UNIVERSAL COMPRESSION HOLDINGS INC, S-1, 2000-04-05

UNIVERSAL COMPRESSION HOLDINGS INC
S-1, 2000-04-05
EQUIPMENT RENTAL & LEASING, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 5, 2000

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
UNIVERSAL COMPRESSION HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
---------------------

<TABLE>
<S> <C> <C>
DELAWARE 7359 13-3989167
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

4440 BRITTMOORE ROAD
HOUSTON, TEXAS 77041
(713) 335-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
STEPHEN A. SNIDER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UNIVERSAL COMPRESSION HOLDINGS, INC.
4440 BRITTMOORE ROAD
HOUSTON, TEXAS 77041
(713) 335-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies to:

<TABLE>
<S> <C> <C>
VALERIE L. BANNER CHRISTINE B. LAFOLLETTE T. MARK KELLY
SENIOR VICE PRESIDENT AND KING & SPALDING VINSON & ELKINS L.L.P.
GENERAL COUNSEL 1100 LOUISIANA, SUITE 3300 1001 FANNIN, SUITE 2300
UNIVERSAL COMPRESSION HOLDINGS, HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002-6760
INC. (713) 751-3239 (713) 758-4592
4440 BRITTMOORE ROAD FAX: (713) 751-3290 FAX: (713) 615-5531
HOUSTON, TEXAS 77041
(713) 335-7241
FAX: (713) 466-6720
</TABLE>

---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.

If any 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, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, 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, 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 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 MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share...................... $172,500,000 $45,540
- ----------------------------------------------------------------------------------------------------------
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</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act.
---------------------
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be
used in connection with an underwritten offering in the United States and
Canada, and one to be used in a concurrent international offering, of common
stock, par value $0.01 per share, of Universal Compression Holdings, Inc. 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 exact forms in which they are to
be used after effectiveness will be filed with the Securities and Exchange
Commission pursuant to Rule 424(b) under the Securities Act.
<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 APRIL 5, 2000

PROSPECTUS

[UNIVERSAL COMPRESSION LOGO]

COMMON STOCK
----------------------

This is Universal Compression Holdings, Inc.'s initial public offering.
Universal is 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. We intend to apply to
list our common stock on the New York Stock Exchange under the trading symbol
"UCO."

INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
----------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Universal..................... $ $
</TABLE>

The U.S. underwriters may also purchase up to an additional
shares from Universal 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 Universal.

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. SALOMON SMITH BARNEY
DEUTSCHE BANC ALEX. BROWN
FIRST UNION SECURITIES, INC.
WASSERSTEIN PERELLA SECURITIES, INC.
----------------------
The date of this prospectus is , 2000.
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 7
Special Note Regarding Forward-Looking Statements........... 13
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Dilution.................................................... 15
Capitalization.............................................. 16
Pro Forma Consolidated Financial Information................ 17
Selected Historical Consolidated Financial and Operating
Data...................................................... 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 31
Management.................................................. 43
Principal Stockholders...................................... 51
Related Transactions........................................ 53
Description of Capital Stock................................ 55
Anti-Takeover Provisions of Our Restated Certificate of
Incorporation and Bylaws.................................. 56
Shares Eligible for Future Sale............................. 60
Material United States Federal Tax Consequences to Non-U.S.
Holders of Common Stock................................... 61
Underwriting................................................ 64
Legal Matters............................................... 67
Experts..................................................... 67
Where You Can Find More Information......................... 68
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> 5

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including our financial data
and related notes. The terms "Universal," "our company" and "we," when used in
this prospectus, refer to Universal Compression Holdings, Inc. and its
subsidiaries, including Universal Compression, Inc., as a combined entity,
except where it is made clear that such term means only the parent company, and
includes its predecessors, including Tidewater Compression Service, Inc. Unless
we indicate otherwise, the information contained in this prospectus assumes that
the underwriters' over-allotment option is not exercised and reflects a
-for-1 common stock split and the conversion of all of our outstanding
preferred stock and non-voting common stock into common stock in connection with
this offering.

OUR COMPANY

OVERVIEW

We are a leading natural gas compression services company, providing a full
range of rental, sales, operations, maintenance and fabrication services and
products to the natural gas industry. These services and products are essential
to the production, transportation and processing of natural gas by producers,
gatherers and pipeline companies. We acquired our business in 1998 through the
acquisition of Tidewater Compression Service, Inc., which has been in the gas
compression services business since 1954. Today, we own one of the largest gas
compressor fleets in the United States and have a growing presence in key
international markets.

Since 1998, we have increased our capital investments in our business and,
as a result, have experienced significant growth. The horsepower of our fleet
has increased 27%, from 492,000 as of March 31, 1998 to 627,000 as of December
31, 1999, with our average capacity per unit increasing from 179 horsepower to
232 horsepower. Our revenues have increased 25%, from $108.8 million for the
twelve-month period ended March 31, 1998 to $136.0 million for the twelve-month
period ended December 31, 1999. For the twelve-month period ended December 31,
1999, approximately $93.9 million of our revenues was derived from our
compression rental services, with the remaining approximately $42.1 million
being derived from fabrication and other compression activities.

We distinguish ourselves by providing comprehensive, high quality natural
gas compression services to over 650 customers that are involved in natural gas
production, transportation and processing -- from the wellhead through the
gathering system and through the pipeline. Due to our low cost, centralized
operating structure, we are able to offer these high quality services to our
customers at competitive prices while maintaining high margins. By outsourcing
their compression needs, we believe our customers generally are able to increase
their revenues by producing a higher volume of natural gas through decreased
compressor downtime. In addition, outsourcing allows our customers to reduce
their operating and maintenance costs and capital investments and meet their
changing compression needs more efficiently. Our full service orientation
enhances customer loyalty, enables us to attract new customers and allows us to
grow our business with our existing customers.

We operate in every significant natural gas producing region in the United
States through our 30 compression sales and service locations in 23 states. We
have a highly standardized compressor fleet, with approximately 467,000
horsepower operating under contract in the United States as of December 31,
1999. Our revenues from domestic compression rental services were $81.6 million
for the twelve months ended December 31, 1999. We believe that our size and
broad scope result in economies of scale since the addition of incremental
compressors in a region does not require us to proportionately increase our
investment in field personnel and administrative support.

1
<PAGE> 6

awarded significant compression service projects in Mexico and Argentina which
will increase the amount of horsepower we operate internationally by at least
25% within the next year. We are also pursuing opportunities in other strategic
international areas, including other South American countries and Southeast
Asia. Our revenues from international operations have increased by 84% in the
last year, from $6.7 million for the twelve-month period ended December 31, 1998
to $12.3 million for the twelve-month period ended December 31, 1999.

We believe that the capital raised in this offering and the financing and
lease arrangements which we will enter into concurrently with this offering will
allow us to continue to expand our compressor fleet and take advantage of the
significant growth opportunities in our industry, both domestically and
internationally.

INDUSTRY CONDITIONS

At the end of 1998, there was approximately 14.8 million horsepower of
field compression equipment in the United States, of which approximately 4.1
million horsepower was outsourced. From 1993 to 1998, the compression rental
industry grew at a rate of approximately 15.4% per year in the United States in
terms of horsepower, with the percentage of outsourced horsepower increasing
from 13% to 28%. Our industry also has recently begun to grow rapidly
internationally.

The demand for compression services is linked to natural gas consumption
rather than exploration activities. As a result, our financial performance
historically has been less affected by the short-term market cycles and volatile
commodity prices of oil and natural gas than companies operating in other
sectors of the energy industry. Demand for compression services has increased
over time, even during periods of volatile natural gas prices. We believe the
natural gas compression services industry continues to have significant growth
potential due to the following factors:

- natural gas consumption is increasing in the United States at an average
rate of 2.0% to 2.5% per year and internationally at an average rate of
3.0% to 4.0% per year,

- the aging of producing natural gas fields in the United States will
require more compression to continue producing the same volume of natural
gas,

- natural gas producers are increasingly outsourcing gas compression
requirements to reduce overall cost of compression, improve run-time
performance, reduce capital requirements and better meet changing
compression needs,

- the production of natural gas in international markets will continue to
grow as a result of increasing demand for energy, the desire to replace
oil with natural gas as a fuel source in local markets to allow the
exportation of more oil, the recognition of natural gas as the clean air
fuel of choice and environmental laws curtailing the prior practice of
flaring gas and

- continued development of pipeline infrastructure, particularly in South
America, and increased privatization of state-owned energy producers
internationally, leading to increased outsourcing of compression.

We believe that we are well positioned to participate in a
disproportionately high share of the future growth in this industry as we are
one of the few compression service providers with sufficient fleet size and
geographic scope to meet the full service needs of customers worldwide.

OUR GROWTH STRATEGY

2
<PAGE> 7

diversifies our revenue base, resulting in increased market share, revenues and
earnings. The key elements of our strategy are described below:

- FOCUSING ON PROVIDING A COMPLETE RANGE OF HIGH QUALITY SERVICES. We will
continue to provide a complete range of high quality compression services
to meet the changing compression needs of our customers. To accomplish
this, we will continue to expand, upgrade and reconfigure our rental
fleet, work closely with our customers to find strategic solutions and
provide our operations and maintenance personnel with extensive training.

- CONTINUING A CENTRALIZED, STANDARDIZED APPROACH TO OUR BUSINESS. Our
centralized structure and automated inventory system enable us to respond
quickly and efficiently to our customers' compression requirements, which
can be identified early by our field sales and service personnel. In
addition, we have standardized our fleet, enabling us to develop
expertise in operating and maintaining our compressors, provide our
customers with consistent, high quality service, optimize our inventory
and reduce our costs.

- EXPANDING OUR OPERATIONS IN SELECT INTERNATIONAL MARKETS. We plan to
capitalize on the growing international compression market by expanding
our existing presence in Argentina, Colombia, Venezuela and Australia and
offering our services in other key markets, including Southeast Asia,
Mexico and other South American countries. We believe that our experience
in these markets and our strong reputation for the engineering and
fabrication of high specification gas and air compressors positions us to
expand our business internationally.

- EXPANDING OUR RENTAL FLEET AND CUSTOMER BASE THROUGH THE PURCHASE AND
LEASEBACK OF COMPRESSORS. We are providing an increasing number of
customers the opportunity to sell their existing compression equipment to
us in purchase and leaseback transactions. These transactions enable a
customer to outsource its compression operations and reallocate capital
to its core business activities while typically enjoying improved
operational performance. Through purchase and leaseback transactions, we
are able to expand our rental fleet while promoting our operations and
maintenance services to new customers and strengthening our relationships
with existing customers.

- PURSUING INDUSTRY CONSOLIDATION OPPORTUNITIES. Since 1993, five
acquisitions have been completed, and we recently signed a definitive
agreement to acquire an additional company. We intend to continue to
pursue acquisitions of complementary businesses to expand our fleet and
our customer base. We believe that continuing industry consolidation will
present us with opportunities to acquire attractive compression service
companies and assets in the future.

Our principal executive offices are located at 4440 Brittmoore Road,
Houston, Texas 77041 and our telephone number at that address is (713) 335-7000.
Our website is located at www.universalcompression.com. Information contained on
our website is not a part of this prospectus.

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

3
<PAGE> 8

THE OFFERING

Common stock offered by
Universal:
U.S. offering.................. shares
International offering......... shares
Total.................. shares

Shares outstanding after the
offering......................... shares

Use of proceeds.................. We estimate that our net proceeds from this
offering without exercise of the
over-allotment option will be approximately
$139.4 million. We intend to use these net
proceeds and the net proceeds of our
concurrent operating lease facility:

- to repay all outstanding indebtedness
under our existing credit facility and
international debt arrangements and
redeem our 11 3/8% senior discount notes
and

- for general corporate purposes, which may
include redemption of some of our 9 7/8%
senior discount notes.

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

Proposed NYSE symbol............. "UCO."

The number of shares outstanding after the offering excludes
shares that may be issued upon the exercise of options at an average exercise
price of $ per share. This number assumes that the underwriters'
over-allotment option is not exercised. If the over-allotment option is
exercised in full, we will issue and sell an additional shares.

4
<PAGE> 9

SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables present summary historical and pro forma consolidated
financial and operating data for Universal and for Tidewater Compression
Service, Inc., the predecessor of Universal that was acquired on February 20,
1998, for the periods and dates indicated. The results for the nine months ended
December 31, 1999 are not necessarily indicative of the results for the full
year. The pro forma financial and operating data for Universal are derived from
the condensed consolidated pro forma financial data included elsewhere in this
prospectus. The pro forma income statement and other financial and operating
data give effect to the offering and the concurrent operating lease facility as
though each occurred on April 1, 1999. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The pro forma balance sheet data give effect to the offering and the
concurrent operating lease facility as though each occurred on December 31,
1999. The pro forma selected financial and operating data for the year ended
March 31, 1998 were derived from the pro forma consolidated financial
statements, give effect to the acquisition of Tidewater Compression as if it had
occurred on April 1, 1997 and have been prepared under the purchase method of
accounting. Under this method of accounting, based on an allocation of the
purchase price of Universal, its identifiable assets and liabilities have been
adjusted to their estimated fair values. The pro forma income statement and
other financial and operating data presented below are not necessarily
indicative of the financial results that would have occurred had the offering
and the concurrent operating lease facility occurred on April 1, 1999, or
indicative of our financial position had the offering and lease facility
occurred on December 31, 1999, and should not be viewed as indicative of
operations or financial position in future periods. See "Selected Historical
Consolidated Financial and Operating Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for more information
regarding the historical, the pro forma consolidated and the other financial and
operating data.

<TABLE>
<CAPTION>
TIDEWATER COMPRESSION
(PREDECESSOR COMPANY) UNIVERSAL
------------------------------------ --------------------------------------
PERIOD FROM PERIOD FROM
APRIL 1, DECEMBER 12,
1997 1997 PRO FORMA
YEARS ENDED MARCH 31, THROUGH THROUGH YEAR ENDED YEAR ENDED
--------------------- FEBRUARY 20, MARCH 31, MARCH 31, MARCH 31,
1996 1997 1998 1998 1998 1999
--------- --------- ------------ ------------ ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................ $110,464 $113,886 $ 95,686 $ 13,119 $ 108,805 $129,498
Gross margin(1)................. 51,685 48,332 47,752 6,891 58,443 61,887
Selling, general and
administrative expenses...... 10,508 11,004 8,669 1,305 13,037 16,863
Depreciation and amortization... 26,997 26,163 23,310 1,560 19,307 19,314
Operating income(2)............. 14,180 11,165 15,773 4,026 26,099 25,710
Operating lease facility........ -- -- -- -- -- --
Interest expense, net........... 3,706 -- -- 3,203 32,474 29,313
Income tax expense (benefit).... 3,745 4,724 6,271 409 (1,888) (1,031)
Net income (loss)............... 5,972 7,842 10,759 430 (3,214) (2,361)
OTHER FINANCIAL DATA:
EBITDA(3)....................... $ 40,420 $ 38,729 $ 40,340 $ 5,930 $ 49,742 $ 48,431
Capital Expenditures:
Expansion.................... $ (2,423) $(12,464) $(11,902) $ (1,820) $ (13,722) $(63,408)
Maintenance.................. (3,971) (4,056) (5,698) (218) (9,716) (7,626)
Other........................ 5,124 7,684 3,803 (351,107) (347,304) 8,038
Cash flows from (used in):
Operating activities......... $ 50,810 $ 41,923 $ 33,491 $ (1,005) $ 22,076 $ 22,793
Investing activities......... (1,270) (8,836) (13,797) (353,145) (370,742) (62,996)
Financing activities......... 49,506 (33,121) (17,870) 356,532 352,872 40,748
OTHER DATA:
Total number of rental units
(end of period).............. 2,787 2,764 2,780 2,749 2,749 2,701
Aggregate horsepower
(end of period).............. 473,282 473,973 495,653 492,417 492,417 544,600
Average horsepower per unit
(end of period).............. 170 171 178 179 179 202
Average horsepower
utilization(4)............... 73.9% 77.4% 81.8% 83.9% 82.0% 80.3%
</TABLE>

5
<PAGE> 10

<TABLE>
<CAPTION>
UNIVERSAL
----------------------------------------------
PRO FORMA
AS ADJUSTED(5)
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................................ $ 95,980 $102,525 $102,525
Gross margin(1)..................................... 46,846 50,631 50,631
Selling, general and administrative expenses........ 12,186 12,658 10,258
Depreciation and amortization....................... 14,255 18,679 16,552
Operating income(2)................................. 20,405 19,294 23,821
Operating lease facility............................ -- -- 4,516
Interest expense, net............................... 21,415 25,278 13,668
Income tax expense (benefit)........................ (377) (1,801) 2,615
Net income (loss)................................... (618) (4,092) 3,113
OTHER FINANCIAL DATA:
EBITDA(3)........................................... $ 37,078 $ 40,474 $ 40,474
Capital Expenditures:
Expansion...................................... $(37,605) $(34,305) $(22,346)
Maintenance.................................... (4,613) (11,420) (11,420)
Other.......................................... 6,454 (1,134) (1,134)
Cash flows from (used in):
Operating activities............................. $ 17,305 $ 33,116 $ 35,846
Investing activities............................. (35,764) (46,859) (34,900)
Financing activities............................. 16,687 13,443 3,465
OTHER DATA:
Total number of rental units (end of period)........ 2,931 2,709 2,709
Aggregate horsepower (end of period)................ 548,367 627,451 627,451
Average horsepower per unit (end of period)......... 187 232 232
Average horsepower utilization(4)................... 80.7% 79.8% 79.8%
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------
ACTUAL AS ADJUSTED(5)
----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 13,679 $ 16,485
Total assets.............................................. 462,664 406,279
Long-term debt............................................ 369,275 181,547
Stockholders' equity...................................... 76,656 210,805
</TABLE>

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

(1) Gross margin is defined as total revenue less (i) rental expense, (ii) cost
of sales (exclusive of depreciation and amortization), (iii) gain on asset
sales and (iv) interest income.

(2) Operating income is defined as income before income taxes less gain on asset
sales and interest income plus interest expense and operating lease
facility.

(3) EBITDA is defined as net income plus income taxes, interest expense, leasing
expense, management fees, depreciation and amortization. EBITDA represents a
measure upon which management assesses financial performance, and certain
covenants in our borrowing arrangements will be tied to similar measures.
EBITDA is not a measure of financial performance under generally accepted
accounting principles and should not be considered an alternative to
operating income or net income as an indicator of our operating performance
or to net cash provided by operating activities as a measure of our
liquidity. Additionally, the EBITDA computation used herein may not be
comparable to other similarly titled measures of other companies.

(4) Reflects an average horsepower utilization over each period based upon our
total average fleet horsepower.

(5) As adjusted to reflect the application of the net proceeds to us from this
offering and our concurrent operating lease facility.

6
<PAGE> 11

RISK FACTORS

An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information
contained in this prospectus before deciding to invest in our common stock. The
risks described below are not the only ones facing our company. Additional risks
not presently known to us or which we currently consider immaterial may also
adversely affect our company. If any of the following risks actually occur, our
business, financial condition and operating results could be materially
adversely affected. In such case, the trading price of our common stock could
decline, and you could lose part or all of your investment.

RISKS INHERENT IN OUR INDUSTRY

WE ARE SIGNIFICANTLY DEPENDENT ON DEMAND FOR NATURAL GAS, AND A PROLONGED,
SUBSTANTIAL REDUCTION IN THIS DEMAND COULD ADVERSELY AFFECT THE DEMAND FOR OUR
SERVICES AND PRODUCTS.

Gas compression operations are materially dependent upon the demand for
natural gas. Demand may be affected by, among other factors, natural gas prices,
demand for energy and availability of alternative energy sources. Any prolonged,
substantial reduction in the demand for natural gas would, in all likelihood,
depress the level of production, exploration and development activity and result
in a decline in the demand for our compression services and products. This could
materially adversely affect our results of operations.

MOST OF OUR COMPRESSOR LEASES HAVE SHORT INITIAL TERMS, AND WE WOULD NOT RECOUP
THE COSTS OF OUR INVESTMENT IF WE WERE UNABLE TO RE-LEASE THE COMPRESSORS.

In most cases, the initial terms of our leases, unless extended by the
lessee, are too short to enable us to recoup the average cost of acquiring or
fabricating compressors under currently prevailing lease rates. As a result, we
assume substantial risk of not recovering our entire investment in the equipment
we acquire or fabricate. Although we historically have been successful in
re-leasing our compressors, there can be no assurance that we will continue to
be able to do so or that a substantial number of our rental customers will not
terminate their leases at approximately the same time. This would have an
adverse effect on our revenues.

WE INTEND TO MAKE SUBSTANTIAL CAPITAL INVESTMENTS TO IMPLEMENT OUR GROWTH
STRATEGY.

We anticipate that we will continue to make substantial capital investments
to expand our compressor rental fleet. For the nine months ended December 31,
1999, we invested approximately $46.9 million in capital investments, and we
estimate that our capital investments for the quarter ended March 31, 2000
totaled approximately $11.0 million. Historically, we have financed these
investments through internally generated funds, debt offerings and our credit
facility and, to a lesser extent, lease financings. In addition to the operating
lease facility that we are entering into concurrently with this offering as
discussed in "Capitalization," we intend to utilize leasing transactions in the
future. These significant capital investments require cash that we could
otherwise apply to other business needs. However, if we do not incur these
expenditures while our competitors make substantial fleet investments, our
market share may decline and our business may be adversely affected. In
addition, if we are unable to generate sufficient cash internally or obtain
alternative sources of capital, it could materially adversely affect our growth.

OUR BUSINESS SUBJECTS US TO POTENTIAL LIABILITIES WHICH MAY NOT BE COVERED BY
INSURANCE.

Natural gas service operations are subject to inherent risks, such as
equipment defects, malfunction and failures and natural disasters which can
result in uncontrollable flows of gas or well fluids, fires and explosions.
These risks could expose us to substantial liability for personal injury,
wrongful death, property damage, pollution and other environmental damages.
Although we have obtained insurance against many of these risks, there can be no
assurance that our insurance will be adequate to cover our liabilities. Further,
there can be no assurance that insurance will be generally available in the
future or, if available, that premiums will be commercially justifiable. If we
were to incur substantial liability and such damages were not covered by
insurance or were in excess of policy limits, or if we were to incur liability
at a time

7
<PAGE> 12

when we are not able to obtain liability insurance, our business, results of
operations and financial condition could be materially adversely affected.

WE ARE SUBJECT TO SUBSTANTIAL ENVIRONMENTAL REGULATION, AND CHANGES IN THESE
REGULATIONS COULD INCREASE OUR COSTS OR LIABILITIES.

We are subject to stringent and complex federal, state and local laws and
regulatory standards, including regulations regarding the discharge of materials
into the environment, emission controls and other environmental protection
concerns. Environmental laws and regulations may, in certain circumstances,
impose "strict liability" for environmental contamination, rendering us liable
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. In addition, it is not
uncommon for the neighboring land owners and other third parties to file claims
for personal injury, property damage and recovery of response costs. Cleanup
costs and other damages arising as a result of environmental laws, and costs
associated with changes in existing environmental laws and regulations or the
adoption of new laws and regulations could be substantial and could have a
material adverse effect on our operations and financial condition. Moreover,
failure to comply with these environmental laws and regulations may result in
the imposition of administrative, civil and criminal penalties.

We currently are engaged in remediation and monitoring activities with
respect to some of our properties. We believe that former owners and operators
of some of these properties, including Tidewater Inc., are responsible under
environmental laws and contractual agreements to pay for or perform some of
these activities, or to indemnify us for some of our remedial costs. There can
be no assurance that these other entities will fulfill their legal or
contractual obligations, and their failure to do so could result in material
costs to us.

We routinely deal with natural gas, oil and other petroleum products. As a
result of our engineered products and overhaul and field operations, we
generate, manage and dispose of or otherwise recycle hazardous wastes and
substances, such as solvents, thinner, waste paint, waste oil, washdown wastes
and sandblast material. Although it is our policy to utilize generally accepted
operating and disposal practices in accordance with applicable environmental
laws and regulations, hydrocarbons or other wastes may have been disposed or
released on, under or from properties owned, leased, or operated by us or on or
under other locations where such wastes have been taken for disposal. These
properties and the wastes disposed on them may be subject to investigatory,
remedial and monitoring requirements under federal, state and local
environmental laws.

We believe that our operations are in substantial compliance with
applicable environmental laws and regulations. Nevertheless, the modification or
interpretation of existing federal, state and local environmental laws or
regulations, the more vigorous enforcement of existing environmental laws or
regulations, or the adoption of new environmental laws or regulations may also
negatively impact oil and natural gas exploration and production companies,
which in turn could have a material adverse effect on us and other similarly
situated service companies.

WE MAY BE UNABLE TO IDENTIFY SUITABLE ACQUISITION CANDIDATES OR SUCCESSFULLY
INTEGRATE ACQUIRED COMPANIES INTO OUR BUSINESS.

In accordance with our business strategy, we intend to pursue the
acquisition of other companies, assets and product lines that either complement
or expand our existing business. We are unable to predict whether or when any
prospective candidate will become available or the likelihood of a material
acquisition being completed.

In the event we are able to identify acceptable acquisition candidates, the
acquisition of a business involves a number of potential risks, including the
diversion of management's attention to the assimilation of the operations and
personnel of the acquired business and possible short-term adverse effects on
our operating results during the integration process. In addition, we may seek
to finance any such acquisition

8
<PAGE> 13

through the issuance of new debt and/or equity securities. This could result in
dilution to our existing stockholders. Alternatively, a substantial portion of
our financial resources could be used to complete any large acquisition for
cash, which would reduce our funds available for capital investment, operations
or other activities.

WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY.

The natural gas compression service and engineered products business is
highly competitive. Our main competitors are large national and multinational
companies which have significantly greater financial resources than our company.
These competitors, like us, offer a wide range of compressors for sale or lease.
If these companies substantially increase the resources they devote to the
development and marketing of competitive products and services, we may not be
able to compete effectively.

RISKS SPECIFIC TO AN INVESTMENT IN OUR COMPANY

WE ARE HIGHLY LEVERAGED AND VULNERABLE TO INTEREST RATE INCREASES.

As of December 31, 1999, we had approximately $373.5 million in outstanding
indebtedness. Of this amount, $148.7 million bears interest at floating rates.
In addition, our financing lease transactions bear interest at floating rates.
The interest payments under our new credit facility and the lease payments under
our operating lease facility that will close concurrently with this offering
will vary based on a base rate or LIBOR, at our option, plus a variable amount
depending on our operating results. Changes in economic conditions could result
in higher interest and lease payment rates, thereby increasing our interest
expense and reducing our funds available for capital investment, operations or
other purposes. In addition, a substantial portion of our cash flow must be used
to service our debt, which may affect our ability to make acquisitions or
capital expenditures.

Substantially all of our assets will be pledged as collateral under our new
credit facility and our new operating lease facility, and our debt agreements
and new operating lease facility contain covenants that restrict our operations.
These covenants place limitations on, among other things, our ability to enter
into acquisitions and sales transactions, incur additional indebtedness and
create liens, and could hinder our flexibility and restrict our ability to take
advantage of market opportunities or respond to changing market conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

OUR INTERNATIONAL OPERATIONS SUBJECT US TO SPECIAL RISKS THAT ARE DIFFICULT TO
PREDICT, INCLUDING POLITICAL INSTABILITY, FOREIGN EXCHANGE RATE AND REPATRIATION
RISKS.

Approximately 9.0% of our revenues during the twelve months ended December
31, 1999 was derived from international operations. We intend to continue to
expand our business in Latin America and Southeast Asia and, ultimately, other
international markets, directly and through joint ventures. Our international
operations are affected by global economic and political conditions. Changes in
economic or political conditions in any of the countries in which we operate
could result in exchange rate movement, new currency or exchange controls or
other restrictions being imposed on our operations or expropriation. In
addition, the financial condition of foreign customers may not be as strong as
that of our current domestic customers.

Our operations may also be adversely affected by significant fluctuations
in the value of the U.S. dollar. Although we attempt to match costs and revenues
in terms of local currencies, we anticipate that as we continue our expansion on
a global basis, there will be many instances in which costs and revenues will
not be matched with respect to currency denomination. As a result, we anticipate
that increasing portions of our revenues, costs, assets and liabilities will be
subject to fluctuations in foreign currency valuations. While we may use foreign
currency forward contracts or other currency hedging mechanisms to minimize our
exposure to currency fluctuation, there can be no assurance that any hedges will
be implemented, or if implemented, will achieve the desired effect. We may
experience economic loss

9
<PAGE> 14

and a negative impact on earnings solely as a result of foreign currency
exchange rate fluctuations. Further, the markets in which we conduct business
could restrict the removal or conversion of the local or foreign currency,
resulting in our inability to hedge against these risks.

WE ARE DEPENDENT ON PARTICULAR SUPPLIERS AND ARE VULNERABLE TO PRODUCT SHORTAGES
AND PRICE INCREASES.

As a consequence of having a highly standardized fleet, some of the
components used in our products are obtained from a single source or a limited
group of suppliers. Our reliance on these suppliers involves several risks,
including price increases, inferior component quality and a potential inability
to obtain an adequate supply of required components in a timely manner. The
partial or complete loss of certain of these sources could have at least a
temporary material adverse effect on our results of operations and could damage
our customer relationships. Further, a significant increase in the price of one
or more of these components could have a material adverse effect on our results
of operations.

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

Our success depends to a significant degree upon the continued
contributions of key management, operations, engineering, sales and marketing,
customer support, finance and manufacturing personnel. We are particularly
dependent on Stephen A. Snider, our Chief Executive Officer. We do not maintain
and do not intend to obtain key man life insurance for any of our employees. We
have entered into employment agreements with Messrs. Stephen Snider, Richard
FitzGerald, Newton Schnoor and Ernie Danner, and Ms. Valerie Banner, all of whom
are members of our senior management team. The departure of any of our key
personnel could have a material adverse effect on our business, operating
results and financial condition. In addition, we believe that our success
depends on our ability to attract and retain additional qualified employees. If
we fail to recruit other skilled personnel, we could be unable to compete
effectively.

THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK AND, AS A RESULT, THE
MARKET PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY.

Prior to this offering, there has been no public market for our common
stock. We intend to apply to list our common stock on the New York Stock
Exchange. However, there can be no assurance that an active trading market for
our common stock will develop after this offering or, if developed, that it will
be sustained. The initial public offering price of our common stock will be
determined through negotiations between our management and the representatives
of the underwriters. This price may bear no relationship to the price at which
the common stock will trade after the offering. For information relating to the
factors to be considered in determining the initial public offering price, see
"Underwriting." Prices for our common stock after this offering may be
influenced by a number of factors, some of which are beyond our control. These
factors include the liquidity of the market for our common stock, investor
perceptions of our business, our company and the energy services industry and
general economic and other conditions, including those listed below under
"Special Note Regarding Forward-Looking Statements."

A SIGNIFICANT NUMBER OF SHARES OF COMMON STOCK WILL BECOME ELIGIBLE FOR SALE IN
THE FUTURE WHICH COULD DEPRESS OUR STOCK PRICE.

Sales of substantial amounts of our common stock in the public market
subsequent to this offering could adversely affect the market price of our
common stock. Upon completion of the offering, we will have shares of
common stock outstanding ( shares if the underwriters' over-allotment
option is exercised in full). Of these shares, the shares of common stock
offered by this prospectus and, if exercised in full, the shares subject to
the underwriters' over-allotment option, will be freely tradable without
restriction or further registration under the Securities Act of 1933, as amended
unless they are held by persons deemed to be our "affiliates" or acting as
"underwriters" as those terms are defined in the Securities Act. Upon completion
of this offering, shares of common stock outstanding will be eligible for
resale, including shares that will be "restricted securities" within the
meaning of Rule 144 under the Securities Act and will be eligible for resale
subject to the volume, manner of sale,
10
<PAGE> 15

holding period and other limitations of Rule 144. In addition, options to
purchase shares of our common stock will be exercisable by our
officers, directors and employees upon completion of the offering. The sale of a
substantial number of shares within a short period could cause our stock price
to decrease, or make it more difficult for us to raise funds through future
offerings of common stock. We and our executive officers and directors, and
certain other significant stockholders have agreed not to sell any shares of
common stock for a period of 180 days from the date of this prospectus without
the consent of the representatives of the underwriters.

CASTLE HARLAN HAS PRACTICAL CONTROL OVER MOST MATTERS REQUIRING APPROVAL OF OUR
STOCKHOLDERS.

Upon completion of the offering, Castle Harlan Partners III will
beneficially own approximately % ( % if the underwriters' over-allotment
option is exercised in full) of our common stock. In addition, Castle Harlan is
a party to various voting agreements with some of our significant stockholders
that give Castle Harlan voting control over an additional % of our common
stock. Further, three of our directors are affiliated with Castle Harlan, and we
have agreed to nominate two Castle Harlan affiliates for election to our board
for so long as Castle Harlan and its affiliates beneficially own at least 20% of
our outstanding stock. This significant ownership and control of our stock and
board representation gives Castle Harlan the ability to exercise substantial
influence over our policies, management and affairs and control the outcome of
corporate actions requiring stockholder approval, including the approval of
transactions involving a change in control of Universal. The interests of Castle
Harlan could conflict with the interests of our other stockholders.

WE MAY HAVE TO MAKE PAYMENTS TO TIDEWATER AND HOLDERS OF OUR SENIOR NOTES IF
CERTAIN EVENTS OCCUR.

Pursuant to the Purchase Price Adjustment Agreement entered into in
connection with the acquisition of Tidewater Compression, we may have to pay an
amount to Tidewater Inc. based on a formula if any of the following liquidity
events occurs:

- Castle Harlan sells its shares of our common stock,

- we sell all or substantially all of our assets or we or our operating
subsidiary merge with another entity or

- we enter into some types of recapitalizations of our stock.

If any of the liquidity events described above occurs and Castle Harlan
receives an amount greater than its accreted investment, defined as its initial
investment increased at a compounded rate of 6.25% each quarter, which equates
to approximately 27.4% annually, we must make a payment to Tidewater equal to
10% of the amount, if any, that Castle Harlan receives in excess of its accreted
investment. As of April 1, 2000, Castle Harlan's accreted investment was $
per share, which will continue to grow at a compounded rate of 6.25% per
quarter. As of April 1, 2000, assuming the initial public offering price per
share was applied to all of the shares owned by Castle Harlan, this amount would
have been approximately $ million in the event the provisions of the
Purchase Price Adjustment Agreement were triggered. The amount is to be paid in
the same form of consideration as received by Castle Harlan. This offering is
not a liquidity event and does not trigger a payment.

In addition to the Tidewater purchase price adjustment, in the event we
experience a change of control, the holders of our 11 3/8% senior discount notes
and our 9 7/8% senior discount notes will have the right to require that we
redeem those notes at a price equal to 101% of the accreted value, plus accrued
and unpaid interest to date.

If any such payment event occurs, we may not have available funds
sufficient to pay these obligations and, if we do have sufficient funds
available, such payment will reduce our funds available for capital investment,
operations and other purposes.

11
<PAGE> 16

WE ARE A HOLDING COMPANY AND RELY ON OUR SUBSIDIARIES FOR OPERATING INCOME.

We are a holding company and, as such, we derive all of our operating
income from our operating subsidiary and its subsidiaries. We do not have any
significant assets other than the stock of our operating subsidiary.
Consequently, we are dependent on the earnings and cash flow of our subsidiaries
to meet our obligations and pay dividends. Our subsidiaries are separate legal
entities that are not legally obligated to make funds available to us. We cannot
assure you that our subsidiaries will be able to, or be permitted to, pay to us
amounts necessary to meet our obligations or to pay dividends.

A THIRD PARTY COULD BE PREVENTED FROM ACQUIRING CONTROL OF US BECAUSE OF THE
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BYLAWS.

There are provisions in our restated certificate of incorporation and
bylaws that may make it more difficult for a third party to acquire, or attempt
to acquire, control of us, even if a change in control would result in the
purchase of your shares at a premium to the market price or would otherwise be
beneficial to you. For example, our restated certificate of incorporation
authorizes our board of directors to issue preferred stock without stockholder
approval. If our board of directors elects to issue preferred stock, it could be
more difficult for a third party to acquire us. In addition, provisions of our
restated certificate of incorporation, such as a staggered board of directors
and limitations on the removal of directors, no stockholder action by written
consent and limitations on stockholder proposals at meetings of stockholders,
could make it more difficult for a third party to acquire control of us.

Concurrently with the completion of this offering, we are implementing a
rights agreement, or "poison pill." This rights agreement contains rights that
have potential anti-takeover effects. The rights under the rights agreement may
cause substantial dilution to an acquiror that attempts to acquire us without
obtaining the consent of our board of directors or conditioning the offer on a
substantial number of rights being acquired or redeemed. Accordingly, these
rights have the potential to deter a potential acquiror from making takeover
proposals or tender offers that are not negotiated with our board of directors.
See "Anti-Takeover Provisions of Our Restated Certificate of Incorporation and
Bylaws" for a more detailed discussion. In addition, Delaware corporation law
may also discourage takeover attempts that have not been approved by our board
of directors.

WE DO NOT EXPECT TO PAY DIVIDENDS.

We have never paid cash dividends on our common stock and we do not
anticipate paying any cash dividends in the foreseeable future. In addition, our
ability to pay dividends is restricted by our existing bank credit agreement and
the indentures related to our senior notes, will be restricted under our new
credit facility and may be restricted under our new operating lease facility.

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

Investors participating in the offering will incur immediate and
substantial dilution on the basis of pro forma net tangible book value of $
per share. To the extent outstanding options to purchase our common stock are
exercised, there may be further dilution. See "Dilution."

12
<PAGE> 17

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. 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. Although we believe our expectations reflected
in these forward-looking statements are based on reasonable assumptions, no
assurance can be given that these expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements include, among other
things:

- conditions in the oil and gas industry, including the demand for natural
gas and the price of oil and natural gas,

- competition among the various providers of contract compression services
and products,

- changes in safety, health and environmental regulations pertaining to the
production and transportation of natural gas,

- changes in economic or political conditions in the international markets
in which we compete and

- introduction of competing technologies by other companies.

These statements relate to future events or our future financial performance.
These forward-looking statements may be found in the "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and other sections of this prospectus. In
some cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "expect," "plan," "intend," "anticipate," "believe,"
"estimate," "predict," "potential," or "continue," the negative of such terms or
other comparable terminology.

The forward-looking statements in this prospectus are based largely on our
expectations and are subject to a number of risks and uncertainties which may be
beyond our control. Actual results may differ materially from the anticipated or
implied results in the forward-looking statements due to the factors listed in
the "Risk Factors" section and elsewhere in this prospectus. We do not intend to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. In light of these risks and
uncertainties, we can give no assurances that the forward-looking events and
circumstances included in this prospectus will occur.

13
<PAGE> 18

USE OF PROCEEDS

Our net proceeds from the sale of the shares of common stock in this
offering, assuming a public offering price of $ per share, are estimated to
be $139.4 million, after deducting underwriting discounts and commissions and
estimated offering expenses. If the underwriters' over-allotment option is
exercised in full, our net proceeds would be approximately $160.4 million.

Concurrently with the completion of this offering, we will enter into a
$200.0 million operating lease facility, with initial proceeds expected to be
approximately $65.0 million. As of December 31, 1999, our indebtedness and
amounts to be repaid, including prepayment penalties, with the proceeds of this
offering and our concurrent operating lease facility are as follows:

<TABLE>
<CAPTION>
AMOUNT OF WEIGHTED
AMOUNT PROCEEDS TO BE AVERAGE
DESCRIPTION OUTSTANDING APPLIED INTEREST RATE MATURITY
----------- ----------- -------------- ------------- --------
<S> <C> <C> <C> <C>
Term loan.............................. $73.7 million $73.7 million 8.13% 2005
Revolving credit facility.............. 75.0 million 75.0 million 8.44% 2003
11 3/8% senior discount notes.......... 30.8 million 34.3 million 11.37% 2009
Colombian financing lease 11.1 million 11.1 million 10.45% 2004
arrangements.........................
</TABLE>

We will use the remainder of the approximately $10.4 million of the
proceeds for general corporate purposes, which may include the repurchase of
some of our 9 7/8% senior discount notes. Pending these uses and the redemption
of our 11 3/8% senior discount notes, we may invest the net proceeds temporarily
in short-term, investment-grade, interest bearing securities or guaranteed
obligations of the United States government.

Our Colombian financing lease was entered into in July 1999. The proceeds
of this financing were used for general working capital purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate declaring
or paying any cash dividends in the foreseeable future. In addition, our
existing credit agreement and the indentures related to our senior discount
notes contain restrictions on the payment of dividends on the common stock, as
will our new credit facility. Our new operating lease facility may contain
similar restrictions. Any future determination as to the declaration and payment
of dividends will be at the discretion of our board of directors and will depend
on then existing conditions, including our financial condition, results of
operations, contractual restrictions, capital requirements, business prospects
and other factors that our board of directors considers relevant.

14
<PAGE> 19

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 pro forma net tangible
book value as of , 2000 was approximately $ million, or $
per share. Pro forma net tangible book value per share represents our net
tangible book value, which is our total tangible assets less total liabilities,
divided by the total number of outstanding shares of common stock after giving
effect to the conversion of all outstanding shares of preferred stock and non-
voting common stock into common stock that will occur in connection with this
offering. After giving effect to the receipt of the net proceeds from this
offering and deducting the underwriting discounts and commissions and estimated
offering expenses, our pro forma net tangible book value as of ,
2000 would have been approximately $ million, or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors purchasing shares at the initial public offering price. The
following table illustrates the per share dilution:

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

The following table sets forth, as of , 2000, on the pro forma
basis described above, the number of shares of common stock purchased from us by
existing stockholders and by the new investors at the assumed initial public
offering price, together with the total price and average price per share paid
by each of these groups, before deducting underwriting discounts and commissions
and estimated offering expenses.

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

The data in the table above assumes no exercise of the underwriters'
over-allotment option and excludes shares of common stock issuable upon
exercise of options outstanding as of , 2000 with a weighted
exercise price of $ per share. To the extent that any of these options are
exercised, there will be further dilution to new investors.

15
<PAGE> 20

CAPITALIZATION

The following table sets forth our actual capitalization as of December 31,
1999 and our capitalization as of such date as adjusted to give effect to the
issuance of shares of our common stock in this offering and the following:

- the conversion of all shares of outstanding preferred stock and
non-voting common stock into shares of common stock in connection with
this offering,

- a -for-1 common stock split to be effected in connection with this
offering,

- the application of the estimated net proceeds of $139.4 million from this
offering to repay certain indebtedness under our term loan and revolving
credit facility, redeem our 11 3/8% senior discount notes and repay our
Colombian financing lease arrangements, as described under "Use of
Proceeds" and

- the application of the initial estimated $65.0 million of proceeds from
our concurrent operating lease facility.

You should read the following table in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Long-term debt, excluding current portion:
Term loan................................................. $ 72,938 $ --
Revolving credit facility................................. 75,000 --
9 7/8% Senior discount notes.............................. 179,456 179,456
11 3/8% Senior discount notes............................. 30,792 --
Other..................................................... 11,089 2,091
-------- --------
Total long-term debt................................... 369,275 181,547
Stockholders' equity:
Series A preferred stock, $0.01 par value, 5,000,000
shares authorized, 1,320,128 shares issued and
1,319,394 outstanding; 50,000,000 authorized and none
as adjusted............................................ 13 --
Common stock, $0.01 par value, 994,000 shares authorized,
330,032 shares issued and 329,862 shares outstanding;
200,000,000 shares authorized and shares
outstanding as adjusted................................ 3
Class A non-voting common stock, $0.01 par value, 6,000
shares authorized, 4,120 shares issued, 3,590 shares
outstanding; none as adjusted.......................... -- --
Additional paid-in capital................................ 82,698
Retained deficit.......................................... (6,023)
Treasury stock, 700 shares at cost........................ (35)
-------- --------
Total stockholders' equity............................. 76,656 210,805
-------- --------
Total capitalization.............................. $445,931 $392,352
======== ========
</TABLE>

The data in the table above excludes shares of common stock
issuable upon the exercise of options outstanding as of , 2000 with
a weighted average exercise price of $ per share.

16
<PAGE> 21

PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The pro forma consolidated balance sheet as of December 31, 1999 and the
pro forma consolidated statements of operations for the year ended March 31,
1999 and for the nine months ended December 31, 1999 have been prepared to give
effect to the common stock split, share conversion, this offering and the
concurrent operating lease transaction described in this prospectus as if they
had occurred at the balance sheet date and at the beginning of the respective
income statement periods.

The accompanying pro forma consolidated financial information should be
read in conjunction with the historical consolidated financial statements and
the notes thereto, which are included elsewhere in this prospectus. The pro
forma consolidated financial statements are provided for informational purposes
only and do not purport to represent what our financial position or results of
operations would actually have been had the common stock split, share
conversion, this offering or the concurrent operating lease transaction occurred
on such dates or to project our results of operations or financial position for
any future period.

17
<PAGE> 22

UNIVERSAL COMPRESSION HOLDINGS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS

Current assets:
Cash and equivalents..................................... $ 2,627 $ -- $ 2,627
Accounts receivable, net................................. 15,504 -- 15,504
Inventories.............................................. 10,275 -- 10,275
Deferred tax assets...................................... 426 -- 426
Other.................................................... 1,580 -- 1,580
--------- --------- ---------
Total current assets............................. 30,412 -- 30,412
Property, plant and equipment
Rental equipment(1)...................................... 335,563 (65,170) 270,393
Other.................................................... 20,144 -- 20,144
Less: accumulated depreciation(1)........................ (31,736) 3,259 (28,477)
--------- --------- ---------
Net property, plant, and equipment............... 323,971 (61,911) 262,060
Goodwill and intangibles, net of amortization.............. 97,153 -- 97,153
Other assets, net(2)....................................... 10,670 423 11,093
Long-term deferred tax asset(3)............................ 458 5,103 5,561
--------- --------- ---------
Total assets..................................... $ 462,664 $ (56,385) $ 406,279
========= ========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued liabilities................. $ 12,527 $ -- $ 12,527
Current portion of long-term debt(4)..................... 4,206 (2,806) 1,400
--------- --------- ---------
Total current liabilities........................ 16,733 (2,806) 13,927
Capital lease obligation................................... 2,091 -- 2,091
Long-term debt(4).......................................... 367,184 (187,728) 179,456
--------- --------- ---------
Total liabilities................................ 386,008 (190,534) 195,474
Total stockholders' equity(5).............................. 76,656 134,149 210,805
--------- --------- ---------
Total liabilities and stockholders' equity....... $ 462,664 $ (56,385) $ 406,279
========= ========= =========
</TABLE>

18
<PAGE> 23

UNIVERSAL COMPRESSION HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999
-----------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenues:
Rental.................................................... $85,599 $ -- $ 85,599
Sales..................................................... 43,588 -- 43,588
Other..................................................... 311 -- 311
------- -------- ---------
Total revenues.................................... 129,498 -- 129,498
------- -------- ---------
Costs and expenses
Rentals, exclusive of depreciation and amortization....... 31,010 -- 31,010
Cost of sales, exclusive of depreciation and
amortization........................................... 36,390 -- 36,390
Depreciation and amortization(6).......................... 19,314 (867) 18,447
------- -------- ---------
Operating lease facility(7)............................... -- 2,369 2,369
Selling, general and administrative(8).................... 16,863 (3,200) 13,663
Interest expenses(9)...................................... 29,313 (12,652) 16,661
------- -------- ---------
Total costs and expenses.......................... 132,890 (14,350) 118,540
Income (loss) before income taxes........................... (3,392) 14,350 10,958
Income tax expense (benefit)(10)............................ (1,031) 5,453 4,422
------- -------- ---------
Net income (loss)........................................... $(2,361) $ 8,897 $ 6,536
======= ======== =========
Earnings per share
Basic..................................................... $
=========
Diluted................................................... $
=========
</TABLE>

19
<PAGE> 24

UNIVERSAL COMPRESSION HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
-------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenues:
Rental................................................... $ 72,174 $ -- $ 72,174
Sales.................................................... 30,223 -- 30,223
Other.................................................... 128 -- 128
-------- -------- --------
Total revenue.................................... 102,525 -- 102,525
-------- -------- --------
Costs and expenses
Rentals, exclusive of depreciation and amortization...... 26,153 -- 26,153
Cost of sales, exclusive of depreciation and
amortization.......................................... 25,650 -- 25,650
Depreciation and amortization(6)......................... 18,679 (2,127) 16,552
Operating lease facility(7).............................. -- 4,516 4,516
Selling, general and administrative(11).................. 12,658 (2,400) 10,258
Interest expense(12)..................................... 25,278 (11,610) 13,668
-------- -------- --------
Total costs and expenses......................... 108,418 (11,621) 96,797
Income (loss) before income taxes.......................... (5,893) 11,621 5,728
Income tax expense (benefit)(10)........................... (1,801) 4,416 2,615
-------- -------- --------
Net income (loss).......................................... $ (4,092) $ 7,205 $ 3,113
======== ======== ========
Earnings per share
Basic.................................................... $
========
Diluted.................................................. $
========
</TABLE>

20
<PAGE> 25

UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

FOOTNOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

(1) Reflects the estimated initial funding of the sale of compression equipment
under the operating lease facility that we will enter into concurrently
with this offering. The appraised value of the compression equipment under
the operating lease facility is assumed to equal the net book value of the
equipment.
(2) Represents (a) the elimination of balances of prepaid financing costs
associated with some of the debt obligations to be redeemed with the
proceeds of this offering and the operating lease facility ($3.6 million),
(b) the recording of prepaid finance costs associated with our new
revolving credit facility ($0.7 million) and (c) the recognition of costs
associated with entering into the operating lease facility ($3.3 million).
(3) Reflects the estimated deferred income taxes related to extraordinary
expense items associated with this offering and the operating lease
facility.
(4) Redemption of debt:

<TABLE>
<CAPTION>
<S> <C>
Credit agreements......................................... $148.6 million
11 3/8% senior discount notes............................. 30.8 million
Other..................................................... 11.1 million
--------------
Total........................................... $190.5 million
</TABLE>

(5) Represents (a) the estimated net proceeds from this offering of $139.4
million, (b) the additional paid-in capital attributable to stock issued to
Castle Harlan and Sam Urcis in connection with the termination of Castle
Harlan's management fees and Mr. Urcis' consulting fees upon closing of
this offering ($3.1 million), and (c) the effect of the following items
associated with the consummation of this offering and the concurrent
operating lease facility, gross of tax, (x) the write-off of prepaid
financing costs ($3.6 million), (y) the redemption premium on the 11 3/8%
senior discount notes ($3.5 million) and (z) the recognition of $6.3
million for the termination of the Castle Harlan management fee and Mr.
Urcis' consulting fee.
(6) Reflects the elimination of depreciation expense associated with the sale
of compression equipment under the operating lease facility.
(7) Reflects the expenses associated with the operating lease facility,
including the related commitment fee.
(8) Represents elimination of Castle Harlan management fees ($3.0 million) and
Mr. Urcis' consulting fees ($0.2 million).
(9) Reflects the adjustment of interest expense related to the redemption of
certain indebtedness at the beginning of the period totaling $135.3 million
and $42.5 million of incremental borrowing during the period from the
proceeds of this offering and the operating lease facility. Also includes
the commitment fees associated with our new revolving credit facility.
(10) An effective income tax rate of 38% is assumed.
(11) Represents elimination of Castle Harlan management fees ($2.3 million) and
Mr. Urcis' consulting fees ($0.1 million).
(12) Reflects the adjustment of interest expense related to the redemption of
certain indebtedness at the beginning of the period totaling $177.8 million
and $12.7 million of incremental borrowing during the period from the
proceeds of this offering and the operating lease facility. Also includes
the commitment fees associated with our new revolving credit facility.

21
<PAGE> 26

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

The tables on the following pages present selected historical consolidated
financial and operating data for Universal and for Tidewater Compression
Service, Inc., the predecessor of Universal that was acquired on February 20,
1998, for the periods and dates indicated. The historical financial and
operating data for Universal are derived from Universal's audited consolidated
financial statements and unaudited interim financial statements included
elsewhere in this prospectus and include the impact of the Tidewater Compression
acquisition from the date of acquisition. The historical financial and operating
data for the nine months ended December 31, 1999 are derived from financial
statements that are unaudited but include all adjustments, consisting of normal
recurring adjustments, that Universal considers necessary for a fair
presentation of its financial position and results of operations for the period.
The results for the nine months ended December 31, 1999 are not necessarily
indicative of the results for the full year.

The summary historical financial and operating data for Tidewater
Compression as of and for each of the years in the three-year period ended March
31, 1997 and for the period from April 1, 1997 through February 20, 1998 and the
summary historical financial data for Universal as of and for the 39 day period
ending March 31, 1998 and for the year ended March 31, 1999 have been derived
from the respective audited financial statements and the summary historical
financial data for Universal as of and for the nine month period ending December
31, 1999 have been derived from unaudited financial statements.

You should read the following selected consolidated financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
TIDEWATER COMPRESSION
(PREDECESSOR COMPANY) UNIVERSAL
---------------------------------------------- -------------------------
PERIOD PERIOD
FROM FROM
APRIL 1, DECEMBER 12,
1997 1997 PRO-FORMA
YEARS ENDED MARCH 31, THROUGH THROUGH YEAR ENDED
------------------------------- FEBRUARY 20, MARCH 31, MARCH 31,
1995 1996 1997 1998 1998(7) 1998(8)
--------- -------- -------- ------------ ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue.................................... $ 84,682 $110,464 $113,886 $ 95,686 $ 13,119 $108,805
Gross margin(1)............................ 37,604 51,685 48,332 47,752 6,891 58,443
Selling, general and administrative
expenses................................. 8,888 10,508 11,004 8,669 1,305 13,037
Depreciation and amortization.............. 15,472 26,997 26,163 23,310 1,560 19,307
Operating income(2)........................ 13,244 14,180 11,165 15,773 4,026 26,099
Interest expense, net...................... 3,469 3,706 -- -- 3,203 32,474
Income tax expense (benefit)............... 4,648 3,745 4,724 6,271 409 (1,888)
Net income (loss).......................... 6,319 5,972 7,842 10,759 430 (3,214)
OTHER FINANCIAL DATA:
EBITDA(3).................................. $ 29,908 $ 40,420 $ 38,729 $ 40,340 $ 5,930 $ 49,742
Acquisitions(4)(5)......................... 240,000 -- -- -- 351,872 --
Capital Expenditures:
Expansion................................ $(249,505) $ (2,423) $(12,464) $(11,902) $ (1,820) $(13,722)
Maintenance.............................. (10,812) (3,971) (4,056) (5,698) (218) (9,716)
Other.................................... 3,565 5,124 7,684 3,803 (351,107) (347,304)
Cash flows from (used in):
Operating activities..................... $ 35,880 $ 50,810 $ 41,923 $ 33,491 $ (1,005) $ 22,076
Investing activities..................... (256,752) (1,270) (8,836) (13,797) (353,145) (370,742)
Financing activities..................... 220,872 49,506 (33,121) (17,870) 356,532 352,872
OTHER DATA:
Total number of rental units (end of
period).................................. 2,876 2,787 2,764 2,780 2,749 2,749
Aggregate horsepower (end of period)....... 479,740 473,282 473,973 495,653 492,417 492,417
Average horsepower per unit (end of
period).................................. 167 170 171 178 179 179
Average horsepower utilization(6).......... 82.3% 73.9% 77.4% 81.8% 83.9% 82.0%
</TABLE>

22
<PAGE> 27

<TABLE>
<CAPTION>
UNIVERSAL
----------------------------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
---------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues......................................... $129,498 $ 95,980 $102,525
Gross margin(1).................................. 61,887 46,846 50,631
Selling, general and administrative expenses..... 16,863 12,186 12,658
Depreciation and amortization.................... 19,314 14,255 18,679
Operating income(2).............................. 25,710 20,405 19,294
Interest expense, net............................ 29,313 21,415 25,278
Income tax expense (benefit)..................... (1,031) (377) (1,801)
Net income (loss)................................ (2,361) (618) (4,092)
OTHER FINANCIAL DATA:
EBITDA(3)........................................ $ 48,431 $ 37,078 $ 40,474
Acquisitions(4)(5)............................... -- -- --
Capital Expenditures:
Expansion..................................... $(63,408) $(37,605) $(34,305)
Maintenance................................... (7,626) (4,613) (11,420)
Other......................................... 8,038 6,454 (1,134)
Cash flows from (used in):
Operating activities.......................... $ 22,793 $ 17,305 $ 33,116
Investing activities.......................... (62,996) (35,764) (46,859)
Financing activities.......................... 40,748 16,687 13,443
OTHER DATA:
Total number of rental units (end of period)..... 2,701 2,931 2,709
Aggregate horsepower (end of period)............. 544,600 548,367 627,451
Average horsepower per unit (end of period)...... 202 187 232
Average horsepower utilization(6)................ 80.3% 80.7% 79.8%
</TABLE>

<TABLE>
<CAPTION>
TIDEWATER COMPRESSION
(PREDECESSOR COMPANY) UNIVERSAL
------------------------------ -----------------------------------------
AS OF MARCH 31, AS OF MARCH 31, AS OF DECEMBER 31,
------------------------------ ------------------- -------------------
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:..........
Working capital(9)......... $ 18,686 $ 16,192 $ 13,953 $ 13,882 $ 23,742 $ 24,137 $ 13,679
Total assets............... 308,339 274,312 257,090 380,226 437,991 408,538 462,664
Total debt (including
intercompany)........... 249,430 229,657 194,371 286,862 344,677 317,144 373,481
Stockholders' equity....... 43,733 49,705 57,547 81,680 80,774 81,059 76,656
</TABLE>

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

(1) Gross margin is defined as total revenue less (i) rental expense, (ii) cost
of sales (exclusive of depreciation and amortization), (iii) gain on asset
sales and (iv) interest income.

(2) Operating income is defined as income before income taxes less gain on asset
sales and interest income plus interest expense and operating lease
facility.

(4) Tidewater Compression acquired the assets of Brazos Gas Compressing Company
for $35.0 million in October 1994 and the natural gas compression assets of
Halliburton Compression Services for $205.0 million in December 1994. The
results of Brazos Gas Compressing's and Halliburton Compression's operations
have been included in our results of operations from the respective dates of
acquisition.

(5) On February 20, 1998, we acquired 100% of the voting securities of Tidewater
Compression for approximately $350.0 million. The results of Tidewater
Compression's operations have been included in our operations from the date
of the acquisition.

(6) Reflects an average horsepower utilization over each period based upon our
total average fleet horsepower.

(7) Our financial information is for the period from December 12, 1997
(inception) through March 31, 1998.

23
<PAGE> 28

(8) The pro forma selected financial data for the year ended March 31, 1998 were
derived from the unaudited pro forma consolidated financial statements and
give effect to the acquisition of Tidewater Compression as if it had
occurred on April 1, 1997. The unaudited pro forma consolidated financial
statements and other data have been prepared under the purchase method of
accounting. Under this method of accounting, based on an allocation of the
purchase price of Universal, its identifiable assets and liabilities have
been adjusted to their estimated fair values. The unaudited pro forma
consolidated financial statements and other data have been prepared based on
the foregoing and on certain assumptions described in the notes below:

<TABLE>
<CAPTION>
TIDEWATER ACQUISITION UNIVERSAL
COMPRESSION(A) UNIVERSAL(B) ADJUSTMENTS PRO FORMA
-------------- ------------ ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Rentals......................... $71,644 $ 9,060 $ -- $ 80,704
Sales........................... 19,924 4,037 -- 23,961
Other........................... 3,024 22 -- 3,046
Gain on asset sales............. 1,094 -- -- 1,094
------- ------- -------- --------
Total revenues.................... 95,686 13,119 -- 108,805
Costs and expenses:
Rentals......................... 31,924 2,804 (3,800)(c) 30,928
Cost of sales................... 14,753 3,408 -- 18,161
Depreciation and amortization... 23,310 1,560 (5,563)(d) 19,307
General and administrative...... 8,669 1,305 3,063(e) 13,037
Interest expense................ -- 3,203 29,271(f) 32,474
------- ------- -------- --------
78,656 12,280 22,971 113,907
Income (loss) before income
taxes........................... 17,030 839 (22,971) (5,102)
Income tax expense (benefit)...... 6,271 409 (8,568)(g) (1,888)
------- ------- -------- --------
Net income (loss)............... $10,759 $ 430 $(14,403) $ (3,214)
======= ======= ======== ========
</TABLE>

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

(a) Represents the historical financial statements of Tidewater
Compression, our predecessor, for the period from April 1, 1997 through
February 20, 1998.

(b) Represents our historical consolidated financial statements for the
period from December 12, 1997 (inception) through March 31, 1998.
However, we had no operations until the acquisition of Tidewater
Compression on February 20, 1998.

(d) Reflects an adjustment to depreciation expense resulting from the
allocation of purchase price and the change in accounting policy
referred to in note (c). Depreciation and amortization expense for
rental equipment is calculated using a 20% salvage value and an
estimated useful life of 15 years. All remaining depreciation for
property and equipment is calculated on the straight-line basis with
estimated useful lives ranging from two to 25 years. Depreciation for
capitalization overhauls is calculated using a three-year estimated
useful life. Goodwill amortization is calculated over an estimated
40-year life.

(e) Reflects the management fee paid to Castle Harlan of $3.0 million and
estimated incremental costs associated with being a stand-alone public
company. Such stand-alone costs include legal, accounting and personnel
costs.

(f) Interest expense adjustments are as follows based on the assumptions
described below:

<TABLE>
<CAPTION>
FISCAL
YEAR
1998
-------
<S> <C>
Revolving credit facility, $35.0 million at 9.75%........... $ 3,427
Senior discount notes, $25.0 million at 11.375%, due 2009... 3,313
Senior discount notes, $152.0 million at 9.875%, due 2008... 16,886
Term loan credit facility, $75.0 million at 10%............. 7,481
Commitment fee, $48.0 million at 0.5%....................... 239
-------
31,346
Amortization of deferred financing costs.................... 1,128
-------
Total interest expense...................................... $32,474
=======
</TABLE>

Interest on the revolving credit facility and the term loan credit
facility is based on LIBOR plus 2.25% and LIBOR plus 2.50%, respectively.
The interest rates on the revolving credit facility and the term loan
credit facility at March 31, 1998 under an available prime rate option
were 9.75% and 10.0%, respectively. Interest on each of the senior
discount notes due 2009 and the senior discount notes due 2008 has been
calculated based on the fixed rate of 11.375% and 9.875%, respectively,
compounded semiannually on principal plus accumulated interest. A
fluctuation of .125% of actual rates related to the revolving credit
facility and the term loan credit facility would result in an approximate
change of $137,000 in interest expense.

(g) Reflects an adjustment to income tax expense to reflect an effective
tax rate of 37%.

(9) Working capital is defined as current assets minus current liabilities.

24
<PAGE> 29

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

The following discussion and analysis should be read in conjunction with
the Selected Historical Consolidated Financial and Operating Data and the
accompanying financial statements and related notes included elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to such differences include but are not limited
to, those discussed below and elsewhere in this prospectus, particularly in
"Risk Factors."

BACKGROUND

We were formed in December 1997 to acquire all of the outstanding stock of
Tidewater Compression Service, Inc. Upon completion of the acquisition on
February 20, 1998, Tidewater Compression became our wholly-owned operating
subsidiary and changed its name to Universal Compression, Inc. Pursuant to the
Tidewater Compression acquisition, Castle Harlan Partners III, a private
investment fund managed by Castle Harlan, Inc., a merchant banking firm,
acquired control of us. The acquisition and related fees and expenses were
financed through a cash contribution from Castle Harlan Partners, borrowings
under our senior secured credit agreement and proceeds from the issuance of our
9 7/8% Senior Discount Notes due 2008 and our 11 3/8% Senior Discount Notes due
2009.

NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998

Revenues. Our total revenues for the nine months ended December 31, 1999
increased $6.5 million, or 6.8%, to $102.5 million compared to $96.0 million for
the nine months ended December 31, 1998 due to an increase in rental revenues.
Rental revenue increased by $7.0 million, or 10.7%, to $72.2 million during the
nine months ended December 31, 1999 from $65.2 million during the nine months
ended December 31, 1998. Domestic rental revenue increased by $2.7 million, or
4.6%, to $61.5 million during the nine months ended December 31, 1999 from $58.8
million during the nine months ended December 31, 1998. International rental
revenue increased by $5.6 million, or 109.8%, to $10.7 million during the nine
months ended December 31, 1999 from $5.1 million during the nine months ended
December 31, 1998. The increase in both domestic and international rental
revenue primarily resulted from expansion of our rental fleet. Domestic average
rented horsepower for the nine months ended December 31, 1999 increased by 9.6%
to approximately 434,000 horsepower from approximately 396,000 horsepower for
the nine months ended December 31, 1998. In addition, international average
rented horsepower more than doubled to approximately 44,000 horsepower for the
nine months ended December 31, 1999 from approximately 20,000 horsepower for the
nine months ended December 31, 1998, primarily through additional service in
Argentina and Colombia. Revenue from fabrication and sales decreased to $30.2
million from $30.6 million, a decrease of 1.3%, due to a lower level of
fabrication activity.

Gross Profit. Gross profit for the nine months ended December 31, 1999
increased $3.8 million, or 8.1%, to $50.7 million from gross profit of $46.9
million for the nine months ended December 31, 1998. The rental gross profit for
the nine months ended December 31, 1999 increased $4.4 million, or 10.6%, to
$46.0 million compared to gross profit of $41.6 million for the nine months
ended December 31, 1998. Gross profit increased primarily as the result of the
revenue growth discussed above while rental margins remained constant at 64% for
the nine months ended December 31, 1999 and 1998.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended December 31, 1999 increased
$0.5 million, or 4.1%, to $12.7 million compared to $12.2 million for the nine
months ended December 31, 1998. As a percentage of revenue, selling, general and
administrative expenses represented 12.3% of revenues for the nine months ended
December 31, 1999 compared to 12.7% of revenues for the nine months ended
December 31, 1998.

EBITDA for the nine months ended December 31, 1999 increased 9.2% to $40.5
million from $37.1 million for the nine months ended December 31, 1998,
primarily due to increases in horsepower and
25
<PAGE> 30

utilization of the compression rental fleet. EBITDA is defined as net income
plus income taxes, interest expense, leasing expense, management fees,
depreciation and amortization.

Depreciation and Amortization. Depreciation and amortization increased by
$4.4 million to $18.7 million during the nine months ended December 31, 1999
compared to $14.3 million during the nine months ended December 31, 1998. The
increase resulted primarily from the expansion of our rental fleet.

Interest Expense. Interest expense increased $3.9 million to $25.3 million
for the nine months ended December 31, 1999 from $21.4 million for the nine
months ended December 31, 1998, primarily as the result of increased borrowings
under the revolving credit facility, increased accretion of discount notes, the
financing lease and increased interest rates.

Net Income. We had a net loss of $4.1 million for the nine months ended
December 31, 1999 compared to a net loss of $0.6 million for the nine months
ended December 31, 1998. This decrease in net income was primarily due to
interest expense increasing from $21.4 million to $25.3 million and depreciation
and amortization related to the continued expansion of our assets increasing
from $14.3 million to $18.7 million, which was offset by an increased income tax
benefit and the factors discussed above.

FISCAL 1999 COMPARED TO PRO FORMA FISCAL 1998

The Tidewater Compression acquisition closed on February 20, 1998 and was
accounted for under purchase accounting. To provide for a comparison of the two
twelve month periods, actual results for the twelve months ended March 31, 1999
are compared to pro forma results for the Tidewater Compression acquisition for
the twelve months ended March 31, 1998.

Revenues. Revenue for fiscal year 1999 increased $20.7 million, or 19.0%,
to $129.5 million compared to revenue of $108.8 million for pro forma fiscal
1998, due to increases in both rental revenue and revenue from fabrication and
equipment sales. Rental revenue increased 6.1% to $85.6 million. The increase in
rental revenue was principally due to a 10.6% expansion of the rental fleet,
which was partially offset by a slight reduction in utilized horsepower and
rental pricing. Additionally, we increased the amount of our horsepower rented
in international markets by 15.0% through additional service in Latin America.
Revenue from fabrication and other sales increased to $43.6 million from $24.0
million, an increase of 81.7%, due to a higher level of fabrication activity and
the sale of equipment from the rental fleet to customers who exercised purchase
options on equipment previously rented.

Gross Margin. Gross margin is defined as total revenue less (1) rental
expense, (2) cost of sales, (3) gain on asset sales and (4) interest income.
Gross margin before depreciation and amortization for fiscal 1999 increased $3.5
million, or 6.0%, to $61.9 million from $58.4 million for pro forma fiscal 1998.
The rental gross margin for fiscal 1999 increased $4.8 million, or 9.6%, to
$54.6 million compared to gross margin of $49.8 million for fiscal 1998. Gross
margin increased primarily as the result of revenue growth which was offset by
reduced fabrication margins.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1999 increased $3.8 million, or 29.3%,
compared to selling, general and administrative expenses for pro forma fiscal
1998. As a percentage of revenues, selling, general and administrative expenses
for fiscal 1999 represented 13.0% of revenues compared to 12.0% of revenues from
pro forma fiscal 1998. The increase was primarily due to increased sales and
engineering expense in fiscal 1999 as we added the additional personnel
necessary to manage and rent a larger rental fleet, and the increase in expenses
necessary to operate as a stand alone company.

Net Loss. Primarily as a result of interest expense of $29.3 million
related to the indebtedness incurred in the Tidewater Compression acquisition,
increased income taxes and the factors discussed above, we generated a net loss
for fiscal 1999 of $2.4 million, as compared to net loss of $3.2 million for pro
forma fiscal 1998.

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PRO FORMA FISCAL 1998 COMPARED TO FISCAL 1997

To provide for a comparison of the two twelve month periods, pro forma
results for the twelve months ended March 31, 1998 are compared to actual
results for the twelve months ended March 31, 1997.

Revenue. Pro forma revenue for fiscal 1998 declined $5.1 million, or 4.5%,
to $108.8 million compared to $113.9 million for fiscal 1997, which was
primarily due to a decline in revenue from fabrication and equipment sales.
Revenue from fabrication and sales declined to $24.0 million from $36.6 million,
a decline of 34.4%, due to a shift of the focus of our sales force away from low
margin sales of third-party fabricated Ajax gas compressor units. Rental revenue
increased 11.0% to $80.7 million, principally due to a 6% increase in utilized
horsepower and a 1% increase in rental pricing. Additionally, we increased the
amount of horsepower rented in international markets by 54%, principally through
additional service in Argentina.

Gross Margin. Pro forma gross margin before depreciation and amortization
for fiscal 1998 increased $10.1 million, or 20.9%, to $58.4 million from $48.3
million for fiscal 1997. The increase was due to higher utilization and
resulting operating efficiencies related to the rental fleet and the
capitalization of $3.8 million of overhaul expenses in the pro forma statements
for fiscal 1998. The rental gross margin for fiscal 1998 increased $10.9
million, or 28%, to $49.8 million compared to $38.9 million for fiscal 1997.

Selling, General and Administrative Expenses. Pro forma selling, general
and administrative expenses for fiscal 1998 increased $2.0 million, or 18.2%, to
$13.0 million compared to $11.0 million for fiscal 1997. The increase was
principally due to the inclusion of $3.0 million of management fees to Castle
Harlan Partners III. As a percentage of revenue, pro forma general and
administrative expenses for the fiscal year 1998 represented 12% of revenue
compared to 9.5% of revenue for fiscal 1997.

Net Income (Loss). Our pro forma results for fiscal 1998 reflected a net
loss of $3.2 million compared to net income of $7.8 million for fiscal 1997.
This was primarily a result of pro forma interest expense of $32.5 million
related to the indebtedness incurred in the Tidewater Compression acquisition,
reduced income taxes and the factors discussed above.

EFFECTS OF INFLATION

In recent years, inflation has been modest and has not had a material
impact upon the results of our operations.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents balance at December 31, 1999 was $2.6 million
compared to $2.9 million at March 31, 1999. For the nine months ended December
31, 1999, we generated cash flow from operations of $33.1 million, received $3.2
million from the sale of assets and obtained $15.6 million in additional
financing. We primarily used this cash flow to expend $50.1 million on equipment
and inventory for our rental operations and make net principal payments of $0.8
million under our established lines of credit.

Included in other assets as of December 31, 1999 is a $2.8 million
receivable from Tidewater, Inc. relating to a tax election under Section
338(h)(10) of the Internal Revenue Code in connection with the Tidewater
Compression acquisition. We are pursuing our legal remedies in connection with
the collection of this receivable.

We expect to expend approximately $60.0 million on capital projects during
fiscal 2000. We continue to emphasize our investment in larger horsepower
compression rental units and the purchase and leaseback of customer owned
equipment. Our other principal uses of cash will be to fund working capital
needs and to meet required principal and interest payments on debt obligations.

Our existing senior secured credit agreement provides for $75.0 million
under a term loan and $85.0 million under a revolving credit facility, which
includes a sublimit for letters of credit. At December 31, 1999, we had $73.7
million outstanding under the term loan which matures in February
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2005, and $75.0 million outstanding under the revolving credit facility which
matures in February 2003. The available capacity under the revolving credit
facility at December 31, 1999 was approximately $10.0 million. As of December
31, 1999, the interest rate on the term loan was 8.13% and the interest rate on
the revolving credit facility was 8.44%. Under the revolving credit facility, a
commitment fee of 0.50% per annum on the average unutilized commitment is
payable quarterly. Our operating subsidiary is the borrower, and its
subsidiaries, together with us, are guarantors under the credit agreement.

The credit agreement contains certain financial covenants and limitations
on, among other things, our ability to enter into acquisition and sales
transactions, our ability to incur additional indebtedness and our ability to
permit additional liens on our assets. The credit agreement also limits the
making of loans and advances and the payment of cash dividends by our operating
subsidiary to us to $1.0 million in any given fiscal year. In addition, we have
substantial dividend payment restrictions under the indentures related to the
senior discount notes, as described below. We were in compliance with all of
these covenants and limitations as of December 31, 1999, and will repay all of
the outstanding indebtedness of the term loan and the revolving credit facility
with a portion of the proceeds from this offering and our concurrent operating
lease facility.

We are in negotiations to replace our existing credit facility with a new
$50.0 million secured revolving credit facility which has a five-year term. The
revolver will bear interest at our option at a base rate or LIBOR plus, in each
case, a variable amount depending on our operating results. Initially this rate
will be 7.60%. The revolver will be secured by a lien on all of our personal
property not subject to our new operating lease facility. The revolver will
contain limitations on our ability to enter into acquisition and sales
transactions, incur additional indebtedness and place additional liens on our
assets. Immediately after giving effect to this offering, we expect that we will
be able to borrow the full amount of the commitment under the new revolver.

In addition to the existing credit agreement, we currently have outstanding
$242,500,000 of 9 7/8% Senior Discount Notes due 2008 and $43,500,000 of 11 3/8%
Senior Discount Notes due 2009. We intend to redeem all of the 11 3/8% notes
with a portion of the proceeds from this offering.

Interest on both series of notes is payable semi-annually commencing August
15, 2003. These notes are general unsecured obligations and rank equally in
right of payment to amounts owed under our existing credit agreement and other
current and future senior indebtedness that we may have, including our new
revolving credit facility. The 9 7/8% notes, which will remain outstanding
following this offering, are redeemable by us at our option in whole or in part
beginning February 15, 2003. In addition, we have the right to redeem up to 35%
of the outstanding 9 7/8% notes at a redemption price equal to 109.875% of their
accreted value as a result of this offering within 120 days following the
closing of the offering.

The indentures governing the notes contain numerous covenants that restrict
our ability to, among other things, incur additional indebtedness or liens, pay
dividends, make certain types of investments, sell or otherwise dispose of our
assets, enter into arrangements with our affiliates or merge or consolidate with
any other entity. In addition, if we experience a change of control, the holders
of our notes have the right to require us to repurchase their notes at a price
equal to 101% of the accreted value. This offering will not result in a change
of control for purposes of the indentures. We were in compliance with all of
these covenants and limitations as of December 31, 1999.

On July 21, 1999, we received $8.1 million as the first phase of a
financing lease with Societe Generale Financial Corporation with respect to new
compression equipment. We received an additional $3.8 million under this
financing lease in October 1999. The financing lease, which relates to our
Colombian operations, has a term of five years and bears interest at a rate of
LIBOR plus 4.25%.

Concurrently with the closing of this offering, we will enter into a $200.0
million operating lease facility with Deutsche Bank which provides that we will
sell some of our compression equipment to Deutsche Bank and lease it back under
an operating lease for a five-year term. The lease payments will be the sum of
(a) 3% of the funded amount as amortization of the lease plus (b) an amount
based on a base rate or LIBOR, at our option, plus a variable amount depending
on our operating results, applied to the

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funded amount of the lease. Initially this rate will be approximately 7.85%. The
first funding of the lease facility will be for approximately $65.0 million and
will be funded concurrently with the closing of this offering. The subsequent
fundings will be for up to $135.0 million and must be funded, if at all, within
eighteen months of the closing of this offering. Payments under the lease
facility are due quarterly in arrears. In addition, we will pay a $3.0 million
lease structuring and arrangement fee on the closing of the facility, a
participation fee on the closing of each tranche and a $35,000 administration
fee each year that the lease facility is in effect. The lease facility matures
five years from the closing of this offering, at which time we have an option to
repurchase the leased equipment for the cost of the equipment to Deutsche Bank
less the amortization as of such date. In addition, we have the right to
repurchase all of the equipment at any time during the term of the lease
facility at such price. We have substantial residual value guarantees on the
equipment under our operating lease facility (approximately % of the funded
amount) that are due upon termination of the lease and which may be satisfied by
a cash payment or the exercise of our purchase option. Pursuant to the lease
facility, we will be restricted by certain covenants relating to our operations,
including our ability to enter into acquisition and sales transactions, incur
additional indebtedness and permit additional liens on our assets. Our
obligations under this lease facility will be secured by our compression
equipment.

We anticipate that the proceeds from this offering and the operating lease
facility, together with internally generated cash flow, including improvement in
our working capital position, availability under the revolving credit facility
and permitted international borrowings, will be sufficient to fund our growth
strategy, domestic and international operations and obligations through fiscal
year 2001.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective April 1, 1998, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." For the nine month
periods ended December 31, 1998 and 1999, the effect of transactions which would
have given rise to further disclosure were not significant.

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," and
subsequently delayed the effective date of this statement with the issuance of
SFAS No. 137 in June 1999. SFAS No. 133, which is now effective for our fiscal
year ending March 31, 2002, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. We will be analyzing SFAS No. 133
to determine what, if any, impact or additional disclosure requirements this
pronouncement will have.

SEASONAL FLUCTUATIONS

Our results of operations have not historically reflected any material
seasonal tendencies.

YEAR 2000 ISSUES UPDATE

We began to address Year 2000 compliance issues in 1998 when we formed a
Year 2000 committee to manage our Year 2000 compliance initiative. The committee
focused its efforts on both information technology systems, primarily computer
hardware and software, and non-information technology systems, embedded
technology such as microcontrollers, in all aspects of our businesses and
operations.

We did not experience any serious Year 2000 problems at the beginning of
this year, and no disruption of normal business activities or operations
occurred which could have had a material adverse effect on our results of
operations, liquidity or financial condition. However, we are continuing to
monitor, on an ongoing basis, any future uncertainties arising from the Year
2000 problem. We do not believe that any future problems, primarily computer
system problems in nature, could have a material adverse effect on our results
of operations. The aggregate cost of the required modifications and testing was
approximately $100,000 and consisted primarily of our internal costs for our
information systems group. The costs for the required modifications and testing
were expensed as incurred.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to some market risk due to the floating interest rate under
our revolving credit facility, term loan and financing leases. Our existing
revolving credit facility bears interest at LIBOR plus 2.25%, is due February
2005 and had an outstanding principal balance of $75.4 million as of March 31,
1999 and $75.0 million as of December 31, 1999. Our existing term loan bears
interest at LIBOR plus 2.5%, is due February 2003 and had an outstanding
principal balance of $74.1 million as of March 31, 1999 and $73.7 million as of
December 31, 1999. The Colombian financing lease bears interest at LIBOR plus
4.25%, is due October 2004 and had an outstanding principal balance of $11.1
million as of December 31, 1999. Our new revolving credit facility and operating
lease facility that will close concurrently with the closing of this offering
will have interest and lease payments based on a base rate or LIBOR, at our
option, plus a variable amount depending on our operating results. Initially,
this rate will be 7.60% for the revolving credit facility and 7.85% for the
operating lease facility. The operating lease facility has a five-year term and
will have an outstanding principal balance of approximately $65.0 million at the
time of the closing. The LIBOR rate at December 31, 1999 was 5.83%. A 1.0%
increase in interest rates could result in a $1.6 million annual increase in
interest expense on the existing principal balances. In order to minimize any
significant foreign currency credit risk, we generally contractually require
that payment be made in U.S. dollars. If payment is not made in U.S. dollars, we
generally utilize the exchange rate into U.S. dollars on the payment date or
balance payments in local currency against local expenses.

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BUSINESS

BACKGROUND

We were formed in December 1997 to acquire all of the outstanding stock of
Tidewater Compression. Upon completion of the acquisition in February 1998,
Tidewater Compression became our wholly-owned operating subsidiary and changed
its name to Universal Compression, Inc. Through this subsidiary, our gas
compression service operations date back to 1954. The business grew dramatically
from 1993 to 1995 through the acquisition of four rental compression companies:
Allison Production Services and BJC Operating Company in 1993 and Halliburton
Compression Services and Brazos Gas Compressing Company in 1994. Following these
acquisitions and prior to the Tidewater Compression acquisition, management
focused on standardizing our compressor fleet, and also completed a number of
smaller acquisitions. Following the Tidewater Compression acquisition, we have
focused on our growth strategy.

OVERVIEW

We are a leading natural gas compression services company, providing a full
range of rental, sales, operations, maintenance and fabrication services and
products to the natural gas industry. These services and products are essential
to the production, transportation and processing of natural gas by producers,
gatherers and pipeline companies. We own one of the largest gas compressor
fleets in the United States, and have a growing presence in key international
markets.

Since 1993, we have expanded our presence in select international markets,
including Argentina, Colombia, Venezuela and Australia. As of December 31, 1999,
we had 47 units aggregating approximately 51,000 horsepower operating under
contract in these markets. In addition, in March 2000, we were awarded
significant compression service projects in Mexico and Argentina which will
increase the amount of horsepower we operate internationally by at least 25%
within the next year. We are also pursuing opportunities in other strategic
international areas, including other South American countries and
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Southeast Asia. Our revenues from international operations have increased by 84%
in the last year, from $6.7 million for the twelve-month period ended December
31, 1998 to $12.3 million for the twelve-month period ended December 31, 1999.

Our financial performance has been generally less affected by the
short-term market cycles and volatile commodity prices than the financial
performance of companies operating in other sectors of the oil and gas industry
because:

- compression is an essential component of natural gas production,

- our operations are tied primarily to natural gas consumption, which is
less cyclical in nature than exploration activities,

- compression equipment rental is often a lower cost alternative for
natural gas production, gathering and transportation companies,

- we have a broad customer base,

- we operate in diverse geographic regions,

- our compressors remain on-site for an average of thirty months before
reassignment and

- our standardized compressor fleet is durable and reliable.

Adding to this stability is the fact that while compressors often must be
highly engineered or reconfigured to meet the unique demands of our customers,
the fundamental technology of compression equipment has been stable and has not
experienced rapid technological change.

We believe that the capital raised in this offering and the financing
arrangements which we will enter into concurrently with this offering will allow
us to continue to expand our compressor fleet and take advantage of the
significant growth opportunities in our industry, both domestically and
internationally.

OUR GROWTH STRATEGY

Our growth strategy is to continue to focus on meeting the evolving needs
and demands of our customers by providing consistent, superior services and
dependable, high quality products. We believe that this approach will strengthen
our business relationships with our existing customers, help us to attract new
customers and diversify our revenue base, resulting in increased market share,
revenues and earnings. The key elements of our strategy are described below:

- FOCUSING ON PROVIDING A COMPLETE RANGE OF HIGH QUALITY SERVICES. We
believe that the key to our success is providing our customers with
consistent, high quality service and a full range of dependable
compression equipment tailored to their needs at competitive prices. Our
services and products deliver higher run-times resulting in increased
production and revenues for our customers.

- We have the equipment, personnel and logistical capabilities to provide
our customers with a wide variety of compression equipment and services
on a timely basis. We work with our customers to provide engineering
solutions to help them design a customized compression plan and then
provide them with the services and products to implement that plan. We
continuously expand, upgrade and reconfigure our rental fleet to ensure
our ability to meet the changing requirements of our customers in the
diverse geographic markets that we serve. In addition, our rigorous
preventative maintenance program and extensive field service network
permits us to promptly address maintenance issues. In recent years, we
have increased the overall size and average horsepower of our fleet and
have increased our fabrication of upper range units (generally over 700
horsepower) to better serve the needs of our customers at wellheads,
gathering systems, processing plants and pipelines. Since March 31,
1998, the horsepower of our fleet has increased by 27%.

- In April 1999, we completed construction of a high bay, heavy capacity
fabrication facility in Houston, Texas which allows us to increase our
capacity to fabricate larger compression units.

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- Our operations and maintenance personnel are highly-trained and, we
believe, among the most experienced in the industry. We have an
extensive maintenance and diagnostic program for our equipment and
provide remote monitoring of large horsepower units and compression
systems. As a result, we are able to provide consistent, high quality
service and achieve very high run-times for our compressors, resulting
in increased production and revenues for our customers.

- CONTINUING A CENTRALIZED, STANDARDIZED APPROACH TO OUR BUSINESS.

- We have centralized our management, corporate functions, training and
inventory controls. Our centralized system enables us to respond quickly
to market opportunities and changing conditions, and allows us to
provide consistent, high quality service and standardized pricing to our
customers operating in multiple locations worldwide.

- As a complement to these centralized functions, we have positioned
highly-trained sales and field personnel in all of the major domestic
gas producing regions in which our customers operate and, in some cases,
on-site with our key customers. This local presence, experience and
in-depth knowledge of our customers' operating needs and growth plans
provides us with significant competitive advantages and
internally-driven market share growth. Our field service and sales
personnel assist in identifying the needs of our customers and
communicate those needs to our sales force and corporate headquarters,
which allows us to participate in growth opportunities in the industry,
wherever they may occur.

- Using our automated inventory system, we are able to determine product
availability, identify the most efficient solution and promptly provide
the necessary parts and labor to any location worldwide.

- We have standardized our fleet of rental compressors to three compressor
platforms, Gemini, Ajax and Ariel. By standardizing, we are able to
develop extensive expertise in operating and maintaining our
compressors, provide consistent, high quality training of our operations
and maintenance personnel, efficiently resize and reconfigure our
compressors and reduce our costs by minimizing our inventory.

- We believe that we have one of the best safety records in the industry,
which enhances our customer loyalty and our ability to attract and
retain quality employees.

- In order to attract, motivate and retain our highly experienced sales
force and operations personnel, we have implemented a profit sharing
plan designed to link the compensation of our employees at all levels
with their individual performance as well as ours. In addition, we have
given all of our employees the opportunity to purchase shares of our
stock and have granted stock options to 20% of our workforce.

- EXPANDING OUR OPERATIONS IN SELECT INTERNATIONAL MARKETS. With
approximately 51,000 horsepower operating internationally as of December
31, 1999, and an additional 13,000 horsepower under recently awarded
contracts, we have a strategic presence in the rapidly growing
compression markets of Argentina, Colombia, Venezuela and Australia, and
are building a presence in Mexico. We plan to leverage our existing
presence and customer base and strong reputation for the engineering and
fabrication of high specification gas and air compressors to expand our
offerings in these markets as well as others, including other South
American countries and Southeast Asia.

- EXPANDING OUR RENTAL FLEET AND CUSTOMER BASE THROUGH THE PURCHASE AND
LEASEBACK OF COMPRESSORS. As the trend toward outsourcing of compression
services continues, we are providing an increasing number of customers
the opportunity to sell their existing compression equipment to us in
purchase and leaseback transactions. In these transactions, we purchase a
customer's in-place compression equipment at the current market value and
then lease that equipment back to the customer under long-term operating
and maintenance contracts. As a result, the customer is able to outsource
its compression operations and reallocate capital to its core business
activities while typically enjoying improved operational performance. In
addition, these arrangements expand our

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rental fleet and provide us with the opportunity to promote our
operations and maintenance services, as well as to strengthen our
relationships with these customers. To date, we have consummated eight
purchase leaseback transactions aggregating 26,000 horsepower with our
customers.

- PURSUING INDUSTRY CONSOLIDATION OPPORTUNITIES. The rental compression
services industry has experienced significant consolidation over the past
several years but remains highly fragmented, with only a small number of
companies providing comprehensive compression services. We actively
participate in this consolidation trend. Since 1993, five acquisitions
have been completed, and we have signed a definitive agreement to acquire
an additional company, as described below. Integration of these acquired
businesses allows us to expand our fleet and to offer our comprehensive
range of products and services to an expanded customer base. We believe
that continuing industry consolidation will present us with opportunities
to acquire attractive smaller regional operators and large compression
service companies in the future.

In April 2000, we entered into a purchase and sale agreement with
Energy Spectrum Partners LP to acquire all of the stock of Spectrum Rotary
Compression Inc. in exchange for shares of our common stock and preferred
stock representing 4.8% of our outstanding shares of these classes prior
to this offering. Spectrum has approximately 10,700 horsepower in its
fleet and provides us an increased presence in the screw compressor
market. The shares issued to Spectrum will be subject to a voting
agreement to be voted in the same manner as the Castle Harlan shares are
voted until completion of this offering. The closing is subject to the
absence of any material adverse change, any injunction or litigation. We
also have conditioned consummation of the transaction on the completion to
our satisfaction of our due diligence review. It is expected that the
transaction will close prior to the closing of this offering.

INDUSTRY

Natural Gas Compression Overview

Natural gas compression is a mechanical process whereby a volume of gas at
an existing pressure is compressed to a desired higher pressure. We offer both
slow and high speed reciprocating compressors driven either by internal
combustion engines or electric motors. We also offer screw compressors for
applications involving low pressure natural gas. Most natural gas compression
applications involve compressing gas for its delivery from one point to another.
Low pressure or partially depleted natural gas wells require compression for
delivery of produced gas into higher pressured gas gathering systems.
Compression is required because over the life of an oil or gas well, natural
reservoir pressure typically declines as reserves are produced. As the natural
reservoir pressure of the well declines below the line pressure of the gas
gathering or pipeline system used to transport the gas to market, gas no longer
naturally flows into the pipeline. It is at this time that compression equipment
is applied in both field and gathering systems to boost the well's pressure
levels and allow gas to be brought to market. Compression is also used to
reinject natural gas down producing oil wells to help lift liquids to the
surface, known as gas lift operations. In secondary oil recovery operations,
natural gas compression is used to inject natural gas into wells to maintain
reservoir pressure. Compression is also used in gas storage projects to inject
gas into underground reservoirs during off-peak seasons for withdrawal later
during periods of high demand. Natural gas compression services are also used
for compressing feedstocks in refineries and for refrigeration applications in
natural gas processing plants.

Natural gas compression that is used prior to the "main line transmission
system," which transports gas from production to storage or the end user, is
considered "field" compression. We have been active in both segments of the
field compression market, production and gas gathering. During the production
phase, compression is used to boost the pressure of natural gas from the
wellhead so that natural gas can flow into the gathering system or pipeline for
transmission to an end-user. Typically, these applications require portable low
to mid-range horsepower compression equipment located at or near the wellhead.
The

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continually dropping pressure levels in natural gas fields require constant
modification and variation of on-site compression equipment.

In an effort to reduce costs for wellhead operators, operators of gathering
systems tend to keep the pressure of the gathering systems low. As a result,
more pressure is often needed to force the gas from the low pressure gathering
systems into the higher pressure pipelines. These applications generally require
larger horsepower compression equipment (600 horsepower and higher). Similarly,
as gas is transported through a pipeline, large compression units are applied
all along the pipeline to allow the natural gas to continue to flow through the
pipeline to its destination.

Gas producers, transporters and processors have historically owned and
maintained most of the compression equipment used in their operations. However,
in recent years, there has been a growing trend toward outsourcing compression
equipment. Customers that elect to outsource compression equipment have two
options for maintaining and/or operating such equipment. Full maintenance calls
for the service company to be responsible for the scheduled preventative
maintenance, repair and general up-keep of the equipment, while the customer
usually remains responsible for installing and handling the day-to-day operation
of the equipment. The other option is contract compression, which requires the
service company to maintain and operate and, in many cases, to install the
equipment. Often, a service company providing contract compression will inspect
the equipment daily, provide consumables such as oil and antifreeze and, if
necessary, be present at the site for several hours each day.

Rental compression units are primarily employed in the field compression
segment encompassing production and natural gas gathering. Renting compression
equipment offers customers:

- the ability to efficiently meet their changing compression needs over
time while limiting their capital investments in compression equipment,

- access to the compression service provider's specialized personnel and
technical skills, including engineers, field service and maintenance
employees, which generally leads to improved run times and production
rates and

- overall reduction in their compression costs through the elimination of a
spare parts inventory and other expenditures associated with owning and
maintaining compressor units.

Natural Gas Industry Conditions

A significant factor in the growth of the gas compression equipment market
is the increasing consumption of natural gas, both domestically and
internationally. In other words, it is the demand for natural gas, rather than
the more cyclical oil and gas exploration activities, that drives the demand for
compression services. As a result, our financial performance historically has
been less affected by the short-term market cycles and volatile commodity prices
of oil and natural gas than that of companies operating in other sectors of the
energy industry.

In the United States, natural gas is the second leading fuel in terms of
total consumption and is the fuel of choice for power generation and industrial
use. The closure of nuclear power plants and the current economic expansion have
contributed to the increased consumption of natural gas. In recent years,
natural gas has increased its market share of total domestic energy consumption.
Domestic consumption of natural gas increased by 14% from 1990 through 1998 to
approximately 22 trillion cubic feet, and industry sources forecast the domestic
consumption of natural gas to increase approximately 25% to 28 to 30 trillion
cubic feet by 2010.

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terms of horsepower, with the percentage of outsourced horsepower increasing
from 13% to 28%. We believe the domestic gas compression market will continue to
grow due to the following factors:

- higher natural gas consumption, which is increasing in the United States
at an average rate of 2.0% to 2.5% per year,

- the aging of producing natural gas fields in the United States, which
will require more compression to continue producing the same volume of
natural gas and

- increasing outsourcing by companies of compression needs in order to
reduce operating costs, improve production and efficiency and reallocate
capital to core business activities.

The international gas compression services market is currently
substantially smaller than the domestic market. However, we estimate significant
growth opportunities for international demand for compressor products and
services due to the following factors:

- higher natural gas consumption, which is increasing internationally at an
average rate of 3.0% to 4.0% per year,

- implementation of international environmental and conservation laws
preventing the prior practice of "flaring" of natural gas and recognition
of natural gas as a clean alternative to carbon fuels,

- a desire by a number of oil exporting nations to replace oil with natural
gas as a fuel source in local markets to allow greater exportation of
oil,

- increasing development of pipeline infrastructure, particularly in South
America, necessary to transport gas to local markets,

- growing demand for electrical power generation, for which the fuel of
choice tends to be natural gas and

- increasing privatization of state-owned international energy producers,
resulting in increased outsourcing due to the focus on reducing capital
expenditures and enhancing cash flow and profitability.

As contrasted to the domestic market, the current international rental
compression market is substantially comprised of large horsepower compressors
that are maintained and operated by compression service providers. A significant
portion of this market involves comprehensive installation projects, which
include the design, fabrication, delivery, installation, operation and
maintenance of the compressors and the related gas treatment equipment by the
rental company. In these comprehensive projects, the customer's only
responsibility is to provide fuel gas within specifications. As a result of the
full service nature of these projects and the fact that these compressors
generally remain on-site for three to seven years, we are able to achieve higher
revenues and margins on these projects.

We believe we are well positioned to participate in a disproportionate
share of the future growth in this industry as we are one of the few compression
service providers with sufficient fleet size, operating infrastructure and
geographic scope to meet the diverse, full service needs of our customers.
Companies in our industry can achieve significant advantages through increased
size and geographic scope. As the number of rental units in a rental fleet
increases, the number of sales, engineering, administrative and maintenance
personnel required does not increase proportionately. As a result, companies
such as us with larger rental fleets have relatively lower operating costs and
higher margins due to economies of scale than smaller companies.

OPERATIONS

Rental Compressor Fleet

In recent years, there has been substantial growth in customer demand in
the over 600 horsepower category. As a result, we have focused, and will
continue to focus, future growth on this segment of the

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<PAGE> 41

market. We have increased the overall size and average horsepower of our fleet
and have increased our fabrication of upper range units (generally over 700
horsepower) to meet this demand and better serve the needs of our customers at
wellheads, gathering systems, processing plants and pipelines. Since March 31,
1998, the total horsepower of our fleet has increased by 27%.

As of March 31, 1999, we owned 2,701 natural gas compressors ranging in
size from 15 horsepower to 3,000 horsepower, with an average of 200 horsepower,
as reflected in the following table:

<TABLE>
<CAPTION>
HORSEPOWER RANGE NUMBER OF UNITS TOTAL HORSEPOWER % OF HORSEPOWER
- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
0 - 99............................. 1,001 59,800 11.0%
100 - 299.............................. 1,167 194,100 35.7%
300 - 599.............................. 328 118,400 21.7%
600 and over............................ 205 172,300 31.6%
----- ------- ------
Total......................... 2,701 544,600 100.0%
</TABLE>

We have standardized our rental fleet around three gas compressor
platforms: Gemini for smaller horsepower applications (less than 150
horsepower), Ajax for mid-range applications (100-600 horsepower) and Ariel for
larger horsepower applications (over 600 horsepower). These three compressor
platforms represent over 90% of our horsepower. This high level of fleet
standardization and durability:

- enables us to minimize our fleet maintenance capital requirements,

- enables us to minimize inventory costs,

- facilitates low-cost compressor resizing and

- allows us to develop strong technical proficiency in our maintenance and
overhauling operations, which enables us to achieve high run-time rates
while maintaining low operating costs, a benefit both to us and our
customers.

In addition to being dependable, our smaller Gemini compressors are
lightweight and highly portable. Our Ajax compressors are a strong choice for
mid-range compression projects because of their high reliability and
versatility. Due to their design, the Ajax compressors burn the broadest variety
of fuel gas, including "sour" gas, which is produced in a number of domestic and
international regions. Our larger horsepower units are generally Ariel
compressors powered by Caterpillar or Waukesha engines. These compressors
operate at higher speeds and, although larger than the lower horsepower
compressors, are transportable. The combination of these larger horsepower units
and the lower horsepower Ajax and Gemini units enable us to offer our customers
gas compressors for use in most segments of the production, gathering and
transportation process.

We believe our rental fleet is in excellent condition as we provide full
maintenance on virtually all of our operating units.

Domestic Operations

We own one of the largest domestic rental fleets of natural gas
compressors, comprising over 576,000 horsepower and approximately 2,660 units as
of December 31, 1999. We have compressor services operations in 23 states and
operate out of 30 sales and service locations. We operate in every natural gas
producing region of the United States. Our geographic diversity and nationwide
operations enable us to:

- provide responsive and cost effective service to our rental customers, as
well as for units owned by others,

- increase our revenues with relatively little incremental overhead expense
and

- offer our customers the ability to deal with one nationwide provider for
all of their compression equipment and service needs.

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<PAGE> 42

Our marketing and client service functions are performed on a coordinated
basis by our sales and field service personnel. Our salespersons regularly visit
their customers to ensure customer satisfaction and determine customer needs as
to services currently being provided and also to ascertain potential future
compressor requirements of these customers, which provides us with significant
competitive advantages. Our salespersons also communicate regularly with our
field service and sales employees who, in many cases, have day-to-day
relationships with key customer personnel and may have advance notice of
customer planning. This ongoing communication between our sales and field
service personnel allows us to quickly identify and respond to customer requests
in this relationship driven, service intensive industry.

When a salesperson is advised of a new compression service opportunity,
that salesperson obtains relevant information concerning the project including
gas flow, pressure and gas composition. The salesperson will then search a
computerized data base to determine the availability of an appropriate
compressor unit in our fleet for that project. If an appropriate compressor is
available, it is immediately deployed. If a unit requires maintenance or
reconfiguration, our maintenance personnel will service it as quickly as
possible to meet the needs of the customer. If providing the appropriate unit
would entail significant overhaul cost, the salesperson will communicate with
the customer, engineer and field service personnel and contact a supervisor to
determine the timing of the required maintenance or overhaul to develop a
competitive rental proposal.

Rental rates generally are determined by compressor category based on our
standardized rental rates with variations as necessary to secure the service
contract and assure profitability of each contract. Our service contracts
usually are variations of a standard service contract associated with a master
service agreement. The standard rental contract covers the technical
specifications, equipment selection and performance, site location and pricing
for the individual project. To ensure the proper pricing and service
arrangements on larger horsepower installations and new compression
opportunities, our engineers and financial personnel are highly involved in the
early stages of the proposal process.

The majority of our service agreements provide for full maintenance.
Optional items such as oil, antifreeze, freight, insurance and other items may
be either itemized or included in the basic monthly rental rate. Initial rental
terms are usually six months, with some projects committed for as long as five
years. At the end of the initial term, rentals continue at the option of the
lessee on a month-to-month basis. After that time, the compressor may be
returned or replaced with a different compressor. This constant need for varying
the size and/or configuration of compressor packages in the same location over
time is a significant advantage of outsourced compressors over owned
compressors. Our standardized fleet and efficient operations allow us to provide
different compressors and reconfigure our units to meet these changing needs
quickly and profitably.

International Operations

In recent years, we have expanded our presence in select international
markets, including Argentina, Colombia, Venezuela and Australia. Our presence in
these international markets, which dates back over five years, usually generates
higher margins for us and produces longer-term contracts than our domestic
business. As of December 31, 1999, we had 47 units aggregating approximately
51,000 horsepower operating under contract in these markets. In addition, we
recently were awarded significant contract compression service projects in
Mexico and Argentina which will increase the number of horsepower we operate
internationally by at least 25% within the next year. We are also pursuing
opportunities in other strategic international areas, including other South
American countries and Southeast Asia. For the nine months ended December 31,
1999, approximately 11% of our rental revenue was generated internationally.

Our international operations are focused on large horsepower compressor
markets and frequently involve long-term comprehensive service projects. These
projects require us to provide complete engineering and design in the proposal
process. Our extensive engineering and design capabilities and reputation of
high quality fabrication give us a competitive advantage in these markets. In
addition, our new high bay fabrication facility positions us to be able to meet
increasing demand for these services and products in the future. Commercial
negotiations proceed only after the acceptance of proposed engineering

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<PAGE> 43

designs and concepts. International service agreements differ significantly from
domestic service agreements as individual contracts are negotiated for each
project.

Operations, Maintenance and Overhaul Services

We provide a comprehensive contract compression service, which includes
rental, operation and maintenance services, for most of our larger horsepower
units, including our international units, and also on units owned by our
customers. When providing these full contract compression services, we work
closely with a customer's field service personnel so that the compressor can be
adjusted to efficiently match changing characteristics of the gas produced. We
generally operate the large horsepower compressors, and include the operations
fee as part of our rental rate. Large horsepower units are more complex, and by
operating the equipment ourselves we reduce our maintenance and overhaul
expenses. While we do not require our customers to retain us to operate smaller
horsepower units, we generally train our customers' personnel in fundamental
compressor operations.

We maintain major overhaul and repackaging facilities in Mineral Wells,
Texas, Houston, Texas and Grand Junction, Colorado. Each of these overhaul
facilities is equipped with in-house engine rebuild and test equipment, full
machine shops, environmentally-approved painting facilities and high capacity
cranes. We also maintain 23 field service facilities. We provide maintenance
services on substantially all of our rental fleet and contract compression for
most of our larger horsepower units. Maintenance services include the scheduled
preventative maintenance repair and general up-keep of compressor equipment. As
a complement to our maintenance business, we offer, at additional cost, supplies
and services such as antifreeze, lubricants, property damage insurance on the
equipment, and prepaid freight to the job site. We also may provide for
installation, which for our typical lower, mid-range and smaller horsepower
units involves significantly less engineering and cost than the comprehensive
service concept prevalent in the international markets. We also routinely
repackage or reconfigure some of our existing fleet to adapt to our customers'
needs.

We have over 300 trained and equipped field service representatives and
mechanics located throughout the United States and 50 such representatives in
international locations. The field service representatives are responsible for
preventive maintenance, repair, preparation and installation of rental units.
The mechanics perform major overhaul and unit rework in the major overhaul
facilities. On average, each of our units undergoes a major overhaul once every
six to eight years. A major overhaul involves the rebuilding of the unit in
order to materially extend its useful life or to enhance the unit's ability to
fulfill broader or different rental applications. One of our overhaul facilities
operates a unit test loop and also functions as a full-time training center for
our personnel.

Our field gas compressors are maintained in accordance with daily, weekly,
monthly and annual maintenance schedules that have been developed and refined
over our long history of maintaining and operating compressors. These procedures
are constantly updated as technology changes and our operations group develops
new techniques and procedures. In addition, because our field technicians
provide maintenance on virtually all of our installed compression equipment,
they are familiar with the condition of our equipment and can readily identify
potential problems. In our experience, these rigorous procedures maximize
component life and unit availability and minimize avoidable downtime.

We also have a technical service group which is involved in our
comprehensive service proposals and monitors our larger horsepower units. This
group utilizes technologically advanced diagnostic equipment that permits
sophisticated field and remote diagnostic analyses of engines and compressors,
as well as emission analyses to insure compliance with regulatory requirements.

FABRICATION AND SALES

As a complement to our compressor rental service operations, we design,
engineer, assemble and sell natural gas and air compressors for engineering and
construction firms, as well as for exploration and production companies both
domestically and internationally. We also fabricate compressors for our own
fleet. Our fabrication facilities are located in Houston, Texas. In April 1999,
we completed construction of
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<PAGE> 44

a new 20,000 square foot heavy capacity fabrication shop and paint booth. This
facility enhances our ability to expand our fleet of higher horsepower
compressors.

When servicing our equipment sale customers, we provide compressors that
are built in accordance with specific criteria of the customer as well as
compressors that are prepackaged. We act as a distributor for Ariel gas
compressors and as an original equipment manufacturer for Atlas Copco air
compressors. Some of the compressors manufactured by these entities are used by
us in our engineered products operations. Thirty-one percent of our total
revenues for the twelve months ended December 31, 1999 were generated from our
fabrication and sales operations.

MARKETS AND CUSTOMERS

Our customer base consists of over 650 domestic and international companies
engaged in all aspects of the oil and gas industry, including major integrated
oil and gas companies, international state owned oil and gas companies, large
and small independent producers, natural gas processors, gatherers and
pipelines. We have entered into strategic alliances with a number of our key
customers. These alliances are essentially preferred vendor arrangements and
give us preferential consideration for the compression needs of these customers.
In exchange, we provide these customers with enhanced product availability,
product support and favorable pricing. In fiscal year 1999, no single customer
accounted for as much as 10% of our total revenues. Our top 20 customers
accounted for approximately 50% of our rental revenues in fiscal year 1999.

PROPERTIES

The following table describes our owned facilities:

<TABLE>
<CAPTION>
LOCATION SQUARE FEET ACREAGE USES
- -------- ----------- ------- ----
<S> <C> <C> <C>
Houston, Texas....................... 114,000 30.0 Corporate headquarters,
repackaging, overhaul and
fabrication
Mineral Wells, Texas................. 83,000 37.0 Repackaging, overhaul and field
service
Bridgeport, Texas.................... 18,000 2.5 Field service
Grand Junction, Colorado............. 11,000 2.8 Repackaging, overhaul and field
service
Stinnett, Texas...................... 4,000 4.0 Field service
</TABLE>

In addition to our owned facilities, we lease 18 domestic field service
offices and two international sales offices.

COMPETITION

The natural gas compressor rental, maintenance, service and fabrication
business is highly competitive. We face competition from large national and
multinational companies with greater financial resources and, on a regional
basis, from several smaller companies.

As of December 31, 1999, our main competitors were Hanover Compression
Company, Weatherford Global Compression Services, Production Operators, Inc.,
Compressor Systems, Inc. and J-W Operating Company. We believe that we compete
effectively on the basis of customer service, including the availability of our
personnel in remote locations, price, flexibility in meeting customer needs and
quality and reliability of our compressors and related services.

Our engineered products division competes with other fabricators of
compressor units. The compressor fabrication business is dominated by a few
major competitors, several of which also compete with us in the compressor
rental business.

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<PAGE> 45

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

We are subject to stringent and complex federal, state and local laws and
regulations regarding the protection of the environment. Compliance with these
laws and regulations may affect the costs of our operations. Moreover, failure
to comply with these environmental laws and regulations may result in the
imposition of administrative, civil, and criminal penalties. Not all of our
properties may be in full compliance with all applicable environmental
requirements. However, as part of the regular evaluation of our operations, we
are updating the environmental condition of our acquired properties as necessary
and, overall, we believe that we are in substantial compliance with applicable
environmental laws and regulations and that the phasing in of emission controls
and other known regulatory requirements at the rate currently contemplated by
such laws and regulations will not have a material adverse effect on our
financial condition or results of operations.

Under the Comprehensive Environmental Response, Compensation and Liability
Act, referred to as "CERCLA," and related state laws and regulations, joint and
several liability can be imposed without regard to fault or the legality of the
original conduct on certain classes of persons that contributed to the release
of a "hazardous substance" into the environment. These persons include the owner
and operator of a contaminated site where a hazardous substance release occurred
and any company that transported, disposed of, or arranged for the transport or
disposal of hazardous substances released at the site. Under CERCLA, we may be
liable for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources. In addition,
it is not uncommon for the neighboring land owners and other third parties to
file claims for personal injury, property damage and recovery of response costs.

As part of our operations, we generate wastes, including hazardous wastes
such as used paints and solvents. The management and disposal of hazardous
wastes are subject to the Resource Conservation and Recovery Act, referred to as
RCRA, and comparable state laws. These laws and the regulations implemented
thereunder govern the generation, storage, transfer and disposal of hazardous
wastes. The U.S. Environmental Protection Agency and various state agencies have
limited the approved methods of disposal for certain hazardous and nonhazardous
wastes.

We currently own or lease, and have in the past owned or leased, a number
of properties that have been used, some for many years by third parties over
whom we have no control, in support of natural gas compression services or other
industrial operations. As with any owner or operator of property, we may be
subject to clean-up costs and liability under CERCLA, RCRA or other
environmental laws for hazardous waste, asbestos or any other toxic or hazardous
substance that may exist on or under any of our properties, including waste
disposed or groundwater contaminated by prior owners or operators. In the past,
we have performed certain remediation activities required under environmental
laws. The cost of this remediation has not been material to date. We are
currently undertaking groundwater monitoring at two of our facilities, which may
further define remedial obligations. We believe that former owners and operators
of many of these properties, including Tidewater, Inc., are responsible under
environmental laws and contractual agreements to pay for or perform such
remediation, or to indemnify us for our remedial costs. There can be no
assurance that these other entities will fulfill their legal or contractual
obligations, and their failure to do so could result in material costs to us.

In most cases, our customers contractually assume all environmental
compliance and permitting obligations and environmental risks related to
compressor operations, even in cases where we operate and maintain the
compressors on their behalf. Under our rental service agreements, our customers
must indemnify us for any loss or liability we may suffer as a result of the
failure to comply with applicable environmental laws, including requirements
pertaining to necessary permits such as air permits.

Air pollutant emissions from natural gas compressor engines are a
substantial environmental concern for the natural gas transportation industry.
Federal regulations are expected to require operators to impose or increase
obligations to reduce emissions of nitrogen oxides from internal combustion
engines in transmission service.

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<PAGE> 46

Stricter standards in environmental legislation or regulations that may
affect us may be imposed in the future, such as proposals to make hazardous
wastes subject to more stringent and costly handling, disposal and clean-up
requirements. Accordingly, new laws or regulations or amendments to existing
laws or regulations (including, but not limited to, regulations concerning
ambient air quality standards and global climate change) could require us to
undertake significant capital expenditures and could otherwise have a material
adverse effect on our business, results of operations and financial condition.

Since 1992, there have been various proposals to impose taxes with respect
to the energy industry, none of which have been enacted and all of which have
received significant scrutiny from various industry lobbyists. At the present
time, given the uncertainties regarding the proposed taxes, including the
uncertainties regarding the terms which the proposed taxes might ultimately
contain and the industries and persons who may ultimately be the subject of such
taxes, it is not possible to determine whether any such tax will have a material
adverse affect on us.

Our foreign operations are potentially subject to similar governmental
controls and restrictions relating to the environment. We believe that we are in
substantial compliance with any such foreign requirements pertaining to the
environment.

LEGAL PROCEEDINGS

We are not currently defending any material litigation or proceeding and
are not aware of any such litigation or proceeding threatened against us.

INSURANCE

We believe that our insurance coverage is customary for the industry and
adequate for our business. As is customary in the natural gas service operations
industry, we review our safety equipment and procedures and carry insurance
against some, but not all, risks of our business. Losses and liabilities would
reduce our revenues and increase our costs to the extent not covered by
insurance. The natural gas service operations business can be hazardous,
involving unforeseen circumstances such as uncontrollable flows of gas or well
fluids, fires and explosions or environmental damage. To address the hazards
inherent in our business, we maintain an insurance program covering our
worldwide interests. This insurance coverage includes physical damage coverage,
third party general liability insurance, employer's liability, including well
control, environmental and pollution and other coverage, although coverage for
environmental and pollution-related losses is subject to significant
limitations. In addition, our service contracts shift certain risks to our
customers.

EMPLOYEES

As of March 1, 2000, we had 556 employees. None of our employees are
covered by a collective bargaining agreement. We believe that our relationship
with our employees is satisfactory.

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<PAGE> 47

MANAGEMENT

BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to each
person who is a director or an executive officer of Universal:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen A. Snider.............. 52 President, Chief Executive Officer and Director
Ernie L. Danner................ 46 Executive Vice President and Director
Richard W. FitzGerald.......... 45 Senior Vice President and Chief Financial Officer
Valerie L. Banner.............. 44 Senior Vice President, General Counsel and Secretary
Newton H. Schnoor.............. 52 Senior Vice President and Controller
Jack B. Hilburn, Jr. .......... 55 Senior Vice President of Operations
Kirk E. Townsend............... 41 Vice President of Sales
Samuel Urcis................... 65 Director and Chairman of the Executive Committee of
the Board
Thomas C. Case................. 51 Director
John K. Castle................. 59 Director
C. Kent May.................... 60 Director
Jeffrey M. Siegal.............. 40 Director
</TABLE>

The following individuals are our executive officers:

Stephen A. Snider has been President of Universal Compression, Inc. since
1994 and became President of our operating subsidiary upon consummation of the
Tidewater Compression acquisition. Mr. Snider joined Tidewater in 1975 as
General Manager of air compressor operations. In 1979, Mr. Snider established
Tidewater Compression's operations in the Northeastern United States. In 1981,
he assumed responsibility for the Western United States operations of Tidewater
Compression. Mr. Snider left Tidewater in 1983 to own and operate businesses
unrelated to the energy industry. He returned to Tidewater in 1991 as Senior
Vice President of Compression. Mr. Snider has 25 years of experience in senior
management of operating companies.

Ernie L. Danner joined Universal as Chief Financial Officer and Executive
Vice President upon consummation of the Tidewater Compression acquisition. In
April 1999, his duties as Chief Financial Officer were assumed by Richard
FitzGerald. Prior to joining Universal, Mr. Danner served as Chief Financial
Officer and Senior Vice President of MidCon Corp., an interstate pipeline
company and a wholly-owned subsidiary of Occidental Petroleum Corporation. From
1988 until May 1997, Mr. Danner served as Vice President, Chief Financial
Officer and Treasurer of INDSPEC Chemical Company and he also served as a
director of INDSPEC. From 1984 to December 1988, he was the Executive Vice
President -- Finance, Administration and Planning of Adams and Porter, an
international agency specializing in marine and energy insurance.

Richard W. FitzGerald has been Senior Vice President and Chief Financial
Officer of Universal since April 1999. Mr. FitzGerald held the position of Vice
President -- Financial Planning and Services of K.N. Energy from February 1998
to April 1999. Prior to that date, Mr. FitzGerald served as Vice President and
Controller of MidCon Corp., a wholly-owned subsidiary of Occidental Petroleum
Corporation, for a period in excess of five years.

Valerie L. Banner has been Senior Vice President and General Counsel of
Universal since June 1998. Ms. Banner was in private practice as a solo
practitioner from March 1996 to May 1998. Prior to that time, Ms. Banner was
employed as Vice President and General Counsel of Team, Inc., an American Stock
Exchange company providing industrial services, for a period in excess of five
years.

Newton H. Schnoor has been Vice President and Controller of Universal since
1985, and became Senior Vice President and Controller of our operating
subsidiary upon consummation of the Tidewater

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<PAGE> 48

Compression acquisition. Mr. Schnoor joined Tidewater in 1979 as Controller of
the Western Division of its rental operations. In 1985, Mr. Schnoor supervised
the national consolidation and reorganization of the accounting group in
Houston. Mr. Schnoor has over 19 years of management experience in the natural
gas compression industry.

Jack B. Hilburn, Jr. has been Universal's Senior Vice President of
Operations since April 1999. Mr. Hilburn is responsible for all field
operations, overhaul shops and warehouses. Mr. Hilburn joined Universal in 1994
to oversee domestic operations. In September 1996, Mr. Hilburn was promoted to
Vice President of Operations and in April 1999, he was promoted to Senior Vice
President of Operations. Prior to 1994, Mr. Hilburn was employed by Marathon Oil
Corporation in various capacities, including Region Manager of southeast onshore
and lower 48 offshore production operations, and later as Manager of Operations
and Construction Services. Mr. Hilburn has over 26 years of management
experience in the oil and gas industry.

Kirk E. Townsend has been Vice President of Sales for Universal since
October 1999. Mr. Townsend is presently responsible for all sales activities
both domestic and international. Mr. Townsend joined Universal in 1979 as a
domestic sales representative. In 1986, he became an international sales
representative for Universal. Mr. Townsend was promoted to Vice President of
Business Development in April 1999, and Vice President of Sales in October 1999.
Mr. Townsend has over 21 years of sales and management experience in the natural
gas compression industry.

In addition to Messrs. Snider and Danner, the following individuals serve
on our board of directors:

Samuel Urcis is a General Partner of Alpha Partners, a venture capital firm
which he co-founded in 1982. From 1979 to 1982, and since 1997, Mr. Urcis has
been an investor and advisor in the energy field, primarily in the oilfield
services and equipment sector. From 1972 to 1979, Mr. Urcis was with Geosource
Inc., a diversified services and equipment company, which he conceptualized and
co-founded. Mr. Urcis served in the capacity of Chief Operating Officer and Vice
President of Corporate Development. From 1955 to 1972, Mr. Urcis served in
various technical and management capacities at Rockwell International, Hughes
Aircraft, Aerolab Development Company and Sandberg-Serrell Corporation. Mr.
Urcis has served as a Director of the Glaucoma Research Foundation, and as a
Trustee of the Monterey Institute of International Studies. Mr. Urcis serves as
a director of Universal pursuant to an agreement entered into in connection with
the Tidewater Compression acquisition.

Thomas C. Case served as the President of Mobil Global Gas & Power, Inc.
and was responsible for gas marketing and power development in North and South
America from 1998 until December 1999. Mr. Case retired from Mobil on April 1,
2000. From 1996 to 1997, Mr. Case was the Executive Vice President of Duke
Energy (formerly Pan Energy) Trading and Market Services, a joint venture
between Duke Energy and Mobil. From 1991 to 1996, he held various positions with
Mobil serving at various times as President and Executive Vice President/Chief
Operating Officer of Mobil Natural Gas Inc., Manager of Strategic Planning for
Exploration and Production of Mobil and President of Mobil Russia.

John K. Castle has been Chairman of Castle Harlan, Inc. since 1987. Mr.
Castle is also Chairman of Castle Harlan Partners III G.P., Inc., which is the
general partner of the general partner of Castle Harlan Partners, III, L.P.,
Universal's controlling stockholder, and of Castle Connolly Medical Ltd. and
Castle Connolly Graduate Medical Publishing, LLC. He serves as Chairman and
Chief Executive Officer of Branford Castle Holdings, Inc., an investment holding
company. Immediately prior to forming Branford Castle Holdings, Inc. in 1986,
Mr. Castle was President and Chief Executive Officer and a Director of
Donaldson, Lufkin and Jenrette, Inc., one of the nation's leading investment
banking firms. Mr. Castle is a Director of Sealed Air Corporation, Morton's
Restaurant Group, Inc., Commemorative Brands, Inc., H&C Purchase Corporation,
Wilshire Restaurant Group, Inc. and Statia Terminals Group, N.V., and is a
Member of the Corporation of the Massachusetts Institute of Technology. Mr.
Castle is also a Trustee of the New York Presbyterian Hospital Authority, the
Whitehead Institute of Biomedical Research. Formerly, Mr. Castle was a Director
of the Equitable Life Assurance Society of the United States and Trustee of the
New York Medical College, where he served as Chairman of the Board for 11 years.

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<PAGE> 49

C. Kent May is a Senior Vice President, General Counsel, Secretary and a
Director of Anchor Glass Container Corporation. He is General Counsel, Secretary
and a Director of Consumers Packaging Inc., Canada's largest glass container
manufacturer, and a Director of Fabrica de Envases de Vidrio, S.A. de C.V., a
Mexican glass container manufacturer. He serves as General Counsel to Glenshaw
Glass Company and G&G Investments, Inc., a privately-held investment company. He
is also a manager and secretary of Main Street Capital Holdings, L.L.C., a
merchant banking firm and a Director of The Stiffel Company. He has been an
associate, partner or member of the law firm of Eckert Seamans Cherin &
Mellotte, L.L.C. since 1964 and was Managing Partner of the firm from 1991 to
1996. Mr. May is a Director of the Mendelssohn Choir and the John Ghaznavi
Foundation.

Jeffrey M. Siegal is a Senior Managing Director of Castle Harlan, Inc.,
with which he has been associated since 1989. Previously, Mr. Siegal served as a
Captain and Program Manager in the Air Force Systems Command of the United
States Air Force. Before that, he was with Woodward and Dickerson, an
international trading company where he engaged in business transactions with the
Soviet Union and China. He is a board member of Verdugt Holdings, LLC., and
formerly served on the boards of INDSPEC Chemical Corporation and First Re
Management Company, Inc.

No family relationship exists between any of our executive officers or
between any of them and any of our directors. Currently, our directors do not
serve fixed terms. Each of our directors has served for at least two fiscal
years, except Mr. Case, who was elected during fiscal year 1999.

Following this offering, we will appoint one additional individual who is
independent of Universal and Castle Harlan to serve on our board of directors.

ELECTION OF CERTAIN DIRECTORS

We have agreed with Castle Harlan to nominate two of their affiliates as
directors, so long as their designees are reasonably qualified, and we have
agreed that the board of directors will recommend in our proxy statement that
our stockholders vote for these designees. Castle Harlan will have this right as
long as it, together with its affiliates, continues to beneficially hold at
least 20% of our outstanding common stock.

CLASSIFIED BOARD OF DIRECTORS

Our restated certificate of incorporation, effective upon the closing of
this offering, 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. These provisions, together with the
provisions of the restated certificate of incorporation that allow the board of
directors to fill vacancies in or increase the size of the board of directors,
would prevent a stockholder from removing incumbent directors and filling such
vacancies with its nominees in order to gain control of the board.

COMMITTEES OF THE BOARD

Our board of directors has established an Executive Committee, Audit
Committee and Compensation Committee.

The Executive Committee, to the extent permitted by Delaware law, has all
powers and rights of our board of directors. The members of the Executive
Committee are Messrs. Urcis (Chairman), Castle, Siegal and Snider.

The Audit Committee is primarily concerned with the effectiveness of our
accounting policies and practices, financial reporting and internal controls.
The Audit Committee is authorized to (i) select, retain and dismiss our
independent auditors, (ii) review the plans, scope and results of the annual
audit, the independent auditors' letter of comments and management's response
thereto, and the scope of any non-audit services which may be performed by the
independent auditors, (iii) manage our policies and procedures with respect to
internal accounting and financial controls and (iv) review any changes in
accounting policy. The members of the Audit Committee are Messrs. Urcis
(Chairman), May and Case.
45
<PAGE> 50

The Compensation Committee is authorized and directed to review and approve
compensation and benefits of the executive officers, to review and approve the
annual salary plans, and to review and advise our board of directors regarding
the benefits, including bonuses, and other terms and conditions of employment of
our other employees. Members of the Compensation Committee are Messrs. Castle
and Siegal.

EXECUTIVE COMPENSATION

The following table sets forth the annual and long-term compensation for
fiscal 1999 and 1998 for our Chief Executive Officer and our other four highest
paid officers, plus Tom Hartford, whose employment terminated February 28, 1999
and who would have been among the four most highly compensated officers if he
remained employed by us as of the end of fiscal 1999. In addition, Robert Ryan's
employment with us terminated February 1, 2000. Information is presented for
fiscal years 1998 and 1999 only, as we commenced operations in February 1998
following consummation of the Tidewater Compression acquisition.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
FISCAL SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
--------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stephen A. Snider......................... 1999 170,000 43,890 6,619 41,965(1)
President & Chief Executive Officer 1998 170,000 172,500 6,619 1,128,976(1)
Ernie L. Danner........................... 1999 135,000 43,080 4,780 8,095(2)
Executive Vice President 1998 13,836 -- 4,780 350,492(2)
Robert D. Ryan............................ 1999 107,500 29,780 2,206 7,245(3)
Senior Vice President -- Sales 1998 89,250 38,800 2,206 80,072(3)
Newton H. Schnoor......................... 1999 95,000 26,058 2,206 6,851(4)
Senior Vice President & Controller 1998 78,354 48,600 2,206 106,245(4)
Valerie L. Banner(5)...................... 1999 83,350 17,708 2,206 2,250(6)
Senior Vice President, General Counsel & 1998 -- -- -- --
Secretary
Thomas E. Hartford........................ 1999 123,750 -- -- 449,714(7)
Executive Vice President 1998 117,083 69,250 4,780 352,389(7)
</TABLE>

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

(1) Includes (a) matching contributions made by Tidewater and Universal to Mr.
Snider's 401(k) account of $5,100 during fiscal 1999 and $2,069 during
fiscal 1998, (b) $3,876 in health premiums paid by Tidewater and Universal
on behalf of Mr. Snider under its executive medical plans during each of
fiscal 1998 and 1999, (c) $3,031 and $3,187 payments made by Tidewater and
Universal on behalf of Mr. Snider pursuant to their Supplemental Savings
Plan of $3,187 during fiscal 1999 and $3,031 during fiscal 1998, (d) $29,800
paid by Universal to Mr. Snider for moving expenses during fiscal 1999, (e)
certain immaterial amounts for tax preparation services and (f) $1,120,000
paid to Mr. Snider in fiscal 1998 as incentive compensation pursuant to the
completion of the Tidewater Compression acquisition.

(2) Includes (a) matching contributions made by Universal to Mr. Danner's 401(k)
account of $4,050 during fiscal 1999 and $169 during fiscal 1998, (b) health
care premiums paid by Universal on behalf of Mr. Danner under Universal's
Executive Medical Plan of $3,876 during fiscal 1999 and $323 during fiscal
1998, (c) $169 paid by Universal on behalf of Mr. Danner pursuant to its
Supplemental Savings Plan during fiscal 1999, (d) certain immaterial amounts
for reimbursement of country club dues and (e) $100,000 in cash and $250,000
in capital stock paid to Mr. Danner during fiscal 1998 as incentive
compensation pursuant to the completion of the Tidewater Compression
acquisition.

46
<PAGE> 51

(3) Includes (a) matching contributions made by Universal to Mr. Ryan's 401(k)
account of $3,225 during fiscal 1999 and $2,678 during fiscal 1998, (b)
health care premiums paid by Universal on behalf of Mr. Ryan under its
Executive Medical Plan of $3,876 during fiscal 1999 and $394 during fiscal
1998, (c) $144 paid by Universal on behalf of Mr. Ryan pursuant to its
Supplemental Savings Plan during fiscal 1999 and (d) $77,000 paid to Mr.
Ryan during fiscal 1998 as incentive compensation pursuant to the completion
of the Tidewater Compression acquisition.

(4) Includes (a) matching contributions made by Universal to Mr. Schnoor's
401(k) account of $2,850 during fiscal 1999 and $2,350 during fiscal 1998,
(b) $3,876 in health care premiums paid by Universal on behalf of Mr.
Schnoor under its Executive Medical Plan during each of fiscal 1998 and
1999, (c) $125 paid by Universal on behalf of Mr. Schnoor during fiscal 1999
pursuant to its Supplemental Savings Plan, and (d) $103,500 paid by
Universal to Mr. Schnoor during fiscal 1998 as incentive compensation
pursuant to the completion of the Tidewater Compression acquisition.

(5) Ms. Banner joined Universal in June 1998. Her annual base salary is
$100,000, with a target bonus of 50% of her base salary.

(6) Includes $2,250 of matching contributions made by Universal to Ms. Banner's
401(k) account.

(7) Includes (a) matching contributions made by Universal to Mr. Hartford's
401(k) account of $11,813 during fiscal 1999 and $2,075 during fiscal 1998,
(b) $3,876 in health care premiums paid by Universal on behalf of Mr.
Hartford under its Executive Medical Plan during each of fiscal 1998 and
1999, (c) payments made by Tidewater and Universal behalf of Mr. Hartford
pursuant to their Supplemental Savings Plans of $2,025 during fiscal 1999
and $1,438 during fiscal 1998, (d) $345,000 paid to Mr. Hartford during
fiscal 1998 as incentive compensation pursuant to the completion of the
Tidewater Compression acquisition, and (e) $432,000 paid to Mr. Hartford
during fiscal 1999 pursuant to his employment agreement in connection with
the termination of his employment in February 1999.

The following table sets forth grants of options to purchase shares of
common stock during fiscal 1999:

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(1)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION --------------------
GRANTED IN 1999 ($/SHARE) DATE 5% 10%
---------- ---------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Snider.......... -- -- -- -- -- --
Ernie L. Danner............ -- -- -- -- -- --
Robert D. Ryan(2).......... -- -- -- -- -- --
Newton H. Schnoor.......... -- -- -- -- -- --
Valerie L. Banner.......... 2,206(3) 19.0% 50 6/01/08 $69,367 $175,790
Thomas E. Hartford(2)...... -- -- -- -- -- --
</TABLE>

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

(1) The hypothetical potential appreciation shown in these columns reflects the
required calculations at annual assumed appreciation rates of 5% and 10%, as
set by the Securities and Exchange Commission, and therefore is not intended
to represent either historical appreciation or anticipated future
appreciation of Universal's common stock.

(2) In connection with their termination of employment, all options held by
Messrs. Ryan and Hartford lapsed and were forfeited.

(3) One-third of Ms. Banner's options vest on each of the first, second and
third anniversaries of the option grant date.

47
<PAGE> 52

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
UNEXERCISED OPTIONS AS OF VALUE OF OPTIONS
MARCH 31, 1999(1) AS OF MARCH 31, 1999(2)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen A. Snider.......................... 4,413 2,206
Ernie L. Danner............................ 4,780 --
Valerie L. Banner.......................... 735 1,471
Robert D. Ryan(3).......................... 1,471 735
Newton H. Schnoor.......................... 1,471 735
Thomas E. Hartford(3)...................... 1,471 735
</TABLE>

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

(1) No options were exercised by any named executive officer during fiscal year
1999.

(2) Calculated using an assumed initial public offering price of $ per share
as the assumed fair market value per share of common stock on March 31,
1999.

(3) In connection with their termination of employment, all options held by
Messrs. Ryan and Hartford lapsed and were forfeited.

EMPLOYMENT AGREEMENTS

We have entered into employment agreements with the following officers:

- Stephen Snider pursuant to which Mr. Snider serves as our President for
an annual base salary of $170,000, plus a target bonus of up to 70% of
such base salary;

- Ernie Danner pursuant to which Mr. Danner serves as our Executive Vice
President for an annual base salary of $24,000, plus a discretionary
bonus;

- Richard FitzGerald pursuant to which Mr. FitzGerald serves as Senior Vice
President and Chief Financial Officer for an annual base salary of
$150,000, plus a target bonus of up to 50% of such base salary;

- Valerie Banner pursuant to which Ms. Banner serves as our Senior Vice
President and General Counsel for an annual base salary of $100,000, plus
a target bonus of up to 50% of such base salary; and

- Newton Schnoor pursuant to which Mr. Schnoor serves as our Senior Vice
President and Controller for an annual base salary of $100,000, plus a
target bonus of up to 50% of such base salary.

Each employment agreement has a stated duration of three years, except for
Ms. Banner's, which has a one-year term with automatic one-year renewals
thereafter. If during the stated duration or any extension of duration, a
"change of control" occurs, each agreement automatically extends to a date that
is the second anniversary of the change of control. In addition, each employment
agreement, other than Ms. Banner's, provides that if the officer is terminated
without cause during the initial term, the officer will be paid for the
remainder of the term, plus a bonus amount based on previously paid bonuses. Ms.
Banner's employment agreement provides that if her employment is terminated
without cause, she is entitled to a lump sum severance payment equal to her
annual base salary in effect at the time of termination plus her average annual
bonus. Pursuant to the employment agreements and our officers' incentive plan,
bonuses are payable based on our safety record and financial performance, plus a
discretionary component. These agreements also place restrictions on the ability
of these individuals to disclose confidential information, to compete against us
and to hire or solicit certain of our employees if the individual's employment
with us is terminated.

48
<PAGE> 53

CHANGE OF CONTROL AGREEMENTS

In addition to the change of control provisions described above, we have
entered into change of control agreements with Messrs. Townsend and Hilburn.
Pursuant to those agreements, in the event that their employment with us is
terminated within one year after a "change in control" of us, then the executive
is entitled to severance pay and other benefits. The severance payment is based
upon the executive's annual base salary and bonus target amount at the time of
termination. The agreements define a "change in control" to mean the beneficial
ownership by any person or entity other than Castle Harlan of more than 50% of
our outstanding capital stock, or in specified circumstances, the failure to
reelect a majority of the members of our board of directors. These agreements
also restrict the ability of Messrs. Townsend and Hilburn to compete against us.

MANAGEMENT OPTIONS AND EMPLOYEE STOCK PURCHASES

In order to motivate and retain our key employees, in fiscal 1999, we
established an Incentive Stock Option Plan. Under the Incentive Stock Option
Plan, we can award to key employees either incentive stock options to purchase
common stock, or non-qualified stock options to purchase common stock. The
decision whether to grant options, the key employees to whom to options should
be granted, whether they are incentive stock options or non-qualified stock
options, the number of shares of common stock to be the subject of each option,
as well as other matters concerning the administration of the Incentive Stock
Option Plan are determined by the compensation committee of our board of
directors. The interpretation of the plan's provisions are solely within the
discretion of our board of directors or the compensation committee acting as
administrator of the plan. Options granted under the Incentive Stock Option Plan
have a ten-year term, are typically subject to vesting, include anti-dilution
provisions and have an exercise price per share equal to or greater than the
fair market value of the shares on the date of grant. Effective upon the
completion of this offering, all options will become fully vested, subject to
adjustment.

Messrs. Hilburn and Townsend each received stock options. In addition,
Messrs. Snider, Danner, FitzGerald and Schnoor and Ms. Banner each received
stock options and have registration rights with respect to their stock.

In connection with the conversion of our preferred stock and this offering,
the Company intends to grant additional fully vested options to purchase an
aggregate shares of our common stock at $ per share to each of the
existing option holders.

Under our Non-Qualified Stock Purchase Plan, all of our employees and
directors were offered the opportunity and 44 employees and two directors
purchased a total of 1,996 shares of common stock and 7,984 shares of Series A
preferred stock at $50 per share during March 1999. There will be no additional
shares offered under this Stock Purchase Plan and such plan will be terminated
upon consummation of the offering.

Upon completion of the Tidewater Compression acquisition, Mr. Danner also
received 1,000 shares of common stock, 4,000 shares of Series A preferred stock
(converted into shares of common stock in the conversion) and $100,000 in
cash.

COMPENSATION OF DIRECTORS

Directors who are not officers of Universal, are not affiliated with Castle
Harlan and are not otherwise being paid, directly or indirectly, by us receive
an annual director fee of $20,000, $750 per board of directors or committee
meeting attended and reasonable out-of-pocket expenses. At present, only C. Kent
May and Thomas C. Case are entitled to this compensation. Directors are not
otherwise compensated for their services.

LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS

Our restated certificate of incorporation, in the case of our directors,
and by-laws, in the case of our officers, provides that our directors and
officers are indemnified to the fullest extent permitted by law.
49
<PAGE> 54

We have entered into indemnification agreements with our officers and
directors that, among other things, require us to indemnify our officers and
directors to the fullest extent permitted by law, and to advance to the officers
and directors all related expenses, subject to repayment if it is subsequently
determined that indemnification is not permitted. We are also required to
indemnify and advance all expenses incurred by our officers and directors
seeking to enforce their rights under the indemnification agreements, and cover
officers and directors under our directors' and officers' liability insurance.

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

John K. Castle and Jeffrey M. Siegal are the sole members of our
compensation committee. None of our executive officers serve as a member of the
board of directors or the compensation committee of another entity which has an
executive officer serving on our board of directors or compensation committee.

50
<PAGE> 55

PRINCIPAL STOCKHOLDERS

The table below sets forth certain information regarding beneficial
ownership of our common stock as of March 1, 2000 and as adjusted to reflect (1)
the sale of shares of common stock offered in this offering, (2) the conversion
of preferred stock to common stock to be effected in connection with the
offering, and (3) the -for-one common stock split also to be effected
in connection with offering:

- each person known by us to beneficially own five percent or more of any
class of our capital stock,

- each of our directors,

- each of our executive officers and

- all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as indicated in the footnotes to this
table, each stockholder named in the table has sole voting and investment power
with respect to the shares set forth opposite the stockholder's name. Except as
otherwise set forth below, shares of common stock not outstanding but deemed
beneficially owned by virtue of a person or group to acquire them within 60 days
are treated as outstanding only for purposes of determining the percentage owned
by such person or group. Except as otherwise set forth below, each named owner
has sole voting power and investment power of the shares set forth. The address
for each executive officer and director set forth below is c/o Universal
Compression Holdings, Inc., 4440 Brittmoore Road, Houston, Texas 77041.

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE BENEFICIALLY OWNED
SHARES OF -------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK BEFORE THE OFFERING(1) AFTER THE OFFERING
- ------------------------------------ ------------ ---------------------- ------------------
<S> <C> <C> <C>
Castle Harlan Partners III(2)
150 East 58th Street
New York, New York 10155................... % %
BT Capital Partners, Inc.
130 Liberty Street, 25th Floor
New York, New York 10006................... % %
First Union Capital Partners, Inc.
301 S. College Street, 5th Floor
One First Union Center
Charlotte, North Carolina 28288............ % %
Mellon Bank N.A., as Trustee for the
Bell Atlantic Master Trust
245 Park Avenue, 40th Floor
New York, New York 10166................... % %
Wilmington Trust, as Trustee of
Du Pont Pension Trust
Delaware Corporate Center
1 Righter Parkway
Wilmington, Delaware 19803................. % %
Thomas C. Case............................... * *
John K. Castle(3)............................ % %
Samuel Urcis(4).............................. % %
C. Kent May.................................. * *
Jeffrey M. Siegal............................ * *
Stephen A. Snider(5)......................... % %
</TABLE>

51
<PAGE> 56

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

* Indicates less than 1% of the outstanding stock.

(1) Based upon shares of common stock outstanding. There are presently
treasury shares issued that are not counted as outstanding in
calculating the beneficial ownership percentage.

(2) Castle Harlan Partners holds approximately shares of common stock
for its own account and the remaining shares for the account of related
entities and persons, all of which may be deemed to be beneficially owned
by Castle Harlan Partners. Castle Harlan Partners disclaims beneficial
ownership of such shares.

(3) Includes shares of common stock beneficially owned by Castle Harlan
Partners and its affiliates. John K. Castle is a director of Universal and,
along with Leonard M. Harlan, is the controlling stockholder of Castle
Harlan Partners III G.P., Inc., the general partner of the general partner
of Castle Harlan Partners. In this capacity, he may be deemed to be a
beneficial owner of the shares owned by Castle Harlan Partners. Also,
includes shares subject to voting agreements and voting trust
agreements pursuant to which Mr. Castle may direct the voting of such
shares, which agreements with respect to shares will terminate upon
the completion of this offering. Mr. Castle and Mr. Harlan disclaim
beneficial ownership of such shares in excess of their respective pro rata
partnership interests and Mr. Castle disclaims beneficial ownership of such
shares subject to the voting agreements.

(4) Includes shares of common stock purchased by Mr. Urcis, as well as
shares subject to the option granted to him on February 20, 1998. Also
includes shares of common stock owned by Castle Harlan Partners, which
shares Mr. Urcis has the option to purchase for $50 per share.

(5) Includes shares of common stock subject to an option granted by
Universal to Mr. Snider on February 20, 1998. This option vests over three
years and is exercisable for $50 per share.

(6) Includes shares of common stock subject to an option granted by
Universal to Mr. Danner on February 20, 1998. This option is exercisable
for $50 per share.

(7) Includes shares of common stock subject to an option granted by
Universal to Mr. FitzGerald on April 12, 1999 and 80 shares of common stock
purchased by Mr. FitzGerald on January 31, 2000. This option will vest over
three years and will be exercisable for $50 per share.

(8) Consists of shares of common stock subject to an option granted by
Universal to Ms. Banner on June 1, 1998 and shares of common stock
purchased by Ms. Banner on January 31, 2000. Ms. Banner's option vests over
three years and will be exercisable for $50 per share.

(9) Includes shares of common stock subject to an option granted by
Universal to Mr. Schnoor on February 20, 1998. This option vests over three
years and will be exercisable for $50 per share.

(10) Includes shares of common stock subject to an option granted by
Universal to Mr. Hilburn on February 20, 1998 and shares of common
stock subject to an option granted by Universal to Mr. Hilburn on April 1,
1999. These options vest over three years and will be exercisable for $50
per share.

(11) Includes shares of common stock subject to an option granted by
Universal to Mr. Townsend on February 20, 1998, shares of common stock
subject to an option granted by Universal to Mr. Townsend on April 1, 1999
and shares of common stock subject to an option granted by Universal
to Mr. Townsend on November 1, 1999. These options vest over three years
and will be exercisable for $50 per share.

52
<PAGE> 57

RELATED TRANSACTIONS

MANAGEMENT AGREEMENT

In connection with the 1998 Tidewater Compression acquisition, we entered
into a management agreement with Castle Harlan, Inc. pursuant to which Castle
Harlan agreed to provide business and organizational strategy, financial and
investment management and merchant and investment banking services to us. As
compensation for these services, we agreed to pay Castle Harlan a fee of $3.0
million per year, payable quarterly in advance. The agreement is for a term of
five years, renewable automatically from year to year thereafter unless Castle
Harlan or its affiliates then beneficially owns less than 20% of our outstanding
capital stock. We agreed to indemnify Castle Harlan against liabilities, costs,
charges and expenses relating to the performance of its duties, other than those
resulting from Castle Harlan's gross negligence or willful misconduct. Messrs.
Castle, Siegal and Urcis, directors of Universal, are affiliates of Castle
Harlan. This management agreement will terminate upon the completion of this
offering in exchange for (1) our payment to them of $3.0 million, which is equal
to one year's management fee and (2) our issuance to Castle Harlan of shares of
our common stock valued at $3.0 million based on the initial public offering
price. We will make this payment and issue these shares concurrently with the
closing of the offering.

REGISTRATION RIGHTS AGREEMENT

In connection with the acquisition of Tidewater Compression, we entered
into a registration rights agreement with Castle Harlan Partners and some of our
other stockholders. Under the registration rights agreement, these stockholders
generally have the right to require us to register any or all of their shares of
common stock under the Securities Act of 1933, as amended, at our expense. In
addition, these stockholders are generally entitled to include, at our expense,
their shares of our common stock covered by the registration rights agreement in
any registration statement that we propose to file with respect to registration
of our common stock under the Securities Act. In connection with these
registrations, we have agreed to indemnify the stockholders against specified
liabilities, including liabilities under the Securities Act. The stockholders
have waived their registration rights in connection with this offering.

STOCK REPURCHASE ARRANGEMENTS

In connection with the acquisition of Tidewater Compression, we entered
into a stock repurchase agreement with some of our officers. This agreement,
among other things, gives us the right for a limited time to repurchase the
shares of our common stock owned by an officer upon the termination of such
officer's employment with us at an appraised value or at cost, depending on the
reason for termination. In addition, the agreement gives the officers the right
for a limited time to require us to purchase their shares of our common stock at
an appraised value in the event of their death or disability. In March 1999, we
entered into a stock purchase plan buyback agreement in connection with its
non-qualified stock purchase plan. This agreement gives us the right, at our
option, to repurchase shares of our common stock from any employee whose
employment with us is terminated at a formulaic price based on our EBITDA less
certain indebtedness. These agreements will terminate upon the closing of this
offering.

STOCKHOLDERS AGREEMENT

In February 1998, we, Castle Harlan Partners and all of our other
stockholders entered into a stockholders agreement providing for the right of
the holders to join in sales of our stock by Castle Harlan Partners, the right
of Castle Harlan Partners and the other stockholders to purchase shares of our
capital stock in order to maintain their percentage ownership of us in some
circumstances, the right of Castle Harlan Partners to require the other
stockholders to sell their shares of our stock upon a sale by Castle Harlan
Partners of substantially all of its shares of our stock, the obligation of the
other stockholders to offer to us or to Castle Harlan Partners the opportunity
to purchase our stock owned by the stockholders in the event the stockholders
proposed to sell the stock, restrictions on sales or transfers of the stock, and
obligations of us, including reporting and board of directors observer rights,
in favor of these holders.
53
<PAGE> 58

Pursuant to its terms, all substantive provisions of the stockholders
agreement will terminate upon completion of this offering.

VOTING AGREEMENTS

In connection with the Tidewater Compression acquisition, we entered into a
voting agreement and two voting trust agreements. The voting agreement requires
that some of our significant stockholders vote their shares of our common stock
in the same manner as Castle Harlan. A similar voting agreement will also be
entered into in connection with the Spectrum Compression acquisition. The voting
trust agreements provide that all of our other stockholders, including our
employees, assign their shares of our common stock to a voting trust of which
John K. Castle serves as trustee in exchange for interests in the trust. The
interests in the trusts are subject to the transfer restrictions applicable to
shares of our stock under the stockholders agreement. These voting agreements
and trusts will terminate with respect to Energy Spectrum and our employees upon
the completion of this offering, but will otherwise continue unchanged. As a
result of the arrangements set forth in the voting agreement and the voting
trust agreements, Castle Harlan currently has voting control over % of our
common stock and will have control over % after this offering.

ARRANGEMENTS WITH SAMUEL URCIS

In consideration for finder services rendered by Samuel Urcis, one of our
directors, in connection with the Tidewater Compression acquisition, we entered
into an agreement with Mr. Urcis pursuant to which Mr. Urcis (a) was elected as
one of our directors and as chairman of the Executive Committee of our board of
directors, (b) was paid a finders fee of $1,750,000, $1,100,000 of which was
used to purchase shares of our capital stock at the same price per share paid by
Castle Harlan Partners, (c) was granted options to purchase 5,957 shares of our
common stock, (d) performs consulting services for us and (e) is entitled to a
consulting fee from us of $150,000 per year. We also agreed to use our best
efforts to retain Mr. Urcis as a director and as chairman of our executive
committee. This agreement will terminate upon completion of this offering in
exchange for (1) our payment to Mr. Urcis of $150,000, which is equal to one
year's consulting fee, and (2) our issuance to Mr. Urcis of shares of our common
stock valued at $150,000 based on the initial public offering price. We will
make this payment and issue these shares concurrently with the closing of the
offering.

PURCHASE PRICE ADJUSTMENT AGREEMENT

In connection with the acquisition of Tidewater Compression, we entered
into a Purchase Price Adjustment Agreement with Tidewater. Pursuant to that
agreement, upon the occurrence of a "liquidity event," we may have to make
certain payments to Tidewater. A "liquidity event" is defined in the agreement
to include:

- sales by Castle Harlan of its shares of our common stock,

- sales by us of all or substantially all of our assets or mergers by us or
our operating subsidiary with another entity or

- some types of recapitalizations of our stock.

If any of the liquidity events described above occurs and Castle Harlan
receives an amount greater than its accreted investment, defined as its initial
investment increased at a compounded rate of 6.25% each quarter, which equates
to approximately 27.4% annually, we must make a payment to Tidewater equal to
10% of the amount, if any, that Castle Harlan receives in excess of its accreted
investment. As of April 1, 2000, Castle Harlan's accreted investment was $
per share, which will continue to grow at a compounded rate of 6.25% per
quarter. As of April , 2000, assuming the initial public offering price per
share was applied to all of the shares owned by Castle Harlan, this amount would
have been approximately $ million in the event the provisions of the
Purchase Price Adjustment Agreement were triggered. The amount is to be paid in
the same form of consideration as received by Castle Harlan. Any
54
<PAGE> 59

payment pursuant to this agreement would result in an increase in goodwill in
the year of payment and a corresponding increase in goodwill and amortization
expense in subsequent years. This offering is not a liquidity event and does not
trigger a payment.

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, our authorized capital stock will
consist of 200,000,000 shares of common stock, $.01 par value, and 50,000,000
shares of preferred stock, $.01 par value, of which our board of directors has
designated 250,000 shares as Series A Junior Participating Preferred Stock
pursuant to our rights agreement. See "Anti-Takeover Provisions of our Restated
Certificate of Incorporation and Bylaws -- Rights Agreement." We will effect a
-for-1 common stock split in connection with this offering.

COMMON STOCK

Upon closing of this offering, each share of our non-voting common stock
will be converted into common stock on a one-for-one basis and our certificate
of incorporation will be amended to eliminate the non-voting common stock
designations. If the stock split and the conversion of the non-voting common
stock and all of our preferred stock had occurred on December 31, 1999,
shares of our common stock would have been outstanding and held of
record by stockholders on such date. Holders of our common stock are
entitled to one vote for each share on all matters submitted to a vote of
stockholders, including the election of directors. Subject to preferences of any
preferred stock that may be issued in the future, holders of our common stock
may receive such dividends as may be declared by our board of directors. We do
not expect to pay dividends on our common stock in the foreseeable future, and
our credit facility and senior notes restrict our ability to do so. The common
stock does not have any sinking fund provisions, redemption provisions, or
preemptive rights. All outstanding shares of our common stock are fully paid and
non-assessable. In the event of our liquidation, dissolution or winding up,
holders of our common stock are entitled to receive a pro rata share of all of
our assets available for distribution to our stockholders.

SERIES A PREFERRED STOCK

Upon the closing of this offering, all of our outstanding preferred stock
will be converted into an aggregate of shares of common stock on a
for basis. Our board of directors has the authority, without
further action by the stockholders, to issue an aggregate of 50,000,000 shares
of preferred stock in one or more series, of which our board of directors has
designated 250,000 shares as Series A Junior Participating preferred stock
pursuant to our rights agreement. See "Anti-Takeover Provisions under Delaware
Law and in our Restated Certificate of Incorporation and Bylaws -- Rights
Agreement." Our board of directors may, without stockholder approval, issue
preferred stock with dividend rates, voting rights and other preferences, which
rights and preferences could adversely affect the voting power of the holders of
the common stock. Issuance of preferred stock could have the effect of delaying,
deferring or preventing a change in control. Currently, we have no plans to
issue any preferred stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is .

LISTING

We intend to apply to list our common stock on the New York Stock Exchange
under the trading symbol "UCO."

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<PAGE> 60

ANTI-TAKEOVER PROVISIONS OF OUR RESTATED CERTIFICATE
OF INCORPORATION AND BYLAWS

Some provisions of our restated certificate of incorporation and bylaws,
which will be effective upon the completion of this offering, are summarized in
the following paragraphs, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.

CLASSIFIED BOARD OF DIRECTORS

Our restated 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. These provisions,
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 removing incumbent directors or increasing the number of directorships and
simultaneously gaining control of the board of directors by filling the
vacancies or newly created directorships created by such removal or increase
with its own nominees.

CUMULATIVE VOTING

Our restated certificate of incorporation expressly denies stockholders the
right to cumulate votes in the election of directors.

STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS

Our restated certificate of incorporation eliminates the ability of
stockholders to act by written consent and provides that special meetings of
stockholders may be called only by a majority of the board of directors, the
chairman of the board or the majority of an entire committee of the board of
directors.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS

Our bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders or to nominate candidates for election as
directors at an annual meeting of stockholders must provide timely written
notice. To be timely, a stockholder's notice must be delivered to or mailed and
received at our principal executive offices not less than 90 days nor more than
120 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, that in the event that the annual meeting is
called for a date that is not within 30 days before or after such anniversary
date, timely notice by the stockholder must be received not later than the close
of business on the tenth day following the date on which notice of the date of
the annual meeting was mailed to stockholders or made public or 90 days before
the meeting, whichever first occurs. In the case of a special meeting of
stockholders called for the purpose of electing directors, timely notice by the
stockholder must be received not later than the close of business on the tenth
day following the day on which notice of the date of the special meeting was
mailed or public disclosure of the date of the special meeting was made or 90
days before the meeting, whichever first occurs. Our bylaws also specify certain
requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.

AUTHORIZED BUT UNISSUED SHARES

The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be used for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued shares of common stock
and preferred stock could
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<PAGE> 61

render more difficult or discourage an attempt to obtain control by means of a
proxy contest, tender offer, merger or otherwise.

AMENDMENTS; SUPERMAJORITY VOTE REQUIREMENTS

The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our restated certificate of incorporation imposes
supermajority vote requirements in connection with amendments to our bylaws and
certain provisions of our restated certificate of incorporation, including those
provisions relating to the classified board of directors, removal of directors,
action by written consent and the ability of stockholders to call special
meetings.

RIGHTS AGREEMENT

Under Delaware law, every corporation may create and issue rights entitling
the holders of such rights to purchase from the corporation shares of its
capital stock of any class or classes, subject to the provisions of its
certificate of incorporation. The price and terms of such shares must be stated
in the certificate of incorporation or in a resolution adopted by the board of
directors for the creation or issuance of such rights.

Effective upon completion of this offering, we have entered into a
stockholder rights agreement. As with most stockholder rights agreements, the
terms of our rights agreement are complex and not easily summarized,
particularly as they relate to the acquisition of our common stock and to
exercisability. This summary may not contain all of the information that is
important to you. Accordingly, you should carefully read our rights agreement,
which has been filed as an exhibit to the registration statement of which this
prospectus forms a part.

Our rights agreement provides that each share of our outstanding common
stock will have one right to purchase one one-thousandth (1/1,000) of a
preferred share attached to it. The purchase price per one one-thousandth of a
preferred share under the stockholder rights agreement is $ , subject to
certain adjustments.

Initially, the rights under our rights agreement are attached to
outstanding certificates representing our common stock and no separate
certificates representing the rights will be distributed. The rights will
separate from our common stock and be represented by separate certificates
approximately ten days after someone acquires or commences a tender offer for
15% or more of our outstanding common stock.

After the rights separate from our common stock, certificates representing
the rights will be mailed to record holders of the common stock. Once
distributed, the rights certificates alone will represent the rights.

All shares of our common stock issued before the date the rights separate
from the common stock will be issued with the rights attached. The rights are
not exercisable until the date the rights separate from the common stock. The
rights will expire on the tenth anniversary of the date of this offering, unless
they are redeemed or exchanged by us earlier.

If an acquiror obtains or has the rights to obtain 15% or more of our
common stock, then each right will entitle the holder to purchase a number of
shares of our common stock equal to twice the purchase price of each right.

Each right will entitle the holder to purchase a number of shares of common
stock of the acquiror having a then current market value of twice the purchase
price if an acquiror obtains 15% or more of our common stock and any of the
following occurs:

- we merge into another entity,

- an acquiring entity merges into us or

- we sell more than 50% of our assets or earning power.
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<PAGE> 62

Under our rights agreement, any rights that are or were owned by an
acquiror of more than 15% of our outstanding common stock will be null and void.
We have excluded Castle Harlan and its affiliates from the definition of
acquirors.

Our rights agreement contains exchange provisions that provide that after
an acquiror obtains 15% or more, but less than 50%, of our outstanding common
stock, our board of directors may, at its option, exchange all or part of the
then outstanding and exercisable rights for common shares. In such an event, the
exchange ratio will be one common share per right, adjusted to reflect any stock
split, stock dividend or similar transaction.

Our board of directors may, at its option, redeem all of the outstanding
rights under its our agreement before the earlier of (1) the time that an
acquiror obtains 15% or more of our outstanding common stock or (2) the final
expiration date of the rights agreement. The redemption price under our rights
agreement is $0.01 per right, subject to adjustment. The right to exercise the
rights will terminate upon the action of our board ordering the redemption of
the rights at which time the only right of the holders of the rights will be to
receive the redemption price.

Holders of rights will have no rights as our stockholders, including the
right to vote or receive dividends, simply by virtue of holding the rights.

Our rights agreement provides that the provisions of the rights agreement
may be amended by our board of directors in any manner, without the approval of
the holders of the rights until such time as separate certificates representing
the rights are distributed. After this time, however, the rights agreement may
only be amended in certain limited ways. In addition, our rights agreement
provides that no amendment may be made at a time when the rights are not
redeemable.

Our rights agreement contains rights that have potential anti-takeover
effects. The rights may cause substantial dilution to a person or group that
attempts to acquire us without obtaining consent of our board of directors or
conditioning the offer on a substantial number of rights being acquired or
redeemed. Accordingly, the existence of the rights has the potential to deter
potential acquirors from making takeover proposals or tender offers that are not
negotiated with our board of directors. Nevertheless, the rights are not
intended to prevent a takeover, but rather are designed to enhance the ability
of our board of directors to negotiate with an acquiror on behalf of all of our
stockholders. In addition, the rights should not interfere with a proxy contest.

DELAWARE BUSINESS COMBINATION STATUTE

Section 203 of the Delaware General Corporation Law imposes a three-year
moratorium on business combinations between a Delaware corporation and an
"interested stockholder" which is in general, a stockholder owning 15% or more
of a corporation's outstanding voting stock, or an affiliate or associate
thereof unless:

- prior to an interested stockholder becoming an interested stockholder,
the board of directors of the corporation approved either the business
combination or the transaction resulting in the interested stockholder
becoming an interested stockholder;

- upon consummation of the transaction resulting in an interested
stockholder becoming an interested stockholder, the interested
stockholder owns 85% of the voting stock outstanding at the time the
transaction commenced, excluding, from the calculation of outstanding
shares, shares beneficially owned by directors who are also officers and
certain employee stock plans; or

- on or after an interested stockholder becomes an interested stockholder,
the business combination is approved by the board of directors and
holders of at least 66 2/3% of the outstanding shares, other than those
shares beneficially owned by the interested stockholder, at a meeting of
stockholders.

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<PAGE> 63

Section 203 of the Delaware General Corporation Law applies to any corporation
incorporated in Delaware unless the corporation expressly elects not to be
governed by such legislation. Castle Harlan is not considered an interested
stockholder of Universal for the purpose of Section 203.

LIMITATIONS ON DIRECTORS' LIABILITY

Our amended and restated certificate of incorporation provides that none of
our directors shall be liable to us or our stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability:

- for any breach of the director's duty of loyalty to us or our
stockholders;

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

- in respect of certain unlawful dividend payments or stock redemptions or
repurchases; or

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

Additionally, if the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of our directors shall be limited to
the fullest extent permitted by the Delaware General Corporation Law, as
amended. The effect of these provisions is to eliminate our rights and our
stockholder's rights, through stockholders' derivative suits on our behalf or
otherwise, 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. These provisions
do not limit the liability of directors under federal securities laws.

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<PAGE> 64

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock, including shares issued
upon exercise of outstanding options, in the public market could adversely
affect prevailing market prices. Furthermore, as described below, shares of
common stock currently outstanding will be available for sale after the
expiration of contractual restrictions on resale with us and/or the
underwriters. Sales of substantial amounts of our common stock in the public
market after contractual restrictions lapse could adversely affect the
prevailing market price and our ability to raise capital in the future.

Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. Of these shares, the shares of
common stock sold in this offering will be freely tradable without restriction
under the Securities Act unless purchased by our "affiliates." Of the remaining
shares, shares of common stock will be owned by Castle Harlan, who is an
affiliate. Affiliates may not resell their shares in a public distribution
except in compliance with the registration requirements of the Securities Act or
pursuant to Rule 144 thereunder. Upon the date of this prospectus,
additional shares are eligible for resale, including shares under Rule
144(k). Also, after the 180-day lock-up period described below,
additional shares will be eligible for resale, including shares under
Rules 144 and 701.

RULE 144

In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of our common stock 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: (a) 1% of the number of shares of our common stock then
outstanding, which will equal approximately shares immediately after this
offering; or (b) the average weekly trading volume of our common stock on the
during the four calendar weeks preceding the filing of a notice on
Form 144. Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Universal.

RULE 144(k)

Under Rule 144(k), a person who has not 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, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

RULE 701

Any employee, officer or director of, or consultant to, Universal who
purchased his or her shares under a written compensatory plan or contract may be
entitled to sell their shares in reliance on Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell these shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144. However, some of the shares that we have issued under
Rule 701 are subject to lock-up agreements, which shares will only become
eligible for sale when the 180-day lock-up agreements expire.

LOCK-UP AGREEMENTS

In connection with this offering, we, our officers and directors and Castle
Harlan, have agreed not to directly or indirectly sell or take certain other
actions with respect to our common stock for a period of 180 days after the date
of this prospectus without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated. See "Underwriting -- No Sales of Similar
Securities."

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REGISTRATION RIGHTS

A description of our registration rights agreement is set forth under
"Related Transactions -- Registration Rights Agreement."

STOCK OPTION PLAN

After the offering, we intend to file a registration statement covering the
sale of approximately million shares of common stock reserved for
issuance under our stock option plan.

Upon expiration of the lock-up period, these shares may be sold at any time
subject to compliance with the volume limitations and other restrictions of Rule
144. Options to purchase approximately million shares of common stock
will also be outstanding after the offering. Such options generally provide for
incremental vesting over a three-year period. In addition, more options may be
granted in the future. See "Management -- Management Options and Employee Stock
Purchases."

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

The following is a summary of material U.S. federal income and estate tax
consequences expected to result under current law from the purchase, ownership
and disposition of common stock by non-U.S. holders of common stock. A "non-U.S.
holder" is any person or entity other than:

- A citizen or resident of the United States;

- A corporation, partnership or other entity created or organized in or
under the laws of the United States, any state thereof, or the District
of Columbia;

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

- A trust, if its administration is subject to the primary supervision of a
United States court and one or more U.S. persons have the authority to
control all substantial decisions of the trust.

This summary does not address all of the U.S. federal income and estate tax
considerations that may be relevant to non-U.S. holders in light of their
particular circumstances or to non-U.S. holders that may be subject to special
treatment under United States federal income tax laws. This summary does not
discuss any aspect of state, local or foreign taxation, 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 income tax laws,
such as insurance companies, tax-exempt organizations, financial institutions,
brokers, dealers in securities and U.S. expatriates. This summary is based on
current provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations, judicial opinions, published positions of the U.S. Internal Revenue
Service and other applicable authorities, all of which are subject to change,
possibly with retroactive effect. In this prospectus, the Internal Revenue Code
of 1986, as amended, is called the "Code." Prospective purchasers of common
stock are advised to consult their tax advisors regarding the U.S. federal,
state and local, and non-U.S. income, estate and other tax consequences of
acquiring, holding and disposing of our common stock.

DIVIDENDS

We do not currently anticipate paying any dividends. If we were to pay
dividends, however, any such dividends paid to a non-U.S. holder on shares of
our common stock would be subject to withholding of U.S. federal income tax at a
rate of 30%, unless a lower rate is prescribed under an applicable tax treaty or
unless the dividends are effectively connected with the conduct of a trade or
business of the non-U.S. holder. In general, dividends that are effectively
connected with the conduct of a trade or business within the United States will
be subject to U.S. federal income tax on a net income basis. Such tax is not
collected by withholding, provided the non-U.S. holder files the appropriate
certification with us or our

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<PAGE> 66

agent. Any dividends received by a foreign corporation that are effectively
connected with the conduct of a trade or business within the United States may
also be subject to a "branch profits tax" at a rate of 30% or such lower rate as
may be specified by an applicable tax treaty.

For purposes of the withholding tax rules discussed above and for purposes
of determining the applicability of a tax treaty rate under current U.S.
Treasury Regulations, dividends paid to a holder of common stock with an address
outside the United States will be presumed to be paid to a resident of the
country of address, unless the payor has knowledge to the contrary. Under U.S.
Treasury Regulations (referred to as "final regulations") that are effective for
payments made after December 31, 2000, a non-U.S. holder of common stock who
wishes to claim the benefit of a tax treaty rate would be required to satisfy
applicable certification and other requirements. In addition, under the final
regulations, in the case of common stock held by a foreign partnership:

- The certification requirement generally would be applied to the partners
of the partnership; and

- The partnership would be required to provide certain information,
including a U.S. taxpayer identification number.

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

SALE OR DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of any gain recognized on the sale or other taxable disposition of
our common stock unless any one of the following conditions applies:

- The gain is effectively connected with the conduct of a trade or business
of the non-U.S. holder within the United States or where a tax treaty
applies, is attributable to a U.S. permanent establishment maintained by
the non-U.S. holder;

- The non-U.S. holder is an individual who holds shares of common stock as
a capital asset and is present in the United States for 183 days or more
in the taxable year of the disposition and meets certain other tests;

- The non-U.S. holder is subject to tax under the provisions of U.S.
federal income tax law applicable to certain U.S. expatriates;

- The common stock disposed of is treated as a "United States real property
interest" (defined below) in the hands of the non-U.S. holder.

In general, our common stock will not be treated as a United States real
property interest if it is regularly traded on an established securities market
at any time during the calendar year of the sale or other disposition and the
non-U.S. holder has not owned, actually or constructively, more than 5% of the
outstanding stock at any time during the five-year period preceding the sale or
other disposition. If the preceding exception does not apply, our common stock
nevertheless will not constitute a United States real property interest unless,
at some time during the five-year period ending on the date of the non-U.S.
holder's disposition of common stock, we were a "United States real property
holding corporation." We do not believe that we are, or have been, a United
States real property holding corporation as of the date of this prospectus, and
we do not expect to become a United States real property holding corporation in
the future (although there can be no assurance that this expectation will prove
to be accurate). Any non-U.S. holder that may approach or exceed the 5%
ownership threshold discussed above, either alone or in conjunction with related
persons, should consult its own tax advisor.

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INFORMATION REPORTING AND BACKUP WITHHOLDING

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 by an applicable tax treaty. Copies of these
information returns may also be made available under the provisions of a treaty
or information exchange 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 is a withholding tax
currently imposed at the rate of 31% on certain payments to persons who fail to
furnish the information required under U.S. 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 unless the payor has knowledge that the
payee is a U.S. person.

Payment of the proceeds from a sale of common stock to or through a U.S.
office of a broker will be subject to information reporting and backup
withholding unless the owner certifies under penalties of perjury as to its
name, address and status as a non-U.S. holder or otherwise establishes an
exemption. Payment of the proceeds from a sale of common stock to or through a
non-U.S. office of a broker generally will not be subject to information
reporting or backup withholding. However, if such broker is a U.S. person, a
"controlled foreign corporation" or a foreign person that derives 50% or more of
its gross income from the conduct of a trade or business in the United States,
such payment will be subject to information reporting, but currently not backup
withholding, unless such broker has documentary evidence in its records that the
owner is a non-U.S. holder and certain other conditions are met or the owner
otherwise establishes an exemption.

Under the final regulations, generally effective for payments made after
December 31, 2000, the payment of dividends or the payment of proceeds from the
sale 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 or otherwise establishes an exemption.

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

ESTATE TAX

The fair market value of common stock owned, or treated as owned, by an
individual at the time of death will be includable in the individual's gross
estate for U.S. federal estate tax purposes and thus may be subject to U.S.
estate tax, even though the individual, at the time of death, is neither a
citizen of nor domiciled in the United States, unless an applicable estate tax
treaty provides otherwise.

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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, Salomon Smith Barney Inc., Deutsche Bank
Securities Inc., First Union Securities, Inc. and Wasserstein Perella
Securities, Inc. 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 and the U.S. underwriters, and concurrently with the sale of
shares to the international managers, we have agreed to sell to the U.S.
underwriters, and each of the U.S. underwriters severally has agreed to purchase
from us, the number of shares listed opposite its name below.

<TABLE>
<CAPTION>
NUMBER
OF SHARES
U.S. UNDERWRITER ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Salomon Smith Barney Inc....................................
Deutsche Bank Securities Inc................................
First Union Securities, Inc.................................
Wasserstein Perella Securities, Inc.........................

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

We 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, Salomon Brothers International Limited,
Deutsche Bank AG, London, First Union Securities, Inc. and Wasserstein Perella
Securities, Inc. are acting as lead managers. Subject to the terms and
conditions in the international purchase agreement, and concurrently with the
sale of shares of common stock to the U.S. underwriters under the U.S.
purchase agreement, Universal has agreed to sell to the international managers,
and the international managers have agreed to purchase from Universal, an
aggregate of shares of common stock. The initial public offering price per
share and the total underwriting discount per share of common stock 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 sale of shares to be purchased by the U.S.
underwriters and the international managers are conditioned on one another.

We have agreed to indemnify the U.S. underwriters and the international
managers against some liabilities, including some 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.

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COMMISSIONS AND DISCOUNTS

The U.S. representatives have advised us that the U.S. underwriters propose
initially to offer the shares to the public at the initial public offering 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 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 Universal. This 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 Universal.................. $ $ $
</TABLE>

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

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 the
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 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.
persons or Canadian persons, except in the case of transactions under the terms
of the intersyndicate agreement.

NO SALES OF SIMILAR SECURITIES

We, our executive officers and directors and certain stockholders 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,

65
<PAGE> 70

- 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 in connection with the conversion of our preferred stock and
non-voting common stock into common stock and pursuant to our employee
benefit plan or non-employee director stock 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 other than in connection with our employee benefit plan or
non-employee director stock plan, or

- 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 "UCO." To meet the requirements for listing of our common stock
on that exchange, the underwriters and the international managers have
undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial
owners.

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 the 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 sales of our common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered in this offering.

PRICE STABILIZATION AND SHORT POSITIONS AND PENALTY BIDS

Until the distribution of the common stock is completed, SEC rules may
limit the underwriters and selling group members from bidding for and purchasing
our common stock. However, the

66
<PAGE> 71

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 this offering, i.e., if they sell more shares than are listed on
the cover page 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 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.

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 engage in transactions with,
and perform services for, our company in the ordinary course of business and
have engaged, and may in the future engage, in commercial banking and investment
banking transactions and services with our company, for which they have received
customary compensation.

LEGAL MATTERS

King & Spalding, Houston, Texas, will pass upon the validity of the shares
of common stock offered by this prospectus. Vinson & Elkins L.L.P., Houston,
Texas, will pass upon certain legal matters in connection with this offering for
the U.S. underwriters and the international managers.

EXPERTS

The financial statements of Universal Compression Holdings, Inc. as of
March 31, 1999 and 1998 and for the period from December 12, 1997 (inception)
through March 31, 1998 and for the year ended March 31, 1999 and the financial
statements of Tidewater Compression Service, Inc. for the period from April 1,
1997 through February 20, 1998 included in this prospectus and elsewhere in the
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
registration statement, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.

The financial statements of Tidewater Compression Service, Inc. for the
year ended March 31, 1997 have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.

67
<PAGE> 72

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1, including the exhibits and schedules thereto, under the
Securities Act of 1933, as amended, with respect to the common stock offered
hereby. This prospectus does not contain all of the information contained in the
registration statement and the exhibits and schedules to the registration
statement. Some items are omitted in accordance with the rules and regulations
of the SEC. For further information about Universal and the common stock offered
under this prospectus, you should review the registration statement and the
exhibits and schedules filed as a part of the registration statement.
Descriptions of contracts or other documents referred to in this prospectus are
not necessarily complete. If the contract or document is filed as an exhibit to
the registration statement, you should review that contract or document. You
should be aware that when we discuss these contracts or documents in the
prospectus we are assuming that you will read the exhibits to the registration
statement for a more complete understanding of the contract or document.
Universal is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith files reports and other
information with the SEC. Materials filed with the SEC by Universal, including,
the registration statement and its exhibits and schedules, may be inspected
without charge at the public reference facilities maintained by the SEC in Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549, and the
SEC's regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661 and Seven World Trade Center, 13th Floor, New York, New York,
10048. Copies of all or any portion of the registration statement may be
obtained from the Public Reference Section of the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, or by calling the SEC at
1-800-SEC-0330, at prescribed rates. The SEC also maintains a website at
www.sec.gov that contains reports, proxy and information statements and other
information regarding registrants, such as Universal, that make electronic
filings with the SEC.

68
<PAGE> 73

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNIVERSAL COMPRESSION HOLDINGS, INC.
Independent Auditors' Report of Deloitte & Touche LLP ...... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1998 and March
31, 1999............................................... F-3
Consolidated Statements of Operations for the period from
December 12, 1997 through March 31, 1998 and for the
year ended March 31, 1999.............................. F-4
Consolidated Statements of Stockholders' Equity for the
period from December 12, 1997 through March 31, 1998
and for the year ended March 31, 1999.................. F-5
Consolidated Statements of Cash Flows for the period from
December 12, 1997 through March 31, 1998 and for the
year ended March 31, 1999.............................. F-6
Notes to Consolidated Financial Statements................ F-7

TIDEWATER COMPRESSION SERVICE, INC.
Independent Auditors' Report of Deloitte & Touche LLP....... F-18
Independent Auditors' Report of KPMG LLP ................... F-19
Financial Statements:
Statement of Operations for the year ended March 31, 1997
and for the period from April 1, 1997 through February
1998................................................... F-20
Statements of Stockholders' Equity for the period from
April 1, 1997 through February 20, 1998 and for the
year ended March 31, 1997.............................. F-21
Statements of Cash Flows for the year ended March 31, 1997
and for the period from April 1, 1997 through February
20, 1998............................................... F-22
Notes to Financial Statements............................. F-23

UNIVERSAL COMPRESSION HOLDINGS, INC.
Unaudited Consolidated Balance Sheets at March 31, 1999 and
at December 31, 1999...................................... F-26
Unaudited Consolidated Statements of Operations for the
Three and Nine Months Ended December 31, 1998 and 1999.... F-27
Unaudited Consolidated Statements of Cash Flows for the Nine
Months Ended December 31, 1998 and 1999................... F-28
Notes to Unaudited Consolidated Financial Statements........ F-29
</TABLE>

F-1
<PAGE> 74

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Universal Compression Holdings, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of Universal
Compression Holdings, Inc. and subsidiary (the "Company") as of March 31, 1998
and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for the period from December 12, 1997 (inception) through
March 31, 1998 and for the year ended March 31, 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 audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March 31,
1998 and 1999, and the results of their operations and their cash flows for the
period from December 12, 1997 (inception) through March 31, 1998 and for the
year ended March 31, 1999, in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Houston, Texas
June 11, 1999

F-2
<PAGE> 75

UNIVERSAL COMPRESSION HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1999
----------- -----------
(IN THOUSANDS, EXCEPT FOR
SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,382 $ 2,927
Receivables, net of allowance for bad debts of $213 and
$123 as of March 31, 1998 and 1999, respectively....... 11,662 22,469
Inventories............................................... 8,678 10,272
Current deferred tax asset................................ 67 426
Other..................................................... 3,121 938
-------- --------
Total current assets.............................. 25,910 37,032
-------- --------
Property and equipment:
Rental equipment.......................................... 237,795 296,049
Other..................................................... 14,611 17,122
Accumulated depreciation.................................. (1,366) (17,647)
-------- --------
Total property and equipment...................... 251,040 295,524
-------- --------
Goodwill, net of accumulated amortization of $194 and $2,564
as of March 31, 1998 and 1999, respectively............... 93,550 96,345
Other assets, net........................................... 9,726 8,632
Long-term deferred tax asset................................ -- 458
-------- --------
Total assets...................................... $380,226 $437,991
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 750 $ 750
Accounts payable.......................................... 6,054 8,591
Accrued expenses.......................................... 5,224 3,949
-------- --------
Total current liabilities......................... 12,028 13,290
Long-term deferred tax liability.......................... 406 --
Long-term debt............................................ 286,112 343,927
-------- --------
Total liabilities................................. 298,546 357,217
-------- --------
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY:
Series A preferred stock, $.01 par value, 5,000,000 shares
authorized, 1,300,000 and 1,320,144 shares issued and
outstanding at March 31, 1998 and 1999, respectively,
$50-per-share liquidation value........................ $ 13 $ 13
Common stock, $.01 par value, 994,000 shares authorized,
325,000 and 330,036 shares issued, 325,000 and 329,906
shares outstanding at March 31, 1998 and 1999,
respectively........................................... 3 3
Class A non-voting common stock, $0.01 par value, 6,000
shares authorized, 0 and 4,120 shares issued, 0 and
4,080 shares outstanding at March 31, 1998 and 1999,
respectively........................................... -- --
Additional paid-in capital................................ 81,234 82,698
Retained earnings (deficit)............................... 430 (1,931)
Treasury stock, 170 shares at cost........................ -- (9)
-------- --------
Total stockholders' equity........................ 81,680 80,774
-------- --------
Total liabilities and stockholders' equity........ $380,226 $437,991
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 76

UNIVERSAL COMPRESSION HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE
DECEMBER 12, 1997 YEAR ENDED
(INCEPTION) THROUGH MARCH 31,
MARCH 31, 1998 1999
------------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Rentals................................................... $ 9,060 $ 85,599
Sales..................................................... 4,037 43,588
Other..................................................... 22 311
-------- --------
Total revenues.................................... 13,119 129,498
-------- --------
Costs and expenses:
Rentals................................................... 2,804 31,010
Cost of sales............................................. 3,408 36,390
Depreciation and amortization............................. 1,560 19,314
Selling, general and administrative....................... 1,305 16,863
Interest expense.......................................... 3,203 29,313
-------- --------
Total costs and expenses.......................... 12,280 132,890
-------- --------
Income (loss) before income taxes........................... 839 (3,392)
Income taxes (benefit)...................................... 409 (1,031)
-------- --------
Net income (loss)................................. $ 430 $ (2,361)
======== ========
Earnings per share:
Basic..................................................... $ 1.32 $ (7.17)
======== ========
Diluted................................................... $ 1.32 $ (7.17)
======== ========
Weighted average shares outstanding:
Shares of common stock.................................... 325,000 329,493
Dilutive potential shares of common stock................. -- --
-------- --------
Total weighted average shares of common stock
outstanding..................................... 325,000 329,493
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 77

UNIVERSAL COMPRESSION HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998 AND
FOR THE PERIOD APRIL 1, 1998 THROUGH MARCH 31, 1999

<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS TREASURY
STOCK STOCK CAPITAL (DEFICIT) STOCK TOTAL
--------- ------ ---------- --------- -------- -------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 12, 1997
(Inception)
Common stock issuance (325,000
shares at $.01 per share par
value)......................... -- $ 3 $16,247 -- -- $16,250
Series A Preferred stock issuance
(1,300,000 shares at $.01 per
share shares at $.01 per share
par value)..................... $13 -- 64,987 -- -- 65,000
Net income for period from
December 12, 1997 (inception)
through March 31, 1998......... -- -- -- 430 -- 430
--- --- ------- ------- ----- -------
Balance, March 31, 1998............. $13 $ 3 $81,234 $ 430 -- $81,680
Common stock issuance (9,156
shares at $.01 per share par
value)......................... -- -- 458 -- -- 458
Series A Preferred stock issuance
(20,144 shares at $.01 per
share par value)............... -- -- 1,006 -- -- 1,006
Treasury stock purchase (4,970
shares at $50 per share)....... -- -- -- -- (249) (249)
Sale of treasury stock (4,800
shares at $50 per share)....... -- -- -- -- 240 240
Net loss for the year ended March
31, 1999....................... -- -- -- (2,361) -- (2,361)
--- --- ------- ------- ----- -------
Balance, March 31, 1999............. $13 $ 3 $82,698 $(1,931) $ (9) $80,774
=== === ======= ======= ===== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 78

UNIVERSAL COMPRESSION HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 12, 1997 FOR THE
(INCEPTION) THROUGH YEAR ENDED
MARCH 31, 1998 MARCH 31, 1999
------------------- --------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 430 $ (2,361)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 1,560 19,314
Gain on asset sales.................................... (13) (192)
Deferred income taxes.................................. 339 (1,223)
Amortization of debt issuance costs.................... 121 1,162
Increase in receivables................................ (1,263) (10,807)
Increase in inventories................................ (223) (2,594)
(Increase) Decrease in other current assets............ (2,951) 2,183
Increase (Decrease) in accounts payable................ (1,472) 2,537
Increase (Decrease) in accrued expenses................ 587 (3,569)
Deferred interest on notes payable..................... 1,880 18,316
Decrease in non-current assets......................... -- 27
--------- --------
Net cash provided by (used in) operating
activities...................................... (1,005) 22,793
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from asset sales................................. 765 8,038
Additions to property and equipment....................... (2,038) (68,081)
Acquisition of Tidewater Compression Service, Inc. ....... (351,872) --
Other acquisitions........................................ -- (2,953)
--------- --------
Net cash used in investing activities............. (353,145) (62,996)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit............. 285,018 40,249
Repayments of long-term debt.............................. (36) (750)
Common stock issuance..................................... 16,200 252
Preferred stock issuance.................................. 64,800 1,006
Debt issuance costs....................................... (9,450) --
Purchase of treasury stock................................ -- (249)
Sale of treasury stock.................................... -- 240
--------- --------
Net cash provided by financing activities......... 356,532 40,748
--------- --------
Net increase in cash and cash equivalents................... 2,382 545
--------- --------
Cash and cash equivalents at beginning of period............ -- 2,382
--------- --------
Cash and cash equivalents at end of period.................. $ 2,382 $ 2,927
========= ========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 1,202 $ 9,653
========= ========
Cash paid for income taxes................................ $ -- $ 697
========= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Class A non-voting common stock (4,120 shares) given to
employees.............................................. $ -- $ 206
========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 79

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Universal Compression Holdings Inc. (the "Company") was formed on December
12, 1997 for the purpose of acquiring Tidewater Compression Service, Inc.
("TCS") from Tidewater Inc. ("Tidewater"). The Company formed an acquisition
subsidiary, TW Acquisition Corporation ("Acquisition Corp.") which acquired 100%
of the voting securities of TCS (the "Acquisition"). See Note 2. Immediately
following the Acquisition, Acquisition Corp. was merged with and into TCS, which
changed its name to Universal Compression, Inc. ("Universal"). The Company is a
holding company which conducts its operations through its wholly owned
subsidiary, Universal. Accordingly, the Company is dependent upon the
distribution of earnings from Universal whether in the form of dividends,
advances or payments on account of intercompany obligations, to service its debt
obligations.

NATURE OF OPERATIONS

The Company operates one of the largest rental fleets of natural gas
compressors in the United States and provides related maintenance services on
such compressors. The compressors are rented to oil and gas producers and
processors and pipeline companies and are used primarily to boost the pressure
of natural gas from the wellhead into gas-gathering systems, gas-processing
plants or into and through high-pressure pipelines. The Company also designs and
fabricates compressor packages for its own fleet as well as for sale to
customers.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the Company and
its wholly owned subsidiary, Universal. All significant intercompany accounts
and transactions have been eliminated in consolidation.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior year amounts to
conform to the current year classification.

USE OF ESTIMATES

In preparing the Company's financial statements, management makes estimates
and assumptions that affect the amounts reported in the financial statements and
related disclosures. Actual results may differ from these 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.

REVENUE RECOGNITION

Revenue from equipment rentals is recorded when earned over the period of
rental and maintenance contracts which generally range from one month to several
years. Parts and service revenue is recorded as products are delivered or
services are performed for the customer.

Compressor fabrication revenue is recognized using the completed-contract
method which recognizes revenue upon completion of the contract. This method is
used because the typical contract is completed

F-7
<PAGE> 80
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

within two to three months and financial position and results of operations do
not vary significantly from those which would result from use of the
percentage-of-completion method.

CONCENTRATION OF CREDIT RISK

Trade accounts receivable are due from companies of varying size engaged
principally in oil and gas activities in the United States and in certain
international locations such as South America, Southeast Asia, Europe and
Canada. The Company reviews the financial condition of customers prior to
extending credit and periodically updates customer credit information. Payment
terms are on a short-term basis and in accordance with industry standards. No
single customer accounts for 10% or more of the Company's revenues. For the
period from December 12, 1997 (inception) through March 31, 1998 and the year
ended March 31, 1999 the Company wrote off bad debts totaling $80,000 and
$330,000, respectively.

INVENTORIES

Inventories are recorded at the lower of cost (first in first out FIFO
method) or market (net realizable value). Some items of compression equipment
are acquired and placed in inventories for subsequent sale or rental to others.
Acquisitions of these assets are considered operating activities in the
statement of cash flows.

PROPERTIES AND EQUIPMENT

Properties and equipment are carried at cost. Depreciation for financial
reporting purposes is computed on the straight-line basis beginning with the
first rental, with salvage values of 20% for compression equipment, using
estimated useful lives of:

<TABLE>
<S> <C>
Compression equipment.................................... 15 years
Other properties and equipment........................... 2-25 years
</TABLE>

Maintenance and repairs are charged to expense as incurred. Overhauls and
major improvements that benefit future periods are capitalized and depreciated
over the estimated period of benefits, generally three years. Depreciation
expense for the period from December 12, 1997 (inception) through March 31, 1998
and the year ended March 31, 1999 was $1,366,226 and $16,942,554, respectively.

GOODWILL AND OTHER ASSETS

Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis primarily over 40
years. At the balance sheet date, the Company evaluated the recoverability of
goodwill based on expectations of undiscounted cash flows from operations and
determined that no impairment had occurred. Included in other assets are debt
issuance costs, net of accumulated amortization, totaling approximately
$9,450,000 and $8,287,000 at March 31, 1998 and 1999, respectively. Such costs
are amortized over the period of the respective debt agreements on a
straight-line method which approximates the effective interest method.

STOCK-BASED COMPENSATION

Under Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," the Company elected to measure
compensation cost using the intrinsic value-based method as prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." As such, the Company is required to make pro forma disclosures of
net income and, if presented, earnings per share as if the fair value based
method of accounting defined by SFAS No. 123 had been applied. See Note 6.

F-8
<PAGE> 81
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES

The Company accounts for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, all expected future events are considered other than enactments of
changes in the tax law or rates.

FOREIGN CURRENCY TRANSACTIONS

Activities outside the United States are measured using the local currency
as the functional currency. Assets and liabilities of these subsidiaries are
translated at the rates of exchange at the balance sheet date. Income and
expense items are translated at average monthly rates of exchange. The resultant
translation adjustments for the period from December 12, 1997 (inception)
through March 31, 1998 and for the year ended March 31, 1999 were not
significant.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of trade receivables and
payables (which have carrying values that approximate fair value) and long-term
debt. The fair values of the Company's term loan and revolving credit facility
(see Note 4) are representative of their carrying values based upon variable
rate terms. At March 31, 1998, the Company estimated that the fair value of its
senior discount notes approximated fair value because of the short period of
time since its issuance. At March 31, 1999 the fair value of the senior discount
notes was approximately $172.0 million, as compared to a carrying amount of
$195.2 million. The estimated fair value amounts have been determined by the
Company using appropriate valuation methodologies and information available to
management as of March 31, 1999 based on the quoted market price from brokers of
these notes.

ENVIRONMENTAL LIABILITIES

The costs to remediate and monitor environmental matters are accrued when
such liabilities are considered probable and a reasonable estimate of such costs
is determinable.

NEW ACCOUNTING PRONOUNCEMENTS

Effective April 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This statement was effective for fiscal years beginning
after December 15, 1997 and required retroactive presentation of total nonowner
changes in equity, including items not currently reflected in net income, for
all periods presented. For the period from December 12, 1997 (inception) through
March 31, 1998 and for the year ended March 31, 1999, the effect of transactions
which would have given rise to further disclosure was not significant.

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 requires that all derivative instruments (including certain derivative
instruments embedded in other contracts) be recognized in the balance sheet at
fair value, and that changes in such fair values be recognized in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
that meet these hedging criteria will ultimately offset related earnings effects
of the hedged comprehensive income pending recognition in earnings. SFAS No. 133
is effective for fiscal years beginning after June 15, 2000. The Company is
currently evaluating what impact, if any, adoption of this statement will have
on the Company's consolidated financial statements.

F-9
<PAGE> 82
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EARNINGS PER SHARE

The company has disclosed earnings per share data; however, such amounts
are not meaningful because the Company is beneficially owned by a single
stockholder under the terms of a Voting Trust Agreement.

2. TCS ACQUISITION

On February 20, 1998, Acquisition Corp. acquired 100% of the voting
securities of TCS for approximately $350 million. The Acquisition was recorded
using the purchase method of accounting and the purchase price was allocated to
the assets and liabilities acquired based on their fair values. The excess cost
of the Acquisition was recorded as goodwill which is being amortized on a
straight-line basis over its 40 year useful life. The operations of TCS are
included in the financial statements presented herein beginning February 20,
1998.

The following table presents the (unaudited) pro forma revenue, gross
profit and net income amounts as if the Acquisition occurred on December 12,
1997 (inception) (in thousands):

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 12, 1997
(INCEPTION) THROUGH
MARCH 31, 1998
-------------------
(UNAUDITED)
<S> <C>
Revenues.................................................... $32,630
-------
Gross profit................................................ $15,992
-------
Net loss.................................................... $(1,427)
-------
</TABLE>

3. INVENTORIES

Inventories at March 31 consisted of the following (in thousands):

<TABLE>
<CAPTION>
1998 1999
------ -------
<S> <C> <C>
Finished goods.............................................. $5,479 $ 5,279
Work-in-progress............................................ 3,199 4,993
------ -------
Total............................................. $8,678 $10,272
====== =======
</TABLE>

F-10
<PAGE> 83
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG-TERM DEBT

The Company's debt at March 31 consisted of the following (in thousands):

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Term loan, bearing interest of LIBOR + 2.5%, due February
2005 and collateralized by property of Universal.......... $ 74,814 $ 74,063
Revolving credit facility, bearing interest of LIBOR +
2.25%, due February 2003 and collateralized by property of
Universal................................................. 35,150 75,400
Senior discount notes, bearing interest of 9 7/8% per annum,
due 2008, net of discount of $90,956 and $75,615 at March
31, 1998 and 1999, respectively, unsecured................ 151,544 166,885
Senior discount notes, bearing interest of 11 3/8% per
annum, due 2009, net of discount of $18,146 and $15,171 at
March 31, 1998 and 1999, respectively, unsecured.......... 25,354 28,329
-------- --------
Total debt........................................ 286,862 344,677
Less current maturities..................................... 750 750
-------- --------
Total long-term debt.............................. $286,112 $343,927
======== ========
</TABLE>

The Company's senior secured credit agreement ("Credit Agreement") provides
for $75 million under the term loan and $85 million under the revolving credit
facility, which includes a sublimit for letters of credit. The available
capacity on the revolving credit facility at March 31, 1998 and 1999 was
approximately $47,819,000 and $8,143,000, respectively. The interest rates on
the term loan and the revolving credit facility at March 31, 1998 were 10.0% and
9.75%, respectively. The interest rates on the term loan and the revolving
credit facility at March 31, 1999 were 7.44% and 7.19%, respectively. Under the
revolving credit facility, a commitment fee of 0.50% per annum on the average
available commitment is payable quarterly.

The Credit Agreement contains certain financial covenants and limitations
on, among other things, acquisitions, sales, indebtedness and liens. The Credit
Agreement also limits the payment of cash dividends related to Universal paying
up to $1 million to the Company in any given fiscal year. In addition, the
Company has substantial dividend payment restrictions under the indenture
related to the senior discount notes. The Company was in compliance with all
such covenants and limitations at March 31, 1999. As defined by the Credit
Agreement, any "change of control" would result in an "Event of Default" and all
amounts outstanding under the Credit Agreement would become due and payable. All
principal amounts and accrued interest would become due without further notice.

Interest related to both the 9 7/8% senior discount notes and the 11 3/8%
senior discount notes is payable semi-annually on August 15 and February 15,
commencing August 15, 2003.

Maturities of long-term debt as of March 31, 1999, in thousands, are
2000 -- $750; 2001 -- $750; 2002 -- $750; 2003 -- $82,525; 2004 -- $30,938; and
$228,964 thereafter.

5. INCOME TAXES

For the period from December 12, 1997 (inception) through March 31, 1998
and the year ended March 31, 1999, substantially all of the Company's income and
losses before income taxes were derived from its U.S. operations.

F-11
<PAGE> 84
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense (benefit) for the period from December 12, 1997
(inception) through March 31, 1998 and the year ended March 31, 1999 consisted
of the following (in thousands):

<TABLE>
FOR THE
PERIOD FROM
DECEMBER 12, 1997 FOR THE
(INCEPTION) THROUGH YEAR ENDED
MARCH 31, 1998 MARCH 31, 1999
---- -------
<S> <C> <C>
Current:
Foreign............................................ $ 71 $ 145
Deferred:
Federal............................................ 303 (1,055)
State.............................................. 35 (121)
---- -------
Total...................................... $409 $(1,031)
==== =======
</TABLE>

A reconciliation of the provision (benefit) for income taxes and the amount
computed by applying the federal statutory income tax rate to income before
taxes is as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 12, 1997 FOR THE
(INCEPTION) THROUGH YEAR ENDED
MARCH 31, 1998 MARCH 31, 1999
------------------- --------------
<S> <C> <C>
Provision (benefit)for income taxes at Statutory
rate............................................... $294 $(1,187)
State taxes.......................................... 30 (121)
Foreign taxes........................................ 71 145
Non-deductible expenses and other.................... 14 132
---- -------
Total...................................... $409 $(1,031)
==== =======
</TABLE>

The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at March 31 are (in thousands):

<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 1,518 $ 24,235
Other..................................................... 165 630
------- --------
Total............................................. 1,683 24,865
Valuation allowance......................................... (71) (145)
------- --------
Total............................................. 1,612 24,720
------- --------
Deferred tax liabilities:
Depreciation differences on property and equipment........ (1,924) (21,905)
Other..................................................... (27) (1,931)
------- --------
Total............................................. (1,951) (23,836)
------- --------
Net deferred tax asset (liability)................ $ (339) $ 884
======= ========
</TABLE>

A valuation allowance has been established against the Company's deferred
tax assets related to foreign tax credits. The Company believes that it is
probable that all other deferred tax assets will be realized on future tax
returns, primarily from the generation of future taxable income through both
profitable operations and future reversals of existing taxable temporary
differences.

F-12
<PAGE> 85
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As a result of the activity for the period from December 12, 1997
(inception) through March 31, 1998 and the year ended March 31, 1999, the
Company has net operating loss ("NOL") carryforwards available to offset future
taxable income. The Company has NOL carryforwards of approximately $62,142,000
at March 31, 1999 which will expire, if not utilized, as follows:
2018 -- $4,185,000 and 2019 -- $57,957,000.

6. STOCKHOLDERS' EQUITY

COMMON STOCK

Under the Employee Stock Purchase Plan, 46 employees of the Company
purchased a total of 1,996 shares of common stock and 7,984 shares of Series A
preferred stock at $50 per share during March 1999. The Company received the
cash proceeds from the stock purchase during April 1999. At March 31, 1999, a
receivable of $499,000 has been recorded related to the employee stock
purchases.

REDEEMABLE PREFERRED STOCK

At March 31, 1999, the Company has issued 1,320,144 shares of Series A
preferred stock ("Preferred Stock") which is redeemable at any time as a whole
or in part at the option of the Company for cash in the amount of $50 per share.
No dividends are payable at March 31, 1999 on the Preferred Stock. The Preferred
Stock in the event of any liquidation, dissolution or winding up of the Company,
or a merger or consolidation of the Company, or a sale of substantially all of
the assets of the Company, each case as would constitute a "Change of Control"
under the indenture, will begin to accrue dividends at a rate of 12% per annum
payable quarterly beginning 90 days subsequent to such "Change of Control."

Each share of Preferred Stock equates to one vote on all matters taken to
the common shareholders. All holders of Preferred Stock and common stock are
treated as one class in relation to voting rights.

STOCK OPTIONS

In order to motivate and retain key employees, the Company established an
incentive stock option plan. The Company measures compensation cost for this
plan using the intrinsic value method of accounting prescribed by APB No. 25
"Accounting for Stock Issued to Employees". Given the terms of the plan, no
compensation cost has been recognized for stock options granted under the plan.
The incentive stock plan became effective on February 20, 1998, and on that date
certain key employees were granted stock options. The options are exercisable
over a ten-year period, and the options vest over the following time period:

F-13
<PAGE> 86
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of stock option activity for the period from
December 12, 1997 (inception) through March 31, 1998 and the year ended March
31, 1999:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE PRICE
SHARES PER SHARE
------ -------------
<S> <C> <C>
Options outstanding, December 12, 1997(inception)........... -- --
Options granted........................................... 30,148 $50
------ ---
Options outstanding, March 31, 1998......................... 30,148 $50
------ ---
Options granted........................................... 11,616 $50
Options cancelled......................................... (6,290) $50
------ ---
Options outstanding, March 31, 1999......................... 35,474 $50
------ ---
</TABLE>

As of March 31, 1999, under the incentive stock option plan the Company had
7,264 stock options available for grant.

The fair value of options at the date of grant was estimated using the
Black-Scholes model with the following weighted-average assumptions:

<TABLE>
<S> <C>
Expected life............................................. 3 years
Interest rate............................................. 4.6%
Dividend yield............................................ 0%
Expected volatility of the Company's stock price.......... 0%
</TABLE>

On a pro forma basis after giving effect to the fair value based method of
accounting for employee stock compensation required by SFAS No. 123,
compensation expense would have been approximately $8,000 and $76,000 for the
period from December 12, 1997 (inception) through March 31, 1998 and the year
ended March 31, 1999 respectively.

7. EMPLOYEE BENEFITS

The Company has a defined contribution 401(k) plan covering substantially
all employees. The Company makes matching contributions under this plan equal to
50% of each participant's contribution of up to 6% of the participant's
compensation. Company contributions to the plan were approximately $159,000 and
$493,000 for the period from December 12, 1997 (inception) through March 31,
1998 and the year ended March 31, 1999, respectively.

8. RELATED-PARTY TRANSACTIONS

MANAGEMENT AGREEMENT

Castle Harlan Inc., an affiliate of a major stockholder of the Company,
entered into an agreement whereby, in exchange for certain management services
rendered, the Company agreed to pay a fee to Castle Harlan Inc. totaling $3
million per year. The amount was paid in advance for the first year and
quarterly in advance thereafter. The agreement is for a term of five years,
renewable automatically from year to year thereafter unless Castle Harlan Inc.
or its affiliates beneficially own at this time less than 20% of the then
outstanding stock of the Company. The Company paid Castle Harlan Inc. $3,000,000
and $750,000 during the period from December 12, 1997 (inception) through March
31, 1998 and the year ended March 31, 1999, respectively. The fee is recorded in
selling, general and administrative expenses.

As of March 31, 1999, 4,800 shares of common stock and 19,200 shares of
Preferred Stock held by certain officers of the Company are subject to certain
repurchase requirements by the Company in the

F-14
<PAGE> 87
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

event of termination of the officer by the Company without "cause," disability
or death as specified in the Stock Repurchase Agreement. The Company maintains
an insurance policy to fund its obligation in the event of disability or death.

FINDER'S FEE/CONSULTING ARRANGEMENT

The Company paid a member of its Board of Directors (the "Director")
$1,750,000 (a "finder's fee") related to services provided by the Director for
the Acquisition. Upon consummation of the Acquisition, $1,100,000 of the
finder's fee was issued to the Director as capital stock of the Company at $50
per share par value. The Company paid the remaining $650,000 of the finder's fee
in cash to the Director on March 4, 1998. In addition, the Company will pay the
Director an annual consulting fee of $150,000 for consulting services for a
stated term of five years. The agreement will automatically extend for one-year
periods unless the parties elect to terminate the agreement. The Company paid
the Director $12,500 and $165,523 during the period from December 12, 1997
(inception) through March 31, 1998 and the year ended March 31, 1999,
respectively.

The Company also paid a closing bonus to an officer of the Company
consisting of 1,000 shares of the Company's common stock, 4,000 shares of the
Company's Preferred Stock, both valued at $50 per share, and $100,000 cash for
services performed in conjunction with the Acquisition prior to his employment.

9. COMMITMENTS AND CONTINGENCIES

Rent expense for the period from December 12, 1997 (inception) through
March 31, 1998 and the year ended March 31, 1999 was approximately $43,000 and
$427,000, respectively. Commitments for future lease payments were not
significant at March 31, 1999.

In the ordinary course of business, the Company is involved in various
pending or threatened legal actions. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a
materially adverse effect on the Company's financial position, operating
results, or cash flows.

An environmental assessment (the "Assessment") of the operations, physical
premises and assets of the Company was completed in connection with the
Acquisition. In the event that remediation is undertaken by the Company, then
pursuant to the stock purchase agreement, costs of such remediation shall be
paid as follows: Tidewater, Inc. shall pay 75% of the first $4 million, 83.33%
of the next $6 million, and 100% of the costs in excess of $10 million, although
not to exceed the upper limit of the range in the Assessment. Tidewater, Inc.
has disputed certain aspects of the Assessment, but has not disputed its
obligation to reimburse the Company for actual costs incurred in remediating
environmental conditions identified in the Assessment. The Company has recorded
a provision of approximately $1,200,000 at March 31, 1999 for environmental
remediation costs. The Company continues to further evaluate the Company's
remediation requirements under existing laws, rules and regulations. Considering
Tidewater's obligations pursuant to the stock purchase agreement, the Company
continues to believe that any unrecorded remediation obligations will not have a
material impact on its financial condition, results of operations and cash
flows. Should the Company incur remediation costs, a receivable from Tidewater,
Inc. for the expected reimbursement based on the terms of the stock purchase
agreement will be recorded. The unreimbursed portion of any such remediation
costs will be charged against the Company's environmental remediation liability.

The Company has no other commitments or contingent liabilities which, in
the judgment of management, would result in losses that would materially affect
the Company's consolidated financial position or operating results.

F-15
<PAGE> 88
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION

The Company has three principal industry segments: Domestic Rental and
Maintenance, International Rental and Maintenance and Engineered Products. The
two Rental and Maintenance Segments provide natural gas compression rental and
maintenance services to meet specific customer requirements. The Engineered
Products Segment involves the design, fabrication and sale of natural gas and
air compression packages to meet customer specifications. The International
Rental and Maintenance Segment represents substantially all of the Company's
foreign activities.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on profit or loss from operations before interest expense and
income taxes.

The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately since each business
requires different marketing strategies due to customer specifications. The
business was acquired as a unit (see Note 1 -- Organization).

The following table presents sales and other financial information by
industry segment for the year ended March 31, 1999 (in thousands):

<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER(A) TOTAL
----------- ------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 78,821 $ 6,778 $22,429 $21,470 $129,498
Operating income...................... $ 20,023 $ 2,483 $ 949 $ 2,466 $ 25,921
Depreciation and amortization......... $ 17,997 $ 1,020 $ 161 $ 136 $ 19,314
Capital expenditures.................. $ 48,428 $17,293 $ 2,123 $ 237 $ 68,081
Identifiable assets................... $311,490 $16,093 $11,421 $98,987 $437,991
</TABLE>

The following table presents sales and other financial information by
industry segment for the period from December 12, 1997 (inception) through March
31, 1998 (in thousands):

<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER(A) TOTAL
----------- ------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 8,407 $ 652 $ 3,165 $ 895 $ 13,119
Operating income...................... $ 3,373 $ 298 $ 189 $ 182 $ 4,042
Depreciation and amortization......... $ 1,461 $ 83 $ 10 $ 6 $ 1,560
Capital expenditures.................. $ 1,465 $ 529 $ -- $ 44 $ 2,038
Identifiable assets................... $262,218 $14,752 $ 7,865 $95,391 $380,226
</TABLE>

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

(a) Corporate and Other segment represents primarily corporate activities, part
sales and services and all other items that could not be allocated to an
identifiable segment. The segment principally serves the oil and gas
market, including sales of parts and equipment utilized in the extraction
of natural gas and the service that the Company provides to customers'
natural gas compression units.

Revenues include sales to unaffiliated customers. Operating income
represents revenues less total costs and expenses, not including the effect of
interest expense and income taxes. Identifiable assets are those tangible and
intangible assets that are identified with the operations of a particular
industry segment. Capital expenditures include fixed asset purchases.

F-16
<PAGE> 89
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for the year ended March 31, 1999 is as
follows (in thousands):

<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenues................................. $29,636 $32,784 $33,559 $33,519
Gross profit............................. $14,953 $15,974 $15,933 $15,238
Net loss................................. $ (227) $ (123) $ (268) $(1,743)
</TABLE>

F-17
<PAGE> 90

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Universal Compression, Inc.

We have audited the accompanying statements of income, stockholder's equity
and cash flows of Tidewater Compression Service, Inc. (the "Company") for the
period from April 1, 1997 through February 20, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of Tidewater Compression
Service, Inc. for the period from April 1, 1997 through February 20, 1998, in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Houston, Texas
June 1, 1998

F-18
<PAGE> 91

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholder
Tidewater Compression Service, Inc.

We have audited the accompanying statements of income, stockholders' equity
and cash flows of Tidewater Compression Service, Inc. for the year ended March
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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Tidewater
Compression Service, Inc. for the year ended March 31, 1997, in conformity with
generally accepted accounting principles.

KPMG LLP

New Orleans, Louisiana
November 21, 1997

F-19
<PAGE> 92

TIDEWATER COMPRESSION SERVICE, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1997
YEAR ENDED THROUGH
MARCH 31, 1997 FEBRUARY 20, 1998
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Rentals................................................... $ 72,695 $71,644
Sales..................................................... 36,592 19,924
Other..................................................... 3,477 3,024
Gain (loss) on asset sales................................ 1,122 1,094
-------- -------
Total revenues.................................... 113,886 95,686
-------- -------
Costs and expenses:
Rentals................................................... 33,814 31,924
Cost of sales............................................. 30,339 14,753
Depreciation and amortization............................. 26,163 23,310
General and administrative................................ 11,004 8,669
Interest expense.......................................... -- --
-------- -------
Total costs and expenses.......................... 101,320 78,656
-------- -------
Income before income taxes.................................. 12,566 17,030
Income taxes................................................ 4,724 6,271
-------- -------
Net income........................................ $ 7,842 $10,759
======== =======
</TABLE>

See accompanying notes to financial statements.

F-20
<PAGE> 93

TIDEWATER COMPRESSION SERVICE, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 AND
FOR THE YEAR ENDED MARCH 31, 1997

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996............................... $49 $25,627 $24,029 $49,705
Net income............................................ -- -- 7,842 7,842
--- ------- ------- -------
BALANCE, MARCH 31, 1997............................... 49 25,627 31,871 57,547
Net income............................................ -- -- 10,759 10,759
--- ------- ------- -------
BALANCE, FEBRUARY 20, 1998............................ $49 $25,627 $42,630 $68,306
=== ======= ======= =======
</TABLE>

See accompanying notes to financial statements.

F-21
<PAGE> 94

TIDEWATER COMPRESSION SERVICE, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1997
YEAR ENDED THROUGH
MARCH 31, 1997 FEBRUARY 20, 1998
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 7,842 $10,759
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 26,163 23,310
(Gain) loss on asset sales............................. (1,122) (1,094)
Deferred income tax (benefit) expense.................. 6,835 (1,825)
(Increase) decrease in receivables..................... 308 700
(Increase) decrease in inventories..................... 72 (610)
(Increase) decrease in other current assets............ 603 11
Increase (decrease) in accounts payable................ 1,458 2,716
(Decrease) increase in accrued expenses................ (236) (476)
-------- -------
Net cash provided by operating activities................... 41,923 33,491
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from asset sales................................. 7,684 3,803
Additions to properties and equipment..................... (16,520) (17,600)
-------- -------
Net cash used in investing activities....................... (8,836) (13,797)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in amount due to Tidewater Inc................. (33,121) (17,870)
Repayments of long-term debt.............................. -- --
-------- -------
Net cash used in financing activities....................... (33,121) (17,870)
-------- -------
Net increase (decrease) in cash............................. (34) 1,824
Cash at beginning of period................................. 34 --
-------- -------
Cash at end of period....................................... $ -- $ 1,824
======== =======
Supplemental cash flow information -- cash paid for
interest.................................................. -- --
</TABLE>

See accompanying notes to financial statements.

F-22
<PAGE> 95

TIDEWATER COMPRESSION SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 1997 AND
FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Tidewater Compression Service, Inc. ("TCS" or the "Company") is, and has
been for all periods presented, a wholly owned subsidiary of Tidewater Inc.
("Tidewater"). The accompanying financial statements are presented as if TCS had
been an entity separate from its parent during the periods presented and include
the revenues and expenses that are directly related to TCS' operations. As a
subsidiary of Tidewater, TCS was a participating employer in certain employee
benefit plans and also received certain administrative services such as data
processing, legal, insurance placement and claims handling from its parent. The
costs associated with providing TCS with such employee benefit programs and
administrative services, where significant, have been allocated to TCS based on
management's estimate of the time involved in providing such services and are
included in the accounts of TCS. Management believes the method used to allocate
the cost of these services is reasonable.

NATURE OF OPERATIONS

TCS operates one of the largest rental fleets of natural gas compressors in
the United States. The compressors are rented to oil and gas producers and
processors and are used primarily to boost the pressure of natural gas from the
wellhead into gas-gathering systems, into nearby gas-processing plants or into
high-pressure pipelines. TCS also designs and fabricates compression packages
for its own fleet as well as for sale to customers.

USE OF ESTIMATES

In preparing TCS' financial statements, management makes estimates and
assumptions that affect the amounts reported in the financial statements and
related disclosures. Actual results may differ from these estimates.

REVENUE RECOGNITION

Revenue from equipment rentals and parts sales is recognized when earned.
Compressor fabrication revenue is recognized using the completed-contract
method. This method is used because the typical contract is completed within two
months and financial position and results of operations do not vary
significantly from those which would result from use of the
percentage-of-completion method.

INCOME TAXES

TCS' operations are included in the consolidated U.S. federal income tax
returns of Tidewater Inc. The tax provisions presented in these financial
statements have been determined as if TCS' operations were a stand-alone
business filing a separate income tax return with the amount of current tax owed
(refundable) charged or credited to the amounts due to Tidewater Inc. Deferred
tax assets and liabilities which are also included in the amounts due to
Tidewater Inc. are determined based on the differences between the financial
statements and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to be recovered or
settled.

ENVIRONMENTAL LIABILITIES

The costs to remediate and monitor environmental matters are accrued when
such liabilities are considered probable and a reasonable estimate of such costs
is determinable.

F-23
<PAGE> 96
TIDEWATER COMPRESSION SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PENSION, POSTRETIREMENT AND OTHER BENEFIT PLANS

TCS employees participate in Tidewater pension and other postretirement
plans. TCS has accounted for its participation in the Tidewater plans as a
participation in multiemployer plans. Accordingly, the statement of operations
includes an allocation from Tidewater for the costs associated with the TCS
employees who participate in these plans that is comparable to TCS' required
contribution to the plans for the periods presented. Additionally, no assets and
liabilities have been reflected in the balance sheets related to the overall
Tidewater pension and other postretirement benefit plans since it is not
practicable to segregate the amounts applicable to TCS. TCS employees also
participate in the medical, dental, life and workers' compensation insurance
plans sponsored by Tidewater. The costs of these plans are allocated to TCS
based on the number of TCS employees participating in the plans.

FOREIGN CURRENCY TRANSACTIONS

Activities outside the United States, except those located in highly
inflationary economies, are measured using the local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
rates of exchange at the balance sheet date. Income and expense items are
translated at average monthly rates of exchange. The resultant translation
adjustments for the period from April 1, 1997 through February 20, 1998 and the
year ended March 31, 1997 were not significant.

FOREIGN OPERATIONS AND EXPORT SALES

Foreign operations were not deemed significant for the period from April 1,
1997 through February 20, 1998 and the fiscal year ended March 31, 1997. Export
sales for the period from April 1, 1997 through February 20, 1998 and the fiscal
year ended March 31, 1997 were $15,528,000 and $21,271,000, respectively.

2. INCOME TAXES

For the period from April 1, 1997 through February 20, 1998 and the year
ended March 31, 1997, substantially all of TCS' income before income taxes was
derived from its U.S. operations.

Income tax expense (benefit) consisted of the following (in thousands):

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1997
THROUGH
YEAR ENDED FEBRUARY >20,
MARCH 31, 1997 1998
----------------- --------------
<S> <C> <C>
Current:
U.S. Federal......................................... $(2,162) $7,220
State and foreign.................................... 51 876
Deferred............................................... 6,835 (1,825)
------- ------
Total........................................ $ 4,724 $6,271
======= ======
</TABLE>

The actual income tax expense for each of the periods shown above differs
from the amount computed by applying the U.S. federal tax rate of 35% to income
before income taxes principally because of state income taxes.

F-24
<PAGE> 97
TIDEWATER COMPRESSION SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. EMPLOYEE BENEFITS

DEFINED BENEFIT PENSION PLANS AND DEFINED CONTRIBUTION RETIREMENT PLAN

Until January 1, 1996, substantially all of the TCS personnel participated
in a defined benefit pension plan sponsored by Tidewater. Tidewater's pension
benefits are based principally on years of service and employee compensation.
Beginning April 1996, TCS field service personnel, along with all new employees
of TCS eligible for pension plan membership, were enrolled in a new, defined
contribution retirement plan. Tidewater allocated pension expense to TCS of
approximately $282,000 and $298,000 for the period from April 1, 1997 through
February 20, 1998 and for fiscal year 1997, respectively.

POSTRETIREMENT BENEFITS OTHER THAN PENSION

Tidewater sponsors a program which provides limited health care and life
insurance benefits to qualified retired employees. Costs of the program are
based on actuarially determined amounts and are accrued over the period from the
date of hire to the full eligibility date of employees who are expected to
qualify for these benefits. Tidewater has allocated postretirement health care
and life insurance expense to TCS of approximately $274,000 and $384,000 for the
period from April 1, 1997 through February 20, 1998 and for the year ended March
31, 1997, respectively.

4. COMMITMENTS AND CONTINGENCIES

Rent expense for the period from April 1, 1997 through February 20, 1998
and for the year ended March 31, 1997 was approximately $390,000 and $435,000,
respectively. Commitments for future minimum lease payments were not significant
at February 20, 1998.

5. SUBSEQUENT EVENTS

On February 20, 1998, pursuant to the Stock Purchase Agreement, dated
December 18, 1997, between Tidewater and TW Acquisition Corporation
("Acquisition Corp."), the Acquisition Corp. acquired 100% of the voting
securities of TCS for a purchase price of approximately $350 million (the
"Acquisition"). Immediately following the Acquisition, Acquisition Corp. was
merged with and into TCS, which changed its name to Universal Compression, Inc.

F-25
<PAGE> 98

UNIVERSAL COMPRESSION HOLDINGS, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

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

Current assets:
Cash and equivalents...................................... $ 2,927 $ 2,627
Accounts receivable, net.................................. 22,469 15,504
Inventories............................................... 10,272 10,275
Deferred tax assets....................................... 426 426
Other..................................................... 938 1,580
-------- --------
Total current assets.............................. 37,032 30,412
Property, plant and equipment
Rental equipment.......................................... 296,049 335,563
Other..................................................... 17,122 20,144
Less: accumulated depreciation............................ (17,647) (31,736)
-------- --------
Net property, plant, and equipment.......................... 295,524 323,971
Goodwill and intangibles, net of amortization............... 96,345 97,153
Other assets, net........................................... 8,632 10,670
Long-term deferred tax asset................................ 458 458
-------- --------
Total assets...................................... $437,991 $462,664
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued liabilities.................. $ 12,540 $ 12,527
Current portion of long-term debt......................... 750 4,206
-------- --------
Total current liabilities......................... 13,290 16,733
Capital lease obligation.................................... -- 2,091
Long-term debt.............................................. 343,927 367,184
-------- --------
Total liabilities................................. 357,217 386,008
Stockholders' equity:
Series A preferred stock, $.01 par value, 5,000,000 shares
authorized, 1,320,144 and 1,320,128 shares issued and
outstanding at March 31, 1999 and December 31, 1999,
respectively, $50-per-share liquidation value.......... 13 13
Common stock, $.01 par value, 994,000 shares authorized,
330,036 and 330,032 shares issued, 329,906 and 329,862
shares outstanding at March 31, 1999 and December 31,
1999, respectively..................................... 3 3
Class A non-voting common stock, $.01 par value, 6,000
shares authorized, 4,120 shares issued, 4,080 and 3,590
shares outstanding at March 31, 1999 and December 31,
1999, respectively..................................... -- --
Treasury stock, 170 and 700 shares at cost at March 31,
1999 and December 31, 1999, respectively............... (9) (35)
Additional paid-in capital................................ 82,698 82,698
Retained deficit.......................................... (1,931) (6,023)
-------- --------
Total stockholders' equity........................ 80,774 76,656
-------- --------
Total liabilities and stockholders' equity........ $437,991 $462,664
======== ========
</TABLE>

See accompanying notes to unaudited consolidated financial statements

F-26
<PAGE> 99

UNIVERSAL COMPRESSION HOLDINGS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental.................................... $ 21,762 $ 25,311 $ 65,204 $ 72,174
Sales..................................... 11,722 8,349 30,577 30,223
Other..................................... 75 69 199 128
-------- -------- -------- --------
Total revenue..................... 33,559 33,729 95,980 102,525
Costs and expenses
Rentals, exclusive of depreciation and
amortization........................... 7,633 9,049 23,602 26,153
Cost of sales, exclusive of depreciation
and amortization....................... 9,993 6,900 25,517 25,650
Depreciation and amortization............. 4,930 7,001 14,255 18,679
Selling, general and administrative....... 4,162 4,004 12,186 12,658
Interest expense.......................... 7,274 8,832 21,415 25,278
-------- -------- -------- --------
Total costs and expenses.......... 33,992 35,786 96,975 108,418
-------- -------- -------- --------
Loss before income taxes.................... (433) (2,057) (995) (5,893)
Income tax benefit.......................... (165) (781) (377) (1,801)
-------- -------- -------- --------
Net loss.................................... $ (268) $ (1,276) $ (618) $ (4,092)
======== ======== ======== ========
Earnings per share:
Basic..................................... $ (0.81) $ (3.83) $ (1.88) $ (12.26)
======== ======== ======== ========
Diluted................................... $ (0.81) $ (3.83) $ (1.88) $ (12.26)
======== ======== ======== ========
Weighted average shares outstanding:
Shares of common stock.................... 329,060 333,542 329,060 333,719
Dilutive potential shares of common
stock.................................. -- -- -- --
-------- -------- -------- --------
Total weighted average shares of
common stock outstanding........ 329,060 333,542 329,060 333,719
======== ======== ======== ========
</TABLE>

See accompanying notes to unaudited consolidated financial statements

F-27
<PAGE> 100

UNIVERSAL COMPRESSION HOLDINGS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999
(IN THOUSANDS)

<TABLE>
<CAPTION>
1998 1999
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (618) $(4,092)
Adjustments to reconcile net income to cash provided from
operating activities:
Depreciation and amortization.......................... 14,255 18,679
Gain on asset sales.................................... -- (83)
Amortization of debt issuance costs.................... 872 872
Accretion of discount notes............................ 13,594 15,035
Change in working capital.............................. (10,798) 2,705
-------- -------
Net cash provided by operating activities......... 17,305 33,116
Cash flows from investing activities:
Additions to property, plant, and equipment, net....... (35,764) (42,505)
Capital lease-back of vehicles......................... -- (4,354)
-------- -------
Net cash used in investing activities............. (35,764) (46,859)
Cash flows from financing activities:
Principal repayments of long-term debt................. (563) (376)
Net borrowing (repayment) on line of credit............ 17,250 (400)
Net proceeds from sale-lease-back of vehicles.......... -- 3,491
Net proceeds from financing lease...................... -- 10,754
Treasury stock....................................... -- (26)
-------- -------
Net cash provided by financing activities......... 16,687 13,443
Decrease in cash............................................ (1,772) (300)
Cash at beginning of period................................. 2,382 2,927
-------- -------
Cash at end of period....................................... $ 610 $ 2,627
======== =======
</TABLE>

See accompanying notes to unaudited consolidated financial statements

F-28
<PAGE> 101

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999

1. BASIS OF PRESENTATION

These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Prospectus. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all appropriate adjustments, all of
which are normally recurring adjustments unless otherwise noted, considered
necessary to present fairly its financial position, results of operations and
cash flows for the respective periods. Operating results for the three and nine
month periods ended December 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2000.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." For the
three and nine month periods ended December 31, 1998 and 1999, the effect of
transactions which would have given rise to further disclosure were not
significant.

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," and
subsequently delayed the effective date of this statement with the issuance of
SFAS No. 137 in June 1999. SFAS No. 133, which is now effective for the
Company's year ending March 31, 2002, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company will be
analyzing SFAS No. 133 to determine what, if any, impact or additional
disclosure requirements this pronouncement will have.

3. INVENTORIES

Inventories consisted of (in thousands):

<TABLE>
<CAPTION>
MARCH, 1999 DECEMBER, 1999
----------- --------------
<S> <C> <C>
Work-in-progress........................................... $ 4,993 $ 3,906
Finished goods............................................. 5,279 6,369
------- -------
$10,272 $10,275
======= =======
</TABLE>

4. INDUSTRY SEGMENTS

The Company evaluates performance based on gross profit or loss from
operations, which represents total revenue less rental expenses and cost of
sales. Revenues include sales to external customers. Operating income represents
revenues less total costs and expenses, not including the effect of interest
expense and income taxes. The Corporate and Other segment represents primarily
corporate activities, part sales and services and all other items that could not
be allocated to an identifiable segment. The Corporate and Other segment
principally serves the oil and gas market, including sales of parts and
equipment utilized in the extraction of natural gas and the service that the
Company provides to customers' natural gas compression units.

F-29
<PAGE> 102

The following table presents sales and other financial information by
industry segment for the three months ended December 31, 1999 and 1998 (in
thousands):

<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ------------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
December 31, 1999:
Revenues............................. $21,416 $3,896 $4,977 $3,440 $33,729
Gross profit......................... $13,735 $2,528 $ 725 $ 792 $17,780
Operating income..................... $ 5,385 $ 723 $ 158 $ 509 $ 6,775
December 31, 1998:
Revenues............................. $19,623 $1,677 $7,893 $4,366 $33,559
Gross profit......................... $12,670 $1,199 $1,095 $ 969 $15,933
Operating income..................... $ 5,214 $ 586 $ 492 $ 549 $ 6,841
</TABLE>

The following table presents sales and other financial information by
industry segment for the nine months ended December 31, 1999 and 1998 (in
thousands):

<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL CORPORATE
RENTAL AND RENTAL AND ENGINEERED AND
MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL
----------- ------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
December 31, 1999:
Revenues............................ $61,528 $10,647 $19,874 $10,476 $102,525
Gross profit........................ $38,569 $ 7,454 $ 2,458 $ 2,241 $ 50,722
Operating income.................... $14,711 $ 2,727 $ 622 $ 1,325 $ 19,385
December 31, 1998:
Revenues............................ $58,781 $ 5,103 $14,763 $17,333 $ 95,980
Gross profit........................ $37,324 $ 3,704 $ 2,553 $ 3,280 $ 46,861
Operating income.................... $15,764 $ 1,824 $ 966 $ 1,866 $ 20,420
</TABLE>

5. FINANCING LEASE

On July 21, 1999, a wholly owned subsidiary of the Company received $7.8
million as the first phase of a financing lease with Societe Generale Financial
Corporation regarding certain compression equipment. An additional $3.78 million
was received by the Company's subsidiary under the financing lease agreement in
October 1999. The financing lease has a term of 5 years and bears interest at a
rate of LIBOR plus 4.25%. The financing lease is related to the Company's
subsidiary's Colombia operations.

F-30
<PAGE> 103

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

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 dealer's obligation to deliver a
prospectus when acting as underwriter and with respect to its unsold allotments
or subscriptions.

[UNIVERSAL COMPRESSION LOGO]

COMMON STOCK

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

PROSPECTUS

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

MERRILL LYNCH & CO.

SALOMON SMITH BARNEY

DEUTSCHE BANC ALEX. BROWN

FIRST UNION SECURITIES, INC.

WASSERSTEIN PERELLA SECURITIES, INC.

, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 104

[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
<PAGE> 105

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 5, 2000

PROSPECTUS

[UNIVERSAL COMPRESSION LOGO]

COMMON STOCK
----------------------

This is Universal Compression Holdings, Inc.'s initial public offering.
Universal Compression is 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 WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
----------------------

The international managers may also purchase up to an additional
shares from Universal 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 aggregate
of an additional shares from Universal.

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

MERRILL LYNCH INTERNATIONAL SALOMON SMITH BARNEY INTERNATIONAL
DEUTSCHE BANC ALEX. BROWN
FIRST UNION SECURITIES, INC.
WASSERSTEIN PERELLA SECURITIES, INC.
----------------------

The date of this prospectus is , 2000.
<PAGE> 106

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, Salomon Brothers International Limited, Deutsche
Bank AG, London, First Union Securities, Inc. and Wasserstein Perella
Securities, Inc. 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 and the international managers, and concurrently
with the sale of shares to the U.S. underwriters, we have agreed to sell to
the international managers, and the international managers severally have agreed
to purchase from us, the number of shares listed opposite its name below.

<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGER OF SHARES
--------------------- ---------
<S> <C> <C>
Merrill Lynch International..............................................
Salomon Brothers International Limited...................................
Deutsche Bank AG, London.................................................
First Union Securities, Inc..............................................
Wasserstein Perella Securities, Inc......................................

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

We 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, Salomon Smith Barney Inc., Deutsche
Bank Securities Inc., First Union Securities, Inc. and Wasserstein Perella
Securities, Inc. 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 pursuant to the international purchase
agreement, we have agreed to sell to the U.S. underwriters, and the U.S.
underwriters severally have agreed to purchase shares from us. 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 have agreed to indemnify the international managers and the U.S.
underwriters against some liabilities, including some liabilities under the
Securities Act, and to contribute to payments the international managers and the
U.S. underwriters may be required to make in respect of those liabilities.

U-1
<PAGE> 107

COMMISSIONS AND DISCOUNTS

The lead managers have advised us 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.

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

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

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,

U-2
<PAGE> 108

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

- request or demand the we file a registration statement related to the
common stock other than in connection with our employee benefit plan or
non-employee director stock plan, or

NEW YORK STOCK EXCHANGE LISTING

We intend to apply to list our common stock on the New York Stock Exchange
under the symbol "UCO." To meet the requirements for listing of our common stock
on that exchange, the underwriters have to undertake to sell lots of 100 or more
shares to a minimum of 2,000 beneficial owners.

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 lead managers and the U.S. representatives. In addition to prevailing
market conditions, the factors considered in determining the initial public
offering price are

- the valuation multiples of publicly traded companies that the lead
managers and the U.S. representatives 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, 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 sales of our common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered in this offering.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of the shares is completed, SEC rules may limit the
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 our common stock in
connection with this offering, i.e., if they sell more shares of common stock
than are listed on the cover page 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-
U-3
<PAGE> 109

allotment option described above. Purchases of the common stock to stabilize its
price 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.

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 lead managers
or the U.S. representatives will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.

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 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.

OTHER RELATIONSHIPS

Some of the underwriters and their affiliates engage in transactions with,
and perform services for, our company in the ordinary course of business and
have engaged, and may in the future engage, in commercial banking and investment
banking transactions and services with our company for which they have received,
or will receive, customary compensation.

U-4
<PAGE> 110

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

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.

[UNIVERSAL COMPRESSION LOGO]

COMMON STOCK

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

PROSPECTUS
----------------

MERRILL LYNCH INTERNATIONAL

SALOMON SMITH BARNEY INTERNATIONAL

DEUTSCHE BANC ALEX. BROWN

FIRST UNION SECURITIES, INC.

WASSERSTEIN PERELLA SECURITIES, INC.

, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 111

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee and NASD filing fee, all amounts are estimates.

<TABLE>
<S> <C>
SEC registration fee........................................ $45,540
NASD filing fee............................................. 17,750
New York Stock Exchange listing fee......................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Blue Sky fees and expenses (including counsel fees)......... *
Printing and Engraving expenses............................. *
Transfer Agent and Registrar fees and expenses.............. *
Miscellaneous expenses...................................... *
-------
Total............................................. $ *
=======
</TABLE>

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

* To be furnished by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of directors
to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty, except for liability (a) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit. The registrant's Certificate
of Incorporation provides that the personal liability of directors of the
registrant is eliminated to the fullest extent permitted by Section 102(b)(7) of
the DGCL.

Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer acted in accordance
with the applicable standard of conduct set forth in such statutory provision.
The registrant's Bylaws provides that the registrant will 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 by reason of the fact that he is
or was a director, officer, employee or agent of the registrant, or is or was
serving at the request of the registrant as a director, officer, employee or
agent of another entity, against certain liabilities, costs and expenses. The
Bylaws further permit the registrant to maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the registrant,
or is or was serving at the request of the registrant as a director, officer,
employee or agent of another entity, against any liability asserted against such
person and incurred by such person in any such capacity or arising out of his
status as such, whether or not the registrant would have the power to indemnify
such person against such liability under the DGCL. The registrant expects to
maintain directors' and officers' liability insurance.

Under the Underwriting Agreement, the Underwriters are obligated, under
certain circumstances, to indemnify directors and officers of the registrant
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.1 hereto.

II-1
<PAGE> 112

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Set forth below is certain information with respect to all securities of
Universal Compression Holdings, Inc. (the "Company") sold by the Company within
the past three years which were not registered under the Securities Act of 1933,
as amended. In addition, on February 20, 1998, the Company issued an aggregate
of 4,120 shares of its non-voting common stock to 412 employees (10 shares each)
as a bonus. All securities listed in this Item 15 were valued at $50 per share
and were granted in reliance on an exemption under Section 4(2) of the
Securities Act.

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF SHARES OF
SERIES A VOTING
PREFERRED COMMON AGGREGATE
PURCHASER DATE STOCK STOCK CONSIDERATION
- --------- ---- --------- --------- -------------
<S> <C> <C> <C> <C>
Castle Harlan Partners III, L.P. ................ 2/20/98 713,148 178,287 $ 44,571,750
BT Capital Partners, Inc. ....................... 2/20/98 128,000 32,000 $ 8,000,000
First Union Capital Partners
Inc. .......................................... 2/20/98 128,000 32,000 $ 8,000,000
Mellon Bank, N.A., as Trustee for the Bell
Atlantic Master Trust.......................... 2/20/98 128,000 32,000 $ 8,000,000
Wilmington Trust, as Trustee of DuPont Pension
Trust.......................................... 2/20/98 128,000 32,000 $ 8,000,000
Brown University Third Century Fund.............. 2/20/98 8,000 2,000 $ 500,000
Castle Harlan
Affiliates III, L.P. .......................... 2/20/98 11,920 2,980 $ 745,000
Frogmore Forum Family Fund, L.L.C. .............. 2/20/98 2,716 679 $ 169,750
Leonard M. Harlan................................ 2/20/98 2,360 590 $ 147,500
Samuel Urcis..................................... 2/20/98 17,600 4,400 $ 1,100,000
Ernie Danner..................................... 2/20/98 4,000 1,000 $ 0 (bonus)
Stephen Snider................................... 2/20/98 8,000 2,000 $ 500,000
Thomas Hartford.................................. 2/20/98 3,840 960 $ 240,000
Branford Castle Holdings, Inc. .................. 2/20/98 4,724 1,181 $ 295,250
Castle Harlan Offshore Partners III, L.P......... 2/20/98 11,692 2,923 $ 730,750
John Peter Laborde............................... 1/11/99 8,000 2,000 $ 500,000
John Tracy Laborde............................... 1/11/99 1,600 400 $ 100,000
Cliffe Floyd Laborde............................. 1/11/99 1,600 400 $ 100,000
Gary Lee Laborde................................. 1/11/99 1,600 400 $ 100,000
John Peter Laborde, Jr........................... 1/11/99 1,600 400 $ 100,000
Mary Adrienne Laborde Parsons.................... 1/11/99 1,600 400 $ 100,000
Richard FitzGerald............................... 2/15/00 320 80 $ 20,000
Valerie L. Banner................................ 2/15/00 160 40 $ 10,000
</TABLE>

II-2
<PAGE> 113

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
1.1* -- Form of U.S. Underwriting Agreement.
1.2* -- Form of International Underwriting Agreement.
3.1 -- Certificate of Incorporation of Universal, as amended to
date (incorporated by reference to Exhibit 3.1 of
Amendment No. 2 to Form S-4/A dated September 17, 1998 to
Registrant's Registration Statement on Form S-4 (File No.
333-48283).
3.2* -- Form of Restated Certificate of Incorporation effective
immediately upon closing of the offering made pursuant to
this Registration Statement.
3.3 -- Bylaws of Universal (incorporated by reference to Exhibit
3.2 of Amendment No. 1 to Form S-4/A dated July 30, 1998
to Registrant's Registration Statement on Form S-4 (File
No. 333-48283).
3.4* -- Form of Proposed Bylaws of Universal.
4.1* -- Specimen common stock certificate.
4.2 -- Purchase Agreement, dated as of February 13, 1998,
between Universal Compression Holdings, Inc. and BT Alex.
Brown Incorporated (incorporated by reference to Exhibit
4.1 of Registrant's Registration Statement on Form S-4
dated March 19, 1998 (File No. 333-48283)).
4.3 -- Purchase Agreement, dated as of February 13, 1998,
between Universal Compression, Inc. and each of BT Alex.
Brown and Salomon Smith Barney (incorporated by reference
to Exhibit 4.1 to Universal Compression, Inc.'s
Registration Statement on Form S-4 dated March 19, 1998
(Commission File No. 333-48279)).
4.4 -- Specimen of Universal Compression Holdings, Inc.'s
11 3/8% Senior Discount Note due 2009 (incorporated by
reference to Exhibit 4.2 to Registrant's Registration
Statement on Form S-4 dated March 19, 1998 (File No.
333-48283)).
4.5 -- Indenture, dated as of February 20, 1998, between
Universal Compression Holdings, Inc. and United States
Trust Company of New York, as Trustee, with respect to
the 11 3/8% Senior Discount Notes (incorporated by
reference to Exhibit 4.3 to Registrant's Registration
Statement on Form S-4 dated March 19, 1998 (File No.
333-48283)).
4.6 -- Indenture, dated as of February 20, 1998, between
Universal Compression, Inc. and the United States Trust
Company of New York, as Trustee, with respect to the
9 7/8% Senior Discount Notes (incorporated by reference
to Exhibit 4.3 to Universal Compression, Inc.'s
Registration Statement on Form S-4 dated March 19, 1998
(Commission File No. 333-48279)).
4.7 -- Specimen of Universal Compression, Inc.'s 9 7/8% Senior
Discount Note due 2008 (incorporated by reference to
Exhibit 4.2 to Universal Compression, Inc.'s Registration
Statement on Form S-4 dated March 19, 1998 (File No.
333-48283)).
4.8 -- Indenture, dated as of February 20, 1998, between TW
Acquisition Corporation (now Universal Compression, Inc.)
and United States Trust Company of New York, as Trustee,
with respect to the 9 7/8% Senior Discount Notes
(incorporated by reference to Exhibit 4.3 to Universal
Compression, Inc.'s Registration Statement on Form S-4
dated March 19, 1998 (File No. 333-48283)).
4.9 -- Registration Rights Agreement, dated February 20, 1998,
between Universal Compression Holdings, Inc. and BT Alex.
Brown Incorporated (incorporated by reference to Exhibit
4.4 to Registrant's Registration Statement on Form S-4
dated March 19, 1998 (File No. 333-48283)).
</TABLE>

II-3
<PAGE> 114

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
4.10** -- Form of Instruments of Accession to Registration Rights
Agreement for each of Richard W. FitzGerald and Valerie
L. Banner.
4.11 -- Form of Notes under Credit Agreement (incorporated by
reference to Exhibit 4.6 to Registrant's Registration
Statement on Form S-4 dated March 19, 1998 (File No.
333-48283)).
4.12 -- Stock Purchase Plan Buyback Agreement dated as of March
26, 1999 among Universal Compression Holdings, Inc. and
the persons named therein (incorporated by reference to
Exhibit 4.10 of Registrant's Annual Report on Form 10-K
for the year ended March 31, 1999).
4.13* -- Form of Rights Agreement.
5.1* -- Opinion of King & Spalding as to the legality of the
common stock being registered.
9.1 -- Voting Trust Agreement, dated February 20, 1998, among
Universal Compression, Inc., John K. Castle, as voting
trustee and certain stockholders party thereto
(incorporated by reference to Exhibit 9.1 of Amendment
No. 2 on Form S-4/A dated September 17, 1998 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (Commission File No. 333-72859)).
9.2 -- Voting Trust Agreement, dated December 1, 1998, among
Universal Compression Holdings, Inc., John K. Castle, as
voting trustee and certain other parties thereto
(incorporated by reference to Exhibit 9.1 of Registrant's
Quarterly Report on Form 10-Q for the period ended
December 31, 1998)).
9.3** -- Form of Instruments of Accession to Voting Trust
Agreement for each of Richard W. FitzGerald and Valerie
L. Banner.
9.4 -- Voting Agreement, dated February 20, 1998, among Castle
Harlan Partners, Universal Compression Holdings, Inc. and
certain other parties (incorporated by reference to
Exhibit 10.13 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
9.5* -- Voting Agreement, Universal Compression Holdings, Inc.
and Spectrum Energy Partners LP.
10.1 -- Stock Purchase Agreement, dated December 18, 1997,
between TW Acquisition Corporation and Tidewater, Inc.
(incorporated by reference to Exhibit 10.1 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.2 -- Universal Compression Holdings, Inc. Incentive Stock
Option Plan (incorporated by reference to Exhibit 10 of
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30,1998)).
10.3 -- Purchase Price Adjustment Agreement, dated February 20,
1998, among TW Acquisition Corporation, Universal
Compression Holdings, Inc., and Tidewater, Inc.
(incorporated by reference to Exhibit 10.2 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-49283)).
10.4 -- Employment Agreement, dated February 20, 1998, with
Stephen Snider (incorporated by reference to Exhibit 10.4
to Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (file No. 333-48283)).
10.5 -- Employment Agreement, dated February 20, 1998 with Ernie
L. Danner (incorporated by reference to Exhibit 10.5 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.6 -- Employment Agreement, dated February 20, 1998, with
Newton Schnoor (incorporated by reference to Exhibit 10.7
to Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
</TABLE>

II-4
<PAGE> 115

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
10.7 -- Executive Employment Agreement dated as of October 29,
1999, with Richard FitzGerald (incorporated by reference
to Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q for the period ended December 31, 1999).
10.8 -- Executive Employment Agreement dated June 1, 1999, with
Valerie L. Banner (incorporated by reference to Exhibit
10.2 to Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 1999).
10.9 -- Management Agreement, dated February 20, 1998, among
Universal Compression, Inc., Universal Compression
Holdings, Inc., and Castle Harlan, Inc. (incorporated by
reference to Exhibit 10.9 to Registrant's Registration
Statement on Form S-4 dated March 19, 1998 (File No.
333-48283)).
10.10 -- Finders and Consulting Agreement, dated February 20, 1998
(incorporated by reference to Exhibit 10.10 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.11 -- Assignment and Assumption Agreement, dated February 20,
1998, among Universal Compression, Inc., BT Alex. Brown
and Salomon Smith Barney (incorporated by reference to
Exhibit 10.11 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
10.12 -- Co-Investor Subscription Agreement, dated February 20,
1998, between Universal Compression Holdings, Inc. and
certain co-investors (incorporated by reference to
Exhibit 10.12 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
10.13 -- Registration Rights Agreement, dated February 20, 1998,
among Universal Compression Holdings, Inc. and certain of
its stockholders (incorporated by reference to Exhibit
10.14 to Registrant's Registration Statement on Form S-4
dated March 19, 1998 (File No. 333-48283)).
10.14 -- Stockholders Agreement, dated February 20, 1998, between
Universal Compression Holdings, Inc. and certain of its
stockholders (incorporated by reference to Exhibit 10.15
to Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.15** -- Form of Instruments of Accession to Stockholders
Agreement for each of Richard W. FitzGerald and Valerie
L. Banner.
10.16 -- Management Subscription Agreement, dated February 20,
1998, between Universal Compression Holdings, Inc. and
certain key members of Universal Compression, Inc.'s
management (incorporated by reference to Exhibit 10.16 to
Registrant's Registration Statement S-4 on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.17 -- Management Stock Buyback Agreement between Universal
Compression Holdings, Inc. and certain key members of
Universal Compression, Inc.'s management (incorporated by
reference to Exhibit 10.17 to Registrant's Registration
Statement on Form S-4 dated March 19, 1998 (File No.
333-48283)).
10.18** -- Form of Management Stock Buyback Agreements between
Universal Compression Holdings, Inc. and each of Richard
W. FitzGerald and Valerie L. Banner.
10.19 -- Stock Option Agreements between Universal Compression
Holdings, Inc. and each of Ernie Danner, Stephen Snider,
Samuel Urcis, Newton Schnoor and Valerie Banner
(incorporated by reference to Exhibit 10.18 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.20 -- Stock Option Agreement between Universal Compression
Holdings, Inc. and Richard W. FitzGerald dated April 12,
1999 (incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the period
ended December 31, 1999).
</TABLE>

II-5
<PAGE> 116

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
10.21* -- Stock Option Agreements between Universal Compression
Holdings, Inc. and each of Jack B. Hilburn, Jr. and Kirk
E. Townsend.
10.22* -- Amended and Restated Stock Option Agreements between
Universal Compression Holdings, Inc. and each of Stephen
Snider, Valerie Banner
and Newton Schnoor.
10.23** -- Agreement, dated as of October 27, 1999, between
Universal Compression Holdings, Inc. and Jack B. Hilburn,
Jr.
10.24** -- Agreement, dated as of October 27, 1999, between
Universal Compression Holdings, Inc. and Kirk E.
Townsend.
10.25 -- Credit Agreement, dated as of February 20, 1998, among
Universal Compression, Inc., Universal Compression
Holdings, Inc., Bankers Trust Company, as agent and the
lenders party thereto (incorporated by reference to
Exhibit 4.5 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
10.26 -- Security Agreement, dated as of February 20, 1998, among
Universal Compression, Inc., Universal Compression
Holdings, Inc., Bankers Trust Company, and the Banks
party thereto (incorporated by reference to Exhibit 4.7
to Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.27 -- Pledge Agreement, dated as of February 29, 1998, among
Universal Compression, Inc., Universal Compression
Holdings, Inc., Bankers Trust Company and the Banks party
thereto (incorporated by reference to Exhibit 4.8 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.28 -- Acknowledgement and Joinder Agreement, dated February 20,
1998, between Universal Compression, Inc. and Bankers
Trust Company (incorporated by reference to Exhibit 4.9
of Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.29 -- First Amendment to Credit Agreement dated November 13,
1998, among Universal Compression Holdings, Inc.,
Universal Compression, Inc., Bankers Trust Company as
agent and the lenders party thereto (incorporated by
reference to Exhibit 4.1 of Registrant's Quarterly Report
on Form 10-Q for the period ended December 31, 1998).
10.30 -- Non-Qualified Stock Purchase Plan (incorporated by
reference to Exhibit 99.1 to Registrant's Registration
Statement on Form S-8 dated February 24, 1999).
10.31* -- Operating Lease Agreement dated as of ,
2000 by and among Universal Compression Holdings, Inc.,
Deutsche Bank and the other lenders party thereto.
21.1* -- Subsidiaries of Universal.
23.1 -- Consent of King & Spalding (contained in Exhibit 5.1).
23.2** -- Consent of Deloitte & Touche LLP.
23.3** -- Consent of KPMG LLP.
24.1 -- Powers of Attorney (contained in signature page hereto).
27.1** -- Financial data schedule (for SEC filing purposes only).
</TABLE>

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

* To be filed by amendment.

** Filed herewith.

(b) Financial Statement Schedules

Not Applicable.

II-6
<PAGE> 117

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the underwriters
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.

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

The Registrant hereby undertakes that:

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

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

II-7
<PAGE> 118

SIGNATURES AND POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, 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 April 5, 2000.

UNIVERSAL COMPRESSION HOLDINGS, INC.

By: /s/ STEPHEN A. SNIDER
---------------------------------------
Stephen A. Snider
President and Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen A. Snider, Ernie L. Danner and Richard
FitzGerald, and each of them, his true and lawful attorney-in-fact and agents,
with full power of substitution and resubstitution, from such person and in each
person's name, place and stead, in any and all capacities, to sign the
Registration Statement and any and all amendments (including post-effective
amendments) thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission
and to sign and file any other registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, granting unto said attorneys-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all said attorneys-in-fact and agents, or any
of them, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 5, 2000.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ STEPHEN A. SNIDER President, Chief Executive Officer and Director
- ----------------------------------------------------- (Principal Executive Officer)
Stephen A. Snider

/s/ RICHARD FITZGERALD Senior Vice President and Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer and Accounting
Richard FitzGerald Officer)

/s/ THOMAS L. CASE Director
- -----------------------------------------------------
Thomas L. Case

/s/ JOHN K. CASTLE Director
- -----------------------------------------------------
John K. Castle

/s/ ERNIE L. DANNER Director
- -----------------------------------------------------
Ernie L. Danner

/s/ C. KENT MAY Director
- -----------------------------------------------------
C. Kent May

/s/ JEFFREY M. SIEGAL Director
- -----------------------------------------------------
Jeffrey M. Siegal

/s/ SAMUEL URCIS Director
- -----------------------------------------------------
Samuel Urcis
</TABLE>

II-8
<PAGE> 119

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
4.11 -- Form of Notes under Credit Agreement (incorporated by
reference to Exhibit 4.6 to Registrant's Registration
Statement on Form S-4 dated March 19, 1998 (File No.
333-48283)).
4.12 -- Stock Purchase Plan Buyback Agreement dated as of March
26, 1999 among Universal Compression Holdings, Inc. and
the persons named therein (incorporated by reference to
Exhibit 4.10 of Registrant's Annual Report on Form 10-K
for the year ended March 31, 1999).
4.13* -- Form of Rights Agreement.
5.1* -- Opinion of King & Spalding as to the legality of the
common stock being registered.
9.1 -- Voting Trust Agreement, dated February 20, 1998, among
Universal Compression, Inc., John K. Castle, as voting
trustee and certain stockholders party thereto
(incorporated by reference to Exhibit 9.1 of Amendment
No. 2 on Form S-4/A dated September 17, 1998 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (Commission File No. 333-72859)).
9.2 -- Voting Trust Agreement, dated December 1, 1998, among
Universal Compression Holdings, Inc., John K. Castle, as
voting trustee and certain other parties thereto
(incorporated by reference to Exhibit 9.1 of Registrant's
Quarterly Report on Form 10-Q for the period ended
December 31, 1998)).
9.3** -- Form of Instruments of Accession to Voting Trust
Agreement for each of Richard W. FitzGerald and Valerie
L. Banner.
9.4 -- Voting Agreement, dated February 20, 1998, among Castle
Harlan Partners, Universal Compression Holdings, Inc. and
certain other parties (incorporated by reference to
Exhibit 10.13 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
9.5* -- Voting Agreement between Universal Compression Holdings,
Inc. and Spectrum Energy Partners LP.
10.1 -- Stock Purchase Agreement, dated December 18, 1997,
between TW Acquisition Corporation and Tidewater, Inc.
(incorporated by reference to Exhibit 10.1 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.2 -- Universal Compression Holdings, Inc. Incentive Stock
Option Plan (incorporated by reference to Exhibit 10 of
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30,1998)).
10.3 -- Purchase Price Adjustment Agreement, dated February 20,
1998, among TW Acquisition Corporation, Universal
Compression Holdings, Inc., and Tidewater, Inc.
(incorporated by reference to Exhibit 10.2 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-49283)).
10.4 -- Employment Agreement, dated February 20, 1998, with
Stephen Snider (incorporated by reference to Exhibit 10.4
to Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (file No. 333-48283)).
10.5 -- Employment Agreement, dated February 20, 1998 with Ernie
L. Danner (incorporated by reference to Exhibit 10.5 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.6 -- Employment Agreement, dated February 20, 1998, with
Newton Schnoor (incorporated by reference to Exhibit 10.7
to Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.7 -- Executive Employment Agreement dated as of October 29,
1999, with Richard FitzGerald (incorporated by reference
to Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q for the period ended December 31, 1999).
</TABLE>
<PAGE> 121

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
10.8 -- Executive Employment Agreement dated June 1, 1999, with
Valerie L. Banner (incorporated by reference to Exhibit
10.2 to Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 1999).
10.9 -- Management Agreement, dated February 20, 1998, among
Universal Compression, Inc., Universal Compression
Holdings, Inc., and Castle Harlan, Inc. (incorporated by
reference to Exhibit 10.9 to Registrant's Registration
Statement on Form S-4 dated March 19, 1998 (File No.
333-48283)).
10.10 -- Finders and Consulting Agreement, dated February 20, 1998
(incorporated by reference to Exhibit 10.10 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.11 -- Assignment and Assumption Agreement, dated February 20,
1998, among Universal Compression, Inc., BT Alex. Brown
and Salomon Smith Barney (incorporated by reference to
Exhibit 10.11 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
10.12 -- Co-Investor Subscription Agreement, dated February 20,
1998, between Universal Compression Holdings, Inc. and
certain co-investors (incorporated by reference to
Exhibit 10.12 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
10.13 -- Registration Rights Agreement, dated February 20, 1998,
among Universal Compression Holdings, Inc. and certain of
its stockholders (incorporated by reference to Exhibit
10.14 to Registrant's Registration Statement on Form S-4
dated March 19, 1998 (File No. 333-48283)).
10.14 -- Stockholders Agreement, dated February 20, 1998, between
Universal Compression Holdings, Inc. and certain of its
stockholders (incorporated by reference to Exhibit 10.15
to Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.15** -- Form of Instruments of Accession to Stockholders
Agreement for each of Richard W. FitzGerald and Valerie
L. Banner.
10.16 -- Management Subscription Agreement, dated February 20,
1998, between Universal Compression Holdings, Inc. and
certain key members of Universal Compression, Inc.'s
management (incorporated by reference to Exhibit 10.16 to
Registrant's Registration Statement S-4 on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.17 -- Management Stock Buyback Agreement between Universal
Compression Holdings, Inc. and certain key members of
Universal Compression, Inc.'s management (incorporated by
reference to Exhibit 10.17 to Registrant's Registration
Statement on Form S-4 dated March 19, 1998 (File No.
333-48283)).
10.18** -- Form of Management Stock Buyback Agreements between
Universal Compression Holdings, Inc. and each of Richard
W. FitzGerald and Valerie L. Banner.
10.19 -- Stock Option Agreements between Universal Compression
Holdings, Inc., and each of Ernie Danner, Stephen Snider,
Samuel Urcis, Newton Schnoor, and Valerie Banner
(incorporated by reference to Exhibit 10.18 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.20 -- Stock Option Agreement between Universal Compression
Holdings, Inc. and Richard W. FitzGerald dated April 12,
1999 (incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the period
ended December 31, 1999).
10.21* -- Stock Option Agreements between Universal Compression
Holdings, Inc. and each of Jack B. Hilburn, Jr. and Kirk
E. Townsend.
10.22* -- Amended and Restated Stock Option Agreements between
Universal Compression Holdings, Inc. and each of Stephen
Snider, Valerie Banner
and Newton Schnoor.
</TABLE>
<PAGE> 122

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
10.23** -- Agreement, dated as of October 27, 1999, between
Universal Compression Holdings, Inc. and Jack B. Hilburn,
Jr.
10.24** -- Agreement, dated as of October 27, 1999, between
Universal Compression Holdings, Inc. and Kirk E.
Townsend.
10.25 -- Credit Agreement, dated as of February 20, 1998, among
Universal Compression, Inc., Universal Compression
Holdings, Inc., Bankers Trust Company, as agent and the
lenders party thereto (incorporated by reference to
Exhibit 4.5 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
10.26 -- Security Agreement, dated as of February 20, 1998, among
Universal Compression, Inc., Universal Compression
Holdings, Inc., Bankers Trust Company, and the Banks
party thereto (incorporated by reference to Exhibit 4.7
to Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.27 -- Pledge Agreement, dated as of February 29, 1998, among
Universal Compression, Inc., Universal Compression
Holdings, Inc., Bankers Trust Company and the Banks party
thereto (incorporated by reference to Exhibit 4.8 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.28 -- Acknowledgement and Joinder Agreement, dated February 20,
1998, between Universal Compression, Inc. and Bankers
Trust Company (incorporated by reference to Exhibit 4.9
of Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.29 -- First Amendment to Credit Agreement dated November 13,
1998, among Universal Compression Holdings, Inc.,
Universal Compression, Inc., Bankers Trust Company as
agent and the lenders party thereto (incorporated by
reference to Exhibit 4.1 of Registrant's Quarterly Report
on Form 10-Q for the period ended December 31, 1998).
10.30 -- Non-Qualified Stock Purchase Plan (incorporated by
reference to Exhibit 99.1 to Registrant's Registration
Statement on Form S-8 dated February 24, 1999).
10.31* -- Operating Lease Agreement dated as of ,
2000 by and among Universal Compression Holdings, Inc.,
Deutsche Bank and the other lenders party thereto.
21.1* -- Subsidiaries of Universal.
23.1 -- Consent of King & Spalding (contained in Exhibit 5.1).
23.2** -- Consent of Deloitte & Touche LLP.
23.3** -- Consent of KPMG LLP.
24.1 -- Powers of Attorney (contained in signature page hereto).
27.1** -- Financial data schedule (for SEC filing purposes only).
</TABLE>

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

* To be filed by amendment.

** Filed herewith.

<PAGE> 1
FORM OF
REGISTRATION RIGHTS AGREEMENT
INSTRUMENT OF ACCESSION

In connection with [VALERIE L. BANNER ("BANNER")] [RICHARD W.
FITZGERALD ("Fitzgerald")], as a condition precedent to becoming the owner or
holder of record of FORTY (40) shares of Common Stock, par value $0.01 per
share, of Universal Compression Holdings, Inc., a Delaware corporation
("Holdings"), and ONE HUNDRED SIXTY (160) shares of Preferred Stock, par value
$0.01 per share, of Holdings, Holdings and [Banner] [Fitzgerald] hereby agrees
to become a stockholder, party to and bound by that certain Registration Rights
Agreement, dated as of February 20, 1998, by and among Holdings and certain
stockholders of Holdings. This Instrument of Accession shall take effect and
shall become an integral part of the said Registration Rights Agreement
immediately upon execution and delivery to Holdings of this Instrument.

IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed
by or on behalf of the undersigned as of the date below written.

Signature:
----------------------------------
Address
For Notice:
----------------------------------

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

Date:
---------------------------------------

UNIVERSAL COMPRESSION HOLDINGS, INC.

By:
---------------------------------------

Name:
---------------------------------------

Date:
---------------------------------------

<PAGE> 1
FORM OF
VOTING TRUST AGREEMENT
INSTRUMENT OF ACCESSION

The undersigned, [VALERIE L. BANNER] [RICHARD W. FITZGERALD], as a
condition precedent to becoming the owner or holder of record of FORTY (40)
shares of Common Stock, par value $0.01 per share, of Universal Compression
Holdings, Inc., a Delaware corporation ("Holdings"), and ONE HUNDRED SIXTY (160)
shares of Preferred Stock, par value $0.01 per share, of Holdings, hereby agrees
to become a party to and bound by that certain Voting Trust Agreement, dated as
of December 1, 1998, by and among Holdings and certain stockholders of Holdings.
This Instrument of Accession shall take effect and shall become an integral part
of the said Voting Trust Agreement immediately upon execution and delivery to
Holdings of this Instrument.

IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed
by or on behalf of the undersigned as of the date below written.

Signature:
-------------------------------

Address

For Notice:
-------------------------------

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

Date:
-------------------------------

Accepted:

UNIVERSAL COMPRESSION HOLDINGS, INC.

By:
-----------------------------------

Date:
---------------------------------

<PAGE> 1
FORM OF
STOCKHOLDERS AGREEMENT
INSTRUMENT OF ACCESSION

The undersigned, [VALERIE L. BANNER] [RICHARD W. FITZGERALD], as a
condition precedent to becoming the owner or holder of record of FORTY (40)
shares of Common Stock, par value $0.01 per share, of Universal Compression
Holdings, Inc., a Delaware corporation ("Holdings"), and ONE HUNDRED SIXTY (160)
shares of Preferred Stock, par value $0.01 per share, of Holdings, hereby agrees
to become a stockholder, party to and bound by that certain Stockholders
Agreement, dated as of February 20, 1998, by and among Holdings and certain
stockholders of Holdings. This Instrument of Accession shall take effect and
shall become an integral part of the said Stockholders Agreement immediately
upon execution and delivery to Holdings of this Instrument.

IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed
by or on behalf of the undersigned as of the date below written.

Signature:
-------------------------------

Address

For Notice:
-------------------------------

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

Date:
-------------------------------

Accepted:

UNIVERSAL COMPRESSION HOLDINGS, INC.

By:
-----------------------------------

Date:
---------------------------------

<PAGE> 1

FORM OF
MANAGEMENT STOCK BUYBACK AGREEMENT

STOCK BUYBACK AGREEMENT, dated as of January 31, 2000 (the
"Agreement"), by and among UNIVERSAL COMPRESSION HOLDINGS, INC., a Delaware
corporation ("Holdings") and [RICHARD W. FITZGERALD] [VALERIE L. BANNER]
("Purchaser").

WHEREAS, Holdings and the Purchaser are parties to the
Subscription Agreement, dated the date hereof (the "Subscription Agreement"),
whereby Purchaser is acquiring the number of shares of the Common Stock of
Holdings, par value $0.01 per share (the "Common Stock"), and the number of
shares of the Series A Preferred Stock of Holdings, par value $.01 per share
(the "Preferred Stock") as is set forth opposite such person's name on Annex I;

WHEREAS, in connection with such purchase, Holdings and the
Purchaser wish to set forth their understanding with respect to their respective
rights to force the sale, in the case of Holdings, or force the purchase, in the
case of the Purchaser, of the Common Stock and/or Preferred Stock acquired
pursuant to the Subscription Agreement.

NOW, THEREFORE, the parties hereto agree as follows:

1. General. Except as provided in Sections 3, 4, 5 and 7 of
the Stockholders Agreement, dated as of February 20, 1998, by and among Holdings
and the stockholders party thereto (the "Stockholders Agreement"), each share of
Common Stock and Preferred Stock acquired by the Purchaser at any time may not
be sold, disposed of or otherwise transferred except to Holdings in accordance
with this Agreement. Each certificate representing shares of Common Stock and
Preferred Stock acquired by Purchaser shall bear a legend to such effect. In the
event that Purchaser, in accordance with the Stockholders Agreement, transfers
all or any shares of Common Stock or Preferred Stock to a person other than
Holdings, such transferee shall be obligated to comply with the provisions of
this Agreement. The Common Stock and Preferred Stock are sometimes collectively
referred to herein as the "Holdings Securities."

2. Call by Holdings. Within six months following Purchaser's
termination of employment with Holdings and Universal Compression, Inc.,
Holdings shall have the right to purchase from Purchaser, all of the Holdings
Securities owned by Purchaser for an amount equal to:

(a) in the case of Common Stock (i) where Purchaser resigns
prior to the expiration (the "Expiration") of Purchaser's term of employment
under Purchaser's employment agreement, if any, or is terminated for Cause at
any time, the lesser of (x) the product of (A) the Common Share Value (valued as
of the end of the month preceding Purchaser's resignation from or termination of
employment) multiplied by (B) the number of shares of Common Stock held by
Purchaser, and (y) the product of (A) the price per share of Common Stock paid
by Purchaser to acquire such shares multiplied by (B) the number of shares of
Common Stock held by Purchaser, or (ii) where Purchaser resigns after the
Expiration, the Fair Market Value of such shares of Common Stock, and

(b) in the case of Preferred Stock (i) where Purchaser resigns
prior to the Expiration or is terminated for Cause at any time, the product of
(A) the Preferred Share Value multiplied by (B) the number of shares of
Preferred Stock held by Purchaser, or (ii) where Purchaser resigns after the
Expiration, the Fair Market Value of such shares of Preferred Stock.

- --------------------------------------------------------------------------------
Management Stock Buyback Agreement 1 of 6
Universal Compression Holdings, Inc.
<PAGE> 2

If such purchase of Holdings Securities by Holdings is
prohibited pursuant to the terms of any agreement to which Holdings is a party,
the period during which Holdings may make such purchase shall be extended by an
additional six months from the expiration of the initial six-month period.

3. Put by Purchaser. Purchaser shall have the right to sell to
Holdings, within three months following Purchaser's death or disability or
termination of employment by Holdings for any reason other than Cause, all of
the Holdings Securities owned by Purchaser for an amount equal to:

(a) in the case of Common Stock, the Fair Market Value of such
shares of Common Stock, and

(b) in the case of Preferred Stock, the Fair Market Value of
such shares of Preferred Stock.

4. Definitions. For purposes of this Agreement:

(i) "Cause" shall mean termination (a) upon the willful and
continued failure by Purchaser to substantially perform his duties with Holdings
or its subsidiaries (other than any such failure resulting from his incapacity
due to physical or mental illness), after a written demand for substantial
performance is delivered to Purchaser by the Board of Directors of Holdings or
such subsidiary, which demand specifically identifies the manner in which
Purchaser is believed not to have substantially performed his duties, or (b)
Purchaser's willful engagement in conduct which is or is likely to become
demonstrably and materially injurious to Holdings or such subsidiary, monetarily
or otherwise;

(ii) "Common Share Value" shall mean the quotient of (i) the
amount equal to the excess, if any, of the Holdings Equity Value over the
Holdings Preferred Value divided by (ii) the number of shares of Common Stock
outstanding on a fully diluted basis.

(iii) "EBITDA" shall mean, for any period, the amount equal
to: (a) the net income (or net loss) of Holdings and its subsidiaries during
such period after deduction of all expenses, taxes and other charges, determined
in accordance with generally accepted accounting principles, after eliminating
therefrom all extraordinary items of income and expense (including the
elimination of any expense reported on the financial statements of Holdings or
any subsidiary for such period in respect of the management fee owed to Castle
Harlan, Inc. ("CHI") pursuant to the Management Agreement between CHI, Holdings
and Universal Compression, Inc., dated as of the date hereof); plus (b) to the
extent deducted from net income, dividends on Holdings' Preferred Stock; plus
(c) any provision for (or less any benefit from) income taxes included in the
determination of (a) above; plus (d) depreciation, depletion and amortization;
plus (e) the expenses of Holdings and its subsidiaries charged to income for
interest on indebtedness (including the current portion thereof), determined in
accordance with generally accepted accounting principles.

(iv) "Fair Market Value" shall mean the fair market value of
the shares of Common Stock or Preferred Stock, as the case may be, that are
being purchased from or sold by a Purchaser pursuant to this Agreement, such
value to be determined by a nationally recognized investment banking firm
selected by the Board of Directors of Holdings, which selection shall be

- --------------------------------------------------------------------------------
Management Stock Buyback Agreement 2 of 6
Universal Compression Holdings, Inc.
<PAGE> 3

subject to Purchaser's approval (such approval or disapproval not to be
unreasonably withheld) within thirty (30) days of notice to him of such
selection.

(v) "Holdings Equity Value" shall mean, as of any date, an
amount equal to EBITDA for the four immediately preceding fiscal quarters,
multiplied by seven, minus the sum of (a) the amount of Holdings' indebtedness
for borrowed money (including any obligation owed in respect of capitalized
leases) (determined in accordance with generally accepted accounting principles
as set forth on Holdings' most recent quarterly balance sheet, including current
and long term portions) and accrued interest thereon, and (b) the amount of the
liquidation preference of any preferred stock (other than Preferred Stock)
outstanding and accrued dividends thereon.

(vi) "Holdings Preferred Value" shall mean the Preferred Share
Value multiplied by the number of shares of Preferred Stock outstanding on a
fully diluted basis.

(vii) "Preferred Share Value" shall mean the lesser of (a) the
Holdings Equity Value divided by the number of shares of Preferred Stock
outstanding on a fully diluted basis and (b) the liquidation value per share of
Preferred Stock assigned to the Preferred Stock, plus all accrued and unpaid
dividends thereon, if any.

5. Payment. The purchase of Holdings Securities by Holdings
pursuant to the foregoing provisions shall be paid for in cash, to the extent
permitted under the loan agreements and debt instruments relating to Holdings or
any of its subsidiaries, or, to the extent cash payments are not permitted
thereunder, by means of a subordinated payment-in-kind promissory note issued by
Holdings bearing interest, payable annually, at the lowest interest rate
required to avoid imputed interest, which note shall be repaid as soon as
permitted.

6. Further Action. Each party hereto agrees to execute and
deliver any instrument and take any action that may reasonably be requested by
any other party for the purpose of effectuating the provisions of this
Agreement.

7. Miscellaneous Provisions.

(a) Assignability; Binding Effect. Except as otherwise
provided in this Section, no right under this Agreement shall be assignable and
any attempted assignment in violation of this provision shall be void. Holdings
shall have the right to assign its rights and obligations hereunder to any
successor entity (including any entity acquiring substantially all of the assets
of Holdings), whereupon references herein to Holdings shall be deemed to be to
such successor. This Agreement, and the rights and obligations of the parties
hereunder, shall be binding upon and inure to the benefit of any and all
successors, permitted assigns, personal representatives and all other legal
representatives, in whatsoever capacity, by operation of law or otherwise, of
the parties hereto, in each case with the same force and effect as if the
foregoing persons were named herein as parties hereto.

(b) Notices. Any notice or other communication required or
which may be given hereunder shall be in writing and shall be delivered
personally, telecopied with confirmed receipt, sent by certified, registered, or
express mail, postage prepaid, or sent by a national next-day delivery service
to the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice, and shall be deemed given when so

- --------------------------------------------------------------------------------
Management Stock Buyback Agreement 3 of 6
Universal Compression Holdings, Inc.

<PAGE> 4

delivered personally or telecopied, or if mailed, 2 days after the date of
mailing, or, if by national next-day delivery service, on the day after delivery
to such service as follows:

(i) if to Holdings, to it at:

c/o Castle Harlan, Inc.
150 East 58th Street, 37th Floor
New York, New York 10155
Attention: Jeffrey M. Siegal
Telecopier No.: 212-207-8042

with a copy to:

Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Andre Weiss, Esq.

(ii) if to Purchaser, to him or her at:

Universal Compression, Inc.
4440 Brittmoore Road
Houston, Texas 77041-8004

(c) Applicable Law; Consent to Jurisdiction. This Agreement
and the validity and performance of the terms hereof shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of law or choice of law. The parties hereto hereby agree
that all actions or proceedings arising directly or indirectly from or in
connection with this Agreement shall be litigated only in the Supreme Court of
the State of New York or the United States District Court for the Southern
District of New York located in New York County, New York. To the extent
permitted by applicable law, the parties hereto consent to the jurisdiction and
venue of the foregoing courts and consent that any process or notice of motion
or other application to either of said courts or a judge thereof may be served
inside or outside the State of New York or the Southern District of New York by
registered mail, return receipt requested, directed to such party at its address
set forth in this Agreement (and service so made shall be deemed complete five
days after the same has been posted as aforesaid) or by personal service or in
such other manner as may be permissible under the rules of said courts.

(d) Entire Agreement; Amendments and Waivers. This
Agreement sets forth the entire understanding of the parties with respect to the
subject matter hereof. The failure of any party to seek redress for the
violation of or to insist upon the strict performance of any term of this
Agreement shall not constitute a waiver of such term and such party shall be
entitled to enforce such term without regard to such forbearance. This Agreement
may be amended only by the written consent of each party hereto, and each party
hereto may take any action herein prohibited or omit to take action herein
required to be performed by it, and any breach of or compliance with any
covenant, agreement, warranty or representation may be waived only by the
written waiver of the party against whom such action or inaction may negatively
affect, but, in any case, such consent or waiver shall only be effective in the
specific instance and for the specific purpose for which given.

- --------------------------------------------------------------------------------
Management Stock Buyback Agreement 4 of 6
Universal Compression Holdings, Inc.

<PAGE> 5

(e) Headings. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretations of the Agreement.

(f) Severability. If any term, provision, covenant or
restriction of this Agreement, or any part thereof, is held by a court of
competent jurisdiction or any foreign federal, state, county or local government
or any other governmental, regulatory or administrative agency or authority to
be invalid, void, unenforceable or against public policy for any reason, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.

(g) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.

(h) Specific Performance. Each of the parties hereto
acknowledges and agrees that in the event of any breach of this Agreement, the
non-breaching party would be irreparably harmed and could not be made whole by
monetary damages. It is accordingly agreed that the parties hereto shall and do
hereby waive the defense in any action for specific performance that a remedy at
law would be adequate and that the parties hereto, in addition to any other
remedy to which they may be entitled at law or in equity, shall be entitled to
compel specific performance of this Agreement in any action instituted in the
Supreme Court of the State of New York or the United States District Court for
the Southern District of New York, or, in the event such courts shall not have
jurisdiction of such action, in any court of the United States or any state
thereof having subject matter jurisdiction of such action.

IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first set forth above.

UNIVERSAL COMPRESSION HOLDINGS, INC.

By:
---------------------------------------

Name:
-------------------------------------

Title:
------------------------------------

PURCHASER:

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

- --------------------------------------------------------------------------------
Management Stock Buyback Agreement 5 of 6
Universal Compression Holdings, Inc.
<PAGE> 6

ANNEX I

<TABLE>
<CAPTION>
PURCHASER NUMBER OF SHARES PURCHASE PRICE
--------- ---------------- --------------
COMMON PREFERRED COMMON PREFERRED
STOCK STOCK STOCK STOCK
----- ----- ----- -----
<S> <C> <C> <C> <C>

</TABLE>

- --------------------------------------------------------------------------------
Management Stock Buyback Agreement 6 of 6
Universal Compression Holdings, Inc.

<PAGE> 1
EXHIBIT 10.23

AGREEMENT

AGREEMENT ("Agreement") dated as of October 27, 1999 between Universal
Compression, Inc., a Texas corporation (the "Company"), Universal Compression
Holdings, Inc., a Delaware corporation ("Holdings") and JACK B. HILBURN (the
"Executive").

WHEREAS, Universal is a direct wholly-owned subsidiary of Holdings;

WHEREAS, the parties wish to enter into agreement to set out the
Company's, Holdings' and the Executive's severance obligations.

Accordingly, the parties agree as follows:

1. Severance.

(a) If, during the one year period next following a "Change in Control"
(as herein defined) the Executive's employment with the Company is terminated by
the Company for reasons other than death, disability or cause ("Termination Upon
Change in Control"), in lieu of additional salary payments to the Executive for
periods subsequent to the date of such termination, the Company shall pay a lump
sum severance payment (together with the payments provided in paragraph (b)
below, the "Severance Payments") to the Executive at the time of termination.
Such payment shall be an amount equal to the sum of (A) the Executive's annual
Base Salary as in effect as of the date of termination and (B) the Executive's
annual bonus target amount under the Officer Incentive Plan or similar bonus
program in effect at such termination.

(b) For a period of twelve (12) months immediately following the date
of Executive's termination of employment pursuant to Section 1(a) above, the
Company shall at its expense arrange to provide the Executive with life,
disability, accident and group health insurance benefits substantially similar
to those which the Executive was receiving immediately prior to the notice of
termination. Benefits otherwise receivable by the Executive pursuant to this
paragraph (b) shall be

Severance Agreement Page 1 of 10
UCI / Jack B. Hilburn

<PAGE> 2

reduced to the extent comparable benefits are actually received by the Executive
during the period following the Executive's termination, and any such benefits
actually received by the Executive shall be reported to the Company.

(c) Nothing contained in this Section 1 shall prevent the Executive
from receiving any and all benefits payable under any severance benefit plan or
severance program maintained by the Company to which the Executive is entitled.

2. Definition of Change in Control.

For purposes of this Agreement a "Change in Control" shall be deemed to
have occurred upon the first to occur of the following events:

(a) any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than
(i) the Company, or (ii) any corporation owned, directly or indirectly, by the
stockholders of the Company or Holdings in substantially the same proportions as
their ownership of stock of the Company or Holdings, or (iii) Castle Harlan,
Inc. or its affiliates), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company or Holdings representing more than 50% of the combined voting power of
the Company's or Holdings' then outstanding securities; or

(b) during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Company's or Holdings' Board of
Directors, and any new director (other than a director designated by a person
who has entered into an agreement with the Company or Holdings to effect the
transaction described in clause (a) of this Section) whose election by the
Company's or Holdings' Board of Directors or nomination for election by the
Company's or Holdings' stockholders was

Severance Agreement Page 2 of 10
UCI / Jack B. Hilburn

<PAGE> 3

approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof.

3. Restrictions and Obligations of the Executive.

(a) Consideration for Restrictions and Covenants. The parties hereto
acknowledge and agree that the principal consideration for the agreement to make
the severance payments provided in this Agreement by the Company to Executive is
the Executive's compliance with the undertakings set forth in this Section 3.
Specifically, the Executive agrees to comply with the provisions of this Section
3 irrespective of whether the Executive is entitled to receive any such
payments.

(b) Confidentiality. The confidential and proprietary information and,
in any material respect, trade secrets of the Company are among its most
valuable assets, including but not limited to, its customer and vendor lists,
database, engineering, computer programs, frameworks, models, its marketing
programs, its sales, financial, marketing, training and technical information,
and any other information, whether communicated orally, electronically, in
writing or in other tangible forms concerning how the Company creates, develops,
acquires or maintains its products and marketing plans, targets its potential
customers and operates its retail and other businesses. The Company invested,
and continues to invest, considerable amounts of time and money in its process,
technology, know-how, obtaining and developing the goodwill of its customers,
its other external relationships, its data systems and data bases, and all the
information described above (hereinafter collectively referred to as
"Confidential Information"), and any misappropriation or unauthorized disclosure
of Confidential Information in any form would irreparably harm the Company. The
Executive shall hold in a fiduciary capacity for the benefit of the Company all
Confidential Information relating to the Company and its business, which shall
have been obtained by the

Severance Agreement Page 3 of 10
UCI / Jack B. Hilburn

<PAGE> 4

Executive during the Executive's employment by the Company and which shall not
be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate, divulge or use any such
information, knowledge or data to anyone other than the Company and those
designated by it.

(c) Non-Solicitation or Hire. During the term of Executive's employment
with the Company, Holdings or any subsidiary thereof and for a two-year period
following the termination of the Executive's employment for any reason, the
Executive shall not, directly or indirectly (i) employ or seek to employ any
person who is at the date of termination, or was at any time within the
six-month period preceding the date of termination, an officer, general manager
or director or equivalent or more senior level employee of the Company or any of
its subsidiaries or otherwise solicit, encourage, cause or induce any such
employee of the Company or any of its subsidiaries to terminate such employee's
employment with the Company or such subsidiary for the employment of another
company (including for this purpose the contracting with any person who was an
independent contractor (excluding consultant) of the Company during such period)
or (ii) take any action that would interfere with the relationship of the
Company or its subsidiaries with their suppliers or customers without, in either
case, the prior written consent of the Company's Board of Directors, or engage
in any other action or business that would have a material adverse effect on the
Company.

(d) Non-Competition. (i) During the term of Executive's employment with
the Company, Holdings or any subsidiary thereof and for a two-year period (the
"Restriction Period")

Severance Agreement Page 4 of 10
UCI / Jack B. Hilburn

<PAGE> 5

following the termination of the Executive's employment for any reason, the
Executive shall not, directly or indirectly:

(x) engage in any managerial, administrative,
advisory, consulting, operational or sales activities in a Restricted Business
anywhere in the Restricted Area, including, without limitation, as a director or
partner of such Restricted Business, and/or

(y) organize, establish, operate, own, manage,
control or have a direct or indirect investment or ownership interest in a
Restricted Business or in any corporation, partnership (limited or general),
limited liability company enterprise or other business entity that engages in a
Restricted Business anywhere in the Restricted Area; and (ii) Nothing contained
in this Section 3 shall prohibit or otherwise restrict the Executive from
acquiring or owning, directly or indirectly, for passive investment purposes not
intended to circumvent this Agreement, securities of any entity engaged,
directly or indirectly, in a Restricted Business if either (i) such entity is a
public entity and the Executive (A) is not a controlling Person of, or a member
of a group that controls, such entity and (B) owns, directly or indirectly, no
more than 3% of any class of equity securities of such entity or (ii) such
entity is not a public entity and the Executive (A) is not a controlling Person
of, or a member of a group that controls, such entity and (B) does not own,
directly or indirectly, more than 1% of any class of equity securities of such
entity.

(e) Definitions. For purposes of this Section 3:

(i) "Restricted Business" means the business of designing,
manufacturing, servicing, operating, marketing, assembling, renting or leasing
of air or gas compressors or devices using comparable technologies or other
business in which Holdings or its subsidiaries may be engaged during the term of
Executive's employment with the Company. To the extent that any

Severance Agreement Page 5 of 10
UCI / Jack B. Hilburn

<PAGE> 6

entity is primarily engaged in a business other than a Restricted Business, the
term "Restricted Business" shall mean the operations, division, segment or
subsidiary of such entity that is engaged in any Restricted Business.

(ii) "Restricted Area" means any state in the United States,
or any country in which Holdings or its subsidiaries engages in any Restricted
Business at any time during the term of Executive's employment with the Company.

4. Employment at Will. This Agreement does not restrict the Company's or
the Executive's right to terminate the employment relationship at any time, for
any reason, with or without cause, and does not in any way create employment for
a definite or specific term.

5. Other Provisions.

5.1. Notices. Any notice or other communication required or which may
be given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid, and shall be deemed given when so
delivered personally, telegraphed, telexed, or sent by facsimile transmission
or, if mailed, four days after the date of mailing, as follows:

(a) If the Company or Holdings, to:

4440 Brittmoore
Houston, Texas 77041
Attention: General Counsel

With copies to:

Castle Harlan, Inc.
150 E. 58th Street
New York, NY 10155
Attention: Jeffrey M. Siegal

Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Attention: Andre Weiss, Esq.

(b) If the Executive, to his home address set forth in the records of
the Company.

Severance Agreement Page 6 of 10
UCI / Jack B. Hilburn

<PAGE> 7

5.2 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.

5.3 Waiver and Amendments. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any right, power or
privilege hereunder, nor any single or partial exercise of any right, power or
privilege hereunder, preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.

5.4 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of Delaware.

5.5 Assignability. This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. The Company and
Holdings may each assign this Agreement and its rights, together with its
obligations, to any other entity which will substantially carry on the business
of the Company.

5.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.

5.7 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning of terms
contained herein.

Severance Agreement Page 7 of 10
UCI / Jack B. Hilburn

<PAGE> 8

5.8 Remedies; Specific Performance. The parties hereto hereby
acknowledge that the provisions of Section 3 are reasonable and necessary for
the protection of the Company and Holdings. In addition, the Executive further
acknowledges that the Company and Holdings will be irrevocably damaged if such
covenants are not specifically enforced. Accordingly, the Executive agrees that,
in addition to any other relief to which the Company and Holdings may be
entitled, the Company and Holdings will be entitled to seek and obtain
injunctive relief (without the requirement of any bond) from a court of
competent jurisdiction for the purposes of restraining the Executive from any
actual or threatened breach of such covenants. In addition, without limiting the
Company's and Holdings' remedies for any breach of any restriction on the
Executive set forth in Section 3, except as required by law, the Executive shall
not be entitled to the payments and insurance benefits set forth in Section 1
hereof if the Executive breaches any of the covenants applicable to the
Executive contained in Section 3, the Executive will immediately return to the
Company any payments previously received under Section 1 upon such a breach.

5.9 Severability. If any term, provision, covenant or restriction of
this Agreement, or any part thereof, is held by a court of competent
jurisdiction of any foreign, federal, state, county or local government or any
other governmental, regulatory or administrative agency or authority to be
invalid, void, unenforceable or against public policy for any reason, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected or
impaired or invalidated. The Executive acknowledges that the restrictive
covenants contained in Section 3 are a condition of this Agreement and are
reasonable and valid in geographical and temporal scope and in all other
respects.

5.10 Judicial Modification. If any court or arbitrator determines that
any of the covenants in Section 3, or any part of any of them, is invalid or
unenforceable, the remainder of such covenants

Severance Agreement Page 8 of 10
UCI / Jack B. Hilburn

<PAGE> 9

and parts thereof shall not thereby be affected and shall be given full effect,
without regard to the invalid portion. If any court or arbitrator determines
that any of such covenants, or any part thereof, is invalid or unenforceable
because of the geographic or temporal scope of such provision, such court or
arbitrator shall reduce such scope to the minimum extent necessary to make such
covenants valid and enforceable.

6. Arbitration.

Any controversy or claim arising out of or in connection with this
Agreement (other than pursuant to Section 3) shall be settled by arbitration in
accordance with the rules then obtaining of the American Arbitration
Association. Such controversies shall be submitted to three arbitrators, one
arbitrator being selected by the Company, one arbitrator being selected by the
Executive, and the third being selected by the two so selected by the Company
and the Executive or, if they cannot agree upon a third, by the American
Arbitration Association. In the event that either the Company or the Executive,
within one month after any notification of any demand for arbitration hereunder,
shall not have selected its arbitrator and given notice thereof by registered or
certified mail to the other, such arbitrator shall be selected by the American
Arbitration Association. Confirmation of any award in any such arbitration may
be held in any court having jurisdiction of the person against whom such award
is rendered. If the results of such arbitration are more favorable to the
position taken by the Executive than that taken by the Company, in the opinion
of the arbitrators, then all costs and expenses incurred by the Executive in
connection with such arbitration shall be paid by the Company. In the event that
the arbitrators make a formal finding that the Executive did not have a
reasonable basis for instituting the proceeding, contest or dispute giving rise
to such arbitration, the Executive shall pay to the Company its reasonable legal
fees and expenses incurred in the defense of the proceeding, contest or dispute
giving rise to such arbitration.

Severance Agreement Page 9 of 10
UCI / Jack B. Hilburn

<PAGE> 10

IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have executed this Agreement as of the day and year first
above mentioned.

EXECUTIVE

--------------------------------------
Jack B. Hilburn

UNIVERSAL COMPRESSION, INC.

By:
-----------------------------------
Title:
--------------------------------
Date:
---------------------------------

UNIVERSAL COMPRESSION HOLDINGS, INC.

By:
-----------------------------------
Title:
--------------------------------
Date:
---------------------------------

Severance Agreement Page 10 of 10
UCI / Jack B. Hilburn

<PAGE> 1
EXHIBIT 10.24

AGREEMENT

WHEREAS, Universal is a direct wholly-owned subsidiary of Holdings;

WHEREAS, the parties wish to enter into agreement to set out the
Company's, Holdings' and the Executive's severance obligations.

Accordingly, the parties agree as follows:

1. Severance.

- --------------------------------------------------------------------------------
Severance Agreement Page 1 of 10
UCI / Kirk E. Townsend
<PAGE> 2

2. Definition of Change in Control.

For purposes of this Agreement a "Change in Control" shall be deemed to
have occurred upon the first to occur of the following events:

- --------------------------------------------------------------------------------
Severance Agreement Page 2 of 10
UCI / Kirk E. Townsend
<PAGE> 3

3. Restrictions and Obligations of the Executive.

- --------------------------------------------------------------------------------
Severance Agreement Page 3 of 10
UCI / Kirk E. Townsend
<PAGE> 4

(d) Non-Competition. (i) During the term of Executive's employment with
the Company, Holdings or any subsidiary thereof and for a two-year period (the
"Restriction Period")

- --------------------------------------------------------------------------------
Severance Agreement Page 4 of 10
UCI / Kirk E. Townsend
<PAGE> 5

following the termination of the Executive's employment for any reason, the
Executive shall not, directly or indirectly:

(x) engage in any managerial, administrative, advisory,
consulting, operational or sales activities in a Restricted Business anywhere in
the Restricted Area, including, without limitation, as a director or partner of
such Restricted Business, and/or

(ii) Nothing contained in this Section 3 shall prohibit or otherwise
restrict the Executive from acquiring or owning, directly or indirectly, for
passive investment purposes not intended to circumvent this Agreement,
securities of any entity engaged, directly or indirectly, in a Restricted
Business if either (i) such entity is a public entity and the Executive (A) is
not a controlling Person of, or a member of a group that controls, such entity
and (B) owns, directly or indirectly, no more than 3% of any class of equity
securities of such entity or (ii) such entity is not a public entity and the
Executive (A) is not a controlling Person of, or a member of a group that
controls, such entity and (B) does not own, directly or indirectly, more than 1%
of any class of equity securities of such entity.

(e) Definitions. For purposes of this Section 3:

- --------------------------------------------------------------------------------
Severance Agreement Page 5 of 10
UCI / Kirk E. Townsend
<PAGE> 6

(ii) "Restricted Area" means any state in the United States, or any
country in which Holdings or its subsidiaries engages in any Restricted Business
at any time during the term of Executive's employment with the Company.

4. Employment at Will. This Agreement does not restrict the Company's or the
Executive's right to terminate the employment relationship at any time, for any
reason, with or without cause, and does not in any way create employment for a
definite or specific term.

5. Other Provisions.

5.1. Notices. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid, and shall be deemed given when so
delivered personally, telegraphed, telexed, or sent by facsimile transmission
or, if mailed, four days after the date of mailing, as follows:

(a) If the Company or Holdings, to:
4440 Brittmoore
Houston, Texas 77041
Attention: General Counsel

With copies to:
Castle Harlan, Inc.
150 E. 58th Street
New York, NY 10155
Attention: Jeffrey M. Siegal

Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Attention: Andre Weiss, Esq.

(b) If the Executive, to his home address set forth in the
records of the Company.

- --------------------------------------------------------------------------------
Severance Agreement Page 6 of 10
UCI / Kirk E. Townsend
<PAGE> 7

5.4 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of Delaware.

5.7 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning of terms
contained herein.

- --------------------------------------------------------------------------------
Severance Agreement Page 7 of 10
UCI / Kirk E. Townsend
<PAGE> 8

5.10 Judicial Modification. If any court or arbitrator determines that
any of the covenants in Section 3, or any part of any of them, is invalid or
unenforceable, the remainder of such covenants

- --------------------------------------------------------------------------------
Severance Agreement Page 8 of 10
<PAGE> 9

6. Arbitration.

- --------------------------------------------------------------------------------
Severance Agreement Page 9 of 10
UCI / Kirk E. Townsend
<PAGE> 10

IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have executed this Agreement as of the day and year first
above mentioned.

EXECUTIVE

--------------------------------------------
Kirk E. Townsend

UNIVERSAL COMPRESSION, INC.

By:
-----------------------------------------
Title:
--------------------------------------
Date:
--------------------------------------

UNIVERSAL COMPRESSION HOLDINGS, INC.

By:
-----------------------------------------
Title:
--------------------------------------
Date:
--------------------------------------

- --------------------------------------------------------------------------------
Severance Agreement Page 10 of 10
UCI / Kirk E. Townsend

<PAGE> 1
EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Universal Compression
Holdings, Inc., on Form S-1 of our report on the financial statements of
Universal Compression Holdings, Inc. and subsidiary for the year ended March
31, 1999 and for the period from December 12, 1997 (inception) through March
31, 1998 dated June 11, 1999 and our report on the financial statements of
Tidewater Compression Service, Inc. for the period from April 1, 1997 through
February 20, 1998 dated June 1, 1998, appearing in the Prospectus, which is
part of this Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus.

DELOITTE & TOUCHE LLP

Houston, Texas
April 5, 2000

<PAGE> 1
Exhibit 23.3

Independent Auditors' Consent

The Board of Directors
Universal Compression Holdings, Inc.:

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

KPMG LLP

New Orleans, Louisiana
April 5, 2000

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,627
<SECURITIES> 0
<RECEIVABLES> 15,757
<ALLOWANCES> 253
<INVENTORY> 10,275
<CURRENT-ASSETS> 30,412
<PP&E> 355,707
<DEPRECIATION> 31,736
<TOTAL-ASSETS> 462,664
<CURRENT-LIABILITIES> 16,733
<BONDS> 367,184
0
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<COMMON> 3
<OTHER-SE> 76,640
<TOTAL-LIABILITY-AND-EQUITY> 462,664
<SALES> 30,223
<TOTAL-REVENUES> 102,525
<CGS> 25,650
<TOTAL-COSTS> 51,803
<OTHER-EXPENSES> 56,615
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 25,278
<INCOME-PRETAX> (5,893)
<INCOME-TAX> (1,801)
<INCOME-CONTINUING> (4,092)
<DISCONTINUED> 0
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<NET-INCOME> (4,092)
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