terms and conditions of the
exchangeable shares in connection with the change of control transaction
and that redemption of all of the outstanding exchangeable shares is
commercially or legally necessary to enable the completion of the change
of control transaction;

- the holders of exchangeable shares fail to pass a resolution regarding
any matter on which they are entitled to vote as shareholders of PTI
HoldCo and which has been proposed by the board of directors of PTI
HoldCo, other than any resolution to amend the exchangeable share
provisions, the support agreement or the voting and exchange trust
agreement; or

- the holders of the exchangeable shares fail to take any action required
to approve or disapprove any change to their rights if the approval or
disapproval of such change would be required to maintain the economic or
legal equivalence of the exchangeable shares and our common stock.

Whenever a holder of exchangeable shares has the right to require PTI HoldCo to
redeem the holder's exchangeable shares or whenever PTI HoldCo has the right or
is required to redeem the outstanding exchangeable shares, the exchangeable
shares to be redeemed will be subject to the overriding right of our company or
OSI ULC, one of our wholly owned Canadian subsidiaries, to purchase such
exchangeable shares. The consideration to be paid by us or OSI ULC, as the case
may be, will be identical to the consideration to be paid by PTI HoldCo upon any
such redemption. We expect to exercise the overriding right to purchase the
exchangeable shares whenever it arises.

Unless we take action to ensure that the holders of exchangeable shares
receive an equivalent economic benefit, and subject to applicable law, we may
not:

- issue or distribute assets, debt instruments or shares of, or securities
convertible into, our common stock to the holders of the then outstanding
shares of our common stock;

- effect a forward or reverse stock split or similar transaction;

- effect a merger, reorganization, consolidation or other transaction
involving or affecting our common stock; or

- reclassify or otherwise change our common stock.

In the event of any proposed tender offer, share exchange offer, issuer bid,
take-over bid or similar transaction affecting our common stock, we must use
reasonable efforts to take all actions necessary or desirable to enable holders
of exchangeable shares to participate in the transaction to the same extent and
on an economically equivalent basis as the holders of our common stock. We have
also agreed to take various actions to protect the rights of the holders of the
exchangeable shares to receive the same dividends as are paid on our common
stock and to exchange shares of our common stock for exchangeable shares.

SPECIAL VOTING STOCK

In connection with the acquisition of PTI, our board of directors
authorized a class of preferred stock, referred to as "special voting stock,"
consisting of one share. The special voting stock will be issued to

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<PAGE> 64

Montreal Trust Company of Canada, which will hold the share as trustee for the
benefit of the holders of the exchangeable shares described above. Except as
otherwise required by law or our certificate of incorporation:

- the special voting stock will be entitled to the number of votes attached
to the number of shares of our common stock issuable upon the exchange of
all the outstanding exchangeable shares;

- each holder of exchangeable shares will be able to direct the trustee to
vote that number of votes that are attached to the number of shares of
OSI common stock issuable upon the exchange of the exchangeable shares
held by that holder;

- the special voting stock may be voted in the election of directors and on
all other matters submitted to a vote of our common stockholders; and

- the holder of the special voting stock will not be entitled to receive
dividends.

In the event of any liquidation, dissolution or winding up of our company,
the holder of the special voting stock will not be entitled to any of our assets
available for distribution to stockholders. We may redeem the special voting
stock for a nominal amount when:

- the special voting stock has no votes attached to it because there are no
exchangeable shares outstanding that are not owned by us or our
subsidiaries; and

- there are no shares of stock, debt, options or other agreements that
could give rise to the issuance of any additional exchangeable shares to
any person other than us or any of our subsidiaries.

ANTI-TAKEOVER PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS

Our certificate of incorporation and bylaws contain several provisions that
could delay or make more difficult the acquisition of us through a hostile
tender offer, open market purchases, proxy contest, merger or other takeover
attempt that a stockholder might consider in his or her best interest, including
those attempts that might result in a premium over the market price of our
common stock.

Written Consent of Stockholders

Our certificate of incorporation provides that, on and after the date when
SCF ceases to own a majority of the shares of our outstanding securities
entitled to vote in the election of directors, any action by our stockholders
must be taken at an annual or special meeting of stockholders, and stockholders
cannot act by written consent. Until that date, any action required or permitted
to be taken by our stockholders may be taken at a duly called meeting of
stockholders or by the written consent of stockholders owning the minimum number
of shares required to approve the action.

Special Meetings of Stockholders

Subject to the rights of the holders of any series of preferred stock, our
bylaws provide that special meetings of the stockholders may only be called by
the chairman of the board of directors or by the resolution of a majority of our
board of directors.

Advance Notice Procedure for Director Nominations and Stockholder Proposals

Our bylaws provide that adequate notice must be given to nominate
candidates for election as directors or to make proposals for consideration at
annual meetings of stockholders. Notice of a stockholder's intent to nominate a
director must be delivered to or mailed and received at our principal executive
offices as follows:

- for an election to be held at the annual meeting of stockholders, not
later than 120 calendar days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; and

- for an election to be held at a special meeting of stockholders, not
later than the later of (1) 90 calendar days prior to the special meeting
or (2) 10 calendar days following the public announcement of the special
meeting.
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<PAGE> 65

Notice of a stockholder's intent to raise business at an annual meeting
must be received at our principal executive offices not later than 90 calendar
days prior to the anniversary date of the preceding annual meeting of
stockholders.

These procedures may operate to limit the ability of stockholders to bring
business before a stockholders meeting, including the nomination of directors
and the consideration of any transaction that could result in a change in
control and that may result in a premium to our stockholders.

Classified Board of Directors

Our certificate of incorporation divides our directors into three classes
serving staggered three-year terms. As a result, stockholders will elect
approximately one-third of the board of directors each year. This provision,
when coupled with the provision of our restated certificate of incorporation
authorizing only the board of directors to fill vacant or newly created
directorships or increase the size of the board of directors and the provision
providing that directors may only be removed for cause, may deter a stockholder
from gaining control of our board of directors by removing incumbent directors
or increasing the number of directorships and simultaneously filling the
vacancies or newly created directorships with its own nominees.

RENOUNCEMENT OF BUSINESS OPPORTUNITIES

Our certificate of incorporation provides that, as long as SCF continues to
own at least 20% of our common stock, we have renounced any interest in
specified business opportunities. In particular, SCF and its affiliates may
pursue opportunities in the oilfield services industry for their own account or
present such opportunities to SCF's other portfolio companies. SCF and its
affiliates have no obligation to offer such opportunities to us, even if doing
so would have a competitive impact on us. In general, SCF is permitted to pursue
opportunities for its own account or to present opportunities to its other
portfolio companies, including those companies in competition with us, provided:

- the business opportunity is not identified through the disclosure of
information by or on behalf of our company or as a direct result of a
person's service as an officer or director of our company; and

- the opportunity is developed and pursued solely through SCF's own
personnel and not through us.

AMENDMENT OF THE BYLAWS

Our board of directors may amend or repeal the bylaws and adopt new bylaws.
The holders of common stock may amend or repeal the bylaws and adopt new bylaws
by a majority vote.

LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS

Our directors will not be personally liable to our company or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except, if required by Delaware law, for liability:

- for any breach of the duty of loyalty to our company or our stockholders;

- for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;

- for unlawful payment of a dividend or unlawful stock purchases or
redemptions; and

- for any transaction from which the director derived an improper personal
benefit.

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<PAGE> 66

As a result, neither we nor our stockholders have the right, through
stockholders' derivative suits on our behalf, to recover monetary damages
against a director for breach of fiduciary duty as a director, including
breaches resulting from grossly negligent behavior, except in the situations
described above.

DELAWARE TAKEOVER STATUTE

Under the terms of our certificate of incorporation and as permitted under
Delaware law, we have elected not to be subject to Delaware's anti-takeover law.
This law provides that specified persons who, together with affiliates and
associates, own, or within three years did own, 15% or more of the outstanding
voting stock of a corporation could not engage in specified business
combinations with the corporation for a period of three years after the date on
which the person became an interested stockholder. The law defines the term
"business combination" to encompass a wide variety of transactions with or
caused by an interested stockholder, including mergers, asset sales and other
transactions in which the interested stockholder receives or could receive a
benefit on other than a pro rata basis with other stockholders. With the
approval of our stockholders, we may amend our certificate of incorporation in
the future to become governed by the anti-takeover law. This provision would
then have an anti-takeover effect for transactions not approved in advance by
our board of directors, including discouraging takeover attempts that might
result in a premium over the market price for the shares of our common stock. By
opting out of the Delaware anti-takeover law, a transferee of SCF could pursue a
takeover transaction that was not approved by our board of directors.

LISTING

We intend to file an application to have our common stock listed on the New
York Stock Exchange under the symbol "OIS."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is , and
its telephone number is .

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock, including shares issued
upon exercise of outstanding options, in the public market could adversely
affect prevailing market prices. Sales of substantial amounts of our common
stock in the public market after any restrictions on sale lapse could adversely
affect the prevailing market price of our common stock and impair our ability to
raise equity capital in the future.

Upon completion of the offering, shares of our common stock will
be outstanding (including 2,985,805 and 1,781,734 shares, respectively, to be
issued for the conversion of warrants to purchase shares of Sooner common stock
and the conversion of preferred stock issued by HWC). The shares sold in the
offering, plus any shares issued upon exercise of the underwriters'
over-allotment options, will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates" as that term is defined in
Rule 144 under the Securities Act or by a person who is subject to a lock-up
agreement as described below.

Of the shares outstanding upon completion of the offering,
shares issued in the Combination and shares held by the
stockholders of Oil States will be "restricted securities" within the meaning of
Rule 144. Restricted securities may be sold in the public market only if the
sale is registered or if it qualifies for an exemption from registration, such
as under Rule 144 under the Securities Act, which is summarized below. Sales of
restricted securities in the public market, or the availability of such shares
for sale, could adversely affect the market price of our common stock.

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<PAGE> 67

Under Rule 144, beginning 90 days after the date of this prospectus, a
person, or persons whose shares are aggregated, who has beneficially owned
"restricted securities" for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:

- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after the offering; and

- the average weekly trading volume of the common stock on the New York
Stock Exchange during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale with the SEC.

Sales under Rule 144 are also subject to other requirements regarding the manner
of sale, notice and availability of current public information about us.

Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner other than an affiliate) is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. An aggregate of
shares outstanding at the consummation of the offering may be sold
immediately under Rule 144(k) without so complying. All of these shares are
subject to the lock-up provisions described below.

Because SCF is among our affiliates, subject to exercise of its
registration rights described under "Related Party Transactions -- Registration
Rights Agreement," the Rule 144 restrictions and requirements would be
applicable to SCF's shares for as long as it retains affiliate status.

Each of our company, our executive officers and directors, SCF and other
stockholders has agreed that, without the prior written consent of Merrill Lynch
& Co. on behalf of the underwriters, it will not, during the period ended 180
days after the date of this prospectus, sell shares of common stock or take
certain related actions, subject to limited exceptions, all as described under
"Underwriting."

Upon completion of the offering, we expect that options to purchase
shares of common stock will have been granted under our 2000 Equity
Participation Plan. We intend to file a registration statement on Form S-8 under
the Securities Act as soon as practicable to register shares of common stock
reserved for issuance under that plan. This registration will permit the resale
of these shares by nonaffiliates in the public market without restriction under
the Securities Act, upon completion of the lock-up period described above.
Shares registered under the Form S-8 registration statement held by affiliates
will be subject to Rule 144 volume limitations.

In addition, holders of shares of our common stock have registration
rights with respect to their shares. We have also agreed to file a registration
statement, one year after the closing of the Combination, for the benefit of the
shareholders of PTI who will receive exchangeable shares in the Combination.
Registration of the shares of our common stock issuable on exchange of the
exchangeable stock would enable these shares to be freely tradable without
registration under the Securities Act, unless held by an affiliate. See "Related
Party Transactions -- Registration Rights."

MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK

The following is a general discussion of the material U.S. federal income
and estate tax considerations with respect to the ownership and disposition of
common stock applicable to Non-U.S. Holders. In general, a "Non-U.S. Holder" is
any beneficial owner of common stock other than

- a citizen or resident of the United States,

- a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or of any state
thereof,

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- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source, or

- a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.

This discussion is based on current provisions of the Internal Revenue
Code, Treasury Regulations promulgated under the Internal Revenue Code, judicial
opinions, published positions of the Internal Revenue Service, and all other
applicable authorities, all of which are subject to change, possibly with
retroactive effect. This discussion does not address all aspects of income and
estate taxation or any aspects of state, local, or non-U.S. taxes, nor does it
consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder that may be subject to special treatment under the U.S. federal
tax laws, such as insurance companies, tax-exempt organizations, financial
institutions, brokers, dealers in securities, and U.S. expatriates.

Prospective investors are urged to consult their tax advisors regarding the
U.S. federal, state, local and non-U.S. income and other tax considerations of
acquiring, holding and disposing of shares of common stock.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder will be subject to U.S.
withholding tax at a rate of 30% of the gross amount, or a lower rate prescribed
by an applicable income tax treaty, unless the dividends are effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States. Dividends that are effectively connected with such a U.S. trade
or business generally will not be subject to U.S. withholding tax if the
Non-U.S. Holder files the required forms, including Internal Revenue Service
Form 4224, Form W-8ECI, or any successor form, with the payor of the dividend,
and generally will be subject to U.S. federal income tax on a net income basis,
in the same manner as if the Non-U.S. Holder were a resident of the United
States. An applicable treaty may also require the dividends attributable to a
permanent establishment in the United States to be subject to United States tax
on a net income basis. A Non-U.S. Holder that is a corporation may be subject to
an additional branch profits tax at a rate of 30%, or such lower rate as may be
specified by an applicable income tax treaty, on the repatriation from the
United States of its "effectively connected earnings and profits," subject to
adjustments. To determine the applicability of a tax treaty providing for a
lower rate of withholding under the currently effective Treasury Regulations,
dividends paid to an address in a foreign country are presumed to be paid to a
resident of that country absent knowledge to the contrary. Under Treasury
Regulations (the "Final Regulations") generally effective for payments made
after December 31, 2000, however, a Non-U.S. Holder will be required to satisfy
certification requirements in order to claim a reduced rate of withholding under
an applicable income tax treaty. In addition, under the Final Regulations, in
the case of common stock held by a foreign partnership, the certification
requirement would generally be applied to the partners of the partnership
(unless the partnership agrees to become a "withholding foreign partnership")
and the partnership would be required to provide certain information. The Final
Regulations also provide "look-through" rules for tiered partnerships.

A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. federal income tax withholding under a tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service.

GAIN ON SALE OR OTHER DISPOSITION OF COMMON STOCK

In general, a Non-U.S. Holder will not be subject to U.S. federal income
tax on any gain realized upon the sale or other taxable disposition of the
holder's shares of common stock so long as:

- the gain is not effectively connected with a trade or business carried on
by the Non-U.S. Holder within the United States;

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<PAGE> 69

- if the Non-U.S. Holder is an individual, the Non-U.S. Holder holds shares
of common stock as a capital asset, and either is not present in the
United States for 183 days or more in the taxable year of disposition or
does not have a "tax home" in the United States for U.S. federal income
tax purposes and meets certain other requirements;

- the Non-U.S. Holder is not subject to tax under the provisions of the
Internal Revenue Code regarding the taxation of U.S. expatriates; and

- we are not a United States real property holding corporation.

We believe that we are not currently a United States real property holding
corporation, and we do not expect to become one in the future based on our
anticipated business operations.

ESTATE TAX

Common stock owned or treated as owned by an individual who is not a
citizen or resident, as defined for U.S. federal estate tax purposes, of the
United States at the time of death will be includible in the individual's gross
estate for U.S. federal estate tax purposes and therefore may be subject to U.S.
federal estate tax, unless an applicable estate tax treaty provides otherwise.

BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS

We must report annually to the Internal Revenue Service and to each
non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of this information also may be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Holder resides or is established.

Under current law, U.S. backup withholding tax (which generally is imposed
at the rate of 31% on applicable payments to persons that fail to furnish the
information required under the U.S. information reporting requirements) and
information reporting requirements generally will not apply to dividends paid on
common stock to a Non-U.S. Holder at an address outside the United States.
Backup withholding and information reporting generally will apply, however, to
dividends paid on common stock to a Non-U.S. Holder at an address in the United
States if the holder fails to establish an exemption or to provide certification
of its non-U.S. status and other required information to the payor.

Under current law, the payment of proceeds from the disposition of common
stock to or through a U.S. office of a broker will be subject to information
reporting and backup withholding, unless the beneficial owner, under penalties
of perjury, certifies, among other things, its status as a Non-U.S. Holder or
otherwise establishes an exemption. The payment of proceeds from the disposition
of common stock to or through a non-U.S. office of a broker generally will not
be subject to backup withholding and information reporting, except as noted
below. In the case of proceeds from a disposition of common stock paid to or
through a non-U.S. office of a broker that is

- a U.S. person,

- a "controlled foreign corporation" for U.S. federal income tax purposes,
or

- a foreign person 50% or more of whose gross income from a specified
period is effectively connected with a U.S. trade or business,

information reporting, but not backup withholding, will apply unless the broker
has documentary evidence in its files that the owner is a Non-U.S. Holder and
other conditions are satisfied, or the beneficial owner otherwise establishes an
exemption, and the broker has no actual knowledge to the contrary.

Under the Final Regulations, the payment of dividends or the payment of
proceeds from the disposition of common stock to a Non-U.S. Holder may be
subject to information reporting and backup withholding unless the recipient
satisfies the certification requirements of the Final Regulations by proving its
non-
64
<PAGE> 70

U.S. status or otherwise establishes an exemption. Under the Final Regulations,
the sale of common stock outside of the U.S. through a non-U.S. broker will also
be subject to information reporting if the broker is a foreign partnership and
at any time during its tax year:

- one or more of its partners are United States persons, as defined for
U.S. federal income tax purposes, who in the aggregate hold more than 50%
of the income or capital interests in the partnership, or

- the foreign partnership is engaged in a U.S. trade or business.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder can be refunded or
credited against the Non-U.S. Holder's U.S. federal income tax liability, if
any, provided that the required information is furnished to the Internal Revenue
Service in a timely manner.

Each prospective Non-U.S. Holder of common stock should consult that
holder's own tax adviser with respect to the federal, state, local and foreign
tax consequences of the acquisition, ownership and disposition of common stock.

65
<PAGE> 71

UNDERWRITING

We intend to offer the shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation and
Simmons & Company International are acting as U.S. representatives of the U.S.
underwriters named below. Subject to the terms and conditions described in a
U.S. purchase agreement among us, the selling stockholders and the U.S.
underwriters, and concurrently with the sale of shares to the international
managers, we and the selling stockholders have agreed to sell to the U.S.
underwriters, and each of the U.S. underwriters has agreed to purchase from us
and the selling stockholders, the number of shares listed opposite its name
below.

<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
---------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Credit Suisse First Boston Corporation......................
Simmons & Company International.............................

--------
Total..........................................
========
</TABLE>

We and the selling stockholders have also entered into an international
purchase agreement with the international managers for sale of the shares
outside the U.S. and Canada for whom Merrill Lynch International, Credit Suisse
First Boston (Europe) Limited and Simmons & Company International are acting as
lead managers. Subject to the terms and conditions in the international purchase
agreement, and concurrently with the sale of shares to the U.S. underwriters
under the U.S. purchase agreement, we and the selling stockholders have agreed
to sell to the international managers, and the international managers severally
have agreed to purchase from us and the selling stockholders, an aggregate
of shares in the offering. The initial public offering price per share and
the total underwriting discount per share are identical under the U.S. purchase
agreement and the international purchase agreement.

The U.S. underwriters and the international managers have agreed to
purchase all of the shares sold under the U.S. and international purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
U.S. and international purchase agreements provide that the purchase commitments
of the nondefaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
U.S. underwriters and the international managers are conditioned on one another.

We, some of our subsidiaries and the selling stockholders have agreed to
indemnify the U.S. underwriters and the international managers against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the U.S. underwriters and international managers may be required to
make in respect of those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.

COMMISSIONS AND DISCOUNTS

The U.S. representatives have advised us and the selling stockholders that
the U.S. underwriters propose initially to offer the shares to the public at the
initial public offering price on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $ per share. The
U.S. underwriters may

66
<PAGE> 72

allow, and the dealers may reallow, a discount not in excess of $ per share
to other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.

The following table shows the public offering price, underwriting discount
and proceeds before expenses to Oil States and the selling stockholders. The
information assumes either no exercise or full exercise by the U.S. underwriters
and the international managers of their over-allotment options.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price............................ $ $ $
Underwriting discount............................ $ $ $
Proceeds, before expenses, to Oil States......... $ $ $
Proceeds, before expenses, to the selling
stockholders................................... $ $ $
</TABLE>

The expenses of the offering, not including the underwriting discount, are
estimated at $ and are payable by Oil States.

OVER-ALLOTMENT OPTION

We have granted an option to the U.S. underwriters to purchase up to
additional shares at the public offering price less the underwriting discount.
The U.S. underwriters may exercise this option for 30 days from the date of this
prospectus solely to cover any over-allotments. If the U.S. underwriters
exercise this option, each will be obligated, subject to conditions contained in
the purchase agreements, to purchase a number of additional shares proportionate
to that U.S. underwriter's initial amount reflected in the above table.

We have also granted an option to the international managers, exercisable
for 30 days from the date of this prospectus, to purchase up to additional
shares to cover any over-allotments on terms similar to those granted to the
U.S. underwriters.

INTERSYNDICATE AGREEMENT

The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell shares to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the intersyndicate agreement, the U.S. underwriters and any dealer to whom
they sell shares will not offer to sell or sell shares to persons who are
non-U.S. or non-Canadian persons or to persons they believe intend to resell to
persons who are non-U.S. or non-Canadian persons, except in the case of
transactions under the intersyndicate agreement. Similarly, the international
managers and any dealer to whom they sell shares will not offer to sell or sell
shares to U.S. persons or Canadian persons or to persons they believe intend to
resell to U.S. or Canadian persons, except in the case of transactions under the
intersyndicate agreement.

NO SALES OF SIMILAR SECURITIES

We, the selling stockholders, our executive officers and directors, current
stockholders of Oil States and other stockholders receiving shares in the
Combination have agreed, with exceptions, not to sell or transfer any common
stock for 180 days after the date of this prospectus without first obtaining the
written consent of Merrill Lynch. Specifically, we and these other individuals
have agreed not to directly or indirectly:

- offer, pledge, sell or contract to sell any common stock,

- sell any option or contract to purchase any common stock,

- purchase any option or contract to sell any common stock,

- grant any option, right or warrant for the sale of any common stock,
other than under our 2000 Equity Participation Plan,

- lend or otherwise dispose of or transfer any common stock,

- request or demand that we file a registration statement related to the
common stock, or

67
<PAGE> 73

- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.

This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.

NEW YORK STOCK EXCHANGE LISTING

We intend to apply to list our common stock on the New York Stock Exchange
under the symbol "OIS." In order to meet the requirements for listing on that
exchange, the U.S. underwriters and the international managers have undertaken
to sell a minimum number of shares to a minimum number of beneficial owners as
required by that exchange.

Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the U.S. representatives and lead managers. In addition to prevailing
market conditions, the factors to be considered in determining the initial
public offering price are:

- the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us,

- our financial information,

- the history of, and the prospects for, our company and the industry in
which we compete,

- an assessment of our management, our past and present operations, and the
prospects for, and timing of, our future revenues,

- the present state of our development, and

- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.

An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.

The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the U.S. representatives may engage in transactions that
stabilize the price of our common stock, such as bids or purchases to peg, fix
or maintain that price.

If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the U.S. representatives may reduce that short
position by purchasing shares in the open market. The U.S. representatives may
also elect to reduce any short position by exercising all or part of the
over-allotment option described above. Purchases of the common stock to
stabilize its price or to reduce a short position may cause the price of the
common stock to be higher than it might be in the absence of such purchases.

the underwriters and selling group members who sold those shares. The imposition
of a penalty bid may also affect the price of the shares in that it discourages
resales of those shares.

Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.

OTHER RELATIONSHIPS

Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions.

LEGAL MATTERS

The validity of the issuance of the shares of common stock offered by this
prospectus will be passed on for us by Vinson & Elkins L.L.P., Houston, Texas.
Certain legal matters relating to the common stock offered by this prospectus
will be passed on for the underwriters by Baker Botts L.L.P., Houston, Texas.

EXPERTS

Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of Sooner Inc. as of and for the year ended June 30, 1999
and Sooner Pipe & Supply Corporation as of July 2, 1998 and for the period from
August 1, 1997 to July 2, 1998, as set forth in their reports. We have included
the financial statements of Sooner Inc. and Sooner Pipe & Supply Corporation in
the prospectus and elsewhere in the registration statement in reliance on Ernst
& Young LLP's reports, given upon their authority as experts in accounting and
auditing.

The financial statements of Oil States Industries, Inc. as of December 31,
1998 and 1999 and for the three years in the period ended December 31, 1999
included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their report appearing herein, and
have been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.

The consolidated financial statements of HWC Energy Services, Inc., and
subsidiaries as of December 31, 1999 and 1998 and for the two years then ended
and the period from November 14, 1997 (inception) through December 31, 1997
included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report dated July 14, 2000
and appearing on page F-78 with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.

The financial statements of PTI Group Inc. as of December 31, 1998 and 1999
and for the two years in the period ended December 31, 1999 and the 358 days in
the period ended December 31, 1997 included in this prospectus have been audited
by PricewaterhouseCoopers LLP, independent chartered accountants in Canada, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the common stock being sold
in this offering. This prospectus constitutes 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 we have omitted some parts in

69
<PAGE> 75

accordance with the rules and regulations of the SEC. For further information
about us and the 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 referred to are not
necessarily complete; we refer you in each instance to the copy of the contract
or 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 SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
of all or any part of the registration statement may be obtained after payment
of fees prescribed by the SEC.

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

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.

70
<PAGE> 76

INDEX TO FINANCIAL STATEMENTS

PRO FORMA

<TABLE>
<S> <C>
Oil States International, Inc.
Unaudited Pro Forma Combined Balance Sheet at March 31,
2000................................................... F-4
Unaudited Pro Forma Combined Statement of Operations for
the Three Months Ended March 31, 2000.................. F-6
Unaudited Pro Forma Combined Statement of Operations for
the Year Ended December 31, 1999....................... F-7
Unaudited Combined Statement of Operations for the Year
Ended December 31, 1998................................ F-8
Unaudited Combined Statement of Operations for the Year
Ended December 31, 1997................................ F-9
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-10

HISTORICAL
Oil States International, Inc. and subsidiaries (formerly
named CONEMSCO, Inc.)
Consolidated Balance Sheets at March 31, 2000 (unaudited)
and December 31, 1999.................................. F-14
Consolidated Statements of Operations for the Three Month
Periods Ended March 31, 2000 and 1999 (unaudited)...... F-15
Consolidated Statements of Comprehensive Loss for the
Three Month Periods Ended March 31, 2000 and 1999
(unaudited)............................................ F-16
Consolidated Statements of Cash Flows for the Three Month
Periods Ended March 31, 2000 and 1999 (unaudited)...... F-17
Notes to Unaudited Consolidated Financial Statements...... F-18
Report of Independent Public Accountants.................. F-23
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997....................... F-24
Consolidated Balance Sheets at December 31, 1999 and
1998................................................... F-25
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss) for the Years Ended
December 31, 1999, 1998 and 1997....................... F-26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997....................... F-27
Notes to Consolidated Financial Statements................ F-28
PTI Group Inc.
Auditors' Report.......................................... F-52
Consolidated Statements of Earnings for the Years Ended
December 31, 1999 and 1998, the 358 day period ended
December 31, 1997 and the Three Month Periods Ended
March 31, 2000 and 1999 (unaudited).................... F-53
Consolidated Balance Sheets at December 31, 1999 and 1998
and March 31, 2000 (unaudited)......................... F-54
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1999 and 1998, the 358 day
period ended December 31, 1997 and the Three Month
Period Ended March 31, 2000 (unaudited)................ F-55
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998, the 358 day period ended
December 31, 1997 and the Three Month Periods Ended
March 31, 2000 and 1999 (unaudited).................... F-56
Notes to Consolidated Financial Statements................ F-57
HWC Energy Services, Inc. and Subsidiaries
Consolidated Balance Sheet at March 31, 2000
(unaudited)............................................ F-72
Consolidated Statements of Operations for the Three Month
Periods Ended March 31, 2000 and 1999 (unaudited)...... F-73
</TABLE>

F-1
<PAGE> 77

<TABLE>
<S> <C>
Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2000 and 1999
(unaudited).......................................................................................... F-74
Notes to Unaudited Consolidated Financial Statements.................................................... F-75
Report of Independent Public Accountants................................................................ F-78
Consolidated Balance Sheets at December 31, 1999 and 1998............................................... F-79
Consolidated Statements of Operations for the Period from November 14, 1997 (Inception) through December
31, 1997 and each of the Years Ended December 31, 1998 and 1999...................................... F-80
Consolidated Statements of Stockholders' Equity for the Period from November 14, 1997 (Inception)
through December 31, 1997 and each of the Years Ended December 31, 1998 and 1999..................... F-81
Consolidated Statements of Cash Flows for the Period from November 14, 1997 (Inception) through December
31, 1997 and each of the Years Ended December 31, 1998 and 1999...................................... F-82
Notes to Consolidated Financial Statements.............................................................. F-83
Sooner Inc.
Report of Independent Auditors.......................................................................... F-96
Consolidated Balance Sheets at June 30, 1999 and March 31, 2000 (unaudited)............................. F-97
Consolidated Statements of Operations for the period from July 3, 1998 (Inception) through June 30, 1999
and the Three and Nine Month Periods Ended March 31, 2000 and 1999 (unaudited)....................... F-98
Consolidated Statements of Stockholders' Equity for the period from July 3, 1998 (Inception) through
June 30, 1999 and the Nine Month Period Ended March 31, 2000 (unaudited)............................. F-99
Consolidated Statements of Cash Flows for the period from July 3, 1998 (Inception) through June 30, 1999
and the Three and Nine Month Periods Ended March 31, 2000 and 1999 (unaudited)....................... F-100
Notes to Consolidated Financial Statements.............................................................. F-101
Sooner Pipe & Supply Co.
Report of Independent Auditors.......................................................................... F-112
Consolidated Balance Sheet at July 2, 1998.............................................................. F-113
Consolidated Statement of Operations for the period from August 1, 1997 through July 2, 1998............ F-114
Consolidated Statement of Stockholders' Equity for the period from August 1, 1997 through July 2,
1998................................................................................................. F-115
Consolidated Statement of Cash Flows for the period from August 1, 1997 through July 2, 1998............ F-116
Notes to Consolidated Financial Statements.............................................................. F-117
</TABLE>

F-2
<PAGE> 78

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following tables set forth certain unaudited pro forma combined
financial information for our company giving effect to:

- the combination of Oil States International, Inc., HWC Energy Services,
Inc. and PTI Group Inc. (the "Controlled Group") as entities under the
common control of SCF-III L.P., based upon reorganization accounting ("as
if" pooling of interest accounting) effective from the dates each of
these entities became controlled by SCF-III;

- the conversion of the common stock held by the minority interests of each
entity in the Controlled Group into shares of our common stock, based on
the purchase method of accounting;

- the conversion of all of the outstanding common stock of Sooner Inc. into
shares of our common stock, based on the purchase method of accounting;
and

- our sale of shares of common stock (the "Offering") and the
application of the net proceeds to us as described in "Use of Proceeds."

The unaudited pro forma combined balance sheet as of March 31, 2000 was
prepared based upon the unaudited historical financial statements of the
Controlled Group and gives effect to:

- our acquisition of minority interests of the Controlled Group;

- our acquisition of Sooner Inc.;

- the proposed three-for-one reverse stock split of Oil States common
stock; and

- our sale of shares in the Offering,

as if these transactions had occurred on March 31, 2000. The unaudited pro forma
combined statements of operations for the years ended December 31, 1997 and 1998
were prepared based upon the historical financial statements of the Controlled
Group, adjusted to conform accounting policies. The unaudited pro forma combined
statements of operations for the year ended December 31, 1999 and the
three-month period ended March 31, 2000 were prepared based upon the historical
financial statements of the Controlled Group, adjusted to conform accounting
policies, and give effect to:

- our acquisition of minority interests of the Controlled Group;

- our acquisition of Sooner Inc.; and

- our sale of shares in the Offering,

as if these transactions had occurred on January 1, 1999 and 2000, respectively.

The pro forma adjustments represent management's preliminary determination
of purchase accounting adjustments and are based upon available information and
certain assumptions that management considers reasonable under the
circumstances. Consequently, the amounts reflected in the unaudited combined
financial information are subject to change. Management does not expect that
differences between the preliminary and final purchase price allocation will
have a material impact on the combined company's financial position or results
of operations. In addition, the unaudited pro forma combined financial
statements do not reflect any cost savings or other financial synergies which
may be realized in the future as a result of these transactions.

The unaudited pro forma combined financial statements do not purport to be
indicative of the results that would have been obtained had the transactions
described above been completed on the indicated dates or that may be obtained in
the future. The unaudited pro forma combined financial statements should be read
in conjunction with the historical financial statements and notes thereto
included elsewhere in this prospectus.

F-3
<PAGE> 79

PRO FORMA COMBINED BALANCE SHEET

AT MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL
------------------------------------------ ---------------------- -----------

OIL STATES PTI COMBINING
INTERNATIONAL, HWC ENERGY GROUP ADJUSTMENTS COMBINED
INC. SERVICES, INC. INC. (NOTE 1) GROUP SOONER INC.
-------------- -------------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents........ $ 1,697 $ 1,495 $ 476 $ $ 3,668 $ 1,184
Accounts receivable, net......... 38,236 13,383 34,263 85,882 21,104
Accrued interest receivable...... -- -- -- -- 2
Deferred taxes................... -- -- -- -- 802
Refundable income taxes.......... -- -- -- -- 24
Inventories...................... 30,051 -- 3,840 33,891 60,455
Prepaid expenses and other
current assets................. 1,572 1,892 359 3,823 1,019
-------- -------- -------- -------- -------- --------
Total current assets....... 71,556 16,770 38,938 -- 127,264 84,590
-------- -------- -------- -------- -------- --------
Accounts and notes receivable...... -- -- -- -- 2,694
Debt issuance costs, net of
accumulated amortization......... -- -- -- -- 97
Property plant and equipment,
net.............................. 41,367 52,528 50,524 144,419 5,170
Goodwill, net...................... 45,359 31,013 28,674 (253)(A) 104,793 13,229
Investments, at cost............... -- -- -- -- 2,204
Other long term assets............. 1,939 591 -- 253(A) 2,783 392
-------- -------- -------- -------- -------- --------
Total assets............... $160,221 $100,902 $118,136 $ -- $379,259 $108,376
======== ======== ======== ======== ======== ========

<CAPTION>
PRO FORMA
---------------------------------------------------------------
MINORITY COMBINED,
SOONER INC. INTEREST OFFERING ACQUISITIONS
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS AND
(NOTES 1(A) AND 2) (NOTE 3) (NOTE 4) OFFERING
------------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents........ $ $ $ 763(A) $ 5,615
Accounts receivable, net......... 106,986
Accrued interest receivable...... 2
Deferred taxes................... 802
Refundable income taxes.......... 24
Inventories...................... 94,346
Prepaid expenses and other
current assets................. 4,842
-------- -------- -------- --------
Total current assets....... -- -- 763 212,617
-------- -------- -------- --------
Accounts and notes receivable...... 2,694
Debt issuance costs, net of
accumulated amortization......... (97) 0
Property plant and equipment,
net.............................. 31,000(A) 180,589
Goodwill, net...................... 138,800 68,700 325,522
Investments, at cost............... 2,204
Other long term assets............. 97 3,272
-------- -------- -------- --------
Total assets............... $138,800 $ 68,700 $ 31,763 $726,898
======== ======== ======== ========
</TABLE>

F-4
<PAGE> 80

PRO FORMA COMBINED BALANCE SHEET -- (CONTINUED)

AT MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------------------------------------ ---------------------- ----------- -----------

OIL STATES PTI COMBINING SOONER INC.
INTERNATIONAL, HWC ENERGY GROUP ADJUSTMENTS COMBINED ADJUSTMENTS
INC. SERVICES, INC. INC. (NOTE 1) GROUP SOONER INC. (NOTE 2)
-------------- -------------- -------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current liabilities
Accounts payable and accrued
liabilities................. $ 48,747 $ 6,312 $ 11,076 $ $ 66,135 $ 32,034 $
Postretirement healthcare and
other benefits.............. 1,300 -- -- 1,300 --
Income taxes payable.......... -- 734 3,285 4,019 127
Current portion of long-term
debt........................ 4,424 7,651 19,264 31,339 1,156
Deferred income tax
liability................... -- -- 260 260 --
Other current liabilities..... -- 733 -- 733 --
-------- -------- -------- -------- -------- -------- --------
Total current
liabilities........... 54,471 15,430 33,885 -- 103,786 33,317 --
-------- -------- -------- -------- -------- -------- --------
Long term debt.................. 56,240 32,169 31,442 119,851 56,353
Deferred income taxes........... 698 11,289 9,631 21,618 --
Postretirement healthcare and
other benefits................ 7,777 -- -- 7,777 --
Other liabilities............... 4,413 119 -- 4,532 --
-------- -------- -------- -------- -------- -------- --------
Total liabilities....... 123,599 59,007 74,958 -- 257,564 89,670 --
-------- -------- -------- -------- -------- -------- --------
Minority interest............... 132 -- -- 26,454(B) 26,586 --
Redeemable preferred stock...... 20,150 5,061 -- 25,211 --
Stockholders' equity
Convertible preferred stock... 1,625 -- -- 1,625 --
Common stock.................. 224 37,925 21,789 59,938 -- 79
Additional paid-in capital.... 55,223 -- -- (23,536)(B) 31,687 23,676 138,721
Retained earnings (deficit)... (40,249) (1,112) 22,717 (2,918)(B) (21,562) (4,970)
Cumulative translation
adjustments................. (483) 21 (1,328) (1,790) --
Accumulated other
comprehensive loss.......... -- -- -- -- --
Treasury stock................ -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total stockholders'
equity................ 16,340 36,834 43,178 (26,454) 69,898 18,706 138,800
-------- -------- -------- -------- -------- -------- --------
Total liabilities and
stockholders'
equity................ $160,221 $100,902 $118,136 $ -- $379,259 $108,376 $138,800
======== ======== ======== ======== ======== ======== ========

<CAPTION>
PRO FORMA
------------------------------------------
MINORITY COMBINED,
INTEREST OFFERING ACQUISITIONS
ADJUSTMENTS ADJUSTMENTS AND
(NOTE 3) (NOTE 4) OFFERING
----------- ----------- -------------
<S> <C> <C> <C>
Current liabilities
Accounts payable and accrued
liabilities................. $ $ 375(AH) $ 98,544
Postretirement healthcare and
other benefits.............. 1,300
Income taxes payable.......... 4,146
Current portion of long-term
debt........................ (4,100)(A) 28,395
Deferred income tax
liability................... 260
Other current liabilities..... 733
-------- -------- --------
Total current
liabilities........... -- (3,725) 133,378
-------- -------- --------
Long term debt.................. (76,971)(A) 99,233
Deferred income taxes........... (11,289)(E) 10,329
Postretirement healthcare and
other benefits................ 7,777
Other liabilities............... 4,532
-------- -------- --------
Total liabilities....... -- (91,985) 255,249
-------- -------- --------
Minority interest............... (26,454) 132
Redeemable preferred stock...... (25,211)(AB) --
Stockholders' equity
Convertible preferred stock... (1,625)(A) --
Common stock.................. 48 (59,649)(ABG) 416
Additional paid-in capital.... 92,188 198,944 (ABHG) 485,216
Retained earnings (deficit)... 2,918 11,289(E) (12,325)
Cumulative translation
adjustments................. (1,790)
Accumulated other
comprehensive loss.......... --
Treasury stock................ --
-------- -------- --------
Total stockholders'
equity................ 95,154 148,959 471,517
-------- -------- --------
Total liabilities and
stockholders'
equity................ $ 68,700 $ 31,763 $726,898
======== ======== ========
</TABLE>

F-5
<PAGE> 81

PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL
--------------------------------------- ---------------------- -----------
HWC
OIL STATES ENERGY COMBINING
INTERNATIONAL, SERVICES, PTI ADJUSTMENTS COMBINED
INC. INC. GROUP INC. (NOTE 1) GROUP SOONER INC.
-------------- --------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................. $27,920 $17,380 $42,926 $ $88,226 $70,426
Expenses
Costs of sales.................... 22,050 10,258 27,866 (1,156)(A) 59,018 63,723
Selling, general and
administrative.................. 6,361 3,028 1,690 (592)(A) 10,487 2,350
Depreciation and amortization..... -- 1,849 1,591 1,748(A) 5,188
Other expense (income)............ (11) -- -- (11)
------- ------- ------- ------- ------- -------
Operating income (loss)............. (480) 2,245 11,779 -- 13,544 4,353
------- ------- ------- ------- ------- -------
Interest income..................... 49 21 -- 70 105
Interest expense.................... (1,192) (854) (801) (2,847) (1,101)
Other income (expense).............. -- 61 -- 61 --
------- ------- ------- ------- ------- -------
Earnings before income taxes...... (1,623) 1,473 10,978 -- 10,828 3,357
Income tax (expense) benefit........ 82 (649) (4,659) (5,226) --
------- ------- ------- ------- ------- -------
Net Income (loss) before minority
interests......................... (1,541) 824 6,319 -- 5,602 3,357
Minority interests.................. (7) -- -- (2,569)(C) (2,576) --
------- ------- ------- ------- ------- -------
Net income (loss)................... $(1,548) $ 824 $ 6,319 $(2,569) $ 3,026 $ 3,357
======= ======= ======= ======= ======= =======
Net income (loss) per common
share.............................
Basic.............................
Diluted...........................
Average shares outstanding..........
Basic.............................
Diluted...........................

<CAPTION>
PRO FORMA
-----------------------------------------------------------------
MINORITY
SOONER INC. INTEREST OFFERING COMBINED,
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ACQUISITIONS
(NOTES 1(C) AND 2) (NOTE 3) (NOTES 3 AND 4) AND OFFERING
------------------ ----------- --------------- ------------
<S> <C> <C> <C> <C>
Revenue............................. $ $ $ $158,652
Expenses
Costs of sales.................... 122,741
Selling, general and
administrative.................. (407) 236(D) 12,666
Depreciation and amortization..... 2,707 860 8,755
Other expense (income)............ (11)
------- ----- ------ --------
Operating income (loss)............. (2,300) (860) (236) 14,501
------- ----- ------ --------
Interest income..................... 175
Interest expense.................... 1,414(C) (2,534)
Other income (expense).............. 61
------- ----- ------ --------
Earnings before income taxes...... (2,300) (860) 1,178 12,203
Income tax (expense) benefit........ 1,270(I) (3,956)
------- ----- ------ --------
Net Income (loss) before minority
interests......................... (2,300) (860) 2,448 8,247
Minority interests.................. -- -- 2,569 (7)
------- ----- ------ --------
Net income (loss)................... $(2,300) $(860) $5,017 $ 8,240
======= ===== ====== ========
Net income (loss) per common
share............................. $
Basic.............................
Diluted...........................
Average shares outstanding..........
Basic.............................
Diluted...........................
</TABLE>

F-6
<PAGE> 82

PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------ ---------------------------------------------------
HWC GROUP
OIL STATES ENERGY PTI COMBINING ACQUISITION COMBINED
INTERNATIONAL, SERVICES, GROUP ADJUSTMENTS COMBINED ADJUSTMENTS GROUP WITH
INC. INC. INC. (NOTE 1) GROUP (NOTE 5) ACQUISITIONS
-------------- --------- ------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.................... $154,330 $42,274 $70,506 $ $267,110 $8,296 $275,406
Expenses
Costs of sales........... 126,751 26,848 46,160 (4,937)(A) 194,822 4,639 199,461
Selling, general and
administrative......... 27,819 9,364 4,023 (2,539)(A) 38,667 222 38,889
Depreciation and
amortization........... -- 6,543 6,256 7,476(A) 20,275 809 21,084
Other expense (income)... 2,448 -- -- 2,448 -- 2,448
-------- ------- ------- ------- -------- ------ --------
Operating income (loss).... (2,688) (481) 14,067 -- 10,898 2,626 13,524
-------- ------- ------- ------- -------- ------ --------
Interest income............ 264 36 -- 300 300
Interest expense........... (7,077) (2,565) (3,154) (12,796) (410) (13,206)
Other income (expense)..... (1,309) 12 -- (1,297) (1,297)
-------- ------- ------- ------- -------- ------ --------
Earnings before income
taxes.................. (10,810) (2,998) 10,913 -- (2,895) 2,216 (679)
Income tax (expense)
Benefit.................. (1,145) 753 (4,262) (4,654) (753) (5,407)
-------- ------- ------- ------- -------- ------ --------
Net income (loss) before
minority interests....... (11,955) (2,245) 6,651 -- (7,549) 1,463 (6,086)
Minority interests......... (31) -- -- 532(C) 501 -- 501
-------- ------- ------- ------- -------- ------ --------
Net income (loss) from
continuing operations
attributable to common
shares................... $(11,986) $(2,245) $ 6,651 $ 532 $(7,048) $1,463 $ (5,585)
======== ======= ======= ======= ======== ====== ========
Net income (loss) per
common share
Basic....................
Diluted..................
Average shares outstanding
Basic....................
Diluted..................

<CAPTION>
HISTORICAL PRO FORMA
---------- ------------------------------------------------------------------------
SOONER INC. MINORITY COMBINED,
SOONER INC. ACQUISITION INTEREST OFFERING ACQUISITIONS
SOONER ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS AND
INC. (NOTE 2) (NOTE 6) (NOTE 3) (NOTES 3 AND 4) OFFERING
---------- ----------- ----------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.................... $159,256 $ $52,718 $ $ $487,380
Expenses
Costs of sales........... 148,847 52,301 400,609
Selling, general and
administrative......... 7,297 1,727 945(D) 48,858
Depreciation and
amortization........... 1,058 9,300 234 3,440 35,116
Other expense (income)... -- -- 2,448
-------- ------- ------- ------- ------- --------
Operating income (loss).... 2,054 (9,300) (1,544) (3,440) (945) 349
-------- ------- ------- ------- ------- --------
Interest income............ -- 300
Interest expense........... -- 5,388(C) (7,818)
Other income (expense)..... (3,636) (4,933)
-------- ------- ------- ------- ------- --------
Earnings before income
taxes.................. (1,582) (9,300) (1,544) (3,440) 4,443 (12,102)
Income tax (expense)
Benefit.................. (627) 540 9,814(I) 4,320
-------- ------- ------- ------- ------- --------
Net income (loss) before
minority interests....... (2,209) (9,300) (1,004) (3,440) 14,257 (7,782)
Minority interests......... -- -- -- -- (532) (31)
-------- ------- ------- ------- ------- --------
Net income (loss) from
continuing operations
attributable to common
shares................... $ (2,209) $(9,300) $(1,004) $(3,440) $13,725 $ (7,813)
======== ======= ======= ======= ======= ========
Net income (loss) per
common share
Basic.................... $
Diluted.................. $
Average shares outstanding
Basic....................
Diluted..................
</TABLE>

F-7
<PAGE> 83

COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------------- ----------------------
OIL STATES HWC COMBINING
INTERNATIONAL, ENERGY PTI ADJUSTMENTS
INC. SERVICES, INC. GROUP INC. (NOTE 1) COMBINED
-------------- -------------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue.............................. $229,984 $42,616 $86,434 $ -- $359,034
Expenses
Cost of sales...................... 180,203 27,885 58,030 (4,351)(A) 261,767
Selling, general &
administrative.................. 36,171 7,408 8,114 (3,388)(A) 48,305
Depreciation and amortization...... -- 4,650 5,812 7,739(A) 18,201
Other expense (income)............. (335) -- 5,263 -- 4,928
-------- ------- ------- ------- --------
Operating income..................... 13,945 2,673 9,215 -- 25,833
-------- ------- ------- ------- --------
Interest income...................... 323 235 -- -- 558
Interest expense..................... (9,616) (2,507) (3,736) -- (15,859)
Other (income) expense............... -- 115 -- -- 115
-------- ------- ------- ------- --------
Earnings before income tax......... 4,652 516 5,479 -- 10,647
Income tax expense................... (3,711) (550) (5,484) (9,745)
-------- ------- ------- ------- --------
Net income from continuing operations
before minority interest,
discontinued operations and
extraordinary loss................. 941 (34) (5) -- 902
Minority interest.................... (31) -- -- 3,019(C) 2,988
-------- ------- ------- ------- --------
Net income from continuing operations
before extraordinary loss.......... 910 (34) (5) 3,019 3,890
Income from discontinued
operations......................... 1,733 -- -- -- 1,733
Estimated loss on sales of
discontinued operations............ (22,099) -- -- -- (22,099)
-------- ------- ------- ------- --------
Net income before extraordinary
loss............................... (19,456) (34) (5) 3,019 (16,476)
Extraordinary loss on debt
restructuring...................... (617) -- -- -- (617)
-------- ------- ------- ------- --------
Net loss........................... (20,073) (34) (5) 3,019 (17,093)
Preferred dividends.................. -- -- -- -- --
-------- ------- ------- ------- --------
Net loss attributable to common
shares.......................... $(20,073) $ (34) $ (5) $ 3,019 $(17,093)
======== ======= ======= ======= ========
</TABLE>

F-8
<PAGE> 84

COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------------- ----------------------
OIL STATES HWC COMBINED
INTERNATIONAL, ENERGY PTI ADJUSTMENTS
INC. SERVICES, INC. GROUP INC. (NOTE 1) COMBINED
-------------- -------------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue............................. $113,925 $7,459 $94,875 $ -- $216,259
Expenses
Cost of sales..................... 84,249 4,561 64,894 (2,692)(A) 151,012
Selling, general &
administrative................. 19,783 827 6,176 (3,068)(A) 23,718
Depreciation and amortization..... -- 304 2,909 5,760(A) 8,973
Other expense (income)............ (122) -- -- -- (122)
-------- ------ ------- ------- --------
Operating income.................... 10,015 1,767 20,896 -- 32,678
-------- ------ ------- ------- --------
Interest income..................... 120 12 -- -- 132
Interest expense on long-term
debt.............................. (6,628) (225) (1,989) -- (8,842)
Other (income) expense.............. -- (368) -- -- (368)
-------- ------ ------- ------- --------
Earnings before income taxes...... 3,507 1,186 18,907 -- 23,600
Income tax expense.................. (3,148) (642) (7,529) -- (11,319)
-------- ------ ------- ------- --------
Net income from continuing
operations before minority
interest and discontinued
operations........................ (359) 544 11,378 -- 12,281
Minority interest................... (1,099) -- -- (5,770)(C) (6,869)
-------- ------ ------- ------- --------
Net income from continuing
operations........................ (740) 544 11,378 (5,770) 5,412
Income from discontinued
operations........................ 9,386 -- -- -- 9,386
-------- ------ ------- ------- --------
Net income........................ 8,646 544 11,378 (5,770) 14,798
Preferred dividends................. -- -- -- -- --
-------- ------ ------- ------- --------
Net income attributable to common
shares......................... $ 8,646 $ 544 $11,378 $(5,770) $ 14,798
======== ====== ======= ======= ========
</TABLE>

F-9
<PAGE> 85

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION

The reorganization accounting method ("as if" pooling of interest method)
has been used in the preparation of the unaudited pro forma combined financial
statements to reflect the combination of entities in the Controlled Group. Under
this method of accounting, the historical financial statements of HWC Energy
Services, Inc. and PTI Group Inc. are combined with Oil States International,
Inc. as of March 31, 2000, for each year in the three-year period ended December
31, 1999 and for the three-month period ended March 31, 2000, in each case from
the date each became controlled by SCF-III, L.P. (November 14, 1997 for HWC and
January 8, 1997 for PTI). The pro forma adjustments below include those
necessary to conform accounting policies, as if these companies had been
combined from the date of common control.

The purchase method of accounting has been used to reflect the acquisition
of the minority interests of each company in the Controlled Group concurrent
with the closing of the Offering. The purchase price is based on the fair value
of the shares owned by the minority interests, estimated at the mid-range of the
expected initial public offering price per share. Under this accounting method,
the excess of the purchase price over the fair value of the assets and
liabilities allocable to the minority interests acquired has been reflected as
goodwill. The estimated fair values of assets and liabilities are preliminary
and subject to change. For purposes of the pro forma combined financial
statements, the goodwill recorded in connection with this transaction is being
amortized over 20 years using the straight-line method based on management's
evaluation of the nature and duration of customer relationships and considering
competitive and technological developments in the industry. The unaudited pro
forma combined balance sheet as of March 31, 2000 and statements of operations
for the year ended December 31, 1999 and the three-month period ended March 31,
2000 have been adjusted for the effects of purchase accounting, as described
below.

The purchase method of accounting also has been used to reflect the
acquisition of the outstanding common stock of Sooner Inc. concurrent with the
closing of the Offering. The purchase price is based on the fair value of the
shares of Sooner Inc., estimated at the mid-range of the expected initial public
offering price per share. The excess of the purchase price over the fair value
of the assets and liabilities of Sooner Inc. has been reflected as goodwill. The
estimated fair values of assets and liabilities are preliminary and subject to
change. For purposes of the pro forma combined financial statements, the
goodwill recorded in connection with this transaction is being amortized over 15
years using the straight-line method based on management's evaluation of the
nature and duration of customer relationships and considering competitive and
technological developments in the industry. The unaudited pro forma combined
balance sheet as of March 31, 2000 and statements of operations for the year
ended December 31, 1999 and the three-month period ended March 31, 2000 includes
the unaudited historical financial statements of Sooner Inc., converted to a
calendar year end and adjusted for the effects of purchase accounting, as
presented below.

NOTE 1 -- COMBINING ADJUSTMENTS

(A) To reclassify Oil States International, Inc. debt issuance costs for
purposes of the unaudited pro forma combined balance sheet and depreciation and
amortization for purposes of the unaudited pro forma combined statement of
operations to conform to the financial presentation of the Controlled Group.

(B) To record minority interest, as follows (in thousands):

<TABLE>
<CAPTION>
OIL STATES HWC ENERGY
INTERNATIONAL, INC. SERVICES, INC. PTI GROUP INC. TOTAL
------------------- -------------- --------------- -------
<S> <C> <C> <C> <C>
Retained earnings................ $(5,447) $ (212) $ 8,577 $ 2,918
Additional paid-in capital....... 12,074 7,426 4,036 23,536
------- ------ ------- -------
$ 6,627 $7,214 $12,613 $26,454
======= ====== ======= =======
</TABLE>

F-10
<PAGE> 86
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(C) To reflect the minority interest in (income) loss and related tax
effect of the Controlled Group for each of the periods presented below (in
thousands):

<TABLE>
<CAPTION>
OIL STATES HWC
INTERNATIONAL, ENERGY PTI GROUP
INC. SERVICES, INC. INC. TOTAL
-------------- -------------- --------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997............ $ (959) $ (82) $(4,729) $(5,770)
====== ===== ======= =======
Year Ended December 31, 1998............ $3,011 $ 6 $ 2 $ 3,019
====== ===== ======= =======
Year Ended December 31, 1999............ $2,910 $ 430 $(2,808) $ 532
====== ===== ======= =======
Three months ended March 31, 2000....... $ 241 $(142) $(2,668) $(2,569)
====== ===== ======= =======
</TABLE>

NOTE 2 -- ACQUISITION OF SOONER INC.

To reflect the acquisition of all outstanding common shares of Sooner Inc.
in exchange for Oil States International, Inc. Common Stock (in millions):

<TABLE>
<S> <C> <C>
Purchase price.............................................. $
Less: Book value of net assets acquired.....................
------
Goodwill.................................................... $138.8
======
Amortization for the three month period ended March 31,
2000...................................................... $ 2.3
======
Amortization for the twelve month period ended December 31,
1999...................................................... $ 9.3
======
</TABLE>

NOTE 3 -- ACQUISITION OF MINORITY INTERESTS

To reflect the acquisition of the minority interest of each company in the
Controlled Group in exchange for shares of Oil States International, Inc. Common
Stock and elimination of the historical amounts reflected for the combined group
(in millions):

<TABLE>
<CAPTION>
OIL STATES HWC
INTERNATIONAL, ENERGY PTI GROUP
INC. SERVICES, INC. INC. COMBINED
-------------- -------------- --------- --------
<S> <C> <C> <C> <C>
Fair value of the minority interests.... $29.2 $30.8 $35.1 $95.1
Minority interests' (book value)........ 6.6 7.2 12.6 26.4
----- ----- ----- -----
Additional goodwill..................... $22.6 $23.6 $22.5 $68.7
===== ===== ===== =====
Amortization of the additional goodwill
for the three month period ended March
31, 2000.............................. $ .28 $ .30 $ .28 $ .86
===== ===== ===== =====
Amortization of the additional goodwill
for the twelve month period ended
December 31, 1999..................... $1.13 $1.18 $1.13 $3.44
===== ===== ===== =====
</TABLE>

NOTE 4 -- OFFERING

(A) To reflect the sale of shares of Oil States International,
Inc. Common Stock in the Offering with anticipated net proceeds of $138 million.
Net proceeds will be used to reduce outstanding subordinated debt by $81.1
million, redeem preferred stock of $21.8 million, repurchase common stock from
non-accredited shareholders and certain shareholders holding pre-emptive stock
purchase rights for $3.8 million and to make capital expenditures of $31.0
million.

F-11
<PAGE> 87
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(B) To reflect the conversion of $5.1 million of HWC preferred stock into Oil
States International, Inc. Common Stock.

(D) To adjust for costs associated with the new corporate office.

(E) To adjust deferred income tax liabilities for the impact of the Combination
on the valuation allowance applied to net operating losses.

(F) To eliminate preferred stock dividends due to the elimination of the
preferred stock (see B above).

(G) To adjust for the par value of $.01 of Oil States International, Inc.
Common Stock.

(H) To record transaction costs associated with the Offering.

(I) To adjust the income tax expense for the elimination of deferred taxes due
to the formation of the consolidated group.

NOTE 5 -- GROUP ACQUISITIONS

To reflect the following acquisitions as if such acquisitions had occurred
on January 1, 1999.

On March 31, 1999 HWC Energy Services, Inc. acquired all of the outstanding
stock of C&H Rental Tools, Inc., and C&H Specialty Company, Inc. (collectively,
C&H). C&H provided rental equipment for drilling and workover operations in
Louisiana and offshore in the Gulf of Mexico. We paid cash of approximately $2.4
million and $820,000 in principal amount of subordinated promissory notes.
Funding for the transaction was received from the issuance of preferred stock.

On November 30, 1999 HWC Energy Services, Inc. acquired 12 snubbing units
and related equipment from Schlumberger and Target. Consideration paid for the
acquisitions included $3.7 million of cash and subordinated notes in aggregate
principal amount of $4.5 million. Funding for the transactions was received from
the issuance of preferred stock.

Details of the pro forma adjustments for HWC are as follows (in thousands):

<TABLE>
<CAPTION>
SCHLUMBERGER LTD. TARGET C&H RENTALS, INC. TOTAL
----------------- ------ ----------------- ------
<S> <C> <C> <C> <C>
Revenue.............................. $6,025 $894 $1,377 $8,296
Expenses
Cost of sales...................... 3,324 528 787 4,639
Selling, general &
administrative.................. -- 222 -- 222
Other expense (income)............. --
Depreciation and amortization...... 530 158 121 809
------ ---- ------ ------
Operating income (loss).............. 2,171 (14) 469 2,626
------ ---- ------ ------
Interest expense..................... (341) (56) (13) (410)
------ ---- ------ ------
Earnings (loss) from continuing
operations before income
taxes........................... 1,830 (70) 456 2,216
Income tax (expense) benefit......... (622) 24 (155) (753)
------ ---- ------ ------
Income from continuing operations.... $1,208 $(46) $ 301 $1,463
====== ==== ====== ======
</TABLE>

The Schlumberger and Target acquisitions consisted of asset purchases. The
C&H acquisition was a stock purchase. The difference between the C&H purchase
price and the fair market value of the assets and liabilities acquired was not
material to the combined group.

F-12
<PAGE> 88
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- SOONER INC. ACQUISITION ADJUSTMENT

To reflect the acquisitions by Sooner Inc. in May and June 1999 of the
tubular product distribution businesses from Continental Emsco, Wilson Supply
and National-Oilwell, Inc. Total consideration paid for these acquisitions was
$36.6 million.

Details of the pro forma adjustments for Sooner Inc. are as follows (in
thousands):

<TABLE>
<CAPTION>
CONTINENTAL
EMSCO WILSON SUPPLY NATIONAL-OILWELL, INC. TOTAL
----------- ------------- ---------------------- -------
<S> <C> <C> <C> <C>
Revenue.......................... $11,639 $18,705 $22,374 $52,718
Expenses
Costs of sales................. 11,544 17,795 22,962 52,301
Selling, general &
administrative.............. 400 650 677 1,727
Depreciation and
amortization................ 68 83 83 234
------- ------- ------- -------
Operating income (loss).......... (373) 177 (1,348) (1,544)
Income tax (expense) benefit..... 131 (62) 472 540
------- ------- ------- -------
Net Income (loss).............. $ (242) $ 115 $ (876) $(1,004)
======= ======= ======= =======
</TABLE>

F-13
<PAGE> 89

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,697 $ 1,537
Accounts receivable, net.................................. 35,353 33,315
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 2,883 5,838
Inventories, net.......................................... 30,051 25,566
Prepaid expenses and other current assets................. 1,572 1,433
-------- --------
Total current assets.............................. 71,556 67,689
PROPERTY, PLANT, AND EQUIPMENT, net......................... 41,367 42,430
INTANGIBLE ASSETS, net...................................... 45,359 45,593
OTHER NONCURRENT ASSETS..................................... 1,939 2,006
-------- --------
Total assets...................................... $160,221 $157,718
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable.......................................... $ 11,902 $ 11,288
Accrued liabilities....................................... 30,695 32,291
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 6,150 5,359
Postretirement healthcare and other benefits.............. 1,300 1,300
Current portion of long-term debt and capital lease
obligations............................................ 4,424 2,963
-------- --------
Total current liabilities......................... 54,471 53,201
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS................ 56,240 52,542
DEFERRED INCOME TAXES....................................... 698 704
OTHER LIABILITIES:
Postretirement healthcare and other benefits.............. 7,777 7,741
Other noncurrent liabilities.............................. 4,413 4,597
MINORITY INTEREST........................................... 132 225
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.................................. 20,150 20,150
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.0001 par value:
Class A, authorized and issued 16,250 shares, at
liquidation value of $100............................. 1,625 1,625
Common stock, $.01 par value:
Class A, authorized 30,000,000 shares, issued
27,154,672 shares at March 31, 2000 and 22,363,245
shares at December 31, 1999........................... 224 224
Class B, authorized 1,150,000 shares but none issued... -- --
Paid-in capital........................................... 55,223 55,550
Accumulated deficit....................................... (40,249) (38,701)
Cumulative translation adjustment......................... (483) (140)
-------- --------
Total stockholders' equity........................ 16,340 18,558
-------- --------
Total liabilities and stockholders' equity........ $160,221 $157,718
======== ========
</TABLE>

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

F-14
<PAGE> 90

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
<S> <C> <C>
REVENUES:
Product................................................... $20,572 $27,638
Service and other......................................... 7,348 10,864
------- -------
27,920 38,502
COST OF GOODS SOLD:
Product................................................... 15,676 22,075
Service and other......................................... 6,374 9,996
------- -------
22,050 32,071
------- -------
Gross profit...................................... 5,870 6,431
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES............... 6,361 7,182
OTHER INCOME................................................ (11) (33)
------- -------
Operating loss.................................... (480) (718)
INTEREST EXPENSE............................................ (1,192) (1,465)
INTEREST INCOME............................................. 49 56
------- -------
Loss before income taxes and minority interest.... (1,623) (2,127)
INCOME TAX BENEFIT (PROVISION).............................. 82 (112)
MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES.... (7) (8)
------- -------
NET LOSS.................................................... $(1,548) $(2,247)
======= =======
NET LOSS PER SHARE -- BASIC AND DILUTED..................... $ (0.08) $ (0.12)
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING -- BASIC AND DILUTED.... 24,917 22,361
======= =======
</TABLE>

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

F-15
<PAGE> 91

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
<S> <C> <C>
NET LOSS.................................................... $(1,548) $(2,247)
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustment................... (343) (655)
------- -------
COMPREHENSIVE LOSS.......................................... $(1,891) $(2,902)
======= =======
</TABLE>

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

F-16
<PAGE> 92

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,548) $(2,247)
Adjustments to reconcile net loss from continuing
operations to net cash (used in) provided by operating
activities --
Minority interest in (income) loss of consolidated
subsidiaries, net of distributions.................... (93) 8
Depreciation and amortization.......................... 1,748 1,853
Provision for losses on receivables.................... 86 71
Gain on disposal of assets............................. (6) (7)
Other non-cash items................................... 11 --
Changes in operating assets and liabilities --
Accounts receivable.................................. (2,221) 10,217
Net change in billings, costs, and estimated earnings
on uncompleted contracts............................ 3,749 4,460
Inventories.......................................... (4,635) (6,057)
Accounts payable and accrued liabilities............. (978) 564
Prepaid expenses and other........................... 6 (3,570)
------- -------
Net cash (used in) provided by operating
activities...................................... (3,881) 5,292
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions, excluding capitalized lease assets.... (459) (794)
Other, net................................................ 75 6
------- -------
Net cash used in investing activities............. (384) (788)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank debt................................ 25,066 3,367
Payments on bank debt..................................... (19,751) (7,330)
Other debt payments....................................... -- (450)
Payments on capitalized lease obligations................. (100) (153)
Preferred stock dividends................................. -- (509)
Other, net................................................ (229) (17)
------- -------
Net cash provided by (used in) financing
activities...................................... 4,986 (5,092)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (25) (28)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM
CONTINUING OPERATIONS..................................... 696 (616)
NET CASH USED IN DISCONTINUED OPERATIONS.................... (536) (353)
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,537 2,624
------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 1,697 $ 1,655
======= =======
</TABLE>

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

F-17
<PAGE> 93

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. GENERAL

The consolidated condensed financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring nature,
which, in the opinion of management, are necessary to present fairly the
Consolidated Balance Sheet of Oil States International, Inc. (Oil States) and
its wholly and majority-owned subsidiaries (collectively, the Company) at March
31, 2000, the Consolidated Statements of Operations for the three months ended
March 31, 2000 and 1999, the Consolidated Statements of Comprehensive Loss for
the three months ended March 31, 2000 and 1999, and the Consolidated Statements
of Cash Flows for the three months ended March 31, 2000 and 1999. Although
management believes that the disclosures in these financial statements are
adequate to make the interim information presented not misleading, certain
information relating to the Company's organization and footnote disclosures
normally included in annual audited financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements for the year ended December 31, 1999
and notes thereto. The results of operations and the cash flows for the
three-month period ended March 31, 2000 are not necessarily indicative of the
results to be expected for the entire year.

2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

Additional information regarding certain balance sheet accounts at March
31, 2000 and December 31, 1999, is presented below (in thousands):

<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Accounts receivable --
Trade..................................................... $34,225 $31,832
Other..................................................... 2,850 3,142
Allowance for doubtful accounts........................... (1,722) (1,659)
------- -------
$35,353 $33,315
======= =======
</TABLE>

<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Inventories --
Raw materials............................................. $ 9,872 $ 9,498
Work in process........................................... 13,835 9,870
Finished goods and purchased products..................... 11,104 10,818
------- -------
Total inventories................................. 34,811 30,186
Inventory reserves.......................................... (4,760) (4,620)
------- -------
$30,051 $25,566
======= =======
</TABLE>

3. LONG-TERM DEBT

F-18
<PAGE> 94
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)

remainder due March 1, 2003. Borrowings under the 2000 Agreement carry variable
interest rates payable monthly based upon prime, or eurodollar rate plus 2.25%,
for the revolving loans and prime plus 0.25%, or eurodollar rate plus 2.5%, for
the term loans. The commitment fee on the unused portion of the revolving
facility is 0.375% per annum. The 2000 Agreement is secured by substantially all
of the Company's assets and contains customary representations and warranties
and events of default. The 2000 Agreement also requires compliance with a number
of affirmative, negative, and financial covenants, including a limitation on the
incurrence of indebtedness and a requirement that the Company maintain a
specified net worth.

On March 3, 2000, the Company entered into a new overdraft credit facility
providing for borrowings totaling L5.0 million for UK operations, which
converted to approximately $7.9 million. Revolving credit loans under this
facility were $4.7 million at March 31, 2000. Interest is payable quarterly at a
margin of 1.90% per annum over the bank's variable base rate. All borrowings
under this facility are payable on demand. The UK facility is renewable with a
scheduled review date of March 2, 2001. The Company intends to renew this
facility at that time.

4. INCOME (LOSS) PER SHARE

In thousands, except per share amounts:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
<S> <C> <C>
Net loss.................................................... $(1,548) $(2,247)
Less: Preferred stock dividends............................. (327) (327)
------- -------
Loss available to common shareholders....................... $(1,875) $(2,574)
======= =======
Net loss per share -- basic and diluted..................... $ (0.08) $ (0.12)
======= =======

Weighted average shares outstanding -- basic and diluted.... 24,917 22,361
======= =======
</TABLE>

Basic loss per share amounts are based on the weighted average number of
common shares outstanding during the period. Diluted income per share would
include additional common shares that would have been outstanding if potential
common shares with a dilutive effect had been issued, however no additional
common shares were included in the calculation of diluted income per share as
the effect of the outstanding securities was anti-dilutive. Excluded from the
computation of diluted earnings per share are securities outstanding at March
31, 2000 and 1999 that could potentially dilute basic earnings per share of 1.2
million shares and 2.0 million shares of common stock, respectively.

The Company issued 1,072,828 shares of the Company's Class A common stock
at a purchase price of $10 per share pursuant to offerings to its existing
stockholders, on a pro-rata basis, in January and March 1998. Each stockholder
that purchased stock pursuant to those offerings was to receive additional
shares in the event that there was no initial public offering of the Company's
stock in 1998 and an earnings-per-share threshold was not reached. The formula
for determining the number of additional shares to be issued, which was based on
the Company's 1998 earnings per share, could not be properly calculated due to
the Company's negative earnings per share in 1998. As an alternative, in
December 1999, the Board of Directors approved the issuance of four additional
shares for each share purchased in connection with the January and March 1998
stock offerings. In addition, the stockholders that did not purchase stock
pursuant to those offerings were offered the right to purchase a pro-rata
portion of additional shares in accordance with their stock holdings at a share
price of $2 per share plus a 12% annual interest factor taken into consideration
from the time of those offerings. In February 2000, the Company issued 4,291,427
of additional shares related to those offerings. Those offerings are also
subject to certain preemptive rights in favor of the holders of the Company's
Series A

F-19
<PAGE> 95
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)

and Series B Exchangeable Preferred Stock to purchase Class A common stock at
fair value. To date, no Class A common stock has been issued pursuant to those
rights as they relate to the offerings in 1998. The Company does not expect that
the amount of additional shares to be issued pursuant to such preemptive rights
will be material to the Company's financial position.

Effective December 31, 1997, the Company acquired all options to purchase
the common stock of CE Franklin Ltd. held by certain of its stockholders in
exchange for 500,000 shares of its Class A common stock at an aggregate value of
$2 million. The number of shares issued to these stockholders was to be
increased in the event that there was no initial public offering of the
Company's stock in 1998 and an earning-per-share threshold was not reached. The
formula for determining the number of additional shares to be issued, which was
based on the Company's 1998 earnings per share, could not be properly calculated
due to the Company's negative earnings per share in 1998. As an alternative, the
Company issued 500,000 additional shares to these stockholders in March 2000.

5. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for the three months ended March 31, 2000 and 1999, for interest
and income taxes was as follows (in thousands):

<TABLE>
<CAPTION>
2000 1999
---- ------
<S> <C> <C>
Interest.................................................... $899 $2,773
Income taxes, net of refunds................................ 63 15
</TABLE>

The following noncash transactions have been excluded from the consolidated
statements of cash flows for the three months ended March 31, 2000 and 1999 (in
thousands):

<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Assets financed through capital lease obligations........... $17 $22
</TABLE>

6. SEGMENT AND RELATED INFORMATION

In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", the Company has identified the following
reportable segments: Elastomer Products, Engineered and Industrial Products,
Marine Construction, and Marine Winches. Elastomer Products manufactures well
servicing and production components and provides elastomer molding. Engineered
and Industrial Products provides technically advanced solutions for drilling,
production, and structural projects including flex joints, Merlin connectors,
and elastaflex clutches. Marine Construction provides products and services for
fixed platform installation and decommissioning and pipeline construction
including rotary selector valves and concrete mats. Marine Winches designs and
manufactures deep water mooring systems for offshore drilling vessels, floating
production systems and barges. They also design and refurbish a complete line of
marine winches and other deck machinery for the offshore service boat industry.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. Most of the
businesses were acquired as a unit, and the management at the time of the
acquisition was retained.

Financial information by industry segment for each of the three months
ended March 31, 2000, and 1999, is summarized below in thousands. The Company
evaluates performance and allocates resources based on EBITDA, which is
calculated as operating income adding back depreciation and amortization.
Calculations of EBITDA should not be viewed as a substitute to calculations
under generally accepted accounting

F-20
<PAGE> 96
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)

principles, in particular operating income and net income. In addition, EBITDA
calculations by one company may not be comparable to another company.

<TABLE>
<CAPTION>
ENGINEERED CORPORATE
ELASTOMER AND INDUSTRIAL MARINE MARINE AND
PRODUCTS PRODUCTS CONSTRUCTION WINCHES ELIMINATIONS TOTAL
--------- -------------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
2000
Revenues from unaffiliated
customers.................. $2,651 $12,548 $7,089 $ 5,632 $ -- $27,920
====== ======= ====== ======= ======= =======
EBITDA....................... 386 1,786 603 (247) (1,260) 1,268
Depreciation and
amortization............... (59) (530) (575) (435) (149) (1,748)
------ ------- ------ ------- ------- -------
Operating income (loss)...... 327 1,256 28 (682) (1,409) (480)
====== ======= ====== ======= ======= =======
Capital expenditures......... -- 93 209 147 10 459
====== ======= ====== ======= ======= =======
1999
Revenues from unaffiliated
customers.................. $2,027 $18,152 $8,482 $ 9,841 $ -- $38,502
====== ======= ====== ======= ======= =======
EBITDA....................... 248 3,371 92 (1,338) (1,238) 1,135
Depreciation and
amortization............... (60) (669) (647) (330) (147) (1,853)
------ ------- ------ ------- ------- -------
Operating income (loss)...... 188 2,702 (555) (1,668) (1,385) (718)
====== ======= ====== ======= ======= =======
Capital expenditures......... 26 184 512 34 38 794
====== ======= ====== ======= ======= =======
</TABLE>

Financial information by geographic segment for each of the three months
ended March 31, 2000 and 1999, is summarized below in thousands. Revenues in the
US include export sales. Revenues are attributable to countries based on the
location of the entity selling the products or performing the services.

<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM SINGAPORE TOTAL
------- ------- --------- -------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers
2000.......................................... $20,518 $6,219 $1,183 $27,920
1999.......................................... 30,671 7,269 562 38,502
</TABLE>

7. SUBSEQUENT EVENTS

On July 21, 2000, the Company obtained a waiver from the holder of the
Series A Cumulative Preferred Stock totaling $14.4 million, extending the
optional redemption date to the earlier of April 30, 2001 or upon the occurrence
of a registered public offering of capital. On July 29, 2000 and July 31, 2000,
the Company renegotiated terms with the holders of certain subordinated debt
totaling $7.0 million and $7.0 million, respectively. Original maturities of the
subordinated debt extending through February 2003 were accelerated to the
earlier of April 30, 2001 or upon the occurrence of a registered public offering
of capital stock, in exchange for the holders waiving their rights to scheduled
maturities of principal and interest which were due prior to April 30, 2001.
Additionally, scheduled principal payments on other long-term debt totaling
$15.5 million become due during 2001.

Management's current projections indicate that there will not be sufficient
cash flow from operations to fund these obligations. Management is currently
developing a plan whereby the Company will be combined with other companies
under common majority ownership, and the stock of the combined company would be
sold in an initial public offering. The proceeds of the offering would be used,
in part, to reduce the existing debt obligations. If management is unsuccessful
in that effort, then management's plans would be to restructure its debt
obligations as well as generate additional cash flow through asset sales.

F-21
<PAGE> 97
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)

On July 31, 2000, the Company authorized the amendment of the provisions of
its Series A Convertible Cumulative Preferred Stock to permit the Company to
redeem such stock at any time upon three days' notice at its stated liquidation
value of $100 per share, plus accrued dividends, and to provide that the Company
must redeem such stock upon the earlier of the date that is six months from the
completion of a registered public offering of the Company's capital stock or the
date of the Company's first annual shareholders' meeting after such completion.

On July 31, 2000, the Company authorized and approved the terms and
conditions of the Combination Agreement between the Company, HWC Energy
Services, Inc., Merger Sub-HWC, Inc., Sooner, Inc., Merger Sub-Sooner, Inc. and
PTI Group Inc.

On July 31, 2000, the Company authorized the amendment of its Certificate
of Incorporation to increase the total number of shares of capital stock it has
the authority to issue to 225 million shares, consisting of 25 million shares of
preferred stock, par value $0.0001 per share and 200 million shares of common
stock, par value $0.01 per share, to cancel and retire its Class B Common Stock,
none of which is currently outstanding, and to redesignate all of its Class A
Common Stock as "Common Stock."

F-22
<PAGE> 98

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Oil States International, Inc.:

We have audited the accompanying consolidated balance sheets of Oil States
International, Inc. (a Delaware corporation) and subsidiaries (the "Company") as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and comprehensive income (loss), 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 did not audit the financial
statements of CE Franklin Ltd., a majority-owned subsidiary, which represented
6% and 5% of total consolidated assets in 1998 and 1997, respectively. CE
Franklin Ltd. was sold on May 28, 1999, and was classified as discontinued
operations prior to its sale. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for CE Franklin Ltd., is based solely on the report of
other auditors.

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 financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.

As discussed in Note 20, on July 21, 2000, the Company obtained a waiver
from the holder of the Series A Cumulative Preferred Stock totaling $14.4
million, extending the optional redemption date to the earlier of April 30, 2001
or upon the occurrence of a registered public offering of capital stock. On July
29, 2000 and July 31, 2000, the Company renegotiated terms with the holders of
certain subordinated debt totaling $7.0 million and $7.0 million, respectively.
Original maturities of the subordinated debt extending through February 2003
were accelerated to the earlier of April 30, 2001 or upon the occurrence of a
registered public offering of capital stock, in exchange for the holders waiving
their rights to scheduled maturities of principal and interest which were due
prior to April 30, 2001. Additionally, scheduled principal payments on other
long-term debt totaling $15.5 million become due during 2001. Management's
current projections indicate that there will not be sufficient cash flow from
operations to fund these obligations. Management is currently developing a plan
whereby the Company will be combined with other companies under common majority
ownership, and the stock of the combined company would be sold in an initial
public offering. The proceeds of the offering would be used, in part, to reduce
the existing debt obligations. If management is unsuccessful in that effort,
then management's plans would be to restructure its debt obligations as well as
generate additional cash flow through asset sales.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Oil States International, Inc., and subsidiaries as of
December 31, 1999 and 1998, 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

Dallas, Texas
July 31, 2000

F-23
<PAGE> 99

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
REVENUES:
Product................................................... $120,950 $177,264 $88,373
Service and other......................................... 33,380 52,720 25,552
-------- -------- -------
154,330 229,984 113,925
COST OF GOODS SOLD:
Product................................................... 101,340 144,115 68,291
Service and other......................................... 25,411 36,088 15,958
-------- -------- -------
126,751 180,203 84,249
-------- -------- -------
Gross profit...................................... 27,579 49,781 29,676
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES............... 27,819 36,171 19,783
OTHER EXPENSE (INCOME)...................................... 2,448 (335) (122)
-------- -------- -------
Operating (loss) income........................... (2,688) 13,945 10,015
INTEREST EXPENSE............................................ (7,077) (9,616) (6,628)
INTEREST INCOME............................................. 264 323 120
OTHER EXPENSE............................................... (1,309) -- --
-------- -------- -------
(Loss) income from continuing operations before
income taxes, minority interest, discontinued
operations, and extraordinary item.............. (10,810) 4,652 3,507
INCOME TAX PROVISION........................................ (1,145) (3,711) (3,148)
MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES.... (31) (31) (1,099)
-------- -------- -------
(Loss) income from continuing operations before
discontinued operations and extraordinary
item............................................ (11,986) 910 (740)
DISCONTINUED OPERATIONS:
Income from discontinued operations (net of income tax
expense of $549 and $7,813 in 1998 and 1997)........... -- 1,733 9,386
Estimated and realized losses on sales of discontinued
operations including pretax provision of $12,977 in
1998 for operating losses during phaseout period (net
of income tax expense of $215 in 1999 and income tax
benefit of $115 in 1998)............................... (5,715) (22,099) --
EXTRAORDINARY LOSS ON DEBT RESTRUCTURING, net of income tax
benefit of $0 in 1999 and $75 in 1998..................... (927) (617) --
-------- -------- -------
NET (LOSS) INCOME........................................... $(18,628) $(20,073) $ 8,646
======== ======== =======
INCOME (LOSS) PER SHARE -- BASIC AND DILUTED:
Loss from continuing operations before discontinued
operations and extraordinary item...................... $ (0.59) $ (0.01) $ (0.11)
Discontinued operations................................... (0.26) (0.93) 0.53
Extraordinary item........................................ (0.04) (0.03) --
-------- -------- -------
Net (loss) income................................. $ (0.89) $ (0.97) $ 0.42
======== ======== =======
WEIGHTED AVERAGE SHARES OUTSTANDING -- BASIC AND DILUTED.... 22,362 22,056 17,808
======== ======== =======
</TABLE>

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

F-24
<PAGE> 100

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,537 $ 2,624
Accounts receivable, net.................................. 33,315 48,291
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 5,838 735
Inventories, net.......................................... 25,566 36,353
Net assets of discontinued operations held for sale....... -- 129,539
Prepaid expenses and other current assets................. 1,433 3,861
-------- --------
Total current assets.............................. 67,689 221,403
PROPERTY, PLANT, AND EQUIPMENT, net......................... 42,430 50,476
INTANGIBLE ASSETS, net...................................... 45,593 47,401
OTHER NONCURRENT ASSETS..................................... 2,006 4,716
-------- --------
Total assets...................................... $157,718 $323,996
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable.......................................... $ 11,288 $ 26,027
Accrued liabilities....................................... 32,291 30,460
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 5,359 10,330
Postretirement healthcare and other benefits.............. 1,300 1,765
Current portion of long-term debt and capital lease
obligations............................................ 2,963 120,804
Income taxes payable...................................... -- 1,570
-------- --------
Total current liabilities......................... 53,201 190,956
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS................ 52,542 59,040
DEFERRED INCOME TAXES....................................... 704 847
OTHER LIABILITIES:
Postretirement healthcare and other benefits.............. 7,741 7,903
Other noncurrent liabilities.............................. 4,597 4,851
MINORITY INTEREST........................................... 225 194
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.................................. 20,150 20,150
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.0001 par value:
Class A, authorized and issued 16,250 shares, at
liquidation value of $100............................. 1,625 1,625
Common stock, $.01 par value:
Class A, authorized 30,000,000 shares, issued
22,363,245 shares at December 31, 1999, and 22,361,350
shares at December 31, 1998........................... 224 224
Class B, authorized 1,150,000 shares but none issued... -- --
Paid-in capital........................................... 55,550 58,052
Accumulated deficit....................................... (38,701) (20,073)
Cumulative translation adjustment......................... (140) 385
Treasury stock, 23,422 Class A common shares at cost at
December 31, 1998...................................... -- (158)
-------- --------
Total stockholders' equity........................ 18,558 40,055
-------- --------
Total liabilities and stockholders' equity........ $157,718 $323,996
======== ========
</TABLE>

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

F-25
<PAGE> 101

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)

<TABLE>
<CAPTION>
CUMULATIVE COMPREHENSIVE
PREFERRED COMMON PAID-IN ACCUMULATED TRANSLATION TREASURY INCOME
STOCK STOCK CAPITAL DEFICIT ADJUSTMENT STOCK (LOSS) TOTAL
--------- ------ -------- ----------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996...... $ -- $168 $ 36,958 $ (4,678) $ 521 $ -- $ 32,969
Net income.................... -- -- -- 8,646 -- -- $ 8,646
Currency translation
adjustment.................. -- -- -- -- (2,201) -- (2,201)
--------
Comprehensive income.......... $ 6,445 6,445
========
Issuance of shares............ 1,625 38 31,361 -- -- -- 33,024
Shares issued for CE Franklin
options..................... -- 5 2,995 (3,000) -- -- --
Preferred stock dividends..... -- -- (254) (968) -- -- (1,222)
------ ---- -------- -------- ------- ----- --------
BALANCE, December 31, 1997...... 1,625 211 71,060 -- (1,680) -- 71,216
Net loss...................... -- -- -- (20,073) -- -- $(20,073)
Currency translation
adjustment.................. -- -- -- -- 2,065 -- 2,065
--------
Comprehensive loss............ $(18,008) (18,008)
========
Issuance of shares............ -- 13 13,222 -- -- -- 13,235
Preferred stock dividends..... -- -- (1,230) -- -- -- (1,230)
Common stock dividend......... -- -- (25,000) -- -- -- (25,000)
Purchase of Class A common
stock held in treasury at
cost........................ -- -- -- -- -- (158) (158)
------ ---- -------- -------- ------- ----- --------
BALANCE, December 31, 1998...... 1,625 224 58,052 (20,073) 385 (158) 40,055
Net loss...................... -- -- -- (18,628) -- -- $(18,628)
Currency translation
adjustment.................. -- -- -- -- (525) -- (525)
--------
Comprehensive loss............ $(19,153) (19,153)
========
Issuance of shares from
treasury.................... -- -- (493) -- -- 789 296
Preferred stock dividends..... -- -- (1,308) -- -- -- (1,308)
Dividend in kind to
shareholder................. -- -- (701) -- -- -- (701)
Purchase of Class A common
stock held in treasury at
cost........................ -- -- -- -- -- (631) (631)
------ ---- -------- -------- ------- ----- --------
BALANCE, December 31, 1999...... $1,625 $224 $ 55,550 $(38,701) $ (140) $ -- $ 18,558
====== ==== ======== ======== ======= ===== ========
</TABLE>

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

F-26
<PAGE> 102

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $ (18,628) $ (20,073) $ 8,646
Adjustments to reconcile net (loss) income from continuing
operations to net cash provided by (used in) operating
activities --
Minority interest in loss (income) of consolidated
subsidiaries, net of distributions..................... 31 (89) 1,099
Depreciation and amortization........................... 7,476 7,739 5,760
Provision for losses on receivables..................... 836 1,107 517
Deferred income tax (benefit) provision................. (143) (103) 388
Loss (gain) on disposal of assets....................... 2,457 (52) (38)
Net loss (income) from discontinued operations.......... 5,715 20,366 (9,386)
Loss on sale of other businesses........................ 975 -- --
Loss on sale of marketable securities................... 334 -- --
Extraordinary loss on debt restructuring................ 927 617 --
Other non-cash items.................................... 405 253 938
Changes in operating assets and liabilities, net of
effect from acquired and divested businesses --
Accounts receivable................................... 12,775 (20,058) (11,457)
Net change in billings, costs, and estimated earnings
on uncompleted contracts............................. (9,085) (10,575) 8,684
Inventories........................................... 9,576 (2,341) (10,578)
Accounts payable and accrued liabilities.............. (13,837) 6,709 16,824
Prepaid expenses and other............................ 1,789 (1,338) (7,370)
--------- --------- --------
Net cash provided by (used in) operating
activities.......................................... 1,603 (17,838) 4,027
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired.......... -- (8,514) (13,645)
Property additions, excluding capitalized lease assets.... (2,638) (18,124) (4,076)
Proceeds from sale of discontinued operations............. 102,439 -- --
Proceeds from sale of other businesses.................... 1,976 -- --
Proceeds from sale of marketable securities............... 24,408 -- --
Other, net................................................ 560 (303) 168
--------- --------- --------
Net cash provided by (used in) investing
activities.......................................... 126,745 (26,941) (17,553)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank debt................................ 31,559 240,829 51,328
Payments on bank debt..................................... (152,830) (202,779) (33,631)
Other debt (payments) borrowings, net..................... (450) (11,249) 24,721
Payments on capitalized lease obligations................. (505) (285) (1,227)
Preferred stock dividends................................. (1,568) (1,230) (1,222)
Issuance of common stock.................................. 46 13,235 18,225
Other, net................................................ (1,556) -- --
--------- --------- --------
Net cash (used in) provided by financing
activities.......................................... (125,304) 38,521 58,194
--------- --------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 28 107 (171)
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM
CONTINUING OPERATIONS..................................... 3,072 (6,151) 44,497
NET CASH USED IN DISCONTINUED OPERATIONS.................... (4,159) (3,142) (37,222)
CASH AND CASH EQUIVALENTS, beginning of year................ 2,624 11,917 4,642
--------- --------- --------
CASH AND CASH EQUIVALENTS, end of year...................... $ 1,537 $ 2,624 $ 11,917
========= ========= ========
</TABLE>

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

F-27
<PAGE> 103

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Oil States
International, Inc. (Oil States) and its wholly and majority-owned subsidiaries
(collectively, the Company). On July 20, 2000, an amendment to the Certificate
of Incorporation for CONEMSCO, Inc. was filed with the State of Delaware to
change the corporate name from CONEMSCO, Inc. to Oil States International, Inc.
Oil States' subsidiaries include CECO Holdings, Inc. (CECO) and CECO's
wholly-owned subsidiaries: Oil States Industries, Inc. and its subsidiaries
(collectively, OSI) and Continental Emsco Company and its subsidiaries
(collectively, Continental Emsco). OSI's wholly-owned subsidiaries are Oil
States MCS, Inc., Oil States HydroTech Systems, Inc., Oil States Subsea
Ventures, Inc., Oil States Skagit SMATCO, Inc., Oil States Industries (UK)
Limited (OSI-UK), Oil States Industries (Asia) Pte. Ltd., and Oil States
Industries do Brasil Instalacoes Maritimas Ltda. OSI also owns a 60% interest in
Elastomeric Actuators, Inc., a joint venture with a third party. OSI-UK's
wholly-owned subsidiaries include Oil States MCS Limited (MCS Limited), and Oil
States Klaper Limited. All significant intercompany accounts and transactions
between the consolidated entities have been eliminated in the accompanying
consolidated financial statements.

The Company's controlling stockholder is SCF-III, L.P. (SCF). SCF is a
private equity investment partnership fund which specializes in the growth and
development of established companies serving the energy industry. SCF's ultimate
general partner is L.E. Simmons & Associates, Incorporated, based in Houston,
Texas.

The Company is a leading designer and manufacturer of a diverse range of
products for offshore platforms, subsea pipelines, and defense and general
industrial applications. Major product lines include flexible bearings, advanced
connectors, mooring systems, winches, services for installing and removing
offshore platforms, downhole production equipment, and custom molded products.
Sales are made primarily to major oil companies, large and small independent oil
and gas companies, drilling contractors, and well service and workover
operators.

During 1999, the Company sold all of the operating assets of CE
Distribution Services, Inc. (CEDS), CE Drilling Products, Inc. (CE Drilling), CE
Mobile Equipment, Inc. (CE Mobile), and its 51.8% investment in CE Franklin,
Ltd. (CE Franklin). Accordingly, for the periods presented, the results of CEDS,
CE Drilling, CE Mobile, and CE Franklin are shown as discontinued operations.
Charges for the estimated and realized losses on sale of discontinued operations
of $5.7 million and $22.1 million were recorded during 1999 and 1998,
respectively (see Note 17). The 1998 charge of $22.1 million includes losses
from operations of $13.0 million. During the year ended December 31, 1999, the
Company sold two wholly-owned subsidiaries: H.O. Mohr Research and Engineering,
Inc. (H.O. Mohr) and Oil States Martec Crane Services, Inc. (Martec).

During 1998, the Company completed acquisitions of Subsea Ventures, Inc.
(SVI), subsequently renamed Oil States Subsea Ventures, Inc., and Klaper (UK)
Limited (Klaper), subsequently renamed Oil States Klaper Limited. In addition,
all Class B common stock shares were exchanged, on a one-for-one basis, for
Class A common stock shares of the Company.

During 1997, the Company completed acquisitions of HydroTech Systems, Inc.
(HydroTech) subsequently renamed Oil States HydroTech Systems, Inc. and SMATCO
Industries, Inc. (SMATCO) subsequently renamed Oil States Skagit SMATCO, Inc. On
December 22, 1997, the Company purchased from Huntfield Trust Limited
(Huntfield) its 25 percent stock ownership in OSI, a subsidiary in which the
Company already owned the remaining 75 percent. The Company issued 1.0 million
shares of its Class A common stock to Huntfield in consideration for the OSI
stock.

F-28
<PAGE> 104
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

earlier of April 30, 2001 or upon the occurrence of a registered public offering
of capital stock. On July 29, 2000 and July 31, 2000, the Company renegotiated
terms with the holders of certain subordinated debt totaling $7.0 million and
$7.0 million, respectively. Original maturities of the subordinated debt
extending through February 2003 were accelerated to the earlier of April 30,
2001 or upon the occurrence of a registered public offering of capital stock, in
exchange for the holders waiving their rights to scheduled maturities of
principal and interest which were due prior to April 30, 2001. Additionally,
scheduled principal payments on other long-term debt totaling $15.5 million
become due during 2001. Management's current projections indicate that there
will not be sufficient cash flow from operations to fund these obligations.
Management is currently developing a plan whereby the Company will be combined
with other companies under common majority ownership, and the stock of the
combined company would be sold in an initial public offering. The proceeds of
the offering would be used, in part, to reduce the existing debt obligations. If
management is unsuccessful in that effort, then management's plans would be to
restructure its debt obligations as well as generate additional cash flow
through asset sales.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

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

Fair Value of Financial Instruments

The Company's financial instruments consist of cash and cash equivalents,
investments, receivables, payables, and debt instruments. The Company believes
that the carrying values of these instruments on the accompanying consolidated
balance sheets approximate their fair values.

Inventories

Inventories consist of oilfield products, manufactured equipment, and spare
parts for manufactured equipment. Inventories include raw materials, work in
process, finished goods, labor, and manufacturing overhead. Approximately 28%
and 35% of inventories at December 31, 1999 and 1998, respectively, is valued at
the lower of cost or market with cost determined by the last-in, first-out
(LIFO) method. Cost for the remaining inventories is determined on an average
cost or specific-identification method. If the LIFO method had not been used for
certain inventories, total inventories would have been approximately $522,000
higher than reported at December 31, 1999 and 1998. During 1999, the Company
experienced a reduction in inventories carried on a LIFO basis. The cost of
these liquidated LIFO inventories did not differ from the current cost by a
material amount.

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost and depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are capitalized and amortized over the lesser of
the life of the lease or the estimated useful life of the asset.

Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.

F-29
<PAGE> 105
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Intangible Assets

Deferred financing costs are amortized on a straight-line basis over the
lives of the respective credit agreements. Noncompete agreements are amortized
on a straight-line basis over the lives of the respective agreements. Goodwill
represents the excess of the purchase price for acquired businesses over the
allocated value of the related net assets. Goodwill is amortized on a
straight-line basis over a 40-year life.

Impairment of Long-Lived Assets

The Company's management periodically reviews the carrying values of
property, plant and equipment, goodwill, and other intangible assets for
impairment in light of historic and projected operating trends and
profitability, new product development, and the strategic direction of the
Company.

Foreign Currency

The functional currency for the Company's foreign subsidiaries is the local
currency. The financial statements of foreign subsidiaries are translated into
US dollars at current rates, except for sales, costs, and expenses, which are
translated at average rates during each reporting period. The cumulative effects
of translating the balance sheet accounts from the functional currency into the
US dollar are included in cumulative translation adjustments in the accompanying
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss).

Revenue and Cost Recognition

Revenue from the sale of products is recognized upon shipment to the
customer or when all significant risks of ownership have passed to the customer,
except for significant fabrication projects built to customer specifications
that have a production cycle greater than six months. Revenues from such
contracts are recognized under the percentage-of-completion method, measured by
the percentage of costs incurred to date to estimated total costs for each
contract (cost-to-cost method). Management believes this method is the most
appropriate measure of progress on large fabrication contracts. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined.

Cost of goods sold includes all direct material and labor costs and those
costs related to contract performance, such as indirect labor, supplies, tools,
and repairs. Selling, general, and administrative costs are charged to expense
as incurred.

The asset "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of amounts
billed. The liability "Billings in excess of costs and estimated earnings on
uncompleted contracts" represents customer billings in excess of revenues
recognized.

Income Taxes

The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Under this method, deferred income taxes are
recorded based upon the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the underlying assets or liabilities are
recovered or settled. The Company's earnings from foreign subsidiaries are
considered to be indefinitely reinvested and, accordingly, no provision for US
federal and state income taxes has been made for these earnings. Upon
distribution of foreign subsidiary earnings in the form of dividends or
otherwise, the Company would be subject to both US income taxes (subject to an
adjustment for foreign tax credits) and withholding taxes payable to the various
foreign countries.

F-30
<PAGE> 106
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In accordance with SFAS No. 109, the Company records a valuation reserve in
each reporting period when management believes that it is more likely than not
that any deferred tax asset created will not be realized, due to historical and
anticipated results of operations. Management will evaluate the appropriateness
of the reserve in the future based upon the operating results of the Company.

Receivables and Concentration of Credit Risk

Based on the nature of its customer base, the Company does not believe that
it has any significant concentrations of credit risk other than its
concentration in the oil and gas industry. The Company performs periodic credit
evaluations of its customers' financial condition and, generally, the Company
does not require significant collateral from its domestic customers. However,
export sales are generally collateralized by bank letters of credit. At December
31, 1999, one customer trade receivable accounted for 12.9% of the total trade
receivable balance.

Reclassifications

Certain amounts in prior years' consolidated financial statements have been
reclassified to conform with the current year presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires the use
of estimates and assumptions by management in determining the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Examples of a few such
estimates include the costs associated with the disposal of discontinued
operations, including potential future adjustments as a result of contractual
agreements, revenue and income recognized on the percentage-of-completion
method, and the valuation allowance recorded on net deferred tax assets. Actual
results could differ from those estimates.

Recent Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133 -- "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives in the
statement of financial position and measure those instruments at fair value. In
June 1999, the FASB issued SFAS No. 137 -- "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133 -- an amendment of FASB Statement No. 133," which defers the
effective date of SFAS No. 133 for one year. In June 2000, the FASB issued SFAS
No. 138 -- "Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an Amendment of FASB Statement No. 133," which amended SFAS 133.
The Company must implement SFAS No. 133 and 138 for fiscal year 2000 and has not
yet made a determination of their impact on the financial statements.

F-31
<PAGE> 107
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS

Additional information regarding certain balance sheet accounts at December
31, 1999 and 1998, is presented below:

<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable --
Trade..................................................... $31,832 $48,303
Other..................................................... 3,142 1,231
Allowance for doubtful accounts........................... (1,659) (1,243)
------- -------
$33,315 $48,291
======= =======
</TABLE>

Provision for losses on receivables was $836,000, $1.1 million, and
$517,000 for the years ended December 31, 1999, 1998, and 1997, respectively.

<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Inventories --
Raw materials............................................. $ 9,498 $10,571
Work in process........................................... 9,870 16,176
Finished goods and purchased products..................... 10,818 14,160
------- -------
Total inventories................................. 30,186 40,907
Inventory reserves.......................................... (4,620) (4,554)
------- -------
$25,566 $36,353
======= =======
</TABLE>

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1999 1998
----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Property, plant, and equipment --
Land and land improvements...................... 7-20 years $ 3,074 $ 3,003
Buildings and leasehold improvements............ 2-40 years 15,742 15,498
Machinery and equipment......................... 2-29 years 34,831 39,145
Computer and office equipment................... 1-10 years 4,466 4,119
Vehicles........................................ 2-5 years 1,352 1,373
-------- --------
Total property, plant, and equipment.... 59,465 63,138
Less -- Accumulated depreciation................ (17,035) (12,662)
-------- --------
$ 42,430 $ 50,476
======== ========
</TABLE>

Depreciation expense was $6.0 million, $6.3 million, and $3.6 million for
the years ended December 31, 1999, 1998, and 1997, respectively.

<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Intangible assets --
Excess of costs over net assets of businesses acquired
(net of accumulated amortization of $2,857 and $1,706
at December 31, 1999 and 1998, respectively)........... $44,977 $46,064
Other identified intangibles (net of accumulated
amortization of $708 and $636 at December 31, 1999 and
1998, respectively).................................... 616 1,337
------- -------
$45,593 $47,401
======= =======
</TABLE>

F-32
<PAGE> 108
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other identified intangibles include deferred financing costs, covenants
not to compete, and intellectual property. Amortization expense was $1.5
million, $1.4 million, and $2.2 million for the years ended December 31, 1999,
1998, and 1997, respectively. Amortization of the deferred financing costs of
$405,000, $253,000, and $938,000 for the years ended December 31, 1999, 1998,
and 1997, respectively, was included in interest expense.

<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued liabilities --
Accrued losses associated with discontinued operations.... $13,237 $ 9,237
Accrued payroll related costs............................. 3,900 4,271
Accrued insurance......................................... 3,372 3,859
Accrued interest.......................................... 3,187 2,949
Warranty reserve.......................................... 2,206 1,689
Other..................................................... 6,389 8,455
------- -------
$32,291 $30,460
======= =======
</TABLE>

The accrued losses associated with discontinued operations primarily
includes accruals for purchase price adjustments and outstanding claims.
Subsequent to December 31, 1999, approximately $8.7 million has been paid for
purchase price adjustments (see Note 17).

4. ACQUISITIONS AND DISPOSITIONS

Acquisitions

On July 15, 1997, the Company acquired 100% of the stock of HydroTech
located in Houston, Texas, for consideration totaling $11.6 million in cash and
preferred stock. HydroTech is a full-service provider of engineered products to
the offshore pipeline industry. HydroTech designs, manufactures, tests, and
installs many of its products for its customers. The HydroTech acquisition was
accounted for using the purchase method of accounting.

Accordingly, the purchase price was allocated to the net assets acquired
based on their estimated fair values with the balance of the purchase price,
$7.1 million, included in intangibles. During 1998, the Company repurchased
certain preferred stock under the terms of the acquisition agreement, which
reduced the total consideration paid by $2.5 million (see Note 9).

On July 31, 1997, the Company acquired 100% of the stock of SMATCO located
in Houma, Louisiana, for consideration totaling $16.7 million comprised of cash,
notes payable and convertible preferred stock. SMATCO designs and manufactures a
complete line of marine winches for the offshore service boat industry. The
SMATCO purchase was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the net assets acquired based
on their estimated fair values with the balance of the purchase price, $15.2
million, included in intangibles.

On February 27, 1998, the Company acquired 100% of the stock of SVI for
consideration totaling $12.5 million in cash, debt, and common stock. SVI is a
Houston, Texas-based company that manufactures and services auxiliary structures
for subsea blowout preventors and subsea production systems. The SVI purchase
was accounted for using the purchase method of accounting. Accordingly, the
purchase price paid was allocated to the net assets acquired based on their
estimated fair values with the balance of the purchase price, $8.4 million,
included in intangibles.

On April 1, 1998, the Company acquired certain assets and liabilities of
Klaper, a company located in the United Kingdom (UK), for a purchase price of
$5.7 million. Klaper provides repair and maintenance services for blowout
preventors and drilling risers used in offshore marine drilling. The Klaper
purchase was
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<PAGE> 109
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accounted for using the purchase method of accounting. Accordingly, the purchase
price was allocated to the net assets acquired based on their estimated fair
values with the balance of the purchase price, $2.8 million, included in
intangibles.

The following unaudited pro forma supplemental information presents
consolidated results of operations as if the Company's prior year acquisitions
had occurred on January 1, 1997 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Sales....................................................... $233,880 $156,167
Income (loss) from continuing operations.................... 816 (1,853)
Income (loss) per share -- basic and diluted................ (0.02) (0.17)
</TABLE>

Dispositions

On April 30, 1999, the Company sold the stock of H.O. Mohr for $1.7 million
in cash. The transaction resulted in a gain on sale of $160,000.

On July 1, 1999, the Company sold all the operating assets of Martec for
$100,000 in cash and $726,000 in notes receivable. The Company collected
$180,000 and reserved the remaining balance of the notes as it appears that full
collectibility is doubtful. The transaction resulted in a loss on sale of $1.1
million.

See Note 17 related to the disposition of businesses reported as
discontinued operations.

5. LONG-TERM DEBT

As of December 31, 1999 and 1998, long-term debt consisted of the following
(in thousands):

<TABLE>
<CAPTION>
1999 1998
------- ---------
<S> <C> <C>
US revolving credit facilities, weighted average rate of
7.9% and 6.9% for 1999 and 1998, respectively............. $ -- $ 87,000
US term loans, weighted average rate of 7.3% and 8.4% for
1999 and 1998, respectively............................... -- 30,800
UK revolving credit facilities, weighted average rate of
7.9% and 8.8% for 1999 and 1998, respectively............. 4,539 3,254
UK term loans, weighted average rate of 7.6% and 9.2% for
1999 and 1998, respectively............................... -- 4,341
Subordinated debt........................................... 14,000 16,404
Subordinated note payable to shareholders................... 25,000 25,000
Subordinated note payable to Hunting........................ 10,949 10,949
Other debt.................................................. 100 721
------- ---------
Total debt........................................ 54,588 178,469
Less- Current maturities.................................... (2,600) (120,217)
------- ---------
Total long-term debt.............................. $51,988 $ 58,252
======= =========
</TABLE>

Bank Debt

On March 31, 1998, the Company entered into a new credit agreement (the
1998 Agreement) with a consortium of lenders providing for borrowings totaling
$175.0 million. The 1998 Agreement provided for $35.0 million of term advances
and up to $120.0 million of borrowings on a revolving basis to the Company. The
1998 Agreement also provided for $5.0 million of term advances and up to $15.0
million of borrowings on a revolving basis to UK operations. The loans to UK
operations are denominated and payable in British

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

pounds. The 1998 Agreement provided for the issuance of letters of credit, such
issuance reducing the amount available for borrowing under the revolving portion
of the credit facility. The 1998 Agreement also contained several additional
options to borrow funds for temporary cash management purposes. The 1998
Agreement had a scheduled termination date of June 30, 2000.

The term advances under the 1998 Agreement contained required repayments of
$1.6 million per calendar quarter, beginning on June 30, 1998. Borrowings under
the 1998 Agreement carried variable interest rates based upon prime, eurodollar,
or sterling rates plus a spread based upon the Company's senior debt to earnings
before interest, taxes, depreciation and amortization (EBITDA) ratio. The
commitment fee on the unused portion of the facility was 0.375% at December 31,
1999, and was subject to change based upon the Company's senior debt to EBITDA
ratio. Borrowings under the 1998 Agreement were secured by a security interest
in substantially all accounts receivable and inventory of the Company in the US
and the UK and a pledge of the stock of certain subsidiaries. Among other
requirements, the Company was required to maintain certain financial ratios and
meet certain net worth and indebtedness tests.

In 1999, the Company and the banks party thereto entered into three
separate amendments (the 1999 Amendments) to the 1998 Agreement. The 1999
Amendments resulted in, but were not limited to, the following actions. The
banks agreed to forbear from exercising any of their rights as a result of the
Company's failure to achieve certain covenants through March 31, 2000. The
scheduled termination date of the 1998 Agreement was also changed to March 31,
2000. The interest rate was increased to the bank base rate plus 0.5%. The
lending commitments were incrementally reduced to $15.0 million of borrowings on
a revolving basis to US operations and $10.0 million of borrowings to UK
operations. Substantially all of the Company's fixed assets were pledged as
additional security for the borrowings. The divestiture transactions discussed
in Note 15 were approved and guidelines were established for payment of debt
with the proceeds of the divestitures and the sales of the marketable
securities. As a result of the divestitures and sales of the marketable
securities, all of the Company's US borrowings and the UK term borrowings under
the 1998 Agreement were paid in full by September 1999.

On March 1, 2000, the Company entered into a new credit agreement (the 2000
Agreement) providing for borrowings totaling $25.9 million for US operations.
From the proceeds of the initial borrowings, all US borrowings during 2000 under
the 1998 Agreement described above were repaid on March 1, 2000. The 2000
Agreement provides for $4.9 million of term advances and up to $21.0 million of
borrowings on a revolving basis to the Company. The 2000 Agreement provides for
the issuance of letters of credit, such issuance reducing the amount available
for borrowing under the revolving portion of the facility. On March 1, 2000,
$12.4 million was available to borrow under the revolving portion of the 2000
Agreement. The 2000 Agreement has a scheduled termination date of March 1, 2003.
The term advances are payable in 59 monthly principal installments of $81,740
with the remainder due March 1, 2003. Borrowings under the 2000 Agreement carry
variable interest rates payable monthly based upon prime, or eurodollar rate
plus 2.25%, for the revolving loans and prime plus 0.25%, or eurodollar rate
plus 2.5%, for the term loans. The commitment fee on the unused portion of the
revolving facility is 0.375% per annum. The 2000 Agreement is secured by
substantially all of the Company's assets and contains customary representations
and warranties and events of default. The 2000 Agreement also requires
compliance with a number of affirmative, negative, and financial covenants,
including a limitation on the incurrence of indebtedness and a requirement that
the Company maintain a specified net worth.

On March 3, 2000, the Company entered into a new overdraft credit facility
providing for borrowings totaling L5.0 million for UK operations, which
converted to approximately $7.9 million. Interest is payable quarterly at a
margin of 1.90% per annum over the bank's variable base rate. All borrowings
under this facility are payable on demand. The UK facility is renewable with a
scheduled review date of March 2, 2001. The Company intends to renew this
facility at that time.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In conjunction with executing the 1998 Agreement on March 31, 1998, the
Company recognized an extraordinary charge, net of tax benefit, of $617,000. In
conjunction with executing the 1999 Amendments during the year, the Company
recognized an extraordinary charge of $927,000. These extraordinary charges are
due to the write-off of deferred financing costs related to the Company's credit
facilities.

Subordinated and Other Affiliated Debt

The Company has subordinated notes payable to Hunting Oilfield Services
(International), Ltd. (Hunting), a related party of the Company, totaling $10.9
million. $10.4 million is due on May 17, 2001, and the remaining $500,000 is due
September 30, 2001. These notes carry an interest rate of 7.75% in 1998, 8.25%
in 1999, and 8.50% thereafter. Accrued interest is payable on March 31 of each
year; however, interest payments are only required to be made if certain
cumulative EBITDA thresholds are met. The Company did not meet EBITDA thresholds
for 1999. As of December 31, 1999, interest of $903,000 had been accrued but not
paid. Interest does not accrue on any accrued interest that is not payable due
to the failure to meet any EBITDA threshold. All unpaid accrued interest will be
payable on the maturity date of the notes.

On July 31, 1997, the Company issued subordinated promissory notes totaling
$7.0 million payable to the stockholders of an acquired company. Principal on
these notes is payable in the amounts of $2.0 million on July 31, 2000, $2.0
million on July 31, 2001, and $3.0 million on July 31, 2002. These notes carry
an interest rate of 8.0% with interest payable on July 31 of each year,
beginning July 31, 1998. If the Company is in default under any of its senior
debt, the noteholders may not receive any principal or interest payments for 180
days following the default or event of default. See Note 20.

On February 28, 1998, the Company issued subordinated promissory notes
totaling $7.5 million payable to former SVI stockholders in conjunction with the
SVI acquisition. Principal on these notes is payable in the amounts of $500,000
on August 31, 2000, $500,000 on February 28, 2001, $1.5 million on August 31,
2001, $1.5 million on February 28, 2002, $1.5 million on August 31, 2002, and
$1.5 million on February 28, 2003. Payments of $450,000 have been made as of
December 31, 1999. These notes carry an interest rate of 8.0% with interest
payable on the last day of February 1999 and 2000, and on each payment date
thereafter. If the Company is in default under any of its senior debt, the
noteholders may not receive any principal or interest payments for 180 days
following the default or event of default. See Note 20.

On July 31, 1998, the Company issued a subordinated promissory note payable
in the amount of $2.0 million to Sooner Pipe & Supply Corporation (Sooner), a
subsidiary of SCF under common control with the Company, in conjunction with an
acquisition of assets. Principal and accrued interest is payable on this note in
two installments of $1.0 million plus accrued interest at 6.0% on July 31, 1999
and 2000. During 1999, this note was canceled in conjunction with the sale of
certain assets to Sooner (see Notes 15 and 17).

On December 31, 1998, the Company declared a dividend in the form of a
subordinated note payable to SCF-III, L.P., acting as agent for all of the
common stockholders of the Company, in the amount of $25.0 million. Principal
and accrued interest at 6.0% are due on December 31, 2005 (see Note 15).

F-36
<PAGE> 112
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Scheduled maturities of long-term debt (other than capitalized lease
obligations) as of December 31, 1999, are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000...................................................... $ 2,600
2001...................................................... 19,488
2002...................................................... 6,000
2003...................................................... 1,500
2004...................................................... --
Thereafter................................................ 25,000
-------
$54,588
=======
</TABLE>

6. CAPITALIZED AND OPERATING LEASE OBLIGATIONS

The Company leases certain equipment, office space, computer equipment,
automobiles, and trucks under leases which expire at various dates.

Minimum future lease obligations in effect at December 31, 1999, are as
follows (in thousands):

<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
----------- ---------
<S> <C> <C>
2000........................................................ $ 363 $ 2,333
2001........................................................ 387 1,843
2002........................................................ 134 1,083
2003........................................................ 30 806
2004........................................................ 3 774
Thereafter.................................................. -- 4,460
----- -------
Total..................................................... 917 $11,299
===== =======
Less -- Current portion........................... (363)
-----
Noncurrent liability...................................... $ 554
=====
</TABLE>

Rental expense under operating leases was $2.5 million, $2.1 million, and
$3.7 million for the years ended December 31, 1999, 1998, and 1997,
respectively. Amortization of assets under capital lease is included in
depreciation expense (see Note 3).

7. POSTRETIREMENT HEALTHCARE AND OTHER INSURANCE BENEFITS

The Company provides healthcare and other insurance benefits, primarily
life, for certain active and retired employees. The healthcare plans are
contributory and contain other cost-sharing features such as deductibles,
lifetime maximums, and co-payment requirements. The following tables are in
thousands.

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Changes in accumulated postretirement benefit obligation --
Benefit obligation at beginning of year................... $ 9,663 $10,644
Service cost, benefits earned during the period........... 24 27
Interest cost on accumulated postretirement benefit
obligation............................................. 615 690
Benefits paid............................................. (1,271) (1,698)
Prior service cost........................................ 942 --
------- -------
Benefit obligation at end of year......................... $ 9,973 $ 9,663
======= =======
</TABLE>

F-37
<PAGE> 113
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Components of net periodic benefit cost --
Service cost, benefits earned during the period........... $ 24 $ 27 $ 38
Interest cost on accumulated postretirement benefit
obligation............................................. 615 690 752
Amortization of net gain.................................. -- (43) --
Amortization of prior service cost........................ 10 -- --
---- ---- ----
Total net periodic benefit cost........................... $649 $674 $790
==== ==== ====
</TABLE>

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation --
Retirees and dependent spouses............................ $ 9,159 $ 8,503
Fully eligible active plan participants................... 814 339
Other active plan participants............................ -- 821
------- -------
Total accumulated postretirement benefit obligation....... 9,973 9,663
Unrecognized prior service cost........................... (932) --
Unrecognized net gain..................................... -- 5
------- -------
Total liability included in the consolidated
balance sheets................................. 9,041 9,668
Less -- Current portion..................................... (1,300) (1,765)
------- -------
Noncurrent liability.............................. $ 7,741 $ 7,903
======= =======
</TABLE>

The healthcare plans are not funded, and the Company's policy is to pay
these benefits as they are incurred.

The accumulated benefit obligation was determined under an actuarial
assumption using a healthcare cost trend rate of 7.00% in 1999, gradually
declining to 5.50% in the year 2001 and thereafter over the projected payout
period of the benefits. The accumulated benefit obligations were determined
using an assumed discount rate of 7.75% and 7.00% at December 31, 1999 and 1998,
respectively. Under the plan's provisions, the Company's prescription costs are
capped at annual benefit limits. Retirees are assumed to pay the portion of
future prescription costs above the capped limit.

A one-percentage-point increase or decrease in the assumed healthcare cost
trend rates would result in an increase of $203,000 and a decrease of $250,000,
respectively, to the accumulated postretirement benefit obligation at December
31, 1999. The effect of such a change would be immaterial to net periodic
benefit cost.

8. RETIREMENT PLANS

The Company sponsors a number of defined contribution plans. Participation
in these plans is available to substantially all employees.

US employees of the Company participate in the CE Retirement Savings Plan
(the Savings Plan). Employees are eligible to participate in the Savings Plan
following their dates of hire. Additionally, under the terms of the Savings
Plan, the Company contributes 2% of the employees' base pay as well as matching
100% of the first 2% and 25% of the next 4% of the employees' pretax
contributions. Employees may also receive an additional discretionary
profit-sharing contribution of up to an additional 75% of pretax contributions
between 3% and 6% of pay, depending upon financial performance.

Employees of OSI-UK and MCS Limited participate in the Oil States
Industries (UK) Limited Retirement Plan. Under the terms of this defined
contribution plan, the Company contributes between 5% to 10% of each employee's
base salary and may contribute an additional discretionary amount between 3% to
6%

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<PAGE> 114
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of each employee's base salary dependent upon OSI-UK and MCS Limited meeting
certain performance targets. The percentage of Company contributions which an
employee receives is based on the employee's salary level within certain salary
ranges.

Employees of Oil States Klaper Limited may contribute to a personal pension
arrangement. The Company may contribute an amount at their discretion. Since the
acquisition of Oil States Klaper Limited in 1998, the Company has contributed
between 2% to 4% of each employee's base salary.

The Company recognized expense of $1.9 million, $1.7 million, and $1.4
million related to its various defined contribution plans during the years ended
December 31, 1999, 1998, and 1997, respectively.

9. REDEEMABLE PREFERRED STOCK

Redeemable preferred stock outstanding as of December 31, 1999 and 1998, is
as follows (dollar amounts in thousands):

<TABLE>
<CAPTION>
SHARES
OUTSTANDING 1999 1998
----------- ------- -------
<S> <C> <C> <C>
Series A Cumulative Preferred Stock................... 143,000 $14,300 $14,300
Series A Exchangeable Cumulative Preferred Stock...... 20,000 2,000 2,000
Series B Exchangeable Cumulative Preferred Stock...... 38,500 3,850 3,850
------- -------
$20,150 $20,150
======= =======
</TABLE>

Series A Cumulative Preferred Stock

As of December 31, 1999 and 1998, the Company had 143,000 shares of Series
A Cumulative Preferred Stock (Series A Preferred Stock), issued and outstanding
with a par value of $100 per share. The stock was issued to LTV Corporation
(LTV) in conjunction with the acquisition of the Company in 1995. Holders of the
Series A Preferred Stock are entitled to cumulative quarterly dividends which
commenced on September 15, 1995, at the annual rate of 7.0% ($7.00 per share).
As of December 31, 1999, dividends of $42,000 had been accrued but not paid.
This amount is reported on the balance sheet as an accrued liability. The
holders of Series A Preferred Stock are not entitled to vote, except in certain
circumstances. The holders (voting separately as a class) are entitled to elect
additional directors of the Company if, at any time, dividends of the Company
are in arrears in an amount equal to six quarterly dividends. The Company or the
holders of the Series A Preferred Stock may, at either party's option, redeem
all or any part of the Series A Preferred Stock, at $100 per share (plus accrued
and unpaid dividends) commencing September 15, 2000. (See Note 20). On September
15, 2005, the Company is required to redeem all of the then outstanding Series A
Preferred Stock at $100 per share (plus accrued and unpaid dividends). In the
event of involuntary liquidation, the holders of the Series A Preferred Stock
would be entitled, after the payment of all debts, to $100 per share, plus
accrued and unpaid dividends, before any distribution or payments to the common
stockholders. If, upon liquidation, the remaining assets of the Company are
insufficient to pay the holders of the Series A Preferred Stock the full amount
to which they are entitled, the holders shall share ratably among themselves in
any distributions according to the respective amounts payable if shares were
paid in full.

Series A Exchangeable Cumulative Preferred Stock

On July 15, 1997, the Company issued 45,000 shares of preferred stock
having a par value of $0.0001 per share, in connection with the acquisition of
HydroTech. These shares designated as Series A Exchangeable Cumulative Preferred
Stock (Series A Exchangeable Preferred Stock) have a liquidation value of $100
per share, plus any accrued and unpaid dividends, less any amounts due from
former HydroTech stockholders. The acquisition agreement with HydroTech provided
that 25,000 shares of the Series A Exchangeable Preferred Stock be placed in
escrow and be released upon certain earn-out requirements. Holders of the
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<PAGE> 115
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Series A Exchangeable Preferred Stock are entitled to cumulative annual
dividends commencing on July 15, 1998, at the annual rate of 7.0% ($7.00 per
share). As of December 31, 1999, dividends of $64,000 had been accrued but not
paid. This amount is reported on the balance sheet as an accrued liability. Each
share of Series A Exchangeable Preferred Stock is exchangeable, provided written
notice is given between June 13, 2002, and July 13, 2002, into a number of
shares of the Company's Class A common stock determined by dividing the
liquidation value as of the conversion date by the exchange price. The exchange
price is defined as $15.00 plus 80% times the excess of the fair market value of
the Company's common stock on the date of exchange over $15.00. All unexchanged
shares of Series A Exchangeable Preferred Stock outstanding on July 15, 2002,
will automatically be redeemed at a redemption price equal to liquidation value.
The Company also has the option, upon the occurrence of certain events, to
redeem all or any portion of the Series A Exchangeable Preferred Stock at a
redemption price equal to liquidation value. The holders of Series A
Exchangeable Preferred Stock are not entitled to vote. During 1998, the Company
purchased the 25,000 shares placed in escrow for $0.01 per share in accordance
with the provisions of the acquisition agreement as HydroTech failed to meet
certain earn-out requirements. The difference of $2.5 million was treated as a
reduction in goodwill.

Series B Exchangeable Cumulative Preferred Stock

On July 15, 1997, the Company issued 38,500 shares of preferred stock
having a par value of $0.0001 per share, in connection with the acquisition of
HydroTech. These shares designated as Series B Exchangeable Cumulative Preferred
Stock (Series B Exchangeable Preferred Stock) have a liquidation value of $100
per share, plus any accrued and unpaid dividends, less any amounts due from
former HydroTech stockholders. Holders of the Series B Exchangeable Preferred
Stock are entitled to cumulative annual dividends commencing on July 15, 1998,
at the annual rate of 3.1% ($3.10 per share). As of December 31, 1999, dividends
of $55,000 had been accrued but not paid. This amount is reported on the balance
sheet as an accrued liability. Each share of Series B Exchangeable Preferred
Stock is exchangeable, prior to July 15, 2004, into a number of shares of the
Company's Class A common stock determined by dividing the liquidation value as
of the conversion date by the exchange price of $12.80 per share. All
unexchanged shares of Series B Exchangeable Preferred Stock outstanding on July
15, 2004, will automatically be redeemed at a redemption price equal to
liquidation value. The Company also has the option, upon the occurrence of
certain events, to redeem all or any portion of the Series B Exchangeable
Preferred Stock at a redemption price equal to liquidation value. The holders of
Series B Exchangeable Preferred Stock are not entitled to vote.

10. CONVERTIBLE PREFERRED STOCK

On July 31, 1997, the Company issued 16,250 shares of preferred stock
having a par value of $0.0001 per share, in connection with the acquisition of
SMATCO. These shares, designated as Series A Convertible Cumulative Preferred
Stock (Convertible Preferred Stock), have a liquidation value of $100 per share,
plus any accrued and unpaid dividends. Holders of the Convertible Preferred
Stock are entitled to cumulative annual dividends commencing on July 31, 1998,
at the annual rate of 3.0% ($3.00 per share). As of December 31, 1999, dividends
of $20,000 had been accrued but not paid. This amount is reported on the balance
sheet as an accrued liability. Each share of Convertible Preferred Stock is
convertible into a number of shares of the Company's Class A common stock
determined by dividing the liquidation value as of the conversion date by the
conversion price of $15.00 per share. Conversion is optional, prior to August 1,
2002, subject to the occurrence of certain events. On August 1, 2002, each share
of Convertible Preferred Stock outstanding shall automatically convert as
described above. Upon the occurrence of certain events, the Company has the
option to redeem all or any portion of unconverted Convertible Preferred Stock
at liquidation value (See Note 20). The holders of Convertible Preferred Stock
are not entitled to vote.

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<PAGE> 116
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. INCOME (LOSS) PER SHARE

In thousands, except per share amounts:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
(Loss) income from continuing operations before
discontinued operations and extraordinary item....... $(11,986) $ 910 $ ( 740)
Less: Preferred stock dividends........................ (1,308) (1,230) (1,222)
-------- ------- -------
(Loss) income available to common shareholders from
continuing operations before discontinued operations
and extraordinary item............................... $(13,294) $ (320) $(1,962)
======== ======= =======
Income (loss) per share -- basic and diluted:
Loss from continuing operations before discontinued
operations and extraordinary item................. $ (0.59) $ (0.01) $ (0.11)
Discontinued operations.............................. (0.26) (0.93) 0.53
Extraordinary item................................... (0.04) (0.03) --
-------- ------- -------
Net (loss) income............................ $ (0.89) $ (0.97) $ 0.42
======== ======= =======
Weighted average shares outstanding -- basic and
diluted.............................................. 22,362 22,056 17,808
======== ======= =======
</TABLE>

Basic income (loss) per share amounts are based on the weighted average
number of common shares outstanding during the period. Diluted income per share
would include additional common shares that would have been outstanding if
potential common shares with a dilutive effect had been issued, however no
additional common shares were included in the calculation of diluted income per
share as the effect of the outstanding securities was anti-dilutive. Excluded
from the computation of diluted earnings per share are securities outstanding at
December 31, 1999, 1998 and 1997 that could potentially dilute basic earnings
per share of 1.2 million shares, 2.2 million shares, and 2.5 million shares of
common stock, respectively.

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the event that there was no initial public offering of the Company's stock in
1998 and an earning-per-share threshold was not reached. The formula for
determining the number of additional shares to be issued, which was based on the
Company's 1998 earnings per share, could not be properly calculated due to the
Company's negative earnings per share in 1998. As an alternative, the Company
issued 500,000 additional shares to these stockholders in March 2000.

12. INCOME TAXES

The components of the income tax provision for continuing operations before
extraordinary items for the years ended December 31, 1999, 1998, and 1997,
consist of the following (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Current --
Federal.................................................. $1,058 $1,306 $1,275
State.................................................... (62) 226 (24)
Foreign.................................................. 292 2,282 1,509
------ ------ ------
1,288 3,814 2,760
------ ------ ------
Deferred --
Federal.................................................. (239) -- 607
State.................................................... -- -- 69
Foreign.................................................. 96 (103) (288)
------ ------ ------
(143) (103) 388
------ ------ ------
Total provision.................................. $1,145 $3,711 $3,148
====== ====== ======
</TABLE>

The provision for taxes for continuing operations, before extraordinary
items, differs from an amount computed at statutory rates as follows for the
years ended December 31, 1999, 1998, and 1997 (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Federal tax expense at statutory rates.................... $(3,675) $1,581 $1,192
Foreign income tax rate differential...................... 151 (202) (127)
Nondeductible expenses.................................... 835 623 91
Net operating loss not benefited.......................... 2,741 -- --
Net utilization of net operating loss not benefited....... -- -- (373)
State taxes............................................... (62) 29 46
Amortization of noncompete agreement...................... -- -- 567
Adjustment of valuation allowance......................... 1,279 1,250 1,588
Other..................................................... (124) 430 164
------- ------ ------
Net income tax provision........................ $ 1,145 $3,711 $3,148
======= ====== ======
</TABLE>

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<PAGE> 118
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Deferred tax assets --
Net operating loss carryforward........................... $39,646 $ 42,946
Allowance for doubtful accounts........................... 570 424
Inventory................................................. 798 858
Employee benefits......................................... 2,799 3,305
Other, net................................................ 3,423 1,581
------- --------
Total deferred tax assets................................. 47,236 49,114
Less -- Valuation allowance............................... (44,558) (46,511)
------- --------
Net deferred tax assets................................... 2,678 2,603
------- --------
Deferred tax liability --
Depreciation.............................................. (2,893) (3,014)
Other..................................................... (489) (436)
------- --------
Total deferred tax liability.............................. (3,382) (3,450)
------- --------
Net deferred tax liability................................ $ (704) $ (847)
======= ========
</TABLE>

For income tax reporting purposes, the Company has net operating loss
carryforwards of approximately $116.6 million for regular income taxes which
will expire in the years 2000 through 2018. The Company's net operating loss
carryforwards are subject to limitations under Section 382 of the Internal
Revenue Code of 1986. Based on these limitations, the years the carryforwards
expire, and the uncertainty in achieving levels of taxable income required for
their utilization, the Company has provided a valuation allowance on these
carryforwards. The Company has a federal alternative minimum tax net operating
loss carryforward of $84.1 million which will expire in the years 2000 through
2018.

13. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the years ended December 31, 1999, 1998, and 1997, for
interest and income taxes from continuing and discontinued operations was as
follows (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------ ------- ------
<S> <C> <C> <C>
Interest.................................................. $6,677 $ 9,681 $8,225
Income taxes, net of refunds.............................. 3,251 10,977 4,416
</TABLE>

The following noncash transactions have been excluded from the consolidated
statements of cash flows for the years ended December 31, 1999, 1998, and 1997
(in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Common stock issued for acquisitions..................... $ -- $1,000 $16,333
Preferred stock issued for acquisitions.................. -- -- 9,975
Debt issued for acquisitions............................. -- 7,450 7,000
Noncash consideration received for businesses sold....... 57,421 -- --
Assets financed through capital lease obligations........ 158 273 627
</TABLE>

F-43
<PAGE> 119
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company had no acquisitions in 1999. Components of cash used for
acquisitions as reflected in the consolidated statements of cash flows for the
year ended December 31, 1998 and 1997, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Fair value of assets acquired, excluding cash............... $26,634 $ 44,541
Liabilities assumed......................................... (9,670) (13,921)
Noncash consideration....................................... (8,450) (16,975)
------- --------
Cash used in acquisition of businesses...................... $ 8,514 $ 13,645
======= ========
</TABLE>

14. COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims, lawsuits, and other proceedings
relating to a wide variety of matters. While uncertainties are inherent in the
final outcome of such matters, and it is presently impossible to determine the
actual costs that ultimately may be incurred, management believes that the
resolution of such uncertainties and the incurrence of such costs will not have
a material adverse effect on the Company's consolidated financial position,
results of operations, or liquidity.

LTV, the former owner of the Company, under the terms of the stock purchase
agreement, has indemnified the Company of all claims and contingencies,
threatened or pending, relating to business activities prior to August 1, 1995.
Specifically, claims involving environmental remediation, product warranty,
legal actions, workers' compensation issues, and various federal, state, and
sales tax matters related to pre-August 1995 business transactions are the
financial responsibility of LTV. The financial responsibilities are initially
satisfied through the reserves assumed as part of the acquisition. To the extent
that claims exceed $2.2 million, the original allowance, all amounts will be
paid by LTV.

The Company has warranted certain items related to the sale of CE Drilling
and CEDS (see Note 17), subject to certain threshold amounts defined in the
respective agreements. The Company believes all amounts have been properly
reflected in the accompanying consolidated financial statements.

15. RELATED-PARTY TRANSACTIONS

SCF, from time to time, serves as financial advisor as the Company explores
future opportunities for mergers, acquisitions, or divestitures. Professional
advisory fees and out-of-pocket expenses totaling approximately $118,000,
$11,000 and $217,000 were paid to L.E. Simmons & Associates, Incorporated, in
1999, 1998 and 1997, respectively.

In the normal course of business, the Company transacts with Hunting.
However, these amounts were insignificant for the years presented.

On December 31, 1998, the Company declared a $25.0 million dividend in the
form of a subordinated note payable to SCF-III, L.P., acting as agent for all
common stockholders of the Company (see Note 5).

During 1998, the Company acquired certain assets from Sooner, an entity
under common control with the Company, for $3.8 million. These assets were sold
during 1999 and are included in discontinued operations (see Notes 5 and 17).

During 1999, Hunting indemnified the Company for a liability incurred in
1998 relating to assets sold to the Company in 1996 for $1.8 million.

During 1997, the Company entered into loan agreements with EnSerCo, L.L.C.
(EnSerCo), for unsecured promissory notes totaling $24.8 million. The Company
also paid commitment fees totaling $400,000 to EnSerCo during 1997, as specified
in the agreements. EnSerCo is a limited liability company that provides

F-44
<PAGE> 120
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

various forms of capital to the energy service and equipment industry.
Affiliates of Enron Capital & Trade Resources Corp. own 50% of EnSerCo while the
remaining 50% is owned by SCF-III, L.P. (see Note 5). On March 31, 1998, these
notes were paid in full.

16. STOCK-BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which requires the Company to
record stock-based compensation at fair value. The Company has adopted the
disclosure requirements of SFAS No. 123 and has elected to record employee
compensation expense in accordance with Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees."

The Company accounts for its employee stock-based compensation plan under
APB Opinion No. 25 and its related interpretations. Accordingly, any deferred
compensation expense is recorded for stock options based on the excess of the
market value of the common stock on the date the options were granted over the
aggregate exercise price of the options. This deferred compensation is amortized
over the vesting period of each option. The Company is authorized to grant two
million stock options under the 1996 Equity Participation Plan (the Stock Option
Plan) to employees, consultants, and directors with amounts, exercise prices,
and vesting schedules determined by the Company's compensation committee. As the
exercise price of options granted under the Stock Option Plan have been equal to
or greater than the market price of the Company's stock on the date of grant, no
compensation expense related to this plan has been recorded. Had compensation
expense for its Stock Option Plan been determined consistent with SFAS No. 123,
the Company's net income (loss) and earnings per share at December 31, 1999,
1998, and 1997, would have been as follows (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ------
<S> <C> <C> <C>
Net loss --
As reported.......................................... $(18,628) $(20,073) $8,646
Pro forma............................................ (18,331) (20,722) 8,570
Pro forma income (loss) per share -- basic and
diluted.............................................. $ (0.88) $ (1.00) $ 0.41
</TABLE>

F-45
<PAGE> 121
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
STOCK OPTION PLAN
--------------------------
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance at December 31, 1996................................ 865,800 $2.09
Granted................................................... 924,650 6.58
Exercised................................................. -- --
Forfeited................................................. (58,900) 2.09
---------
Balance at December 31, 1997................................ 1,731,550 4.53
Granted................................................... 227,500 8.68
Exercised................................................. (3,750) 2.09
Forfeited................................................. (371,400) 6.31
---------
Balance at December 31, 1998................................ 1,583,900 4.60
Granted................................................... -- --
Exercised................................................. (138,017) 2.09
Forfeited................................................. (840,983) 4.75
---------
Balance at December 31, 1999................................ 604,900 4.95
=========
Exercisable at December 31, 1997............................ 381,192 2.09
Exercisable at December 31, 1998............................ 823,072 3.40
Exercisable at December 31, 1999............................ 449,275 4.12
</TABLE>

At December 31, 1999, 1,253,333 options were available for future grant
under the Stock Option Plan. The exercise price of options outstanding under the
Stock Option Plan at December 31, 1999, ranged from $2.09 to $10.00 per share
with a weighted average of approximately $4.12 per share. The weighted average
contractual life of options outstanding at December 31, 1999, was 4.86 years.

The weighted average fair values of options granted during 1998 and 1997
were $1.11 per share and $0.69 per share, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
1998 and 1997, respectively: risk-free interest rates of 5.5% and 6.3%, no
expected dividend yield, expected lives of 5.1 years and 6.1 years, and no
expected volatility.

17. DISCONTINUED OPERATIONS

On May 28, 1999, in one transaction, CEDS sold all of its distribution net
assets for two senior subordinated notes receivable totaling $30.0 million and
the Company sold its 51.8% investment in CE Franklin for marketable securities
with a fair market value of $24.7 million on the date of sale. The combined
transaction resulted in a loss on sale of approximately $17.2 million, net of
income tax benefit of $185,000. Included in the loss on sale is a provision for
operating losses of $12.4 million, net of income tax benefit of $805,000,
recorded during the phase out period. In June 1999, one of the senior
subordinated notes in the amount of $14.5 million, plus accrued interest at
LIBOR plus 2.75%, was paid in full. In July 1999, the second senior subordinated
note in the amount of $15.5 million, plus accrued interest at LIBOR plus 2.75%,
was paid in full. Subsequent to May 28, 1999, all of the marketable securities
were sold at a loss of $334,000. On June 21, 2000, the Company returned $1.8
million of the purchase price to the buyer for indemnification of certain
post-closing liabilities. Additional adjustments to the purchase price are
possible and management believes the accrued amounts are adequate to cover any
exposure.

On May 28, 1999, in a separate transaction, CEDS sold all of its "oil
country tubular" related assets to Sooner (see Note 15) for cash of $7.4 million
and $2.0 million of noncash consideration for the cancellation of the
subordinated promissory note discussed in Note 5, resulting in a loss on sale of
$701,000. The loss on

F-46
<PAGE> 122
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

sale of the assets to Sooner was treated as a dividend in-kind to SCF, as the
Company and Sooner are entities under common control. As a result of the
above-mentioned transactions, CEDS ceased operations in 1999.

On July 7, 1999, CE Drilling sold all of its operating net assets, which
included the net assets of CE Mobile, for $65.0 million in cash resulting in a
loss on sale of $4.9 million, net of income tax expense of $70,000. Included in
the loss on sale is operating income of $261,000, net of income tax expense of
$12,000, recorded during the phase out period. The purchase price was subject to
certain adjustments as defined in the agreement. During 1999, an additional
accrual of $5.7 million, net of income tax expense of $215,000, was recorded
primarily to accrue for a revision of the purchase price. On April 17, 2000, the
Company settled the purchase price adjustment and returned $6.9 million of the
purchase price to the buyer; however, there are some outstanding claims which
remain to be settled. As a result of the above-mentioned transaction, CE
Drilling and CE Mobile ceased operations in 1999.

The results of CEDS, CE Franklin, CE Drilling, and CE Mobile are shown as
discontinued operations with 1998 and 1997 restated. Components of amounts
reflected in the accompanying consolidated balance sheets and consolidated
statements of operations and cash flows as of and for the years ended December
31, 1999, 1998, and 1997, are presented in the following table (in thousands):

<TABLE>
<CAPTION>
1998
--------
<S> <C>
Balance sheet data --
Current assets......................................... $197,818
Property, plant, and equipment, net.................... 37,145
Intangible assets, net................................. 19,270
Other noncurrent assets................................ 1,759
Current liabilities.................................... (75,422)
Noncurrent liabilities................................. (51,031)
--------
Net assets of discontinued operations.................... $129,539
========
</TABLE>

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operations data --
Revenues........................................... $141,489 $564,691 $679,468
Costs and expenses................................. 147,385 554,090 654,182
-------- -------- --------
Operating (loss) income............................ (5,896) 10,601 25,286
Interest expense..................................... 2,371 8,041 4,069
Other expense........................................ 4,710 278 4,018
Income tax (benefit) expense......................... (793) 549 7,813
Amount reserved in 1998 for 1999 losses.............. (12,184) -- --
-------- -------- --------
Income from discontinued operations................ $ -- $ 1,733 $ 9,386
======== ======== ========
Cash flow data-
Cash flows from operations......................... $(12,251) $ 13,655 $(33,393)
Cash flows from investing activities............... -- (10,834) (25,628)
Cash flows from financing activities............... 8,092 (5,963) 21,799
-------- -------- --------
Net cash used in discontinued operations........... $ (4,159) $ (3,142) $(37,222)
======== ======== ========
</TABLE>

18. SEGMENT AND RELATED INFORMATION

F-47
<PAGE> 123
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

servicing and production components and provides elastomer molding. Engineered
and Industrial Products provides technically advanced solutions for drilling,
production, and structural projects including flex joints, Merlin connectors,
and elastaflex clutches. Marine Construction provides products and services for
fixed platform installation and decommissioning and pipeline construction
including rotary selector valves and concrete mats. Marine Winches designs and
manufactures deep water mooring systems for offshore drilling vessels, floating
production systems and barges. They also design and refurbish a complete line of
marine winches and other deck machinery for the offshore service boat industry.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. Most of the
businesses were acquired as a unit, and the management at the time of the
acquisition was retained.

Financial information by industry segment for each of the three years ended
December 31, 1999, 1998 and 1997, is summarized below in thousands. The Company
evaluates performance and allocates resources based on EBITDA, which is
calculated as operating income adding back depreciation and amortization.
Calculations of EBITDA should not be viewed as a substitute to calculations
under generally accepted accounting principles, in particular operating income
and net income. In addition, EBITDA calculations by one company may not be
comparable to another company. Depreciation and amortization amounts do not
include amortization of deferred financing costs (see Note 3). Total assets do
not include intercompany balances. The net assets of discontinued operations of
$129.5 million and $145.9 million are included in the Corporate and Eliminations
amounts in 1998 and 1997, respectively. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies.

<TABLE>
<CAPTION>
ENGINEERED
AND CORPORATE
ELASTOMER INDUSTRIAL MARINE MARINE AND
PRODUCTS PRODUCTS CONSTRUCTION WINCHES ELIMINATIONS TOTAL
--------- ---------- ------------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1999
Revenues from unaffiliated
customers.................. $ 8,082 $73,856 $27,646 $44,746 $ -- $154,330
======= ======= ======= ======= ======== ========
EBITDA....................... 921 15,485 (1,331) (6,166) (4,121) 4,788
Depreciation and
amortization............... (234) (2,560) (2,468) (1,626) (588) (7,476)
------- ------- ------- ------- -------- --------
Operating income (loss)...... 687 12,925 (3,799) (7,792) (4,709) (2,688)
======= ======= ======= ======= ======== ========
Capital expenditures......... 73 613 1,218 606 128 2,638
======= ======= ======= ======= ======== ========
Total assets................. 4,986 55,523 36,823 48,461 11,925 157,718
======= ======= ======= ======= ======== ========
1998
Revenues from unaffiliated
customers.................. $ 8,825 $92,007 $51,930 $77,222 $ -- $229,984
======= ======= ======= ======= ======== ========
EBITDA....................... 111 18,653 5,129 2,341 (4,550) 21,684
Depreciation and
amortization............... (235) (3,195) (2,475) (1,118) (716) (7,739)
------- ------- ------- ------- -------- --------
Operating (loss) income...... (124) 15,458 2,654 1,223 (5,266) 13,945
======= ======= ======= ======= ======== ========
Capital expenditures......... 74 6,510 2,439 8,550 551 18,124
======= ======= ======= ======= ======== ========
Total assets................. 5,560 69,595 51,669 52,897 144,275 323,996
======= ======= ======= ======= ======== ========
</TABLE>

F-48
<PAGE> 124
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Financial information by geographic segment for each of the three years
ended December 31, 1999, 1998, and 1997, is summarized below in thousands.
Revenues in the US include export sales. Revenues are attributable to countries
based on the location of the entity selling the products or performing the
services. Total assets are attributable to countries based on the physical
location of the entity and its operating assets and do not include intercompany
balances and the net assets of discontinued operations.

<TABLE>
<CAPTION>
NET ASSETS OF
UNITED UNITED DISCONTINUED
STATES KINGDOM SINGAPORE OPERATIONS TOTAL
-------- ------- --------- ------------- --------
<S> <C> <C> <C> <C> <C>
1999
Revenues from unaffiliated customers......... $124,259 $26,995 $3,076 $ -- $154,330
Total assets................................. 126,118 29,334 2,266 -- 157,718
1998
Revenues from unaffiliated customers......... $178,346 $45,256 $6,382 $ -- $229,984
Total assets................................. 148,087 42,161 4,209 129,539 323,996
1997
Revenues from unaffiliated customers......... $ 77,094 $34,214 $2,617 $ -- $113,925
Total assets................................. 111,464 32,311 2,428 145,930 292,133
</TABLE>

F-49
<PAGE> 125
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19. VALUATION ALLOWANCES

Activity in the valuation accounts was as follows (in thousands):

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO TRANSLATION BALANCE AT
BEGINNING COST AND AND END
OF PERIOD EXPENSES DEDUCTIONS OTHER, NET OF PERIOD
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Reserve for doubtful accounts
receivable......................... $ 1,243 $ 836 $ (347) $(73) $ 1,659
Provision for operating loss during
phaseout period included in net
assets of discontinued
operations......................... 12,977 -- (12,977) -- --
Estimated loss on sale of discontinued
operations......................... 9,237 4,000 -- -- 13,237
Reserve for severance................. 535 -- (483) -- 52
YEAR ENDED DECEMBER 31, 1998:
Reserve for doubtful accounts
receivable......................... $ 1,082 $ 1,124 $ (1,149) $186 $ 1,243
Provision for operating loss during
phaseout period included in net
assets of discontinued
operations......................... -- 12,977 -- -- 12,977
Estimated loss on sale of discontinued
operations......................... -- 9,237 -- -- 9,237
Reserve for severance................. -- 535 -- -- 535
YEAR ENDED DECEMBER 31, 1997:
Reserve for doubtful accounts
receivable......................... $ 618 $ 517 $ (53) $ -- $ 1,082
</TABLE>

20. SUBSEQUENT EVENTS

On July 21, 2000, the Company obtained a waiver from the holder of the
Series A Cumulative Preferred Stock (see Note 9) whereby the holder waived its
rights to an optional redemption provided for in the certificate of designations
on September 15, 2000. The holder can request redemption at the earlier of April
30, 2001 or after the completion of a registered public offering. Dividends will
increase from 7% to 12% effective as of September 15, 2000, as consideration for
the holder executing the waiver.

On July 29, 2000 and July 31, 2000, the Company renegotiated terms with the
holders of certain subordinated debt totaling $7.0 million and $7.0 million,
respectively. Original maturities of the subordinated debt extending through
February 2003 were accelerated to the earlier of April 30, 2001 or upon the
occurrence of a registered public offering of capital stock, in exchange for the
holders waiving their rights to scheduled maturities of principal and interest
which were due prior to April 30, 2001. Interest will increase from 8% to prime
plus 4% until the principal is paid in full.

F-50
<PAGE> 126
OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

F-51
<PAGE> 127

AUDITORS' REPORT

To the Shareholders and Directors of
PTI Group Inc.

We have audited the consolidated balance sheets of PTI Group Inc. as at
December 31, 1999 and 1998 and the consolidated statements of earnings,
shareholders' equity and cash flows for the years ended December 31, 1999, 1998
and the 358 day period ended December 31, 1997. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at December 31,
1999 and 1998 and the results of its operations and its cash flows for the years
ended December 31, 1999, 1998 and the 358 day period ended December 31, 1997 in
accordance with United States generally accepted accounting principles.

PRICEWATERHOUSECOOPERS LLP
Chartered Accountants

Edmonton, Alberta
July 7, 2000

F-52
<PAGE> 128

PTI GROUP INC.

CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED PERIOD ENDED
MARCH 31, DECEMBER 31,
------------------------- ------------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- ------- ----------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
<S> <C> <C> <C> <C> <C>
REVENUE
Services.............................. $38,134 $23,366 $63,328 $76,130 $70,191
Manufacturing......................... 4,792 1,105 7,178 10,304 24,684
------- ------- ------- ------- -------
42,926 24,471 70,506 86,434 94,875
------- ------- ------- ------- -------
EXPENSES
Direct and operating costs
Services.............................. 23,858 13,630 40,883 49,806 46,340
Manufacturing......................... 4,008 724 5,277 8,224 18,554
Selling, general and administrative... 1,690 1,915 4,023 8,114 6,176
Special charge........................ -- -- -- 5,263 --
Depreciation.......................... 1,400 1,296 5,364 4,820 2,378
Amortization of goodwill.............. 191 223 892 992 531
------- ------- ------- ------- -------
EARNINGS FROM OPERATIONS................ 11,779 6,683 14,067 9,215 20,896
Interest on long-term debt............ 616 645 2,350 2,092 1,605
Other interest........................ 185 393 804 1,644 384
------- ------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES............ 10,978 5,645 10,913 5,479 18,907
------- ------- ------- ------- -------
INCOME TAXES
Current............................... 4,136 2,026 3,937 4,366 6,558
Deferred.............................. 523 69 325 1,118 971
------- ------- ------- ------- -------
4,659 2,095 4,262 5,484 7,529
------- ------- ------- ------- -------
NET EARNINGS (LOSS) FOR THE PERIOD...... 6,319 3,550 6,651 (5) 11,378
======= ======= ======= ======= =======
BASIC AND DILUTED EARNINGS PER COMMON
SHARE................................. $ 0.81 $ 0.46 $ 0.85 -- $ 1.53
======= ======= ======= ======= =======
</TABLE>

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

F-53
<PAGE> 129

PTI GROUP INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................. $ 476 $ 656 $ 2,268
Trade accounts receivable -- less allowance of $578,
$328 and $310...................................... 34,263 16,173 12,656
Inventories........................................... 3,840 4,388 4,457
Prepaid expenses...................................... 359 503 801
Income taxes receivable............................... -- 445 80
-------- ------- -------
38,938 22,165 20,262
PROPERTY, PLANT AND EQUIPMENT........................... 50,524 46,898 43,574
GOODWILL................................................ 28,674 28,035 25,525
-------- ------- -------
$118,136 $97,098 $89,361
======== ======= =======
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness..................................... $ 10,714 $ 7,573 $ 9,550
Trade accounts payable and accrued liabilities........ 8,302 3,871 7,153
Accrued compensation.................................. 2,774 2,390 2,388
Income taxes payable.................................. 3,285 -- --
Current portion of long-term debt..................... 8,550 5,384 5,794
Deferred tax liabilities.............................. 260 333 326
-------- ------- -------
33,885 19,551 25,211
LONG-TERM DEBT.......................................... 31,442 31,432 27,285
DEFERRED TAX LIABILITIES................................ 9,631 9,096 8,268
-------- ------- -------
74,958 60,079 60,764
-------- ------- -------
CONTINGENCIES
SHAREHOLDERS' EQUITY
COMMON SHARES
Authorized
Unlimited
Issued and outstanding
7,787,630 shares................................... 21,789 21,789 21,789
RETAINED EARNINGS....................................... 22,717 16,398 9,747
ACCUMULATED OTHER COMPREHENSIVE LOSS.................... (1,328) (1,168) (2,939)
-------- ------- -------
43,178 37,019 28,597
-------- ------- -------
$118,136 $97,098 $89,361
======== ======= =======
</TABLE>

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

F-54
<PAGE> 130

PTI GROUP INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
--------------------------------------------
ACCUMULATED
NUMBER OF OTHER
SHARES COMMON RETAINED COMPREHENSIVE
OUTSTANDING SHARES EARNINGS INCOME (LOSS) TOTAL
----------- ------- -------- ------------- -------
<S> <C> <C> <C> <C> <C>
BALANCE -- JANUARY 8, 1997.............. 7,500,000 $18,840 $ -- $ -- $18,840
Comprehensive income
Net earnings -- 1997............... 11,378 11,378
Other comprehensive loss........... (1,430) (1,430)
-------
Comprehensive income............... 9,948
Common shares issued for cash......... 200,000 737 737
--------- ------- ------- ------- -------
BALANCE -- DECEMBER 31, 1997............ 7,700,000 19,577 11,378 (1,430) 29,525
Comprehensive loss
Net loss-- 1998.................... (5) (5)
Other comprehensive loss........... (1,509) (1,509)
-------
Comprehensive loss................. (1,514)
Common shares issued for business
acquisition........................ 218,000 1,964 1,964
Common shares issued for cash......... 130,000 903 903
Common shares repurchased for cash.... (260,370) (655) (1,626) (2,281)
--------- ------- ------- ------- -------
BALANCE -- DECEMBER 31, 1998............ 7,787,630 21,789 9,747 (2,939) 28,597
Comprehensive income
Net earnings -- 1999............... 6,651 6,651
Other comprehensive income......... 1,771 1,771
-------
Comprehensive income............... 8,422
--------- ------- ------- ------- -------
BALANCE -- DECEMBER 31, 1999............ 7,787,630 21,789 16,398 (1,168) 37,019
Comprehensive income (unaudited)
Net earnings -- 1st quarter 2000... 6,319 6,319
Other comprehensive loss........... (160) (160)
-------
Comprehensive income............... 6,159
--------- ------- ------- ------- -------
BALANCE -- MARCH 31, 2000 (UNAUDITED)... 7,787,630 $21,789 $22,717 $(1,328) $43,178
========= ======= ======= ======= =======
</TABLE>

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

F-55
<PAGE> 131

PTI GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31, PERIOD ENDED DECEMBER 31,
------------------------- -------------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- -------- ----------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net earnings (loss) for the period... $ 6,319 $ 3,550 $ 6,651 $ (5) $ 11,378
Items not affecting cash
Depreciation...................... 1,368 1,327 5,179 4,745 2,378
Amortization of goodwill.......... 191 223 892 992 531
Deferred income taxes............. 523 69 325 1,118 971
Loss (gain) on sale of
equipment....................... 32 (31) 185 75 --
Special charge.................... -- -- -- 5,263 --
-------- ------- ------- -------- --------
8,433 5,138 13,232 12,188 15,258
Changes in operating assets and
liabilities Trade accounts
receivable........................ (18,632) (6,688) (3,984) 7,841 (4,006)
Inventories....................... 565 886 4,434 50 (248)
Prepaid expenses.................. 149 162 (4,023) 76 (1,116)
Trade accounts payable and accrued
compensation.................... 4,974 (920) (4,439) (1,452) 391
Income taxes payable/receivable... 3,837 (676) (410) (1,063) 640
-------- ------- ------- -------- --------
(674) (2,098) 4,810 17,640 10,919
-------- ------- ------- -------- --------
INVESTING ACTIVITIES
Purchase of property, plant and
equipment......................... (1,963) (705) (5,919) (13,059) (9,236)
Business acquisitions................ (3,500) -- (1,148) (9,692) (7,487)
Proceeds from sale of equipment...... 374 90 1,031 1,509 538
-------- ------- ------- -------- --------
(5,089) (615) (6,036) (21,242) (16,185)
-------- ------- ------- -------- --------
FINANCING ACTIVITIES
Bank indebtedness.................... 3,141 (4,588) (1,972) 1,633 7,156
Increase in long-term debt........... 4,870 7,012 9,412 7,826 --
Repayment of long-term debt.......... (2,430) (220) (7,864) (2,862) (1,891)
Issuance of common shares............ -- -- -- 903 737
Repurchase of common shares.......... -- -- -- (2,281) --
-------- ------- ------- -------- --------
5,581 2,204 (424) 5,219 6,002
-------- ------- ------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH................................. 2 (25) 38 (48) (37)
-------- ------- ------- -------- --------
INCREASE (DECREASE) IN CASH............ (180) (534) (1,612) 1,569 699
CASH -- BEGINNING OF PERIOD............ 656 2,268 2,268 699 --
-------- ------- ------- -------- --------
CASH -- END OF PERIOD.................. $ 476 $ 1,734 $ 656 $ 2,268 $ 699
======== ======= ======= ======== ========
</TABLE>

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

F-56
<PAGE> 132

PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

The Company was formed on January 8, 1997 as a result of the amalgamation
of PTI Group Inc. and 712955 Alberta Ltd. ("Alberta"), a special purpose company
formed to acquire PTI Group Inc. Alberta was capitalized with debt of
$13,301,000 and share capital of $17,313,000. Alberta acquired 100% of the
shares of PTI Group Inc. in a leveraged buyout transaction for cash
consideration of $30,593,000 and the issuance of 2,814,000 common shares:

<TABLE>
<S> <C>
Net assets acquired, at assigned values (in thousands):
Working capital........................................... $ 7,777
Property, plant and equipment............................. 22,954
Goodwill.................................................. 21,957
Long-term debt............................................ (16,438)
Deferred income taxes..................................... (4,130)
--------
32,120
Issuance of 2,814,000 Alberta shares........................ (1,527)
--------
30,593
Bank indebtedness acquired as part of working capital....... 783
--------
Net cash invested........................................... $ 31,376
========
</TABLE>

The acquisition was accounted for using the partial purchase method, under
which new basis of accounting was utilized for 74.64% of net assets
(representing the cash portion of the consideration) and predecessor basis of
accounting was utilized for 25.36% of net assets.

After the amalgamation, Alberta changed its' name to PTI Group Inc.
("PTI"). These financial statements reflect the results of PTI from January 8,
1997.

The Company is a supplier of integrated housing, food, site management and
logistics support services to remote sites utilized by natural resource and
other industries primarily in Canada and the United States.

2. SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared by management in
accordance with United States generally accepted accounting principles.
Management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from these estimates. Significant estimates
made by management include the estimated useful lives of property, plant,
equipment and goodwill for purposes of depreciation and amortization. The
consolidated financial statements been prepared within the framework of the
accounting policies summarized below.

a) Principles of consolidation

The consolidated financial statements include the accounts of the company
and its wholly owned subsidiary companies ("the Company"). All significant
intercompany transactions and balances have been eliminated.

b) Revenue recognition

Revenue from the sale of products is recognized upon delivery to the
customer and revenue from the rental of products and delivery of services is
recognized on performance.

F-57
<PAGE> 133
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenue from manufacturing contracts in excess of three months is
recognized by the percentage of completion method based on the percentage of
total costs incurred to total expected costs. Provision for estimated losses, if
any, is made in the period such losses are estimable.

c) Cash

The Company considers cash to be all highly liquid investments with a
maturity of three months or less at the date of original issue.

d) Inventories

Inventories are valued at the lower of cost, determined on the first in,
first out method and net realizable value.

e) Property, plant and equipment

Property, plant and equipment is recorded at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets as follows:

<TABLE>
<S> <C>
Buildings................................................... 20 years
Rental equipment............................................ 10 to 25 years
Vehicles -- transport....................................... 10 years
Vehicles -- service......................................... 3 to 5 years
Computer equipment.......................................... 3 years
</TABLE>

Office and shop equipment are depreciated at 20% per annum using the
diminishing balance method. Within rental equipment, installation costs related
to open camps are depreciated over the terms of the related leases.

The recoverability of property, plant and equipment is assessed annually
based on estimated future cash flows.

f) Goodwill

Goodwill is recorded at cost and amortized on a straight-line basis over 40
years. The recoverability of goodwill is assessed annually based on estimated
future cash flows. Accumulated amortization was $2,606,000 (unaudited) at March
31, 2000 (December 31, 1999 -- $2,415,000; December 31, 1998 -- $1,523,000).

g) Income taxes

The Company follows the liability method of accounting for income taxes.
Under this method, current income taxes reflect the estimated income taxes
payable for the current year. Deferred income tax assets and liabilities reflect
temporary differences between the tax and accounting bases of assets and
liabilities, as well as the benefit of losses available to be carried forward to
future years for tax purposes, to the extent that they are likely to be
realized.

h) Translation of foreign currencies

These financial statements have been prepared using the U.S. dollar as the
reporting currency. The functional currency for the Canadian, United States and
Chilean operations is the local currency. The United States dollar is the
functional currency of the Company's Cypriot operations. Accordingly, the
financial statements of the non-United States functional currency operations
have been translated using the current

F-58
<PAGE> 134
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

rate method. Under this method, assets and liabilities denominated in foreign
currencies are translated at the rates prevailing at the balance sheet date.
Revenue and expenses are translated at weighted average rates throughout the
year. Translation gains and losses are included in accumulated other
comprehensive income (loss) and constitute the entire balance of this account.
There is no resulting tax from these translation gains and losses.

For all operations, gains or losses from remeasuring foreign currency
transactions into the functional currency are included in income.

i) Concentration of credit risk

The Company grants credit to certain of its customers, which operate
primarily in the oil and gas industry. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Allowances are maintained for potential credit losses; such credit
losses have historically been within management's expectations.

j) Stock-based compensation

Compensation expense relating to stock options issued to employees and
directors is measured using the intrinsic value method of accounting. Pro-forma
disclosures using the fair value method are provided in note 9.

3. INVENTORIES

Inventories consist of (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------
2000 1999 1998
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Food and consumable supplies.................... $2,137 $2,512 $2,650
Accommodation construction materials and spare
parts......................................... 1,005 1,102 1,032
Rental repair parts and shop supplies........... 698 774 775
------ ------ ------
$3,840 $4,388 $4,457
====== ====== ======
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of (in thousands):

<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------------
ACCUMULATED
COST DEPRECIATION NET
------- ------------ -------
(UNAUDITED)
<S> <C> <C> <C>
Land.................................................. $ 1,145 $ -- $ 1,145
Buildings............................................. 3,394 536 2,858
Rental equipment...................................... 54,122 10,949 43,173
Vehicles.............................................. 2,222 823 1,399
Office, shop and computer equipment................... 3,066 1,117 1,949
------- ------- -------
$63,949 $13,425 $50,524
======= ======= =======
</TABLE>

F-59
<PAGE> 135
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------
ACCUMULATED
COST DEPRECIATION NET
------- ------------ -------
<S> <C> <C> <C>
Land.................................................. $ 1,152 $ -- $ 1,152
Buildings............................................. 3,417 357 3,060
Rental equipment...................................... 49,269 9,843 39,426
Vehicles.............................................. 2,375 910 1,465
Office, shop and computer equipment................... 2,837 1,042 1,795
------- ------- -------
$59,050 $12,152 $46,898
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------
ACCUMULATED
COST DEPRECIATION NET
------- ------------ -------
<S> <C> <C> <C>
Land.................................................. $ 933 $ -- $ 933
Buildings............................................. 2,601 214 2,387
Rental equipment...................................... 40,823 5,083 35,740
Rental equipment under capital lease.................. 1,705 265 1,440
Vehicles.............................................. 2,287 509 1,778
Office, shop and computer equipment................... 1,898 602 1,296
------- ------ -------
$50,247 $6,673 $43,574
======= ====== =======
</TABLE>

5. BANK INDEBTEDNESS

On July 5, 2000, the Company signed an Amended and Restated Credit
Agreement ("Amended Agreement") that includes a revolving operating credit
facility with Canadian banks. A portion of the facility is designated as the
overdraft facility and the remainder of the facility is restricted by a margin
limit based on the level of trade accounts receivable and inventory. This
facility is available to the Company through direct advances, subject to the
limits, and at the interest rates as described:

<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- ------------------ ------------------
US CDN US CDN US CDN
DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS
------- ------- ------- ------- ------- -------
(UNAUDITED)
(TABLE IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating credit facility
Maximum facility.................. 10,318 15,000 17,313 25,000 16,260 25,000
Overdraft facility................ 2,064 3,000 3,463 5,000 3,252 5,000
------ ------ ------ ------ ------ ------
Amount subject to margin limits... 8,254 12,000 13,850 20,000 13,008 20,000
====== ====== ====== ====== ====== ======
Margin available.................. 8,254 12,000 8,207 11,851 6,436 9,896
Amount drawn...................... 7,566 11,000 2,770 4,000 -- --
------ ------ ------ ------ ------ ------
Amount available.................. 688 1,000 5,437 7,851 6,436 9,896
====== ====== ====== ====== ====== ======
Applicable interest rates
Canadian prime based rate......... 7.00%+(0.00%-0.50%) 6.50% 6.80%
Bankers' acceptances based rate... 5.30%+(1.00%-1.50%) 5.20%+1.00% 5.10%+1.00%
Libor advance rate................ n/a 5.80%+1.00% 5.10%+1.00%
</TABLE>

Included in bank indebtedness at December 31, 1999 is a $1,000,000
revolving credit facility with a US bank. This facility was available through
direct advances with applicable U.S. interest rates being either

F-60
<PAGE> 136
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

prime based (8.50% +/-.25%) or Libor based (5.80% + 2.25% to 3.25%). This
facility was fully drawn at March 31, 2000 ($200,000 at December 31, 1999).

In 1998, an operating facility was in place with a bank in Chile for an
amount up to the Chilean peso equivalent of $8,000,000. The facility was
supported by an $8,000,000 standby letter of credit issued by the company's
Canadian bank to the Chilean lender. Interest accrued at 2% above the daily
average funding cost of the Chilean banking market (approximately 25% at
December 31, 1998). At December 31, 1998, drawings of $6,615,000 were
outstanding. This facility was fully paid off in 1999.

6. LONG-TERM DEBT

Long-term debt consists of (in thousands):

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Term revolving facility bank loan
Canadian dollar denominated (Cdn$46.0
million at March 31, 2000, Cdn$43.6
million at December 31, 1999, Cdn$21.0
million at December 31, 1998).......... $31,635 $30,188 $13,655
United States dollar denominated.......... -- 1,654 6,007
Acquisition facility bank loan.............. -- -- 6,504
Mortgages................................... 183 972 1,246
Notes payable
Canadian dollar denominated
(Cdn$0.3 million at March 31, 2000 and
December 31, 1999,
Cdn$nil at December 31, 1998).......... 206 208 --
United States dollar denominated.......... 3,332 2,332 3,500
Bridge term loan............................ 3,500 -- --
Term loan................................... 722 1,005 --
Obligation under capital leases............. 414 457 2,167
------- ------- -------
39,992 36,816 33,079
Less: Current portion....................... 8,550 5,384 5,794
------- ------- -------
$31,442 $31,432 $27,285
======= ======= =======
</TABLE>

Under the Amended Agreement, the scheduled loan repayments on the term
revolving facility bank loan consist of quarterly installments of $866,000
(Cdn$1,250,000), with the first payment due on August 31, 2000. The current
portion as of March 31, 2000 and December 31, 1999 has been recorded based on
the terms of the Amended Agreement. The Company can apply surplus cash to the
outstanding loan balance at any time. The unused portion of this facility was
approximately $2,785,000 (Cdn$4,021,000) at December 31, 1999 and $663,000
(Cdn$1,020,000) at December 31, 1998.

Amounts drawn against the term revolving facility are available through
direct advances and bankers' acceptances. The interest rate depends on the ratio
of the company's total debt to its earnings before interest, taxes, depreciation
and amortization for the preceding 12 months and ranges from the Canadian prime
rate (6.50% at December 31, 1999, 6.75% at December 31, 1998) plus .50% to 1.00%
for direct advances, and market rate (5.20% at December 31, 1999, 5.10% at
December 31, 1998) plus stamping fees of 1.50% to 2.00% for bankers'
acceptances.

F-61
<PAGE> 137
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company fixed the interest rate at approximately 6.80% at December 31,
1999 (7.70% at December 31, 1998) on a portion of the term revolving facility
bank loan utilizing an interest rate swap arrangement. The arrangement, for a
notional amount of $1,731,000 at December 31, 1999 ($3,463,000 at December 31,
1998), reduced to $nil on March 31, 2000. The fair value of this arrangement
approximates the carrying value.

Collateral provided against the term revolving facility is a general
security agreement, a fixed and floating charge debenture of $138,504,000
(Cdn$200,000,000) on the assets of the Company excluding existing priority
charges described below, pledge of all shares directly held in the capital stock
of subsidiaries, joint and several guarantees from subsidiaries, assignment of
accounts receivable, postponement of claim by the shareholders and assignment of
insurance proceeds.

The acquisition facility bank loan was a revolving term facility, which was
fully drawn at December 31, 1998. In 1999, this facility was combined with the
term revolving facility bank loan.

Mortgages bore interest at approximately 7.50%, had annual payments of
$160,000 and collateral was provided by related land and buildings, which had a
net book value of $1,889,000 at December 31, 1999 and $1,839,000 at December 31,
1998. The remaining mortgage at March 31, 2000 was paid out on the signing of
the Amended Agreement through further drawdowns on the term revolving facility.

In connection with the acquisition of Norwel Developments Limited (note
10), the Company issued a promissory note in the amount of $202,000
(Cdn$300,000), repayable in ten equal semi-annual payments of $20,200
(Cdn$30,000) commencing May 7, 2000. This note bears interest at a floating rate
of Canadian prime plus 1.00% and the Company has not provided collateral.

In connection with the acquisition of General Marine Leasing, Inc.(note
10), the Company issued a promissory note in the amount of $3,500,000, repayable
in three equal annual instalments commencing June 16, 1999. At December 31,
1999, the balance outstanding was $2,332,000. This note bears interest at 7.00%
and the Company has not provided collateral.

In connection with the acquisition of International Quarters, L.L.C. (note
10), the Company issued a promissory note in the amount of $1,000,000, repayable
in two equal annual payments of $500,000 commencing February 8, 2001. This note
bears interest at 7.50% and the company has not provided collateral.

Also, as part of the acquisition of International Quarters, L.L.C., the
Company executed a Bridge term loan in the amount of $3,500,000 repayable on
September 1, 2000. This loan bears interest at United States prime (at March 31,
2000 -- 7.00% +/-.25%) or Libor (at March 31, 2000 -- 6.10% + 2.25% to 3.25%)
and the Company has pledged assets including accounts receivable and inventory
as collateral.

The term loan bears interest at 7.50%, is repayable monthly over three
years, commencing June 1999, with annual payments of $333,000. Collateral
provided is a first charge on certain assets in the United States, up to the
amount of the loan.

Obligations under capital leases bear interest at 8.60%, have annual
payments of $87,000 and collateral provided is the related equipment, which has
a net book value approximating the obligation.

F-62
<PAGE> 138
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Scheduled principal repayments of long-term debt are (in thousands):

<TABLE>
<S> <C>
2000....................................................... $ 5,384
2001....................................................... 5,197
2002....................................................... 3,850
2003....................................................... 3,716
2004....................................................... 3,670
Thereafter................................................. 14,999
-------
$36,816
=======
</TABLE>

7. INCOME TAXES

The domestic and foreign components of earnings before income taxes were as
follows (in thousands):

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------- ------------------------------
2000 1999 1999 1998 1997
----------- ----------- ------- ------- ----------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
<S> <C> <C> <C> <C> <C>
Domestic................................ $10,238 $4,238 $ 4,861 $11,565 $18,051
Foreign................................. 740 1,407 6,052 (6,086) 856
------- ------ ------- ------- -------
$10,978 $5,645 $10,913 $ 5,479 $18,907
======= ====== ======= ======= =======
</TABLE>

The components of the provision for income taxes consist of (in thousands):

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------- ----------------------------
2000 1999 1999 1998 1997
----------- ----------- ------ ------ ----------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
<S> <C> <C> <C> <C> <C>
Current
Domestic................................ $3,954 $1,415 $2,053 $3,553 $6,558
Foreign................................. 182 611 1,884 813 --
------ ------ ------ ------ ------
4,136 2,026 3,937 4,366 6,558
------ ------ ------ ------ ------
Deferred
Domestic................................ 576 123 561 1,268 971
Foreign................................. (53) (54) (236) (150) --
------ ------ ------ ------ ------
523 69 325 1,118 971
------ ------ ------ ------ ------
$4,659 $2,095 $4,262 $5,484 $7,529
====== ====== ====== ====== ======
</TABLE>

F-63
<PAGE> 139
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Significant components of deferred tax assets and liabilities are as
follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
2000 1999 1998
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets
Property, plant and equipment....................... $ 953 $ 960 $ 901
Loss carryforwards.................................. 445 448 354
Valuation allowance................................. (1,398) (1,408) (1,255)
------- ------- -------
-- -- --
------- ------- -------
Deferred tax liabilities
Inventories......................................... 260 333 326
Property, plant and equipment....................... 9,631 9,096 8,268
------- ------- -------
9,891 9,429 8,594
------- ------- -------
Net deferred tax liability............................ $ 9,891 $ 9,429 $ 8,594
======= ======= =======
</TABLE>

Deferred tax assets relating to property, plant and equipment and loss
carryforwards relate to the Company's Chilean operation. Since they can only be
realized against income earned in Chile, a valuation allowance has been
provided.

The difference between the effective tax rate reflected in the provision
for income taxes and the applicable statutory rate is as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------- ----------------------------
2000 1999 1999 1998 1997
% % % % %
----------- ----------- ------ ------ ----------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
<S> <C> <C> <C> <C> <C>
Combined Canadian federal and
provincial income tax rate........ 44.6 44.6 44.6 44.6 44.6
Manufacturing and processing profits
deduction......................... (2.2) (3.9) (2.7) (16.1) (5.3)
Non-deductible amortization......... 1.3 0.1 3.1 7.9 2.5
Foreign losses not recognized....... -- 0.2 0.3 71.7 --
Reduced foreign tax rates........... (1.3) (3.9) (6.2) (8.0) (2.0)
---- ---- ---- ----- ----
Effective income tax rate........... 42.4 37.1 39.1 100.1 39.8
==== ==== ==== ===== ====
</TABLE>

Undistributed earnings of the Company's United States subsidiaries amounted
to $3,088,000 and $271,000 at December 31, 1999 and December 31, 1998,
respectively. Those earnings are considered to be permanently reinvested and,
accordingly, no provision for income taxes has been made. Distribution of these
earnings in the form of dividends or otherwise may result in both Canadian
federal taxes (subject to an adjustment for foreign tax credits) and withholding
taxes payable in the United States.

F-64
<PAGE> 140
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. SHARE CAPITAL

The Company has authorized an unlimited number of common shares with no par
value.

The following table sets forth the weighted average basic and diluted
shares outstanding for purposes of the earnings per share calculations:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------- ------------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (YEAR) (YEAR) (358 DAYS)
<S> <C> <C> <C> <C> <C>
Denominator for basic earnings per
share -- weighted average shares.... 7,787,630 7,787,630 7,787,630 7,828,110 7,676,923
Effect of dilutive securities stock
options............................. 13,098 12,082 12,423 16,103 2,132
--------- --------- --------- --------- ---------
Denominator for diluted earnings per
share............................... 7,800,728 7,799,712 7,800,053 7,844,213 7,679,055
========= ========= ========= ========= =========
</TABLE>

9. STOCK OPTIONS

At December 31, 1999 the Company has options outstanding to certain
employees and directors as follows:

<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED EXERCISABLE AVERAGE
WEIGHTED AVERAGE AS OF EXERCISE
TOTAL AVERAGE REMAINING DECEMBER 31, PRICE OF
OUTSTANDING RANGE OF EXERCISE CONTRACTUAL 1999 EXERCISABLE
# EXERCISE PRICES PRICE LIFE # OPTIONS
----------- --------------- -------- ----------- ------------ -----------
(IN YEARS)
<S> <C> <C> <C> <C> <C>
60,000 $3.46 - $6.93 $4.96 3.48 28,000 $3.46
</TABLE>

In March 2000, the Company granted additional options which expire August
31, 2005 as follows (unaudited):

<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE EXERCISE
TOTAL REMAINING PRICE OF
OUTSTANDING RANGE OF CONTRACTUAL EXERCISABLE
# EXERCISE PRICES LIFE OPTIONS
----------- --------------- ----------- -----------
(IN YEARS)
<S> <C> <C> <C>
70,000 $6.88 - $13.76 10.56 $5.42
</TABLE>

The following table summarizes option activity:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE PER
# SHARE
--------- ---------
<S> <C> <C>
Balance -- January 8, 1997.................................. --
Options granted............................................. 28,000 $3.46
------- -----
Balance -- December 31, 1997................................ 28,000 3.46
======= =====
Balance -- December 31, 1998................................ 28,000 3.46
Options granted............................................. 32,000 6.28
------- -----
Balance -- December 31, 1999................................ 60,000 4.96
Options granted............................................. 70,000 10.56
------- -----
Balance -- March 31, 2000 (unaudited)....................... 130,000 $8.02
======= =====
</TABLE>

Using the intrinsic value method of accounting, no compensation expense
results from the granting of options to December 31, 1999. During the quarter
ended March 31, 2000, options were granted at an exercise

F-65
<PAGE> 141
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

price below estimated fair market value at the date of the grant. These options
result in compensation expense of $600,000 which is being amortized over 5
years.

The per share weighted-average fair value of stock options granted during
1999 and 1997 was $7.22 and $3.92 on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
1999 -- risk-free interest rate of 4.60%, expected life of 5 years and expected
volatility of 0.00%; 1997 -- risk-free interest rate of 5.00%, expected life of
5 years and expected volatility of 0.00%.

Had the Company determined compensation cost based on the fair value at the
date of grant for its stock options under SFAS 123, net earnings (loss) would
have been $6,634,000 (basic EPS $0.86), $(9,000) (basic EPS $0.00), and
$11,374,000 (basic EPS $1.46) for the periods ended 1999, 1998 and 1997,
respectively. These pro forma earnings reflect compensation cost amortized over
the options' vesting period and may not be indicative of the effects in future
years.

10. BUSINESS ACQUISITIONS

On September 1, 1997, the Company formed a subsidiary company in Chile
("PTI Chile") to acquire all assets and operations of a Chilean company.

On June 16, 1998, the Company acquired all outstanding shares of General
Marine Leasing, Inc.

On July 24, 1998, the Company acquired all outstanding shares of 465750
B.C. Ltd.

On November 7, 1999, the Company acquired all outstanding shares of Norwel
Developments Limited.

These acquisitions were accounted for using the purchase method, with the
results of operations included in the consolidated financial statements from the
effective dates of purchase. Details of the acquisitions are as follows (in
thousands):

<TABLE>
<CAPTION>
GENERAL
MARINE 465750 NORWEL
LEASING, B.C. DEVELOPMENTS
PTI CHILE INC. LTD. LIMITED
--------- -------- ------ ------------
<S> <C> <C> <C> <C>
Net assets acquired, at assigned values:
Working capital........................... $ -- $ 1,301 $ 260 $ --
Property, plant and equipment............. 7,487 8,646 1,252 932
Goodwill.................................. -- 8,189 -- 718
Long-term debt............................ -- (295) -- --
Deferred income taxes..................... -- (3,153) -- (305)
------ ------- ------ ------
7,487 14,688 1,512 1,345
Non-cash consideration
Note payable to vendor.................... -- (3,500) -- (202)
Shares of PTI ............................ -- (1,964) -- --
Accounts payable.......................... -- (750) -- --
------ ------- ------ ------
Cash consideration.......................... 7,487 8,474 1,512 1,143
Less: Cash acquired......................... -- 239 55 (5)
------ ------- ------ ------
Net cash invested........................... $7,487 $ 8,235 $1,457 $1,148
====== ======= ====== ======
</TABLE>

In 1999, contingent consideration of $750,000, based on the achievement of
certain earnings levels, was recorded in full satisfaction of the acquisition of
General Marine Leasing, Inc. This additional consideration was assigned to
goodwill.

F-66
<PAGE> 142
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents unaudited selected financial information for
the Company and the above acquired companies on a pro forma basis, assuming the
companies had been combined at the beginning of the year prior to the year of
acquisition:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue (in thousands).......................... $71,629 $91,443 $104,037
Net earnings (in thousands)..................... 6,576 753 13,073
Basic earnings per share........................ 0.84 0.09 1.79
</TABLE>

On February 28, 2000, the Company acquired substantially all the operating
assets and business of International Quarters L.L.C. for cash consideration of
$3.5 million and a note payable of $1.0 million. The acquisition has been
accounted for as a purchase resulting in assigned amounts of $3.5 million for
property, plant and equipment and goodwill of $1.0 million. The transaction does
not have a material effect on the Company's results of operations.

11. SPECIAL CHARGE

In the third quarter of 1998, the Company recorded an asset impairment
provision of $5,263,000, based on the fair market value of the long-lived assets
of its Chilean operations.

12. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS

The Company's operations consist of four segments: PTI Services, Travco,
GML and Chile. The PTI Services segment provides logistics and support services
to work crews in remote areas. These services include the transport and
maintenance of modular mobile structures ("camps"), and the delivery and
preparation of food and living services, collectively referred to as camp
catering services. Travco manufactures camps for sale and for use by the PTI
Services segment. GML provides camp catering services, including the manufacture
of camps, with its operations conducted in the United States. The Chile segment
provides camp rental, maintenance and logistics services to customers within
Chile and neighbouring countries.

Intersegment sales and services are accounted for at commercial prices and
are eliminated on consolidation. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies of the Company. The Company evaluates performance of each
reportable segment based upon its operating earnings before depreciation and
amortization.

No single customer accounted for 10% or more of consolidated revenues
during any of the periods presented.

F-67
<PAGE> 143
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized financial information is as follows (in thousands):

Business Segments:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
-----------------------------------------------
PTI
SERVICES TRAVCO GML CHILE TOTAL
-------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C>
Revenue....................................... $36,401 $6,807 $ 2,604 $ -- $ 45,812
Intersegment eliminations..................... -- 2,886 -- -- 2,886
------- ------ ------- ------ --------
Revenue from external customers............... $36,401 $3,921 $ 2,604 $ -- $ 42,926
======= ====== ======= ====== ========
Operating earnings before depreciation and
amortization................................ 12,327 385 658 -- 13,370
Depreciation and amortization............... 1,591
--------
Operating earnings.......................... 11,779
--------
Capital expenditures.......................... 1,702 16 245 -- 1,963
Identifiable assets........................... 86,251 6,695 23,951 1,239 118,136
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
----------------------------------------------
PTI
SERVICES TRAVCO GML CHILE TOTAL
-------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Revenue........................................ $20,211 $1,126 $ 3,251 $ 234 $24,822
Intersegment eliminations...................... -- 351 -- -- 351
------- ------ ------- ------ -------
Revenue from external customers................ $20,211 $ 775 $ 3,251 $ 234 $24,471
======= ====== ======= ====== =======
Operating earnings (loss) before depreciation
and amortization............................. 6,425 (30) 1,919 (112) 8,202
Depreciation and amortization.................. 1,519
-------
Operating earnings............................. 6,683
-------
Capital expenditures........................... 130 -- 575 -- 705
Identifiable assets............................ 69,883 3,279 19,279 2,040 94,481
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------
PTI
SERVICES TRAVCO GML CHILE TOTAL
-------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Revenue........................................ $53,614 $8,515 $10,859 $ 237 $73,225
Intersegment eliminations...................... -- 2,719 -- -- 2,719
------- ------ ------- ------ -------
Revenue from external customers................ $53,614 $5,796 $10,859 $ 237 $70,506
======= ====== ======= ====== =======
Operating earnings (loss) before depreciation
and amortization............................. 14,040 578 5,879 (174) 20,323
Depreciation and amortization.................. 6,256
-------
Operating earnings............................. 14,067
-------
Capital expenditures........................... 2,785 24 3,110 -- 5,919
Identifiable assets............................ 73,884 4,176 17,828 1,210 97,098
</TABLE>

F-68
<PAGE> 144
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------
PTI
SERVICES TRAVCO GML CHILE TOTAL
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue...................................... $67,652 $12,258 $ 6,060 $ 3,807 $89,777
Intersegment eliminations.................... -- 3,343 -- -- 3,343
------- ------- ------- ------- -------
Revenue from external customers.............. $67,652 $ 8,915 $ 6,060 $ 3,807 $86,434
======= ======= ======= ======= =======
Operating earnings (loss) before
depreciation, amortization and special
charge..................................... 18,612 695 2,409 (1,426) 20,290
Depreciation and amortization................ 5,812
Special charge............................... 5,263 5,263
-------
Operating earnings........................... 9,215
-------
Capital expenditures......................... 10,418 127 1,318 1,196 13,059
Identifiable assets.......................... 66,337 3,108 16,245 3,671 89,361
</TABLE>

<TABLE>
<CAPTION>
358 DAY PERIOD ENDED DECEMBER 31, 1997
------------------------------------------------
PTI
SERVICES TRAVCO GML CHILE TOTAL
-------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Revenue...................................... $67,503 $30,909 $ -- $3,506 $101,918
Intersegment eliminations.................... -- 7,043 -- -- 7,043
------- ------- ------- ------ --------
Revenue from external customers.............. $67,503 $23,866 $ -- $3,506 $ 94,875
======= ======= ======= ====== ========
Operating earnings before depreciation and
amortization............................... 18,161 4,817 -- 827 23,805
Depreciation and amortization................ 2,909
--------
Operating earnings........................... 20,896
--------
Capital expenditures......................... 8,796 440 -- -- 9,236
Identifiable assets.......................... 66,695 4,137 -- 9,434 80,266
</TABLE>

Geographic Areas:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
---------------------------------------------------
UNITED
STATES CANADA OTHER ELIMINATIONS TOTAL
------- ------- ------ ------------ -------
<S> <C> <C> <C> <C> <C>
Revenues from:
Unaffiliated customers.................... $ 2,869 $39,265 $ 792 $ -- $42,926
Inter area sales.......................... -- 172 -- (172) --
------- ------- ------ ----- -------
Total revenue..................... $ 2,869 $39,437 $ 792 $(172) $42,926
======= ======= ====== ===== =======
Long-lived assets........................... 22,580 55,379 1,239 -- 79,198
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
---------------------------------------------------
UNITED
STATES CANADA OTHER ELIMINATIONS TOTAL
------- ------- ------ ------------ -------
<S> <C> <C> <C> <C> <C>
Revenues from:
Unaffiliated customers.................... $ 3,415 $19,951 $1,105 $ -- $24,471
Inter area sales.......................... -- 273 -- (273) --
------- ------- ------ ----- -------
Total revenue..................... $ 3,415 $20,224 $1,105 $(273) $24,471
======= ======= ====== ===== =======
Long-lived assets........................... 15,663 51,900 1,456 -- 69,019
</TABLE>

F-69
<PAGE> 145
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------
UNITED
STATES CANADA OTHER ELIMINATIONS TOTAL
------- ------- ------ ------------ -------
<S> <C> <C> <C> <C> <C>
Revenues from:
Unaffiliated customers.................... $11,417 $55,333 $3,756 $ -- $70,506
Inter area sales.......................... -- 888 -- (888) --
------- ------- ------ ----- -------
Total revenue..................... $11,417 $56,221 $3,756 $(888) $70,506
======= ======= ====== ===== =======
Long-lived assets........................... 17,277 56,408 1,248 -- 74,933
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------
UNITED
STATES CANADA OTHER ELIMINATIONS TOTAL
------- ------- ------ ------------ -------
<S> <C> <C> <C> <C> <C>
Revenues from:
Unaffiliated customers.................... $ 7,027 $72,186 $7,221 $ -- $86,434
Inter area sales.......................... -- 1,334 -- (1,334) --
------- ------- ------ ------- -------
Total revenue..................... $ 7,027 $73,520 $7,221 $(1,334) $86,434
======= ======= ====== ======= =======
Long-lived assets........................... 14,567 52,760 1,772 -- 69,099
</TABLE>

<TABLE>
<CAPTION>
358 DAY PERIOD ENDED DECEMBER 31, 1997
---------------------------------------------------
UNITED
STATES CANADA OTHER ELIMINATIONS TOTAL
------- ------- ------ ------------ -------
<S> <C> <C> <C> <C> <C>
Revenues from:
Unaffiliated customers.................... $ 112 $87,521 $7,242 $ -- $94,875
Inter area sales.......................... -- 2,492 -- (2,492) --
------- ------- ------ ------- -------
Total revenue..................... $ 112 $90,013 $7,242 $(2,492) $94,875
======= ======= ====== ======= =======
Long-lived assets........................... -- 49,294 6,680 -- 55,974
</TABLE>

13. STATEMENTS OF CASH FLOWS

The following information supplements the Consolidated Statements of Cash
Flows (in thousands):

14. FINANCIAL INSTRUMENTS

Financial instruments include cash, trade accounts receivable, income taxes
receivable, current liabilities other than deferred tax liabilities and
long-term debt.

The carrying value of the above noted current items approximate their fair
value due to their short-term maturity. The carrying value of long-term debt
approximates its fair value as it primarily bears interest at floating or
short-term fixed rates.

Trade accounts receivable include balances from a large number of
customers. The company assesses the credit worthiness of its customers on an
ongoing basis as well as monitoring the amount and age of balances outstanding,
and views the credit risks on these amounts as normal for the industry.

F-70
<PAGE> 146
PTI GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company is exposed to foreign currency fluctuations in relation to its
foreign operations and also has trade accounts receivable and long-term debt
denominated in foreign currencies; however, the Company does not believe these
exposures are material to its overall operations. The Company has entered into
forward exchange contracts to minimize its exposure to fluctuations in foreign
exchange rates on trade accounts receivable. Gains and losses on forward
exchange contracts are included in earnings on settlement. There are no
contracts outstanding at December 31, 1999 and 1998.

The Company utilizes financial instruments to reduce its exposure to
fluctuations in interest rates. Gains and losses on interest rate swaps (note 6)
are taken to income throughout the period of the arrangements. As at December
31, 1999, 81% of the Company's total long-term debt was in floating rate or
short-term fixed borrowings, meaning an assumed 1% change in market interest
rates would affect interest expense by approximately $298,000 on an annualized
basis.

15. CONTINGENCIES

The Company is involved in various claims and pending or threatened legal
actions involving a variety of matters. The total liability on these matters at
December 31, 1999 cannot be determined; however, in the opinion of management,
any ultimate liability, to the extent not otherwise provided for, should not
materially affect the financial position, liquidity or results of operations of
the company.

16. RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, subsequently
amended by FAS 138. The Company expects to adopt the new Statement effective
January 1, 2001. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. The Company has not completed
its evaluation but currently does not anticipate that the adoption of this
Statement will have a significant effect on its results of operations or
financial position.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin no. 101 (as amended), relating to revenue recognition. The
Company has not determined the potential impact of this pronouncement on its
results of operations.

17. SUBSEQUENT EVENT

The Company has entered into a combination agreement with Oil States
International, Inc., HWC Energy Services Inc. and Sooner Inc. to combine the
four companies. The terms of the agreement provide for the exchange of 100% of
the PTI common shares for cash, Oil States International, Inc. common shares or
PTI exchangeable shares, which can be converted into Oil States International,
Inc. common shares. The merger has been approved by the board of directors of
PTI and is subject to various conditions, including approvals by the
shareholders of all companies and regulatory approvals in both the United States
and Canada.

F-71
<PAGE> 147

HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
MARCH 31,
2000
-----------
(UNAUDITED)
<S> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,495
Accounts receivable, net of allowance for doubtful
accounts of $205....................................... 13,383
Prepaid expenses and other current assets................. 1,892
--------
Total current assets.............................. 16,770
PROPERTY AND EQUIPMENT, net................................. 52,528
GOODWILL, net............................................... 31,013
OTHER LONG-TERM ASSETS...................................... 591
--------
Total assets...................................... $100,902
========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 7,651
Accounts payable and accrued expenses..................... 6,312
Income taxes payable...................................... 734
Deferred income tax liability............................. --
Other current liabilities................................. 733
--------
Total current liabilities......................... 15,430
BANK DEBT................................................... 23,674
NOTES PAYABLE TO FORMER OWNERS.............................. 7,995
CONVERTIBLE NOTES PAYABLE................................... 500
DEFERRED TAX LIABILITY...................................... 11,289
OTHER LIABILITIES........................................... 119
--------
Total liabilities................................. 59,007
COMMITMENTS AND CONTINGENCIES:
REDEEMABLE PREFERRED STOCK:
Par value $.01, 5,800 shares authorized, 4,862 issued and
outstanding at March 31, 2000; $5,061 aggregate
liquidation preference at March 31, 2000............... 5,061
STOCKHOLDERS' EQUITY:
Common stock, no par value, 1,000,000 shares authorized,
33,484 shares issued and outstanding as of March 31,
2000................................................... 37,925
Additional paid-in capital................................ --
Currency translation adjustment........................... 21
Retained earnings (deficit)............................... (1,112)
--------
Total stockholders' equity........................ 36,834
--------
Total liabilities and stockholders' equity........ $100,902
========
</TABLE>

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

F-72
<PAGE> 148

HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES.................................................... $17,380 $8,341
COST OF SERVICES:
Operating costs........................................... 10,258 5,217
Depreciation and amortization............................. 1,849 1,501
------- ------
Gross profit...................................... 5,273 1,623
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 3,028 2,344
------- ------
Income (loss) from operations..................... 2,245 (721)
OTHER:
Equity in net income of affiliate......................... 56 (12)
Interest income........................................... 21 9
Interest expense.......................................... (854) (570)
Other income (expense).................................... 5 (49)
------- ------
INCOME (LOSS) BEFORE INCOME TAXES........................... 1,473 (1,343)
PROVISION (BENEFIT) FOR INCOME TAXES........................ 649 (374)
------- ------
NET INCOME (LOSS) BEFORE PREFERRED DIVIDENDS................ 824 (969)
PREFERRED STOCK DIVIDENDS................................... (81) --
------- ------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS....... $ 743 $ (969)
======= ======
</TABLE>

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

F-73
<PAGE> 149

HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers.............................. $ 17,373 $ 8,315
Cash paid to suppliers and employees...................... (14,362) (8,429)
Cash paid for interest.................................... (913) (556)
Cash paid for income taxes................................ 25 (610)
Other..................................................... 32 4
-------- -------
Net cash provided by (used in) operating
activities....................................... 2,155 (1,276)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................. (1,243) (740)
Cash used in acquisitions, net of cash acquired........... -- (331)
Other..................................................... 8 51
-------- -------
Net cash used in investing activities............. (1,235) (1,020)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in debt.......................................... 909 3,833
Repayment of debt......................................... (1,478) (2,679)
Other..................................................... 121
-------- -------
Net cash provided by (used in) financing
activities....................................... (448) 1,154
-------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS:.................... 472 (1,142)
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,023 1,142
-------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 1,495 $ --
======== =======
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 824 $ (969)
Depreciation and amortization............................. 1,833 1,501
Equity in earnings of affiliates.......................... (56) 12
Other..................................................... 32 182
Deferred taxes............................................ (113) (229)
Change in current assets and liabilities-
Increase (decrease) in accounts receivable............. (7) (18)
Increase in prepaid expenses and other current
assets................................................ (256) 215
Increase (decrease) in accounts payable and accrued
expenses.............................................. (757) (1,267)
Increase (decrease) in income taxes payable............ 787 (750)
Increase (decrease) in other current liabilities....... (132) 47
-------- -------
Net cash provided by (used in) operating
activities....................................... $ 2,155 $(1,276)
======== =======
NONCASH TRANSACTIONS:
Issuance of debt for assets............................... -- $ 820
Issuance of common or preferred stock for stock of
acquired subsidiary.................................... -- 2,000
Stock dividend issued on redeemable preferred stock....... $ 81 $ --
</TABLE>

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

F-74
<PAGE> 150

HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of the Company
and its wholly-owned subsidiaries have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information in
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to these rules and regulations. The unaudited consolidated
financial statements included in this report reflect all the adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for a fair presentation of the results of operations for the interim periods
covered and for the financial condition of the Company at the date of the
interim balance sheet. Results for the interim periods are not necessarily
indicative of results for the year.

The financial statements included in this report should be read in
conjunction with the Company's 1999 audited consolidated financial statements
and accompanying notes included elsewhere herein.

2. ACQUISITIONS

On March 31, 1999, the Company completed the acquisition of all of the
outstanding stock of C&H Rental Tools, Inc., and C&H Specialty Company, Inc.
(collectively, C&H). The Company paid cash of approximately $2.4 million and
$820,000 in subordinated promissory notes. C&H provides rental equipment for
drilling and workover operations in Louisiana and offshore in the Gulf of
Mexico. In addition, the C&H purchase agreement provides for the payment of
certain contingent consideration based on the earnings of the acquired business
during the period from January 1, 1999, through December 31, 2000. Payment on
the contingent consideration is due by March 31, 2001. Any contingent
consideration will be based on an agreed-upon percentage of earnings above
targeted levels and could total a maximum of $2,120,000. The contingent
consideration is not included in the acquisition cost total above but will be
recorded when future earnings requirements are met. Subsequent to March 31,
2000, the earnings of the acquired business met specified targets and the
Company recorded additional consideration and a liability to the former C&H
owners of $2,120,000.

Effective on November 30, 1999, the Company completed the acquisition of 12
snubbing units and related equipment from two unrelated vendors for total
consideration of $3.7 million cash and subordinated notes held by one of the
vendors in the amount of $4.5 million. The snubbing units are similar to those
currently operated by the Company and were located in Europe, Africa, the Middle
East and Canada when acquired. The purchase agreement contained a preestablished
rate which would be charged to the buyers upon future leasing of the equipment
and such amounts paid by the buyers will be applied as payment of the debt
obligations.

F-75
<PAGE> 151
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT

The Company's property and equipment consists of the following at March 31,
2000 (unaudited) (in thousands):

<TABLE>
<CAPTION>
ESTIMATED
LIVES
(IN YEARS)
----------
<S> <C> <C>
Land........................................................ $ 684
Rental tools................................................ 5-7 21,732
Equipment................................................... 5-13 34,139
Buildings and improvements.................................. 25 4,000
Vehicles.................................................... 3-5 2,019
Furniture, fixtures and equipment........................... 5 635
-------
63,209
Less- Accumulated depreciation.............................. 10,681
-------
Property and equipment, net....................... $52,528
=======
</TABLE>

Depreciation expense recorded for the three months and March 31, 2000 was
$1,615 and is included in the total cost of services section of the accompanying
unaudited consolidated statements of operations.

4. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company's financial position.

Insurance

The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy.

5. FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and debt. The carrying value of those
instruments reported in the balance sheet are considered to estimate their
respective fair values based on comparisons to market rates having the same or
similar maturities and collateral requirements offered to the Company.
Management believes the carrying amounts of these accounts approximate fair
value as of March 31, 2000.

6. RISK CONCENTRATION

The Company has material receivables, denominated in U.S. dollars, from
various Venezuelan customers. The Company's policy is to manage its exposure to
credit risk through credit approvals and limits. Historically, write-offs for
doubtful accounts have been insignificant.

7. INDUSTRY SEGMENT INFORMATION

F-76
<PAGE> 152
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

markets, various hydraulic well control solutions involving well drilling and
workover and completion activities. The specialty rental tool segment provides
rental equipment for drilling and workover operations. The oil and gas well
drilling segment includes the operation of 12 shallow well land drilling rigs
with automated pipe handling. The Company's nonoperating segment consists of
corporate activities and minority investment in an unconsolidated subsidiary.
The segments of the Company are based on the groupings of similar businesses
acquired since the inception of the Company in 1997.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the Company's audited
financials appearing elsewhere herein. There are no intersegment sales.
Information about the Company's segments are as follows:

STATEMENT OF OPERATIONS INFORMATION

<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31
----------------
2000 1999
------- ------
(IN THOUSANDS)
<S> <C> <C>
Revenues --
Hydraulic well control.................................... $ 7,607 $3,897
Specialty rental tools.................................... 5,828 3,315
Oil and gas well drilling................................. 3,945 1,129
General corporate......................................... -- --
------- ------
$17,380 $8,341
======= ======
Income (loss) from operations
Hydraulic well control.................................... $ 1,126 $ (480)
Specialty rental tools.................................... 923 229
Oil and gas well drilling................................. 365 (301)
General corporate......................................... (169) (169)
------- ------
$ 2,245 $ (721)
======= ======
</TABLE>

F-77
<PAGE> 153

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of HWC Energy Services, Inc., and
Subsidiaries:

We have audited the accompanying consolidated balance sheets of HWC Energy
Services, Inc. (a Texas corporation), and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1999 and 1998, and the
period from November 14, 1997 (Inception) through December 31, 1997. 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.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
HWC Energy Services, Inc., and subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for the years ended
December 31, 1999 and 1998, and for the period from November 14, 1997
(Inception) through December 31, 1997, in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
July 14, 2000

F-78
<PAGE> 154

HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
-------- -------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,023 $ 1,142
Accounts receivable, net of allowance for doubtful
accounts of $296 and $204, respectively................ 13,373 7,684
Prepaid expenses and other current assets................. 1,635 1,508
-------- -------
Total current assets.............................. 16,031 10,334
PROPERTY AND EQUIPMENT, net................................. 52,914 44,324
GOODWILL, net............................................... 31,203 30,404
OTHER LONG-TERM ASSETS...................................... 580 606
-------- -------
Total assets...................................... $100,728 $85,668
======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 4,017 $ 6,445
Accounts payable and accrued expenses..................... 7,066 4,913
Income taxes payable...................................... -- 688
Deferred income tax liabilities........................... -- 98
Other current liabilities................................. 812 1,527
-------- -------
Total current liabilities......................... 11,895 13,671
BANK DEBT................................................... 23,606 15,015
NOTES PAYABLE TO FORMER OWNERS.............................. 12,210 7,655
CONVERTIBLE NOTES PAYABLE................................... 500 500
DEFERRED TAX LIABILITIES.................................... 11,401 10,392
OTHER LIABILITIES........................................... 129 --
-------- -------
Total liabilities................................. 59,741 47,233
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK
Par value $.01, 5,800 shares authorized, 4,795 shares
issued and outstanding at December 31, 1999; $4,914
aggregate liquidation preference at December 31,
1999................................................... 4,914 --
STOCKHOLDERS' EQUITY:
Common stock, no par value, 1,000,000 shares authorized,
33,484 shares issued and outstanding as of December 31,
1999 and 1998.......................................... 37,925 37,925
Additional paid-in capital................................ -- --
Cumulative translation adjustment......................... 4 --
Retained earnings (deficit)............................... (1,856) 510
-------- -------
Total stockholders' equity........................ 36,073 38,435
-------- -------
Total liabilities and stockholders' equity........ $100,728 $85,668
======== =======
</TABLE>

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

F-79
<PAGE> 155

HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
NOVEMBER 14,
1997
YEAR ENDED (INCEPTION),
DECEMBER 31, THROUGH
----------------- DECEMBER 31,
1999 1998 1997
------- ------- ------------
<S> <C> <C> <C>
REVENUES.................................................... $42,274 $42,616 $7,459
COST OF SERVICES:
Operating costs........................................... 26,848 27,885 4,561
Depreciation and amortization............................. 6,543 4,650 304
------- ------- ------
Gross profit...................................... 8,883 10,081 2,594
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 9,364 7,408 827
------- ------- ------
Income (loss) from operations..................... (481) 2,673 1,767
OTHER:
Equity in earnings of affiliate........................... 52 87 --
Interest income........................................... 36 235 12
Interest expense.......................................... (2,565) (2,507) (225)
Other income (expense).................................... (40) 28 (368)
------- ------- ------
INCOME (LOSS) BEFORE INCOME TAXES........................... (2,998) 516 1,186
PROVISION (BENEFIT) FOR INCOME TAXES........................ (753) 550 642
------- ------- ------
NET INCOME (LOSS) BEFORE PREFERRED DIVIDENDS................ (2,245) (34) 544
PREFERRED STOCK DIVIDENDS................................... (121) -- --
------- ------- ------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS....... $(2,366) $ (34) $ 544
======= ======= ======
</TABLE>

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

F-80
<PAGE> 156

HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE RETAINED
---------------- PAID-IN TRANSLATION EARNINGS
SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) TOTAL
------ ------- ---------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, November 14, 1997
(Inception)........................ -- $ -- $ -- $ -- $ -- $ --
SALE OF STOCK FOR CASH............. 20,400 20,400 -- -- -- 20,400
ISSUANCE OF STOCK IN ACQUISITION
TRANSACTION........................ 3,600 3,600 -- -- -- 3,600
NET INCOME......................... -- -- -- -- 544 544
------ ------- ---- ---- ------- -------
BALANCE, December 31, 1997......... 24,000 24,000 -- -- 544 24,544
SALE OF STOCK TO EXISTING
STOCKHOLDERS....................... 2,817 2,425 -- -- -- 2,425
ISSUANCE OF STOCK IN ACQUISITION
TRANSACTIONS....................... 6,667 11,500 -- -- -- 11,500
NET LOSS........................... -- -- -- -- (34) (34)
------ ------- ---- ---- ------- -------
BALANCE, December 31, 1998......... 33,484 37,925 -- -- 510 38,435
PREFERRED STOCK DIVIDEND........... -- -- -- -- (121) (121)
COMPREHENSIVE LOSS:
Net loss......................... -- -- -- -- (2,245) (2,245)
Cumulative translation
adjustment.................... -- -- -- 4 -- 4
------ ------- ---- ---- ------- -------
Total comprehensive
loss................... -- -- -- 4 (2,245) (2,241)
------ ------- ---- ---- ------- -------
BALANCE, December 31, 1999......... 33,484 $37,925 $ -- $ 4 $(1,856) $36,073
====== ======= ==== ==== ======= =======
</TABLE>

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

F-81
<PAGE> 157

HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
NOVEMBER 14, 1997
YEAR ENDED DECEMBER 31, (INCEPTION), THROUGH
----------------------- DECEMBER 31,
1999 1998 1997
---------- ---------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers............................. $ 37,350 $ 50,473 $ 7,459
Cash paid to suppliers and employees..................... (35,604) (40,274) (2,476)
Cash paid for interest................................... (2,429) (2,661) (225)
Interest income received................................. 36 235 12
Foreign exchange gain (loss)............................. 20 (79) (370)
Other income received (paid)............................. (46) 1,618 2
Cash paid for income taxes............................... (570) (1,645) --
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... (1,243) 7,667 4,402
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets................................. (2,740) (4,962) (1,063)
Proceeds from sale (disposition) of fixed assets......... 327 620 898
Cash used in acquisitions, net of cash acquired.......... (6,069) (9,339) (33,314)
-------- -------- --------
Net cash used in investing activities............ (8,482) (13,681) (33,479)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in debt......................................... 11,787 14,001 17,100
Repayment of debt........................................ (6,974) (27,693) --
Proceeds from issuance of stock, net of issuance costs... 4,793 12,425 20,400
-------- -------- --------
Net cash provided by (used in) financing
activities..................................... 9,606 (1,267) 37,500
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS:................... (119) (7,281) 8,423
CASH AND CASH EQUIVALENTS, beginning of period............. 1,142 8,423 --
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period................... $ 1,023 $ 1,142 $ 8,423
======== ======== ========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss)........................................ $ (2,245) $ (34) $ 544
Depreciation and amortization............................ 6,543 4,650 304
Equity in earnings of affiliates......................... (52) (87) --
Other.................................................... (70) 249 (101)
Deferred taxes........................................... (701) 56 (71)
Loss on asset sales................................... 15 18 --
Change in current assets and liabilities --
(Increase) decrease in accounts receivable.......... (4,925) 7,811 5,791
(Increase) decrease in prepaid expenses and other
current assets................................... (147) (245) (387)
Increase (decrease) in accounts payable and accrued
expenses......................................... 1,785 (2,920) (3,110)
Increase (decrease) in income taxes payable......... (622) (673) 713
Increase (decrease) in accrued interest............. 136 (150) --
Increase (decrease) in other current liabilities.... (960) (1,008) 719
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... $ (1,243) $ 7,667 $ 4,402
======== ======== ========
NONCASH TRANSACTIONS:
Issuance of debt for acquisitions........................ $ 5,320 $ 5,340 $ 7,009
Issuance of common stock for acquisitions................ -- 1,500 3,600
Preferred stock dividends................................ 121 -- --
</TABLE>

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

F-82
<PAGE> 158

HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

HWC Energy Services, Inc. (the Parent) (a Texas corporation), and
subsidiaries (collectively, the Company) provide worldwide well control services
and drilling and rental equipment to the oil and gas industry. The headquarters
of HWC Energy Services, Inc., is in Houston, Texas, and the Company operates
primarily in Texas, Louisiana, Ohio, Oklahoma and New Mexico, along with foreign
operations in Venezuela, the Middle East, Africa and Canada. Its hydraulic well
control operations provide, globally, hydraulic workover (snubbing) units for
emergency well control situations and in selected markets, various hydraulic
well control solutions involving well drilling and workover and completion
activities. In West Texas and Ohio, the Company's Capstar Drilling, Inc.,
subsidiary operates shallow well drilling rigs with automated pipe handling
capabilities. Specialty Rental Tools and Supply, Inc. operates from 12 locations
in Texas, Louisiana and Oklahoma to provide rental equipment for drilling and
workover operations. The Company utilizes underbalanced drilling techniques to
enhance drilling performance.

The Company's level of activity depends largely on the condition of the oil
and gas industry and, in particular, the level of capital expenditures by oil
and gas companies for drilling services in the Company's operating areas. These
expenditures are influenced by prevailing oil and gas prices, expectations about
future demand and prices, the cost of exploring, producing and developing oil
and gas reserves, the discovery rates of new oil and gas reserves, political and
economic conditions, governmental regulations and the availability and cost of
capital.

2. SUMMARY OF ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements of the Company include the accounts
of Capstar Drilling, Inc. (Capstar), Specialty Rental Tools and Supply, Inc.
(Specialty), and HWC Holdings, Inc. (Holdings), and a 28.6 percent investment in
Signa Engineering Corporation (Signa). The Company's investment in Signa (see
Note 6) is accounted for using the equity method of accounting. All significant
intercompany transactions have been eliminated in consolidation.

Basis of Accounting and Use of Estimates

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

Cash and Cash Equivalents

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

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.

Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated over the
remaining lives of the assets. Upon retirement or disposition of property and
equipment,

F-83
<PAGE> 159
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the cost and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized in the statement of operations.

The Company periodically evaluates its long-lived assets held and used for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable and a provision for
possible loss is made if required. Based on the Company's review, the carrying
value of its assets are recoverable and no impairment losses have been recorded
for the periods presented.

Goodwill

Goodwill represents the excess of cost over fair market value of net assets
acquired and is being amortized on a straight-line basis over an estimated
useful life of 40 years. Goodwill is shown net of accumulated amortization of
$1.5 million and $654,000 at December 31, 1999 and 1998, respectively. The
carrying amount of goodwill is reviewed if facts and circumstances suggest that
it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the expected future undiscounted cash flow
of the businesses acquired over the remaining amortization period, the carrying
amount of the goodwill is reduced by the estimated shortfall. Based on the
Company's review, the carrying value of its goodwill is recoverable and no
impairment losses have been recorded for the periods presented.

Foreign Currency Translation

The accounting records of one of the Company's subsidiaries are maintained
and prepared in Canadian dollars. Accordingly, the Canadian dollar is the
functional currency and is translated to U.S. dollars for financial reporting
purposes. The accounts of the foreign subsidiary have been remeasured into U.S.
dollars using the exchange rate for balances at the end of the period and the
average exchange rate for transactions occurring during the period. The
resulting net translation gains and losses are reported in the equity section of
the balance sheet under the caption "cumulative translation adjustment."

The accounting records of the Company's subsidiary in Venezuela are
maintained in Venezuelan bolivars. The accounts of the Venezuelan subsidiary
have been remeasured into U.S. dollars in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, "Foreign Currency Translation." Accordingly,
the Venezuelan bolivars are translated to U.S. dollars for financial reporting
purposes by using the U.S. dollar as the functional currency and exchange gains
and losses, as well as translation gains and losses, are reported in income and
expenses. The resulting net exchange and translation gains (losses) for the
years ended December 31, 1999 and 1998, and for the period from November 14,
1997 (inception) through December 31, 1997 were $20,000, $(79,000), and
$(370,000), respectively.

Comprehensive Income

Comprehensive income is defined by SFAS No. 131, "Reporting Comprehensive
Income," and is net income including direct adjustments to stockholders' equity.
The cumulative translation adjustment of the Company's Canadian subsidiary is
the only such direct adjustment applicable to the Company and is only applicable
to the year ended December 31, 1999.

Revenue Recognition

The Company recognizes revenues from contracts as they are earned, either
on the basis of the footage drilled or number of days worked at the contractual
rate per day. Revenues from rental tools are recognized as they are earned,
based on daily rental rates.

F-84
<PAGE> 160
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes

The Company follows the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred income taxes are recorded based upon the differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the underlying
assets or liabilities are recovered or settled.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities
and supercedes and amends a number of existing accounting standards. The Company
currently does not employ derivative instruments and believes that the adoption
of SFAS No. 133, required originally in the year 2000, amended by SFAS No. 137
and extended into the year 2001, will not have a material impact on the
Company's financial position or results of operations.

3. ACQUISITIONS

On November 17, 1997, the Company acquired 100 percent of the common stock
of Brazeal, Inc., which was conducting business as CapStar. The total purchase
price was $12.0 million and consisted of cash of $10.0 million and notes issued
to the former Brazeal, Inc. shareholders of $2.0 million.

On November 20, 1997, the Company, through a wholly owned subsidiary,
acquired 100 percent of the stock of Hydraulic Well Control, Inc., and certain
affiliated companies (HWC) for total consideration of $34.4 million. The
purchase consideration consisted of cash of $26.5 million, notes issued to the
former shareholders of $5.0 million, stock of the Company valued at $3.6 million
and assumed liabilities of $0.7 million. The transaction was accounted for using
the purchase method of accounting. HWC operates hydraulic well control equipment
worldwide.

On May 1, 1998, the Company acquired all of the outstanding shares of
Specialty, an unaffiliated company, for approximately $24.3 million, including
transaction costs. The consideration for the shares was funded by a senior bank
note of $12.5 million, approximately $2.8 million in subordinated promissory
notes payable to the existing Specialty stockholders, assumption of
approximately $1.2 million of debt and cash proceeds from the sale of stock of
$6.0 million. Existing Specialty stockholders were also issued shares of the
Company's common stock valued at $1.5 million.

On June 14, 1998, Capstar acquired the assets of Peek and Rowan, Inc., and
an affiliated company (Peek and Rowan), companies in a similar line of business
as Capstar, for approximately $5.7 million, including transaction costs. The
purchase price was funded by approximately $1.2 million in subordinated
promissory notes payable to Peek and Rowan, a convertible promissory note in the
amount of $500,000 and cash proceeds from the sale of stock of $4.0 million.

On December 31, 1998, Specialty acquired the assets of A & B Rental Tools,
Inc. (A & B), a company in a similar line of business as Specialty, for $1.8
million. The purchase price was funded by a subordinated promissory note payable
to the former A & B stockholders and $900,000 in cash. For the year ended
December 31, 1998, the operations of Peek and Rowan and Specialty have been
included in the consolidated financial statements for the periods from their
acquisition dates.

F-85
<PAGE> 161
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purchase agreement provides for the payment of certain contingent consideration
based on the earnings of the acquired business during the period from January 1,
1999, through December 31, 2000. Payment on the contingent consideration is due
by March 31, 2001. Any contingent consideration will be based on an agreed-upon
percentage of earnings above targeted levels and could total a maximum of
$2,120,000. The contingent consideration is not included in the acquisition cost
total above but will be recorded when future earnings requirements are met.

The acquisitions during 1999 and 1998 were accounted for using the purchase
method of accounting and have included the application of "pushdown" accounting
to the individual company's financial statements. Accordingly, an allocation of
the purchase price has been assigned to the assets and liabilities based upon
the estimated fair value of those assets and liabilities as of the acquisition
date. Such allocation is based on the Company's internal evaluation of such
assets and supplemented by independent appraisals. The balances included in the
Consolidated Balance Sheets related to the current year acquisitions are based
upon preliminary information and are subject to change when additional
information concerning final asset and liability valuations is obtained.
Material changes in the preliminary allocations are not anticipated.

The operations of the acquired businesses and assets are included in the
Company's consolidated operations from the respective acquisition dates. The
Company's revenues and net income on an unaudited pro forma basis, assuming the
acquisitions occurred on January 1, 1998, would be as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Revenues (unaudited)........................................ $50,570 $66,567
Net income (loss) (unaudited)............................... (782) 1,862
</TABLE>

The pro forma results include adjustments for the amortization of the
intangibles presented above and interest expense on debt assumed to be issued to
finance the purchases. The pro forma results are not necessarily indicative of
what actually would have occurred if the acquisitions had been completed as of
January 1, 1998, nor are they necessarily indicative of future consolidated
results.

F-86
<PAGE> 162
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The following table presents a detail of activity for the Company's
allowance for doubtful accounts (in thousands):

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
NOVEMBER 14,
1997
YEAR ENDED (INCEPTION),
DECEMBER 31, THROUGH
------------- DECEMBER 31,
1999 1998 1997
----- ----- ------------
<S> <C> <C> <C>
Balance at beginning of period.......................... $ 204 $ 170 $ --
Additions to cost and expenses........................ 326 136 170
Deductions for uncollectible receivables written
off................................................ (234) (102) --
----- ----- ----
Balance at end of period................................ $ 296 $ 204 $170
===== ===== ====
</TABLE>

5. PROPERTY AND EQUIPMENT:

The Company's property and equipment consists of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -----------------
LIVES 1999 1998
---------- ------- -------
(IN YEARS)
<S> <C> <C> <C>
Land................................................... -- $ 517 $ 517
Rental tools........................................... 5-7 21,278 11,252
Equipment.............................................. 5-13 33,232 27,739
Buildings and improvements............................. 25 4,143 3,771
Vehicles............................................... 3-5 2,052 2,332
Furniture, fixtures and equipment...................... 5 926 2,733
------- -------
62,148 48,344
Less- Accumulated depreciation......................... (9,234) (4,020)
------- -------
Property and equipment, net.................. $52,914 $44,324
======= =======
</TABLE>

Depreciation expense recorded for the years ended December 31, 1999 and
1998, and for the period from November 14, 1997 (Inception), through December
31, 1997, was $5.6 million, $3.8 million and $0.3 million, respectively, and is
included in the total cost of services section of the accompanying consolidated
statements of operations.

F-87
<PAGE> 163
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG-TERM DEBT

The Company's long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Bank line of credit, up to $20.0 million available based
upon a borrowing base consisting of a percentage of
eligible accounts receivable, real estate and certain
fixed assets Interest payable monthly at the bank's prime
rate or LIBOR plus from 1.00% to 3.00% and an unused
commitment fee ranging from 0.25% to 0.50% based on the
ratio of debt to earnings before depreciation, interest
and taxes. The weighted average interest rate at December
31, 1999, was 8.23%
Amounts outstanding are due May 1, 2003..................... $10,750 $ --
Bank term debt. Interest is the same rate as the above bank
line of credit. Principal of $762 is repayable quarterly
through March 31, 2003. Balance due at maturity, May 1,
2003...................................................... 14,986 18,060
Bank line of credit, up to $500 (Canadian dollars) available
at the Company's option. Interest is payable monthly at
the bank's prime rate plus 0.25%. Amounts outstanding are
due on demand............................................. -- --
Bank term debt. Interest is payable monthly at the bank's
prime rate plus 0.50%. Principal of $300 (Canadian
dollars) is repayable consisting of $200 due at the end of
April and $50 at the end of July and October each year.
Balance due at maturity, December 2, 2004................. 1,038 --
Subordinated unsecured notes payable due March 31, 2000.
Interest payable annually at 7.00%.......................... 690 1,190
Subordinated unsecured notes payable due $1,000, under
certain circumstances, about March 31, 1999, and the
balance due November 7, 1999. Interest payable quarterly
at 7.50%.................................................. -- 2,000
Subordinated unsecured notes payable due January 31, 2001.
Interest payable quarterly at 7.00%......................... 4,215 4,215
Subordinated unsecured note payable due May 1, 2002.
Interest payable quarterly at 7.00%......................... 2,750 2,750
Subordinated note payable secured by certain rental tools
purchased from A & B Rental Tools, Inc., on December 31,
1998. Interest at 8.00% due at maturity on June 30,
1999...................................................... -- 900
Subordinated notes payable due November 30, 2005. Interest
accrues at 7.00% annually. Principal and interest are
payable at a fixed amount for each day certain equipment
is utilized............................................... 4,500 --
Subordinated note payable due September 30, 2003. Interest
payable quarterly at 6.50%................................ 820 --
Convertible subordinated unsecured note payable due June 15,
2001. Interest payable quarterly at 5.00%. Convertible by
holder into 200 shares of common stock.................... 500 500
Notes payable to various credit corporations, payable in
monthly installments of principal and interest at various
interest rates, maturing through fiscal year 2001......... 84 --
------- -------
Total debt........................................ 40,333 29,615
Less -- Current portion........................... (4,017) (6,445)
------- -------
Long-term debt.................................... $36,316 $23,170
======= =======
</TABLE>

Amounts owed the bank are secured by substantially all the assets of the
Company and its subsidiaries. Each of the Company's subsidiaries as well as the
Company are guarantors under the bank credit agreements.

F-88
<PAGE> 164
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The bank credit agreement contains certain financial and other covenants that,
among other things, restrict the amount of dividends the Company may pay and the
amount of debt the Company can incur. The Company is required to pay an unused
commitment fee ranging from 0.25% to 0.5% per annum of the amount of the unused
commitment from the bank line of credit.

Future maturities of long-term debt at December 31, 1999, are as follows
(in thousands):

<TABLE>
<S> <C>
2000...................................................... $ 4,017
2001...................................................... 8,126
2002...................................................... 6,077
2003...................................................... 17,707
2004...................................................... 281
Thereafter................................................ 4,125
-------
$40,333
=======
</TABLE>

7. INVESTMENT IN AFFILIATE

In January 1998, the Company purchased 28.6 percent of the outstanding
common stock of Signa for approximately $760,000. The total amount paid was
classified as goodwill at the acquisition date based on the book value of Signa
on the acquisition date. Signa provides a complete range of comprehensive
integrated petroleum engineering services to include feasibility studies,
evaluations, planning, permitting, engineering, design, implementation,
geotechnical, field operations, production services accounting, training, expert
witness testimony, animated graphics, environmental engineering and project
management to clients worldwide. The Company accounts for its investment in
Signa using the equity method. During 1999 and 1998, the Company recognized its
share of Signa's net income as equity in earnings of affiliate totaling $52,000
and $87,000, respectively.

8. REDEEMABLE PREFERRED STOCK

In connection with the 1999 acquisition of C&H, the Company issued 2,145
shares of a new Series A class of redeemable convertible preferred stock
(Redeemable Series A Preferred Stock). The shares are redeemable with a
liquidation preference of $1,000 per share. The preferred shares accrue
dividends at the rate of 6.5 percent per annum. As of December 31, 1999, 2,145
shares were outstanding. The Company elected to accrue the cumulative unpaid
dividends totaling $106,000 at December 31, 1999. The Redeemable Series A
Preferred Stock shall be redeemed as a whole by the Company on March 31, 2004,
at a redemption price of $1,000 per share, plus all accrued and unpaid dividends
to the date of the redemption. The holders of the Redeemable Series A Preferred
Stock have the right to convert, at any time, all or any shares into common
stock of the Company based on the liquidation value of the preferred stock,
including accrued but unpaid dividends, on such date based upon preestablished
formulas defined in the agreement.

In connection with the 1999 acquisition of two unrelated vendors, the
Company issued 2,650 shares of a new Series B class of redeemable convertible
preferred stock (Redeemable Series B Preferred Stock). The shares are redeemable
with a liquidation preference of $1,000 per share. The preferred shares accrue
dividends at the rate of 6.5 percent per annum. As of December 31, 1999, 2,650
shares were outstanding. The Company elected to accrue the cumulative unpaid
dividends totaling $15,000 at December 31, 1999. The Redeemable Series B
Preferred Stock shall be redeemed as a whole by the Company on October 30, 2004,
at a redemption price of $1,000 per share, plus all accrued and unpaid dividends
to the date of the redemption. The holders of the Redeemable Series B Preferred
Stock have the right to convert, at any time, all or any shares into common
stock of the Company based on the liquidation value of the preferred stock,
including accrued but unpaid dividends, on such date based upon preestablished
formulas defined in the agreement.

F-89
<PAGE> 165
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. INCOME TAXES

Provision (benefit) for income taxes is as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD FROM
DECEMBER 31, NOVEMBER 14, 1997
--------------- (INCEPTION), THROUGH
1999 1998 DECEMBER 31, 1997
------- ---- --------------------
<S> <C> <C> <C>
Current --
Federal...................................... $ (49) $266 $486
State........................................ (3) -- 7
Non-U.S. .................................... -- 228 220
------- ---- ----
(52) 494 713
Deferred, federal.............................. (701) 56 (71)
------- ---- ----
Total................................ $ (753) $550 $642
======= ==== ====
</TABLE>

Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate to income before income
taxes as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD FROM
DECEMBER 31, NOVEMBER 14, 1997
--------------- (INCEPTION), THROUGH
1999 1998 DECEMBER 31, 1997
------- ---- --------------------
<S> <C> <C> <C>
Federal provision (benefit) at the statutory
rate......................................... $(1,019) $180 $415
State provision (benefit), net of federal
benefit...................................... (59) -- 26
Increase (decrease) resulting from-
Goodwill amortization not deductible......... 277 221 15
Meals and entertainment...................... 100 69 --
Foreign taxes in excess of US statutory
rate...................................... -- 28 122
Other, net................................... (52) 52 64
------- ---- ----
$ (753) $550 $642
======= ==== ====
</TABLE>

The acquisition transactions were not taxable, thus the resulting goodwill
amortization is not deductible, causing permanent differences between income tax
expense on both book and tax bases for the years ended December 31, 1999 and
1998, and future periods.

F-90
<PAGE> 166
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The net deferred income
tax liabilities consist primarily of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred income tax assets --
Other..................................................... $ 107 $ 343
-------- --------
Total deferred income tax assets.................. 107 343
-------- --------
Deferred income tax liabilities --
Property and equipment.................................... (11,266) (10,598)
Other intangibles......................................... (192) (203)
Other..................................................... (50) (32)
-------- --------
Total deferred income tax liabilities............. (11,508) (10,833)
-------- --------
Net deferred income tax liabilities......................... $(11,401) $(10,490)
======== ========
</TABLE>

The net deferred income tax assets and liabilities are comprised of the
following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred income tax assets --
Current................................................... $ -- $ --
Long-term................................................. 107 343
-------- --------
Total deferred income tax assets.................. 107 343
-------- --------
Deferred income tax liabilities --
Current................................................... -- (98)
Long-term................................................. (11,508) (10,735)
-------- --------
Total deferred income tax liabilities............. (11,508) (10,833)
-------- --------
Net deferred income tax assets (liabilities).............. $(11,401) $(10,490)
======== ========
</TABLE>

10. STOCK OPTIONS

At December 31, 1999, the Company had stock options outstanding as follows:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE WEIGHTED AVERAGE
OPTIONS PRICE RANGE EXERCISE PRICE
--------- --------------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1997........... -- -- --
Granted.................................... 2,640 $1,000 - $1,500 $1,083
-----
Outstanding at December 31, 1998........... 2,640 1,000 - 1,500 1,083
Granted.................................... 430 1,000 - 1,500 1,116
Forfeited.................................. (335) 1,000 - 1,500 1,090
-----
Outstanding at December 31, 1999........... 2,735 $1,000 - $1,500 $1,097
=====
</TABLE>

Options are exercisable based on a vesting period of three to four years.

Options issued during the year ended December 31, 1999 and 1998, have a
remaining life of six years and five years, respectively.

F-91
<PAGE> 167
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company accounts for its stock option program in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. The Company has adopted the
Financial Accounting Standard Board's SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income disclosures for employee
stock option grants made as if the fair value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of ABP Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123. The fair value of each option grant is estimated on the date of
grant using the Minimum Value option pricing model with the following
assumptions used for grants in 1999 and 1998, respectively: risk-free interest
rate of 7.5%, no volatility and expected lives of 6 years. Had compensation cost
been recorded based on SFAS No. 123, the Company's net loss would have been $2.6
million and $353,000 for the years ended December 31, 1999 and 1998,
respectively.

11. RELATED PARTY

In accordance with prior purchase agreements, the Company made debt
payments in 1999, 1998 and from November 14, 1997 (inception) through December
31, 1997, of approximately $--, $794,000 and $-- to a former owner of HWC, Inc.,
a subsidiary of the Parent. Additionally, the Company also paid consulting fees
of approximately $353,000, $72,000 and $16,000 in 1999, 1998 and from November
14, 1997 (inception) through December 31, 1997, respectively, to three former
owners of HWC, Inc., pursuant to the HWC, Inc., purchase agreement.

In 1999, the Company incurred additional debt related to current-year
acquisitions as discussed in Note 3.

As of December 31, 1999 and 1998, the Company has an aggregate debt balance
of approximately $13.5 million and $11.6 million, respectively, due to former
owners.

12. LEASES

The Company leases certain vehicles and equipment under noncancelable
operating leases expiring within the next three years. Rent expense was
approximately $513,000, $497,000 and $13,000 for the years ended December 31,
1999 and 1998 and for the period from November 14, 1997 (Inception), through
December 31, 1997, respectively.

Future commitments under noncancelable operating leases as of December 31,
1999, are as follows (in thousands):

13. COMMITMENTS AND CONTINGENCIES

Litigation

F-92
<PAGE> 168
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Insurance

The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy.

14. FINANCIAL INSTRUMENTS

15. SIGNIFICANT CUSTOMERS AND RISK CONCENTRATION

During the years ended December 31, 1999 and 1998, and for the period from
November 14, 1997 (Inception), through December 31, 1997, the Company had sales
to one customer which accounted for 12 percent, 13 percent and 8 percent,
respectively, of total revenues.

16. INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION

The Company has three operating business segments: the hydraulic well
control segment, the specialty rental tool segment, and the oil and gas well
drilling segment. The hydraulic well control segment provides hydraulic workover
(snubbing) units and crews for emergency well control situations and in selected
markets, various hydraulic well control solutions involving well drilling and
workover and completion activities. The specialty rental tool segment provides
rental equipment for drilling and workover operations. The oil and gas well
drilling segment includes the operation of 12 shallow well land drilling rigs
with automated pipe handling. The Company's nonoperating segment consists of
corporate activities and minority investment in an unconsolidated subsidiary.
The segments of the Company are based on the groupings of similar businesses
acquired since the inception of the Company in 1997.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. There are no intersegment sales.
Information about the Company's segments are as follows (in thousands):

F-93
<PAGE> 169
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
YEAR ENDED DECEMBER 31, NOVEMBER 14, 1997
----------------------- (INCEPTION), THROUGH
1999 1998 DECEMBER 31, 1997
--------- --------- --------------------
<S> <C> <C> <C>
Income (loss) from operations --
Hydraulic well control.................... $ (977) $ 1,781 $ 1,491
Specialty rental tools.................... 1,209 1,478 --
Oil and gas well drilling................. (170) (18) 276
General corporate......................... (543) (568) --
------- ------- -------
$ (481) $ 2,673 $ 1,767
======= ======= =======
Capital expenditures --
Hydraulic well control.................... $ 4,424 $ 1,985 $31,141
Specialty rental tools.................... 2,995 28,297 --
Oil and gas well drilling................. 322 6,323 13,638
General corporate......................... 3 797 --
------- ------- -------
$ 7,744 $37,402 $44,779
======= ======= =======
Depreciation and amortization --
Hydraulic well control.................... $ 2,522 $ 2,337 $ 248
Specialty rental tools.................... 2,770 1,276 --
Oil and gas well drilling................. 1,173 991 56
General corporate......................... 78 46 --
------- ------- -------
$ 6,543 $ 4,650 $ 304
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ---------
<S> <C> <C>
Total assets --
Hydraulic well control.................................... $ 46,460 $34,569
Specialty rental tools.................................... 34,411 29,985
Oil and gas well drilling................................. 19,586 19,913
General corporate......................................... 271 1,201
-------- -------
$100,728 $85,668
======== =======
</TABLE>

The following table presents consolidated revenues by country (in
thousands):

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
YEAR ENDED DECEMBER 31, NOVEMBER 14, 1997
----------------------- (INCEPTION), THROUGH
1999 1998 DECEMBER 31, 1997
--------- --------- --------------------
<S> <C> <C> <C>
United States............................... $35,545 $34,487 $4,133
Venezuela................................... 6,097 2,246 502
India....................................... -- 2,807 2,425
North Sea................................... -- 3,076 399
Other Non-U.S. ............................. 632 -- --
------- ------- ------
$42,274 $42,616 $7,459
======= ======= ======
</TABLE>

F-94
<PAGE> 170
HWC ENERGY SERVICES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents net long-lived assets by country (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
United States............................................... $75,093 $74,220
Venezuela................................................... 953 850
India....................................................... -- 32
North Sea................................................... -- 232
Other Non-U.S. ............................................. 8,651 --
------- -------
$84,697 $75,334
======= =======
</TABLE>

F-95
<PAGE> 171

REPORT OF INDEPENDENT AUDITORS

To the Stockholders of
Sooner Inc.

We have audited the accompanying consolidated balance sheet of Sooner Inc.
as of June 30, 1999 and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit 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 financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sooner Inc. at
June 30, 1999 and the consolidated results of its operations and its cash flows
for the year ended June 30, 1999 in conformity with accounting principles
generally accepted in the United States.

ERNST & YOUNG LLP

Tulsa, Oklahoma
August 13, 1999

F-96
<PAGE> 172

SOONER INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,184 $ 4,852
Accounts receivable -- trade, net of allowance for
doubtful accounts of $196 (unaudited) and $196......... 21,104 16,955
Accrued interest receivable............................... 2 20
Tubular goods inventories................................. 60,455 56,928
Refundable income taxes................................... 24 32
Deferred taxes............................................ 802 802
Prepaid expenses and other................................ 1,019 1,319
-------- --------
Total current assets.............................. 84,590 80,908
Property, plant and equipment............................... 5,995 5,497
Accumulated depreciation.................................... (825) (412)
-------- --------
5,170 5,085
Goodwill, net of accumulated amortization of $1,250
(unaudited) and $526...................................... 13,229 13,953
Accounts and notes receivable............................... 2,694 1,609
Investments, at cost........................................ 2,204 2,204
Debt issuance costs, net of accumulated amortization of $52
(unaudited) and $30....................................... 97 119
Deposits and other assets................................... 392 273
-------- --------
Total assets...................................... $108,376 $104,151
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable -- trade................................. $ 30,200 $ 9,802
Income taxes payable...................................... 127 203
Accrued liabilities....................................... 925 1,147
Accrued taxes other than income taxes..................... 909 1,257
Current portion of long-term notes payable................ 156 156
Current portion of subordinated long-term notes payable to
related parties........................................ 1,000 4,000
-------- --------
Total current liabilities......................... 33,317 16,565
Long-term notes payable..................................... 25,817 41,093
Long-term subordinated notes payable to related parties..... 30,536 33,243
-------- --------
Total long term liabilities....................... 56,353 74,336
Stockholders' equity:
Common stock, $.01 per value; 100,000 shares authorized,
23,702 shares issued and outstanding................... -- --
Capital in excess of par value............................ 23,676 23,701
Accumulated deficit....................................... (4,970) (10,451)
-------- --------
Total stockholders' equity........................ 18,706 13,250
-------- --------
Total liabilities and stockholders' equity........ $108,376 $104,151
======== ========
</TABLE>

See accompanying notes.

F-97
<PAGE> 173

SOONER INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARES AND EARNINGS PER SHARE)

<TABLE>
<CAPTION>
THREE MONTH PERIOD NINE MONTH PERIOD
ENDED ENDED
MARCH 31, MARCH 31, FOR THE
------------------------- ------------------------- YEAR ENDED
2000 1999 2000 1999 JUNE 30, 1999
----------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $70,426 $23,755 $174,842 $ 77,683 $108,768
Operating costs and expenses:
Cost of sales.................... 63,723 22,761 159,253 78,057 108,613
Selling, general and
administrative expenses..... 2,350 1,287 6,834 4,812 7,395
------- ------- -------- -------- --------
66,073 24,048 166,087 82,869 116,008
------- ------- -------- -------- --------
Operating income (loss)............ 4,353 (293) 8,755 (5,186) (7,240)
Other income (expense):
Investment and other income...... 105 24 303 101 613
Interest expense................. (1,101) (907) (3,561) (3,418) (4,420)
------- ------- -------- -------- --------
(996) (883) (3,258) (3,317) (3,807)
------- ------- -------- -------- --------
Income (loss) before income
taxes............................ 3,357 (1,176) 5,497 (8,503) (11,047)
Provision for (benefit from) income
taxes:
Current.......................... (490) 16 (1,698) 173
Deferred......................... -- -- -- -- (769)
------- ------- -------- -------- --------
-- (490) 16 (1,698) (596)
------- ------- -------- -------- --------
Net income (loss).................. $ 3,357 $ (686) $ 5,481 $ (6,805) $(10,451)
======= ======= ======== ======== ========
Income (loss) per common share:
Basic and diluted................ $141.78 $(39.93) $ 231.41 $(396.05) $(589.62)
======= ======= ======== ======== ========
Weighted average shares
outstanding................... 23,677 17,182 23,685 17,182 17,725
======= ======= ======== ======== ========
</TABLE>

See accompanying notes.

F-98
<PAGE> 174

SOONER INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- --------
<S> <C> <C> <C> <C>
Issuance of 17,182 shares of common stock at
formation of Company on July 2, 1998............. $-- $17,182 $ -- $ 17,182
Issuance of 6,520 shares of common stock........... -- 6,519 -- 6,519
Net loss........................................... -- -- (10,451) (10,451)
--- ------- -------- --------
Balance at June 30, 1999........................... -- 23,701 (10,451) 13,250
Issuance of 25 shares of common stock
(unaudited)...................................... 25 25
Repurchase and cancellation of 50 shares of common
stock (unaudited)................................ (50) (50)
Net income (unaudited)............................. -- -- 5,481 5,481
--- ------- -------- --------
Balance at March 31, 2000 (unaudited).............. $-- $23,676 $ (4,970) $ 18,706
=== ======= ======== ========
</TABLE>

See accompanying notes.

F-99
<PAGE> 175

SOONER INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED
MARCH 31, MARCH 31, FOR THE
------------------------- ------------------------- YEAR ENDED
2000 1999 2000 1999 JUNE 30, 1999
----------- ----------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss) from operations..... $ 3,357 $ (686) $ 5,481 $ (6,805) $(10,451)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization
expense........................... 407 122 1,205 688 1,055
(Gain) loss on disposition of
assets............................ 5 301 45 76 (256)
Noncash interest expense capitalized
as additional notes payable
principal......................... 543 414 1,676 1,654 2,065
Changes in assets and liabilities:
Accounts and accrued interest
receivable..................... (1,547) 2,989 (5,216) 11,403 5,382
Tubular goods inventories......... (8,159) 9,177 (3,527) 30,326 36,428
Accounts payable and accrued
liabilities.................... 10,498 (3,414) 19,827 (21,418) (16,111)
Income taxes...................... (106) (484) (68) (1,916) (630)
Prepaid expenses and other........ 41 (25) 182 217 296
------- ------- -------- -------- --------
Net cash provided by operating
activities................... 5,039 8,394 19,605 14,225 17,778
Investing activities
Purchases of property, plant and
equipment........................... (379) (65) (684) (222) (622)
Proceeds from sale of assets.......... 1 (73) 94 1,589 2,905
Purchases of businesses, less cash
acquired of $459.................... -- -- -- (59,641) (96,235)
Other................................. -- (80) -- (617) 84
------- ------- -------- -------- --------
Net cash provided by (used in)
investing activities......... (378) (218) (590) (58,891) (93,868)
Financing activities
Proceeds from issuance of notes
payable............................. -- -- -- 55,286 88,469
Payment of debt issuance costs........ -- -- -- (149) (149)
Issuance of 15,136 shares of common
stock............................... -- -- -- 15,136 15,136
Issuance of 6,350 shares of common
stock............................... -- -- -- -- 6,350
Issuance of 25 shares of common stock
(unaudited)......................... -- -- 25 -- --
Repurchase and cancellation of 50
shares of common stock
(unaudited)......................... -- -- (50) -- --
Debt payments on notes payable........ (6,274) (6,865) (22,658) (22,623) (28,864)
------- ------- -------- -------- --------
Net cash provided by (used in)
financing activities......... (6,274) (6,865) (22,683) 47,650 80,942
------- ------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents.................... (1,613) 1,311 (3,668) 2,984 4,852
Cash and cash equivalents at beginning
of period........................... 2,797 1,673 4,852 -- --
------- ------- -------- -------- --------
Cash and cash equivalents at end of
period.............................. $ 1,184 $ 2,984 $ 1,184 $ 2,984 $ 4,852
======= ======= ======== ======== ========
Cash paid during period for
interest............................ $ 557 $ 424 $ 1,880 $ 1,781 $ 2,355
======= ======= ======== ======== ========
</TABLE>

See accompanying notes.

F-100
<PAGE> 176

SOONER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Sooner Inc. is a distributor of oilfield tubular products and was formed on
July 2, 1998 to acquire Sooner Pipe and Supply Corporation and subsidiaries
(collectively the "Company"). The Company's operations are located primarily in
the United States ("U.S."). In addition, the Company has sales and marketing
subsidiaries located in the United Kingdom ("U.K."), Canada, Nigeria and
Venezuela. The majority of sales are to large fully-integrated and independent
oil companies headquartered in the U.S. The Company generally does not require
collateral on trade receivables from these companies.

The acquisition of the common stock of Sooner Pipe and Supply Corporation
on July 2, 1998 was accounted for using the purchase method, whereby the Company
allocated the purchase price of $81,693,000 based on the estimated fair value of
the net assets acquired. The excess of the purchase price over the fair value of
the acquired net assets of $7,432,000 is recorded as goodwill. As the Company
was formed on the date of the acquisition of Sooner Pipe & Supply Corporation,
results of operations are included in the financial statements since the date of
the acquisition and the formation of the Company.

The acquisition was financed with cash and noncash proceeds from the
issuance of debt and equity. Cash proceeds were as follows (in thousands):

<TABLE>
<S> <C>
Revolving line of credit.................................... $24,827
Term note payable........................................... 5,000
Junior subordinated notes payable........................... 15,137
Issuance of 15,136 shares of common stock of the Company.... 15,136
-------
$60,100
=======
</TABLE>

Noncash proceeds reflect debt and equity issued to the former owner of
Sooner Pipe & Supply Corporation and were as follows (in thousands):

<TABLE>
<S> <C>
Senior subordinated note payable............................ $10,000
Senior subordinated contingent note payable................. 7,500
Junior subordinated note payable............................ 2,047
Issuance of 2,046 shares of common stock of the Company..... 2,046
-------
$21,593
=======
</TABLE>

Consolidation

The accompanying financial statements include Sooner Inc. and all
subsidiaries. All significant intercompany balances and transactions, including
any profits in inventory, are eliminated in consolidation.

Use of Estimates

Preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from these estimates.

Cash Equivalents

The Company includes as cash equivalents all certificates of deposit and
U.S. treasury securities with original maturities of 90 days or less.

F-101
<PAGE> 177
SOONER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)

Inventories

Inventories are priced at lower of cost or market using the first-in,
first-out (FIFO) cost method.

Property, Plant and Equipment

Depreciation is computed on the straight-line method at varying rates by
asset classification. Assets of foreign subsidiaries are depreciated on
straight-line and accelerated methods over their estimated useful lives.
Amortization of leasehold improvements is computed on the straight-line method
over the life of the lease. Depreciation expense was $499,000 for the year ended
June 30, 1999.

Capital additions and major renewals and betterments are capitalized as
incurred and are depreciated over the estimated useful lives of the assets. When
assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed, and any resulting gain or loss is reflected in other
income for the period. Normal repairs and maintenance are expensed to current
operations as incurred.

Goodwill and Other Intangible Assets

Goodwill, which represents the excess of cost over fair value of assets of
businesses acquired, is amortized on a straight-line basis over a 15 year
period. Debt issuance costs are amortized on a straight-line basis over the life
of the Company's revolving credit agreement which expires on July 2, 2003.
Amortization expense was $556,000 for the year ended June 30, 1999.

Impairment of Long-Lived Assets

The Company evaluates the long-lived assets, including related intangibles,
of identifiable business activities for impairment when events or changes in
circumstances indicate, in management's judgment, that the carrying value of
such assets may not be recoverable. The determination of whether an impairment
has occurred is based on management's estimate of undiscounted future cash flows
attributable to the assets as compared to the carrying value of the assets. If
an impairment has occurred, the amount of the impairment recognized is
determined by estimating the fair value for the assets and recording a provision
for loss if the carrying value is greater than fair value.

For assets identified to be disposed of in the future, the carrying value
of these assets is compared to the estimated fair value less the cost to sell to
determine if an impairment is required. Until the assets are disposed of, an
estimate of the fair value is redetermined when related events or circumstances
change.

Incentive Stock Options

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," ("APB No. 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB No. 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

Foreign Currency Remeasurement

The Company has foreign subsidiaries operating in the United Kingdom,
Canada, Nigeria and Venezuela. For its foreign subsidiaries, the functional
currency is considered to be the U.S. dollar. The foreign currency transaction
adjustments are also included in determining net income or loss. Included in
loss before

F-102
<PAGE> 178
SOONER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)

income taxes is net foreign exchange remeasurement and transaction expense of
$21,000 for the year ended June 30, 1999.

Income Taxes

The Company provides deferred income taxes on temporary differences between
the financial statement and tax bases of assets and liabilities. No deferred
U.S. income taxes have been provided on the undistributed earnings
(approximately $4,320,000 at June 30, 1999) of the foreign subsidiaries since it
is the Company's intention to indefinitely reinvest those earnings to finance
the continued growth and development of those entities. Under present tax law,
such an amount would be subject to U.S. income taxes at prevailing tax rates
less foreign tax credits if remitted to the parent company.

Revenue Recognition

Net sales are recognized when oilfield tubular products are shipped or, if
terminal services are also provided by the Company, when risk of ownership has
passed to a customer. Terminal fees of $2,500,000 were recognized for the year
ended June 30, 1999 on a monthly basis as earned.

Earnings Per Share

Basic earnings per share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is determined on the assumption that outstanding stock
options have been converted using the treasury stock method. For purposes of
computing earnings per share in a loss period, common stock equivalents are
excluded from the computation of weighted average common shares outstanding
because their effect is antidilutive.

New Accounting Standards

In March 1998, Statement of Position ("SOP") No. 98-1, "Accounting for the
Costs of Software Developed or Obtained for Internal Use," was issued. This SOP
requires capitalization of certain costs incurred in connection with an
internal-use software project. The Company adopted the SOP on July 1, 1999.
Neither the Company's financial position, results of operations nor cash flows
were significantly impacted by this SOP.

In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-Up
Activities". The SOP is effective for fiscal years beginning after December 15,
1998, and requires start-up costs capitalized prior to that date be written off
and any future start-up costs to be expensed as incurred. The Company adopted
the SOP on July 1, 1999. The adoption of the SOP did not have a material impact
on the Company's financial position, results of operations or cash flows.

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued which requires that all derivative instruments
be recorded as assets or liabilities on the balance sheet at fair value. SFAS
No. 133 was adopted by the Company on July 1, 2000. The Company's financial
position, results of operations or cash flows were not significantly impacted by
this SFAS when adopted.

2. ACQUISITIONS

During May and June 1999, the Company acquired three oilfield tubular
products distribution businesses for $36,594,000. The acquisitions were
accounted for using the purchase method in which the Company allocated the
purchase price based on the estimated fair values of the assets acquired. The
excess of the purchase price over the fair value of the acquired assets is
recorded as goodwill. Results of operations from the acquisitions are included
in the accompanying consolidated financial statements from the dates of
acquisition.

F-103
<PAGE> 179
SOONER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)

The effect of the acquisitions at the purchase dates on the consolidated
financial statements was as follows (in thousands):

<TABLE>
<S> <C>
Accounts Receivable......................................... $ 1,002
Inventory................................................... 28,545
Goodwill.................................................... 7,047
-------
Cash used for acquisitions.................................. $36,594
=======
</TABLE>

The following selected unaudited pro forma information (in thousands,
except per share amounts) is provided to present a summary of the combined
results of the Company as if the acquisitions discussed above had occurred at
the beginning of the year ended June 30, 1999, giving effect to purchase
accounting adjustments. The pro forma data is for informational purposes only
and may not necessarily reflect the results of operations had the acquired
businesses operated as part of the Company for the full year ended June 30, 1999
and for the three and nine month periods ending March 31, 1999.

<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS THREE MONTHS FOR THE
ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, JUNE 30,
1999 1999 1999
----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales......................................... $223,852 $59,626 $271,784
Net loss.......................................... (3,954) (1,277) (8,554)
Basic and diluted loss per share.................. (230.12) (74.32) (360.90)
</TABLE>

3. INVESTMENTS

Investments at June 30, 1999 consist primarily of a 20% interest in common
stock of an oilfield tubular products company. The investment is carried at cost
($2,059,000 at June 30, 1999), as the Company does not have the ability to
exercise significant influence over the operating and financial policies of the
company. The investment was obtained by the Company in a noncash transaction in
exchange for a note receivable and accrued interest owed the Company from a
related party who purchased certain inventory and real estate from the Company
for $3,804,000. A cash payment of $1,850,000 was made on August 31, 1998 with
the remaining balance represented by a $1,954,000 subordinated 6% note
receivable.

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, and related estimated useful lives
consists of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31, JUNE 30, ESTIMATED
2000 1999 USEFUL LIVES
----------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Land............................................... $ 689 $ 689
Land improvements.................................. 134 134 20
Buildings.......................................... 1,012 1,012 9-40
Machinery and equipment............................ 1,993 1,978 6-10
Office equipment................................... 1,521 961 6-10
Automotive equipment............................... 232 380 5
Improvements to leased premises.................... 414 343 9
------ ------
$5,995 $5,497
====== ======
</TABLE>

F-104
<PAGE> 180
SOONER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)

5. COMMITMENTS

The Company leases office space for periods to 2002. The related rent
expense for the year ended June 30, 1999 totaled $815,000. At June 30, 1999
minimum annual rentals under noncancelable leases are as follows (in thousands):

<TABLE>
<S> <C>
2000........................................................ $ 650
2001........................................................ 385
2002........................................................ 3
------
1,038
Less noncancelable sublease to stockholder.................. (374)
------
$ 664
======
</TABLE>

6. STOCK AGREEMENTS

The Company adopted a Stock Option Plan (the "Plan") that provides for the
issuance of options to key employees to purchase the Company's common stock. The
exercise price of all the outstanding options is $1,000, which has been
determined to be not less than the fair value of a share of common stock at the
grant date. Options under the Plan vest and become exercisable in four annual
installments beginning one year after the grant date, and expire six years after
the grant date. The Company granted 875 options in the year ended June 30, 1999.
No options were canceled or exercised in the year ended June 30, 1999. The
weighted average remaining life of the options is 5.4 years. There were no
options exercisable at June 30, 1999.

SFAS No. 123 requires proforma disclosures of net income as if the Company
has accounted for the employee stock options under the fair value method of SFAS
No. 123. The fair value of these options are estimated at the date of grant
using the "minimum value" option pricing model with the following weighted
average assumptions for the year ended June 30, 1999: risk-free interest rate of
5.75%, dividend yield of zero and expected life of each option of four years.

Option valuation models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. Using the "minimum
value" option valuation model, the weighted average grant date value of options
granted during the year ended June 30, 1999 was $205 per option.

For purposes of proforma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
proforma net loss and basic and diluted loss per share for the year ended June
30, 1999 is $(10,468,000) and $(590.58), respectively.

The Company also issued during the year ended June 30, 1999 common stock
subscriptions to key employees to purchase 325 shares of common stock of the
Company for $1,000 per share. Two employees purchased a total of 100 shares of
common stock during the year ended June 30, 1999 for $100,000. The opportunity
to purchase the remaining 225 subscription shares expired unexercised in July
1999.

7. PROFIT SHARING PLANS

The Company has a contributory profit sharing plan in which substantially
all U.S. employees are eligible to participate. The plan provides for annual
Company contributions of a discretionary amount determined by the Board of
Directors, provided however that the amount of such contribution shall not
exceed the maximum amount deductible by the Company under the provisions of the
Internal Revenue Code. Company contributions to the plan were $104,000 during
the year ended June 30, 1999.

F-105
<PAGE> 181
SOONER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)

8. FOREIGN OPERATIONS

The following is a summary of the financial data of the foreign
subsidiaries (in thousands):

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
----------- --------
(UNAUDITED)
<S> <C> <C>
Current assets.............................................. $12,692 $16,137
Intercompany receivable..................................... 1,959 2,091
Property, plant and equipment,.............................. 521 585
Other assets................................................ 2,689 1,595
------- -------
Total assets...................................... $17,861 $20,408
======= =======
Current liabilities......................................... $ 963 $ 3,476
Intercompany payable........................................ 10,864 11,563
Stockholders' equity........................................ 6,034 5,369
------- -------
Total liabilities and stockholders' equity........ $17,861 $20,408
======= =======
</TABLE>

<TABLE>
<CAPTION>
NINE MONTH PERIOD THREE MONTH PERIOD
ENDED ENDED FOR THE
MARCH 31, MARCH 31, YEAR ENDED
------------------------- ------------------------- JUNE 30,
2000 1999 2000 1999 1999
----------- ----------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales (net of
intercompany).............. $7,448 $18,984 $2,755 $8,776 $31,511
====== ======= ====== ====== =======
Net income................... $ 665 $ 1,565 $ 446 $ 823 $ 3,345
====== ======= ====== ====== =======
</TABLE>

9. INCOME TAXES

Significant components of the Company's deferred tax liabilities and assets
as of June 30, 1999 are as follows (in thousands):

<TABLE>
<S> <C>
Deferred tax assets:
Book over tax accrued liabilities......................... $ 245
Book over tax reserves for inventory and accounts
receivable............................................. 2,114
Tax over book inventory capitalization.................... 112
Net operating loss carryforward........................... 2,031
-------
Total deferred tax assets......................... 4,502
Less valuation allowance.................................... (3,700)
-------
Net deferred tax assets..................................... $ 802
=======
</TABLE>

A reconciliation of the U.S. statutory tax rate at June 30, 1999 to the
consolidated benefit from income taxes is as follows (in thousands):

<TABLE>
<S> <C>
Expected federal income tax benefit at current statutory
rates..................................................... $(3,756)
Increase in valuation allowance............................. 3,700
State income tax benefit, net of federal benefit............ (582)
Income of foreign subsidiaries taxed at different rates,
including foreign net operating loss carryforwards
utilized.................................................. (40)
Other....................................................... 82
-------
Benefit from income taxes................................... $ (596)
=======
</TABLE>

F-106
<PAGE> 182
SOONER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)

The Company has a U.S. net operating loss carryforward of $5,209,000, which
will expire in 2014 if not utilized prior to that time.

10. LONG-TERM NOTES PAYABLE

Long-term debt and notes payable consist of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
----------- --------
(UNAUDITED)
<S> <C> <C>
Revolving line of credit.................................... $25,817 $41,093
Term note payable........................................... 156 156
Senior subordinated notes payable........................... 5,273 9,772
Senior subordinated contingent note payable................. 515 2,845
Junior subordinated notes payable........................... 25,749 24,626
------- -------
57,510 78,492
Less current portion........................................ 1,156 4,156
------- -------
$56,354 $74,336
======= =======
</TABLE>

The Company has a $50,000,000 credit agreement, with priority to the senior
subordinated notes payable, senior subordinated contingent note payable and
junior subordinated notes payable. Total borrowings under the revolving line of
credit, the $5,000,000 term note payable and any letters of credit cannot exceed
$50,000,000. Aggregate letters of credit cannot exceed $5,000,000. The term note
payable requires monthly installment payments through June 30, 2000. The
revolving line of credit and letter of credit accommodations expire on July 2,
2003. The line of credit is subject to a borrowing base of eligible accounts
receivable and inventory which was approximately $40,647,000 (unaudited) at
March 31, 2000 and $44,089,000 at June 30, 1999. The credit agreement bears
interest at the First Union National prime rate (7.75% at June 30, 1999), or
adjusted Eurodollar rate as defined in the agreement plus 1.75% (no Eurodollar
loans were outstanding at June 30, 1999), depending upon whether the loans are
Prime Rate or Eurodollar Rate loans when borrowed, as defined in the agreement.
The credit agreement is secured by all of the accounts receivable, inventory and
property, plant and equipment of the Company as defined in the credit agreement
($86,729,000 (unaudited) at March 31, 2000 and $78,968,000 at June 30, 1999)
plus all common stock of the subsidiaries of the Company. The credit agreement
also requires the Company to maintain a minimum net worth and restricts the
payment of cash dividends, incurrence of additional debt or sale of property,
plant and equipment as defined in the credit agreement. A 1/4% per annum unused
commitment fee is charged monthly on the unused portion of the credit agreement
plus a $2,000 monthly service fee.

The Company had a $10,000,000 senior subordinated note payable and a
$7,500,000 senior subordinated contingent note payable as defined in the stock
purchase agreement between the former owner of Sooner Pipe & Supply Corporation
and Sooner Inc. The senior subordinated note payable was subsequently amended
and restated in the year ended June 30, 1999 into two senior subordinated notes
payable (Notes A and B) of $5,000,000 each. Principal payments on Note A are due
in five equal quarterly installments of $1,000,000 on the first day of January,
April, July and October, commencing July 1, 1999. Accrued interest is payable on
October 1, 2000. Principal payments on Note B are due in seven quarterly
installments of $500,000 less any inventory prepayment amount as defined by the
agreement on the last day of January, April, July and October commencing on
January 31, 2001. The final payment on Note B is due July 31, 2002 in an amount
equal to the outstanding principal balance of the note plus accrued interest.
The senior subordinated notes payable have priority over the senior subordinated
contingent note payable and junior subordinated notes payable and bear interest
at a rate dependent upon the existence of outstanding borrowings on the credit
agreement discussed above. If a balance is outstanding on the credit agreement,
the senior subordinated note payable

F-107
<PAGE> 183
SOONER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)

bears interest at that rate plus .25% (8% at June 30, 1999). If no amounts are
outstanding against the credit agreement, the notes bear interest at an annual
rate of 7.7%. However, the interest rate shall never be lower than that of any
indebtedness incurred in conjunction with a designated transaction as defined by
the agreement. In the event of default, the notes will bear an interest rate of
9.7%.

The senior subordinated contingent note payable bears interest at a
non-compounding rate of 6% per annum and has priority over the junior
subordinated notes payable. Principal and interest payments on the senior
subordinated contingent note payable are limited to 37.5% of the quarterly
proceeds from the previous calendar quarter's sale of any portion of $20,000,000
of designated inventory, as defined in the stock purchase agreement. The other
62.5% of the quarterly proceeds from the sale of the designated inventory must
be applied as payment against the senior subordinated Note B as identified
above. The lender has the option, with ten days written notice, of demanding
final payment of $750,000 on the senior subordinated contingent note payable
when the value of the designated inventory has been reduced to $2,000,000. The
value of the designated inventory at June 30, 1999 was $7,586,000.

At formation, the Company entered into two junior subordinated notes
payable with its stockholders for $17,184,000. During May and June 1999, the
Company entered into additional junior subordinated notes payable to its
stockholders for $6,250,000. All junior subordinated notes bear an interest rate
of 6% compounded annually and are due on June 30, 2008. A $169,000 junior
subordinated note payable and 170 shares of $.01 par value common stock were
issued in exchange for a portion of the scheduled July 1, 1999 payment on the
senior subordinated Note A described above and represents a noncash transaction.
The unpaid interest on the senior and junior subordinated notes payable is
capitalized as additional principal in a noncash transaction until due. The
amount capitalized for the three and nine months ended March 31, 2000 were
$543,000 (unaudited) and $1,676,000 (unaudited), respectively and for the year
ended June 30, 1999 was $2,065,000.

In connection with the issuance of the junior subordinated notes payable,
the Company also issued 26,104 warrants to purchase common stock, par value $.01
per share. The warrants are exercisable at $1,000 per share and expire between
July 2, 2000 and June 30, 2008.

At June 30, 1999, annual maturities of long-term notes payable were as
follows (in thousands):

<TABLE>
<S> <C>
2000...................................................... $ 4,156
2001...................................................... 4,846
2002...................................................... 2,000
2003...................................................... 42,864
2004...................................................... --
Thereafter................................................ 24,626
-------
$78,492
=======
</TABLE>

11. FINANCIAL INSTRUMENTS

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

Cash and cash equivalents: The carrying amounts reported in the balance
sheet approximate fair value due to the short-term maturity of these
instruments.

Noncurrent accounts and notes receivable: As the maturity of these
receivables is less than three years, fair value is estimated to
approximate historically recorded amounts.

F-108
<PAGE> 184
SOONER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)

Investments at cost: Fair value is estimated to approximate historically
recorded amounts as the investments are primarily in a non-publicly traded
company for which it is not practicable to estimate its fair value.

Long-term notes payable: The fair value of the Company's long-term notes
payable is based on the prices of similar securities with similar terms and
credit ratings. The carrying amount and fair value of the Company's
long-term notes payable is $78,492,000 and $79,197,000, respectively, at
June 30, 1999.

12. LEGAL CONTINGENCIES

The Company is involved in various claims and legal actions arising in the
ordinary course of business. Management does not believe that the ultimate
resolution of these matters will have a material impact on the Company's
financial position, results of operations or cash flows.

13. SEGMENT DISCLOSURES

The Company evaluates performance based upon segment income (loss) before
income taxes which includes revenues from external and internal customers,
operating costs and expenses, and depreciation and amortization. The accounting
policies of the segments are the same as those described in Note 1. Intersegment
sales are generally accounted for at the cost of the selling segment.

The Company's geographical reporting segments are based on product shipment
origin for revenues and physical location for other items. Other includes
operations in Venezuela and Canada. Long-lived assets are comprised of property,
plant and equipment, goodwill and other intangible and non-current assets (in
thousands).

<TABLE>
<CAPTION>
AS OF AND FOR THE NINE MONTHS ENDED MARCH 31, 2000
--------------------------------------------------------------
U.S. NIGERIA U.K. OTHER ELIMINATIONS TOTAL
-------- ------- ------ ------ ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
External....................... $167,394 $ 4,095 $2,973 $ 380 $ -- $174,842
Intersegment................... 2,565 -- -- -- (2,565) --
-------- ------- ------ ------ -------- --------
Total.................. 169,959 4,095 2,973 380 (2,565) 174,842
Income (loss) before income
taxes.......................... 12,560 463 188 30 (7,744) 5,497
Total assets..................... 155,880 12,377 3,282 2,201 (65,364) 108,376
Long-lived assets................ 75,077 3,002 208 -- (54,501) 23,786
Additions to long-lived assets... 620 32 32 -- -- 684
Depreciation and amortization.... 1,082 -- -- -- -- 1,082
</TABLE>

<TABLE>
<CAPTION>
AS OF AND FOR THE NINE MONTHS ENDED MARCH 31, 1999
--------------------------------------------------------------
U.S. NIGERIA U.K. OTHER ELIMINATIONS TOTAL
-------- ------- ------ ------ ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
External....................... $ 57,622 $ 8,320 $8,504 $3,237 $ -- $ 77,683
Intersegment................... 2,911 -- -- -- (2,911) --
-------- ------- ------ ------ -------- --------
Total.................. 60,533 8,320 8,504 3,237 (2,911) 77,683
Income (loss) before income
taxes.......................... (11,034) 1,686 483 (19) 381 (8,503)
Total assets..................... 108,276 12,267 6,121 3,207 (54,972) 74,899
Long-lived assets................ 49,293 3,223 110 1 (40,201) 12,426
Additions to long-lived assets... 193 3 26 -- -- 222
Depreciation and amortization.... 605 -- -- 2 -- 607
</TABLE>

F-109
<PAGE> 185
SOONER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)

<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2000
--------------------------------------------------------------
U.S. NIGERIA U.K. OTHER ELIMINATIONS TOTAL
-------- ------- ------ ------ ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
External....................... $ 67,671 $ 2,249 $ 507 $ (1) $ -- $ 70,426
Intersegment................... 1,048 -- -- -- (1,048) --
-------- ------- ------ ------ -------- --------
Total.................. 68,719 2,249 507 (1) (1,048) 70,426
Income (loss) before income
taxes.......................... 7,394 408 22 17 (4,483) 3,358
Total assets..................... 155,880 12,377 3,282 2,201 (65,364) 108,376
Long-lived assets................ 75,077 3,002 208 -- (54,501) 23,786
Additions to long-lived assets... 372 7 -- -- -- 379
Depreciation and amortization.... 365 -- -- -- -- 365
</TABLE>

<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
--------------------------------------------------------------
U.S. NIGERIA U.K. OTHER ELIMINATIONS TOTAL
-------- ------- ------ ------ ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
External....................... $ 14,979 $ 4,707 $2,589 $1,480 $ -- $ 23,755
Intersegment................... 744 -- -- -- (744) --
-------- ------- ------ ------ -------- --------
Total.................. 15,723 4,707 2,589 1,480 (744) 23,755
Income (loss) before income
taxes.......................... (2,087) 1,029 83 75 (276) (1,176)
Total assets..................... 108,276 12,267 6,121 3,207 (54,972) 74,899
Long-lived assets................ 49,293 3,223 110 1 (40,201) 12,426
Additions to long-lived assets... 65 -- -- -- -- 65
Depreciation and amortization.... 94 -- -- -- -- 94
</TABLE>

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED JUNE 30, 1999
--------------------------------------------------------------
U.S. NIGERIA U.K. OTHER ELIMINATIONS TOTAL
------- ------- ------- ------ ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
External....................... $77,256 $14,726 $12,134 $4,652 $ -- $108,768
Intersegment................... 3,421 -- -- -- (3,421) --
------- ------- ------- ------ -------- --------
Total.................. 80,677 14,726 12,134 4,652 (3,421) 108,768
Income (loss) before income
taxes.......................... (20,647) 2,894 645 (21) 6,082 (11,047)
Total assets..................... 142,063 10,844 5,554 4,010 (58,320) 104,151
Long-lived assets................ 67,819 2,152 29 -- (46,757) 23,243
Additions to long-lived assets... 26,632 742 45 20 -- 27,439
Depreciation and amortization.... 851 185 16 3 -- 1,055
</TABLE>

F-110
<PAGE> 186
SOONER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT -- (CONTINUED)

The Company had net sales greater then 10% of total net sales to the
following customers by segment:

<TABLE>
<CAPTION>
NINE MONTH PERIOD THREE MONTH PERIOD FOR THE
ENDED ENDED YEAR
------------------------- ------------------------- ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, JUNE 30,
2000 1999 2000 1999 1999
----------- ----------- ----------- ----------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Nigeria -- Mobil Producing.... -- 8,178 -- 4,707 $14,723
U.K. -- Mobil North Sea....... -- 8,400 -- 2,560 12,134
U.S. -- ARCO Alaska, Inc. ... -- 11,290 -- 2,729 11,925
U.S. -- UNOCAL............... -- 8,511 -- 2,780 11,072
</TABLE>

14. IMPACT OF YEAR 2000 (UNAUDITED)

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Various computer and
other equipment may also have embedded Year 2000 issues.

The Company has completed an assessment and has modified or replaced
portions of its software so that it's computer systems will function properly
with respect to dates in the year 2000 and thereafter. In addition,
communications are ongoing with third parties with which the Company's systems
interface or rely on to determine the extent to which those companies are
addressing their Year 2000 compliance. The Year 2000 project costs have not been
significant.

Based upon what the Company has done to date related to Year 2000
compliance, it does not believe the Year 2000 issue, including any failure by
third parties to mitigate their own Year 2000 issues, has or will materially
impact the Company's financial position or results of operations. However, due
to the general uncertainty inherent in the Year 2000 issue, the Company cannot
ensure its ability to timely and cost effectively resolve problems associated
with the Year 2000 issue that may affect its operations and business, or expose
it to third party liability.

F-111
<PAGE> 187

REPORT OF INDEPENDENT AUDITORS

To the Stockholder of
Sooner Pipe & Supply Corporation

We have audited the accompanying consolidated balance sheet of Sooner Pipe
& Supply Corporation as of July 2, 1998 and the related consolidated statements
of operations, stockholder's equity, and cash flows for the period from August
1, 1997 to July 2, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit 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 financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of Sooner Pipe &
Supply Corporation at July 2, 1998 and the consolidated results of its
operations and its cash flows for the period from August 1, 1997 to July 2,
1998, in conformity with accounting principles generally accepted in the United
States.

ERNST & YOUNG LLP

Tulsa, Oklahoma
August 14, 1998

F-112
<PAGE> 188

SOONER PIPE & SUPPLY CORPORATION

CONSOLIDATED BALANCE SHEET
JULY 2, 1998
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 459
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$250.................................................. 19,809
Affiliates............................................. 57
Accrued interest receivable............................... 3
Deferred income taxes..................................... 76
Income tax receivable..................................... 491
Inventories............................................... 27,695
Prepaid expenses and other................................ 1,599
--------
Total current assets.............................. 50,189
Property, plant and equipment............................... 17,664
Accumulated depreciation and amortization................... (12,297)
--------
5,367
Investments and other assets:
Accounts and notes receivable............................. 3,037
Deposits and other assets................................. 502
--------
3,539
--------
Total assets...................................... $ 59,095
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable -- trade................................. $ 23,215
Accrued liabilities....................................... 1,343
Accrued taxes other than income taxes..................... 1,589
--------
Total current liabilities......................... 26,147
Stockholder's equity:
Common stock, $100 par value; 10,000 shares authorized,
7,000 shares issued.................................... 700
Capital in excess of par value............................ 1
Retained earnings......................................... 34,017
Treasury stock............................................ (1,770)
--------
Total stockholder's equity........................ 32,948
--------
Total liabilities and stockholder's equity........ $ 59,095
========
</TABLE>

See accompanying notes.

F-113
<PAGE> 189

SOONER PIPE & SUPPLY CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM AUGUST 1, 1997 TO JULY 2, 1998
(IN THOUSANDS, EXCEPT SHARES AND EARNINGS PER SHARE)

<TABLE>
<S> <C>
Net sales................................................... $185,098
Operating costs and expenses:
Cost of sales............................................. 161,774
Terminal operating expenses............................... 3,725
Selling, general and administrative expenses.............. 21,828
--------
187,327
--------
Operating loss.............................................. (2,229)
Other income (expense):
Investment income......................................... 863
Interest expense.......................................... (52)
Other..................................................... 498
--------
1,309
--------
Loss before income taxes.................................... (920)
Provision for income taxes:
Current................................................... (334)
Deferred.................................................. 338
--------
4
--------
Net loss.................................................... $ (924)
========
Loss per common share:
Basic and diluted......................................... $(132.00)
Weighted average shares outstanding....................... 7,000
</TABLE>

See accompanying notes.

F-114
<PAGE> 190

SOONER PIPE & SUPPLY CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD AUGUST 1, 1997 THROUGH JULY 2, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
CAPITAL IN
EXCESS OF
COMMON PAR RETAINED TRANSLATION TREASURY
STOCK VALUE EARNINGS ADJUSTMENT STOCK TOTAL
------ ---------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 1, 1997....... $700 $1 $ 54,024 $ 14 $(1,770) $ 52,969
Net loss........................ -- -- (924) -- -- (924)
Dividends Declared.............. -- -- (19,083) -- -- (19,083)
Currency Translation
Adjustment.................... -- -- -- (14) -- (14)
---- -- -------- ---- ------- --------
Balance at July 2, 1998......... $700 $1 $ 34,017 $ -- $(1,770) $ 32,948
==== == ======== ==== ======= ========
</TABLE>

See accompanying notes.

F-115
<PAGE> 191

SOONER PIPE & SUPPLY CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM AUGUST 1, 1997 TO JULY 2, 1998
(IN THOUSANDS)

<TABLE>
<S> <C>
Operating activities
Net loss from operations.................................. $ (924)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 889
Gain on disposition of assets.......................... (53)
Changes in assets and liabilities:
Accounts and accrued interest receivable............. 1,660
Inventories.......................................... (10,461)
Accounts payable and accrued liabilities............. 1,717
Income taxes......................................... 328
Other................................................ (1,246)
--------
Net cash used in operating activities............. (8,090)
Investing activities
Purchases of investment securities........................ (13,507)
Maturities and sales of investment securities............. 8,512
Purchases of property, plant and equipment................ (2,180)
Proceeds from sale of assets.............................. 1,019
Other..................................................... (2,280)
--------
Net cash used in investing activities............. (8,436)
Financing activities
Dividends paid............................................ (5,000)
--------
Net decrease in cash and cash equivalents................. (21,526)
Cash and cash equivalents at beginning of period.......... 21,985
--------
Cash and cash equivalents at end of period................ $ 459
========
Supplemental disclosure of cash flows:
Income taxes refunded, net................................ $ 618
Noncash dividends declared and paid....................... $ 14,083
</TABLE>

See accompanying notes.

F-116
<PAGE> 192

SOONER PIPE & SUPPLY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

The Company is a distributor of oilfield tubular and general products. The
Company's operations are located primarily in the United States ("U.S."). In
addition, the Company has sales and marketing subsidiaries located in the United
Kingdom ("U.K."), Canada, Nigeria and Barbados. The majority of sales are to
large fully-integrated and independent oil companies headquartered in the U.S.
The Company generally does not require collateral on trade receivables from
these companies.

Consolidation

The accompanying financial statements include Sooner Pipe & Supply
Corporation and all subsidiaries (collectively the "Company"). All significant
intercompany balances and transactions, including any profits in inventory, are
eliminated in consolidation.

Use of Estimates

Cash Equivalents

The Company includes as cash equivalents all certificates of deposit and
U.S. treasury securities with original maturities of 90 days or less.

Inventories

Inventories are priced at lower of cost or market. Inventories held in the
U.S. are valued primarily at LIFO and those held outside the U.S. are valued
primarily at FIFO.

Property, Plant and Equipment

Depreciation is computed on the straight-line and declining balance methods
at varying rates by asset classification. Assets of foreign subsidiaries are
depreciated on straight-line and accelerated methods over their estimated useful
lives. Amortization of leasehold improvements is computed on the straight-line
method over the life of the lease.

Impairment of Long-Lived Assets

The Company evaluates the long-lived assets of identifiable business
activities for impairment when events or changes in circumstances indicate, in
management's judgment, that the carrying value of such assets may not be
recoverable. The determination of whether an impairment has occurred is based on
management's estimate of undiscounted future cash flows attributable to the
assets as compared to the carrying value of the assets. If an impairment has
occurred, the amount of the impairment recognized is determined by estimating
the fair value for the assets and recording a provision for loss if the carrying
value is greater than fair value.

F-117
<PAGE> 193
SOONER PIPE & SUPPLY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Foreign Currency Remeasurement

The Company has foreign subsidiaries operating in the United Kingdom,
Canada, Nigeria and Barbados. For its foreign subsidiaries, the functional
currency is considered to be the U.S. dollar, and therefore inventory, fixed
assets and stockholder's equity are translated into U.S. dollars at historical
exchange rates while other balance sheet accounts are remeasured into U.S.
dollars at exchange rates in effect at year-end. The resulting remeasurement
adjustments are included in determining net income or loss. Income and expense
accounts are remeasured at average rates of exchange during the period, except
depreciation, which is translated at historical exchange rates. The foreign
currency transaction adjustments are also included in determining net income or
loss. Included in loss before income taxes is net foreign exchange remeasurement
and transaction expense of $186,000 for the period from August 1, 1997 to July
2, 1998.

Income Taxes

The Company is included in its ultimate parent's consolidated U.S. federal
income tax return. Provision for income taxes is computed at existing statutory
rates without regard to separate return limitations.

The Company provides deferred income taxes on temporary differences between
the financial statement and tax bases of assets and liabilities. No deferred
U.S. income taxes have been provided on the undistributed earnings
(approximately $833,000 at July 2, 1998) of the foreign subsidiaries since it is
the Company's intention to indefinitely reinvest those earnings to finance the
continued growth and development of those entities. Under present tax law, such
an amount would be subject to U.S. income taxes at prevailing tax rates less
foreign tax credits if remitted to the parent company.

Revenue Recognition

Net sales are recognized when oilfield tubular products are shipped or, if
terminal services are also provided by the Company, when risk of ownership has
passed to a customer. Terminal fees of $3,395,000 were recognized in the period
from August 1, 1997 to July 2, 1998 on a monthly basis as earned.

Investment Securities

Management determines the appropriate classification of government debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Debt securities are designated as held-to-maturity as the
Company has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in investment income. Interest on securities classified
as held-to-maturity is also included in investment income. All of the Company's
investment securities were paid to the Company's parent as a noncash dividend in
the period from August 1, 1997 to July 2, 1998.

Earnings Per Share

Basic earnings per share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is determined on the assumption that outstanding stock
options have been converted using the treasury stock method. For purposes of
computing earnings per share in a loss year, common stock equivalents are
excluded from the computation of weighted average common shares outstanding
because their effect is antidilutive.

F-118
<PAGE> 194
SOONER PIPE & SUPPLY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

New Accounting Standards

In March 1998, Statement of Position ("SOP") No. 98-1, "Accounting for the
Costs of Software Developed or Obtained for Internal Use," was issued. This SOP
requires capitalization of certain costs incurred in connection with an
internal-use software project. Adoption of this SOP is not required until fiscal
2000. Neither the Company's financial position, results of operations nor cash
flows are expected to be significantly impacted by this SOP.

In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-Up
Activities". The SOP is effective for fiscal years beginning after December 15,
1998, and requires start-up costs capitalized prior to that date be written off
and any future start-up costs to be expensed as incurred. The Company has
determined that the impact of the adoption of the SOP will not materially impact
the Company's financial position, results of operations or cash flows.

In June 1998, Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued which
requires that all derivative instruments be recorded as assets or liabilities on
the balance sheet at fair value. SFAS No. 133 is not required to be adopted by
the Company until July 1, 2000. The Company's financial position, results of
operations or cash flows are not expected to be significantly impacted by this
SFAS when adopted.

2. INVENTORIES

Inventories consist of the following at July 2, 1998 (in thousands):

<TABLE>
<S> <C>
Tubular goods............................................... $26,429
Oilfield supplies........................................... 1,266
-------
$27,695
=======
</TABLE>

During the period from August 1, 1997 to July 2, 1998, LIFO inventory
quantities were reduced resulting in a partial liquidation of the LIFO bases,
the effect of which decreased the net loss, after income taxes, by $1,912,000.
Inventories stated under the LIFO method were $14,996,000 at July 2, 1998. If
the FIFO method had been used, inventories would have been $45,405,000 higher
than reported at July 2, 1998.

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, and related estimated useful lives
consists of the following at July 2, 1998:

<TABLE>
<CAPTION>
COST ESTIMATED
(IN THOUSANDS) USEFUL LIVES
-------------- ------------
<S> <C> <C>
Land........................................................ $ 1,295
Land improvements........................................... 2,096 20
Buildings................................................... 3,729 9-40
Machinery and equipment..................................... 6,088 6-10
Office equipment............................................ 2,764 6-10
Automotive equipment........................................ 1,286 5
Improvements to leased premises............................. 406 9
-------
$17,664
=======
</TABLE>

F-119
<PAGE> 195
SOONER PIPE & SUPPLY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

4. COMMITMENTS

The Company leases office space, store buildings and land for periods to
2002. The related rent expense for the period from August 1, 1997 to July 2,
1998 totaled $1,328,000. At July 2, 1998 minimum annual rentals under
noncancellable leases are as follows (in thousands):

5. PROFIT SHARING PLANS

6. FOREIGN OPERATIONS

The following is a summary of the financial data of the foreign
subsidiaries as of July 2, 1998 and for the period from August 1, 1997 to July
2, 1998 (in thousands):

<TABLE>
<S> <C>
Current assets.............................................. $19,136
Intercompany receivable..................................... 612
Property, plant and equipment, net of accumulated
depreciation.............................................. 529
Other assets................................................ 3,197
-------
Total assets...................................... $23,474
=======
Current liabilities......................................... $ 3,262
Intercompany payable........................................ 18,252
Stockholder's equity........................................ 1,960
-------
Total liabilities and stockholder's equity........ $23,474
=======
Sales (net of intercompany)................................. $22,927
=======
Net income.................................................. $ 1,101
=======
</TABLE>

7. FOREIGN CURRENCY HEDGES

The Company enters into forward exchange contracts to hedge certain foreign
currency transactions for periods consistent with the terms of the underlying
transactions. The Company does not engage in speculation, nor does the Company
hedge non-transaction related balance sheet exposure. While the forward
contracts affect the Company's results of operations, they do so only in
connection with the underlying transactions. As a result, they do not subject
the Company to risk from exchange rate movements because gains and losses on
these contracts offset losses and gains on the transactions being hedged. At
July 2, 1998, the Company had $1,700,000 of foreign exchange contracts
outstanding in Canadian dollars.

F-120
<PAGE> 196
SOONER PIPE & SUPPLY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

The forward exchange contracts generally have maturities that do not exceed
six months. Based on July 2, 1998 exchange rates and the various maturity dates
of the foreign currency forward contracts, the Company estimates the aggregate
contract value to be representative of the fair value of these items at July 2,
1998.

8. INCOME TAXES

The components of the provision (benefit) for income taxes for the period
from August 1, 1997 to July 2, 1998 is as follows (in thousands):

<TABLE>
<S> <C>
Current:
Federal................................................... $(691)
State..................................................... 3
Foreign................................................... 354
-----
(334)
Deferred -- federal......................................... 338
-----
Total provision............................................. $ 4
=====
</TABLE>

Significant components of the Company's deferred tax liabilities and assets
at July 2, 1998 consist of the following (in thousands):

<TABLE>
<S> <C>
Deferred tax assets:
Book over tax accrued liabilities......................... $71
Other..................................................... 5
---
Total deferred tax assets......................... $76
===
</TABLE>

A reconciliation of the U.S. Statutory tax rate at July 2, 1998 to the
consolidated provision for income taxes is as follows (in thousands):

<TABLE>
<S> <C>
Expected federal income tax benefit at current statutory
rates..................................................... $(313)
State income tax provision, net of federal impact........... 1
Nondeductible expenses...................................... 155
Income of foreign subsidiaries, taxed at different rates.... 234
Other....................................................... (73)
-----
Provision for income taxes.................................. $ 4
=====
</TABLE>

9. FINANCIAL INSTRUMENTS

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

Cash and cash equivalents: The carrying amounts reported in the balance
sheet approximate fair value due to the short-term maturity of these
instruments.

Noncurrent accounts and notes receivable: As the maturity of these
receivables is less than three years, fair value is estimated to
approximate historically recorded amounts.

F-121
<PAGE> 197
SOONER PIPE & SUPPLY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

10. LEGAL CONTINGENCIES

11. SEGMENT DISCLOSURES

The Company's geographical reporting segments are based on product shipment
origin for revenues and physical location for other items. Long-lived assets are
comprised of property, plant and equipment and other non-current assets.

<TABLE>
<CAPTION>
U.S. NIGERIA U.K. CANADA BARBADOS ELIMINATIONS TOTAL
-------- ------- ------ ------- -------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
External................... $162,172 $ 2,766 $3,323 $16,837 $ -- $ -- $185,098
Intersegment............... 9,409 -- -- -- -- (9,409) --
-------- ------- ------ ------- ------- -------- --------
Total.............. 171,581 2,766 3,323 16,837 -- (9,409) 185,098
Income (loss) before income
taxes...................... (1,679) 297 (95) 677 778 (898) (920)
Total assets............... 60,101 14,783 6,257 2,365 68 (24,479) 59,095
Long-lived assets............ 10,910 3,578 93 21 -- (5,696) 8,906
Additions to long-lived
assets..................... 1,504 2,934 7 15 -- -- 4,460
Depreciation and
amortization............... 708 164 12 5 -- -- 889
</TABLE>

During fiscal 1999, the Company had net sales greater than 10% of total
sales to the following customers by segment (in thousands):

<TABLE>
<S> <C>
U.S. -- G.B. Tubulars, Inc. ................................ $23,990
U.S. -- UNOCAL.............................................. 23,480
</TABLE>

12. IMPACT OF YEAR 2000 (UNAUDITED)

The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Various computer and
other equipment may also have embedded Year 2000 issues.

The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The Company estimates
that approximately 91% of the required conversions are complete, and based on
the current plan of action, the Company does not believe the Year 2000 project
costs will be significant.

Management estimates that the Year 2000 project will be completed no later
than December, 1998, which is prior to any anticipated impact on its operating
systems.

The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such

F-122
<PAGE> 198
SOONER PIPE & SUPPLY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.

In addition, communications are ongoing with other companies with which the
Company's systems interface or rely on to determine the extent to which those
companies are addressing their Year 2000 compliance.

13. SUBSEQUENT EVENTS

As a result of the sale of the Company on July 2, 1998, the Company has
entered into or guaranteed various debt agreements to finance the acquisition of
the Company by the new owners ("Sooner Inc."). The Company entered into a
$50,000,000 credit agreement which is guaranteed by Sooner Inc. and includes a
$40,000,000 revolving line of credit (a borrowing of $35,000,000 occurred on
July 2, 1998), a $5,000,000 term note payable in monthly installments with final
maturity on June 30, 2000, and $5,000,000 in letter of credit accommodations.
Interest is payable at the First Union National Bank Prime Rate, or adjusted
Eurodollar rate as defined in the agreement plus 1.75%, per annum depending on
whether the revolver loans are Prime Rate or Eurodollar Rate loans when
borrowed, as defined in the agreement. The revolving line of credit and letter
of credit accommodations expire on July 2, 2003.

The Company also guaranteed and assumed a $10,000,000 senior subordinated
note and a $7,500,000 senior subordinated contingent note, as defined in the
sale agreement, between Sooner Inc. and the Company's parent. The $10,000,000
note bears interest at the same rate as the $50,000,000 credit agreement noted
above and matures on July 2, 1999. The $7,500,000 note bears interest at 6% per
annum and is payable in quarterly installments based on 37.5% of the quarterly
proceeds from the sale of $20,000,000 of designated inventory as identified in
the sale agreement. The other 62.5% of the quarterly proceeds from the sale of
such inventory must be applied as payment against the $5,000,000 term note and
the $10,000,000 note as identified above.

The Company also sold certain inventory and real estate to a related party
of Sooner Inc. on July 31, 1998 for $3,804,000. This amount is contingent upon
settlement of the valuation of the inventory sold. A payment of $1,850,000 will
be made on August 31, 1998 with the remainder being represented by a $1,954,000
subordinated 6% note due to the Company in annual installments of $977,000, plus
interest, with final maturity on July 31, 2000.

F-123
<PAGE> 199

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

Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
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.

OIL STATES INTERNATIONAL, INC.

COMMON STOCK

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

PROSPECTUS

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

MERRILL LYNCH & CO.

CREDIT SUISSE FIRST BOSTON

SIMMONS & COMPANY
INTERNATIONAL

, 2000

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 200

[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
<PAGE> 201

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 10, 2000
PROSPECTUS

OIL STATES INTERNATIONAL, INC.
COMMON STOCK
----------------------

This is Oil States International, Inc.'s initial public offering. Oil
States International is selling shares, and Oil States International
stockholders are selling shares. The international managers are
offering shares outside the U.S. and Canada, and the U.S. underwriters
are offering shares in the U.S. and Canada.

INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.

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

The international managers may also purchase up to an additional
shares from Oil States International at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. The U.S. underwriters may similarly purchase up to an
additional shares from Oil States International.

The shares will be ready for delivery on or about , 2000.

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

MERRILL LYNCH INTERNATIONAL CREDIT SUISSE FIRST BOSTON

SIMMONS & COMPANY
INTERNATIONAL

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

The date of this prospectus is , 2000.
<PAGE> 202

UNDERWRITING

We intend to offer the shares outside the U.S. and Canada through the
international managers and in the U.S. and Canada through the U.S. underwriters.
Merrill Lynch International, Credit Suisse First Boston (Europe) Limited and
Simmons & Company International are acting as lead managers for the
international managers named below. Subject to the terms and conditions
described in an international purchase agreement among us, the selling
stockholders and the international managers, and concurrently with the sale of
shares to the U.S. underwriters, we and the selling stockholders have
agreed to sell to the international managers, and each of the international
managers has agreed to purchase from us and the selling stockholders, the number
of shares listed opposite its name below.

<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGER OF SHARES
--------------------- ---------
<S> <C>
Merrill Lynch International.................................
Credit Suisse First Boston (Europe) Limited.................
Simmons & Company International.............................
--------
Total..........................................
========
</TABLE>

We and the selling stockholders have also entered into a U.S. purchase
agreement with the U.S. underwriters for sale of the shares in the U.S. and
Canada for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit
Suisse First Boston Corporation and Simmons & Company International are acting
as U.S. representatives. Subject to the terms and conditions in the U.S.
purchase agreement, and concurrently with the sale of shares to the
international managers under the international purchase agreement, we and the
selling stockholders have agreed to sell to the U.S. underwriters, and the U.S.
underwriters severally have agreed to purchase from us and the selling
stockholders, an aggregate of shares in the offering. The initial public
offering price per share and the total underwriting discount per share are
identical under the international purchase agreement and the U.S. purchase
agreement.

The international managers and the U.S. underwriters have agreed to
purchase all of the shares sold under the international and U.S. purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
U.S. and international purchase agreements provide that the purchase commitments
of the nondefaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
international managers and the U.S. underwriters are conditioned on one another.

We, some of our subsidiaries and the selling stockholders have agreed to
indemnify the international managers and the U.S. underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the international managers and U.S. underwriters may be required to
make in respect of those liabilities.

COMMISSIONS AND DISCOUNTS

The lead managers have advised us and the selling stockholders that the
international managers propose initially to offer the shares to the public at
the initial public offering price listed on the cover page of this prospectus
and to dealers at that price less a concession not in excess of $ per share.
The international managers may allow, and the dealers may reallow, a discount
not in excess of $ per share to other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
<PAGE> 203

The following table shows the public offering price, underwriting discount
and proceeds before expenses to Oil States and the selling stockholders. The
information assumes either no exercise or full exercise by the international
managers and the U.S. underwriters of their over-allotment options.

The expenses of the offering, not including the underwriting discount, are
estimated at $ and are payable by Oil States.

OVER-ALLOTMENT OPTION

We have granted an option to the international managers to purchase up to
additional shares at the public offering price less the underwriting
discount. The international managers may exercise this option for 30 days from
the date of this prospectus solely to cover any over-allotments. If the
international managers exercise this option, each international manager will be
obligated, subject to conditions contained in the purchase agreements, to
purchase a number of additional shares proportionate to that international
manager's initial amount reflected in the above table.

We have also granted an option to the U.S. underwriters, exercisable for 30
days from the date of this prospectus, to purchase up to additional shares
to cover any over-allotments on terms similar to those granted to the
international managers.

INTERSYNDICATE AGREEMENT

The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the international managers and the U.S.
underwriters may sell shares to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the intersyndicate agreement, the international managers and any dealer to
whom they sell shares will not offer to sell or sell shares to U.S. or Canadian
persons or to persons they believe intend to resell to U.S. or Canadian persons,
except in the case of transactions under the intersyndicate agreement.
Similarly, the U.S. underwriters and any dealer to whom they sell shares will
not offer to sell or sell shares to persons who are non-U.S. or non-Canadian
persons or to persons they believe intend to resell to persons who are non-U.S.
or non-Canadian persons, except in the case of transactions under the
intersyndicate agreement.

NO SALES OF SIMILAR SECURITIES

- offer, pledge, sell, or contract to sell any common stock,

- sell any option or contract to purchase any common stock,

- purchase any option or contract to sell any common stock,

- grant any option, right or warrant for the sale of any common stock,
other than under our 2000 Equity Participation Plan,

- lend or otherwise dispose of or transfer any common stock,

- request or demand that we file a registration statement related to the
common stock, or
<PAGE> 204

NEW YORK STOCK EXCHANGE LISTING

- the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us,

- our financial information,

- the history of, and the prospects for, our company and the industry in
which we compete,

- an assessment of our management, our past and present operations, and the
prospects for, and timing of, our future revenues,

- the present state of our development, and

- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.

An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.

The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

The U.S. representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representatives purchase
shares in the open market to reduce the underwriter's short position or to
stabilize the price of such shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares. The imposition of a penalty bid may also affect the price of the shares
in that it discourages resales of those shares.
<PAGE> 205

UK SELLING RESTRICTIONS

Each international manager has agreed that:

- it has not offered or sold and will not offer or sell any shares of
common stock to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which do not constitute an
offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995;

- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and

- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended by the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997 or
is a person to whom such document may otherwise lawfully be issued or
passed on.

NO PUBLIC OFFERING OUTSIDE THE UNITED STATES

No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to our company, the selling stockholders or shares of
our common stock in any jurisdiction where action for that purpose is required.
Accordingly, the shares of our common stock may not be offered or sold, directly
or indirectly, and neither this prospectus nor any other offering material or
advertisements in connection with the shares of common stock may be distributed
or published, in or from any country or jurisdiction except in compliance with
any applicable rules and regulations of any such country or jurisdiction.

Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price on the cover page of this
prospectus.

OTHER RELATIONSHIPS

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

OIL STATES INTERNATIONAL, INC.

COMMON STOCK

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

PROSPECTUS

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

MERRILL LYNCH INTERNATIONAL

CREDIT SUISSE FIRST BOSTON

SIMMONS & COMPANY
INTERNATIONAL

, 2000

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 207

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fees.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $53,130
NASD filing fee............................................. 20,625
NYSE listing fee............................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses (including legal fees)........... *
Printing expenses........................................... *
Transfer Agent fees......................................... *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>

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

* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise), against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.

The Company's certificate of incorporation provides that indemnification
shall be to the fullest extent permitted by the DGCL for all current or former
directors or officers of the Company.

As permitted by the DGCL, the certificate of incorporation provides that
directors of the Company shall have no personal liability to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except (1) for any breach of the director's duty of loyalty to the Company or
its

II-1
<PAGE> 208

stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (3) under Section 174 of the
DGCL or (4) for any transaction from which a director derived an improper
personal benefit.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The Company has not sold any securities, registered or otherwise, within
the past three years, except as set forth below. The information set forth below
reflects the Company's 50 for 1 stock split effected on January 8, 1998.

In August 1997, the Company issued a total of 1,212,150 shares of its
Common Stock to its shareholders of record as of July 29, 1997 who subscribed to
the Company's offering of Common Stock as of such date to such shareholders (the
"August 1997 Subscription"). The consideration paid by such shareholders was
$6.60 per share.

In connection with the August 1997 Subscription, the Company issued a total
of 40,000 shares of Common Stock to certain former stockholders of HydroTech
Systems, Inc. in satisfaction of pre-emptive rights held by such persons. The
consideration paid by such persons was $6.60 per share.

In December 1997, the Company issued a total of 832,500 shares of Common
Stock to its shareholders of record as of November 11, 1997 who subscribed to
the Company's offering of Common Stock as of such date to such shareholders (the
"December 1997 Subscription"). The consideration paid by such shareholders was
$10.00 per share.

In connection with the December 1997 Subscription, the Company issued a
total of 10,250 shares of Common Stock to certain former stockholders of
HydroTech Systems, Inc. in satisfaction of pre-emptive rights held by such
persons. The consideration paid by such persons was $10.00 per share.

Also in December 1997, the Company issued a total of 133,000 shares of
Common Stock to the shareholders of Gregory Rig Service and Sales, Inc.
("Gregory") in partial consideration for the purchase of all of the issued and
outstanding shares of common stock of Gregory.

Also in December 1997, the Company issued 1,000,000 shares of Common Stock
to the Huntfield Trust Limited ("Huntfield") in consideration for the purchase
of 400 shares of the common stock of a wholly owned subsidiary of the Company,
which shares were issued to Huntfield as partial consideration for the purchase
of assets from Huntfield in May 1996.

Also in December 1997, the Company issued a total of 500,000 shares of
Common Stock to SCF-III, L.P., Chase Manhattan Investment Holdings, L.P. and
Bovaird Supply Company in consideration for outstanding options held by such
entities to purchase the common stock of CE Franklin Ltd., a former majority
owned subsidiary of the Company (the "CE Franklin Transaction").

In January 1998, the Company issued 15,000 shares of Common Stock to James
Cauble ("Cauble") pursuant to the terms of an employment agreement for $10.00
per share. In so doing, the Company relied on the provisions of Rule 701
promulgated under the Securities Act in claiming exemption for the offering,
sale and delivery of such securities from registration under the Securities Act.
Pursuant to the terms of an employment severance agreement with Cauble, the
Company repurchased such shares in November 1999.

Also in January 1998, the Company issued 44,900 shares of Common Stock to
Huntfield pursuant to the December 1997 Subscription for $10.00 per share.

In February 1998, the Company issued a total of 424,158 shares of Common
Stock to its shareholders of record as of January 23, 1998 who subscribed to the
Company's offering of Common Stock as of such date to such shareholders (the
"February 1998 Subscription"). The consideration paid by such shareholders was
$10.00 per share.

Also in February 1998, the Company issued a total of 100,000 shares of
Common Stock to the shareholders of Subsea Ventures, Inc. ("Subsea Ventures") in
partial consideration for the purchase of all of the issued and outstanding
shares of common stock of Subsea Ventures.
II-2
<PAGE> 209

In March 1998, the Company issued a total of 648,670 shares of Common Stock
to its shareholders of record as of March 12, 1998 who subscribed to the
Company's offering of Common Stock as of such date to such shareholders (the
"March 1998 Subscription"). The consideration paid by such shareholders was
$10.00 per share.

In April 1998, the Company issued a total of 75,000 shares of Common Stock
to the shareholders of Klaper (UK) Limited ("Klaper") in partial consideration
for the purchase of all of the issued and outstanding shares of common stock of
Klaper.

In May 1998, the Company issued 775,000 shares of Common Stock to Chase
Manhattan Investment Holdings, L.P. in exchange for 775,000 shares of the
Company's Class B common stock, which were issued in 1995. In so doing, the
Company relied on the exchange of existing securities provisions of Section
3(a)(9) of the Securities Act in claiming exemption for the offering, sale and
delivery of such securities from registration under the Securities Act.

From August 1998 to November 1998, the Company issued a total of 141,767
shares of Common Stock to certain employees upon the exercise of employment
stock options held by such employees. The exercise price of such options was
$2.094 per share. In so doing, the Company relied on the provisions of Rule 701
promulgated under the Securities Act in claiming exemption for the offering,
sale and delivery of such securities from registration under the Securities Act.

In February 2000, the Company issued a total of 4,291,312 shares of Common
Stock to its shareholders who purchased shares in the February 1998 Subscription
and the March 1998 Subscription, pursuant to certain performance conditions
specified in such subscriptions which were not attained. No additional
consideration was received for such shares.

Also in February 2000, the Company issued 500,000 shares of Common Stock to
SCF-III, L.P., Chase Manhattan Investment Holdings, L.P. and Bovaird Supply
Company in accordance with certain performance conditions specified in the CE
Franklin Transaction which were not attained. No additional consideration was
received for such shares.

Also in February 2000, the Company issued 45 shares of Common Stock to Oran
Tarlton ("Tarlton") pursuant to an offering to shareholders who did not purchase
Common Stock in the February 1998 Subscription. The consideration paid by
Tarlton was $2.46 per share.

Also in February 2000, the Company issued 70 shares of Common Stock to
Tarlton pursuant to an offering to shareholders who did not purchase Common
Stock in the March 1998 Subscription. The consideration paid by Tarlton was
$2.44 per share.

Except as specifically stated otherwise in the preceding paragraphs, in
offering, selling and issuing the securities described above, the Company relied
on, among other things, the private placement provisions of Section 4(2) of the
Securities Act.

In connection with the closing of the Combination, the Company will issue a
total of 7,600,830, 7,606,110 and 5,933,703 shares of Common Stock (after giving
further effect to the proposed three for one reverse stock split to be effected
in connection with the Combination and the offering) to the former shareholders
of HWC Energy Services, Inc. ("HWC") and Sooner Inc. ("Sooner") and the former
shareholders of PTI Group Inc. ("PTI") resident in the United States in
consideration for all of the issued and outstanding shares of common stock of
HWC and Sooner and the common shares of PTI held by such shareholders,
respectively. In so doing, the Company will rely on the private placement
provisions of Rule 506 of Regulation D promulgated under the Securities Act in
claiming exemption for the offering, sale and delivery of such securities from
registration under the Securities Act.

II-3
<PAGE> 210

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1* -- Amended and Restated Certificate of Incorporation
3.2* -- Amended and Restated Bylaws
4.1* -- Form of common stock certificate
4.2 -- Form of Amended and Restated Registration Rights
Agreement
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Combination Agreement dated as of July 31, 2000 by and
among Oil States International, Inc., HWC Energy
Services, Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger
Sub-Sooner, Inc. and PTI Group Inc.
10.2 -- Form of Plan of Arrangement of PTI Group Inc.
10.3 -- Form of Support Agreement between Oil States
International, Inc. and PTI Holdco
10.4 -- Form of Voting and Exchange Trust Agreement by and among
Oil States International, Inc., PTI Holdco and Montreal
Trust Company of Canada
10.5* -- 2000 Equity Participation Plan
10.6* -- Deferred Compensation Plan
10.7* -- Annual Incentive Compensation Plan
10.8* -- Executive Agreement dated as of , 2000 between
Oil States International, Inc. and Douglas E. Swanson
10.9* -- Executive Agreement dated as of , 2000 between
Oil States International, Inc., and Cindy B. Taylor
10.10* -- Form of Executive Agreement between Oil States
International, Inc. and all other Named Executive
Officers
21.1* -- List of subsidiaries of the Company
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Arthur Andersen LLP (Houston, Texas)
23.3 -- Consent of Arthur Andersen LLP (Dallas, Texas)
23.4 -- Consent of PricewaterhouseCoopers LLP
23.5* -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
23.6 -- Consent of Mark G. Papa to serve as director
23.7 -- Consent of Gary L. Rosenthal to serve as director
24.1 -- Powers of Attorney for Directors (included in signature
page)
27.1 -- Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

II-4
<PAGE> 211

(b) Financial Statement Schedule

All schedules are omitted because the information is contained in the
Financial Statements or Notes.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the undersigned registrant pursuant to the foregoing
provisions described in Item 14 or otherwise, the undersigned registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the undersigned registrant of expenses incurred or paid by a director,
officer or controlling person of the undersigned registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the undersigned registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.

(b) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.

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

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

II-3
<PAGE> 212

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 9th day of August, 2000.

Oil States International, Inc.

By: /s/ DOUGLAS E. SWANSON
----------------------------------
Name: Douglas E. Swanson
Title: President and Chief Executive
Officer

The undersigned directors and officers of Oil States International, Inc.
(the "Company") do hereby constitute and appoint Douglas E. Swanson and Cindy B.
Taylor, and each of them, with full power of substitution, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our name and
behalf in our capacities as directors and officers, and to execute any and all
instruments for us and in our names in the capacities indicated below which such
person may deem necessary or advisable to enable the Company to comply with the
Securities Act of 1933, as amended (the "Act") and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
registration statement, including specifically, but not limited to, power and
authority to sign for us, or any of us, in the capacities indicated below and
any and all amendments (including pre-effective and post-effective amendments or
any other registration statement filed pursuant to the provision of Rule 462(b)
under the Act) hereto; and we do hereby ratify and confirm all that such person
or persons shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ DOUGLAS E. SWANSON President, Chief Executive August 9, 2000
----------------------------------------------------- Officer and Director
Douglas E. Swanson (Principal Executive
Officer)

/s/ CINDY B. TAYLOR Chief Financial Officer August 9, 2000
----------------------------------------------------- (Principal Financial
Cindy B. Taylor Officer)

/s/ ROBERT W. HAMPTON Vice President -- Finance and August 9, 2000
----------------------------------------------------- Accounting (Principal
Robert W. Hampton Accounting Officer)

/s/ L.E. SIMMONS Chairman of the Board August 9, 2000
-----------------------------------------------------
L.E. Simmons

/s/ DAVID ALTHOFF Director August 9, 2000
-----------------------------------------------------
David Althoff

Director
-----------------------------------------------------
Russell Hawkins
</TABLE>

II-4
<PAGE> 213

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

Director
-----------------------------------------------------
Dennis Proctor

/s/ ANDREW L. WAITE Director August 9, 2000
-----------------------------------------------------
Andrew L. Waite

/s/ STEPHEN A. WELLS Director August 9, 2000
-----------------------------------------------------
Stephen A. Wells

/s/ JAMES D. WOODS Director August 9, 2000
-----------------------------------------------------
James D. Woods
</TABLE>

II-5
<PAGE> 214

INDEX TO EXHIBITS

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

* To be filed by amendment.