UNIVERSAL COMPRESSION HOLDINGS INC, S-1/A, 2000-05-03

UNIVERSAL COMPRESSION HOLDINGS INC
S-1/A, 2000-05-03
EQUIPMENT RENTAL & LEASING, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 2000

REGISTRATION NO. 333-34090

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

AMENDMENT NO. 1

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>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Common Stock, par value $.01 per share $177,100,000 $46,754
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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.

(2) $45,540 was previously paid with the initial filing.

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.

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<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 MAY 3, 2000

PROSPECTUS

7,000,000 SHARES

[UNIVERSAL COMPRESSION LOGO]

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

This is Universal Compression Holdings, Inc.'s initial public offering.
Universal is selling all of the shares. The U.S. underwriters are offering
5,600,000 shares in the U.S. and Canada and the international managers are
offering 1,400,000 shares outside the U.S. and Canada.

We expect the public offering price to be between $21.00 and $23.00 per
share. Currently, no public market exists for the shares. We have applied 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 Compression Holdings, Inc. ..................... $ $
</TABLE>

The U.S. underwriters may also purchase up to an additional 840,000 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 210,000 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
Map of the United States depicting the 23 states in which Universal
operates and the location of its 30 field and sales offices, including its
corporate headquarters. Underneath the map is a listing of the five countries
outside the United States in which Universal operates (Argentina, Australia,
Colombia, Mexico and Venezuela).

<PAGE> 5
Two pictures depicting natural gas compressors used in field production.

<PAGE> 6

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<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...................................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 31
Management.................................................. 43
Principal Stockholders...................................... 53
Related Transactions........................................ 56
Description of Capital Stock................................ 58
Anti-Takeover Provisions of Our Restated Certificate of
Incorporation and Bylaws.................................. 59
Shares Eligible for Future Sale............................. 62
Material United States Federal Tax Consequences to Non-U.S.
Holders of Common Stock................................... 63
Underwriting................................................ 66
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find More Information......................... 70
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> 7

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 (other than
in the historical financial statements) assumes that the underwriters'
over-allotment option is not exercised and reflects the conversion of all of our
non-voting common stock into common stock on a 1-for-1 basis, a 7.4248-for-1
common stock split and the conversion of all of our outstanding preferred stock
at a post-split ratio of one share of preferred stock into 2.3256 shares of
common stock, in each case concurrently 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 29%, from 492,417 as of March 31, 1998 to 633,398 as of March 31,
2000, with our average capacity per unit increasing from 179 horsepower to 240
horsepower. Our revenues have increased 25%, from $108.8 million for the fiscal
year ended March 31, 1998 to $136.4 million for the fiscal year ended March 31,
2000. For the fiscal year ended March 31, 2000, approximately $98.3 million of
our revenues was derived from our compression rental services, with the
remaining approximately $38.1 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. We have a highly
standardized compressor fleet, with approximately 481,000 horsepower operating
under contract in 23 states as of March 31, 2000. Our revenues from domestic
compression rental services were $83.6 million for the fiscal year ended March
31, 2000. 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> 8

Since 1993, we have expanded our presence in select international markets,
including Argentina, Colombia, Venezuela and Australia. As of March 31, 2000, we
had 50 units aggregating approximately 52,000 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 Southeast
Asia. Our revenues from international operations have increased by 116% in the
last year, from $6.8 million for the fiscal year ended March 31, 1999 to $14.7
million for the fiscal year ended March 31, 2000.

We believe that the capital raised in this offering and the financing and
operating 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 and consolidation 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 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> 9

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, we have
completed six acquisitions. 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> 10

THE OFFERING

Common stock offered by
Universal:

U.S. offering.................. 5,600,000 shares

International offering......... 1,400,000 shares

Total.................. 7,000,000 shares

Shares outstanding after the
offering......................... 12,983,584 shares

Use of proceeds.................. We estimate that our net proceeds from this
offering without exercise of the
over-allotment option will be approximately
$142.9 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 the repurchase 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.

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

The number of shares outstanding after the offering includes 287,723 shares
issued on April 28, 2000 in connection with our acquisition of Spectrum Rotary
Compression Inc. This number excludes 1,912,421 shares reserved for issuance
under our stock option plan, of which options to purchase 612,399 shares at a
weighted average exercise price of $14.91 per share have been issued as of April
28, 2000. In connection with this offering, we intend to grant options to
purchase up to an additional 250,000 shares at an exercise price equal to the
initial public offering price. The number of shares outstanding after the
offering 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 1,050,000 shares.

4
<PAGE> 11

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 pro forma financial and operating
data for Universal are derived from the 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 March 31, 2000. The summary pro forma 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 March 31, 2000, 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.

5
<PAGE> 12

<TABLE>
<CAPTION>
TIDEWATER COMPRESSION
(PREDECESSOR COMPANY) UNIVERSAL
---------------------------------- --------------------------------------
PERIOD FROM PERIOD FROM
APRIL 1, DECEMBER 12,
YEARS ENDED 1997 1997 PRO FORMA
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 expense... -- -- -- -- -- --
Interest expense................... 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 $ 48,435
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%

UNIVERSAL
---------------------------

PRO FORMA
AS ADJUSTED(6)
YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31,
2000 2000
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues........................... $136,449 $136,449
Gross margin(1).................... 68,961 68,961
Selling, general and administrative
expenses......................... 16,797 13,597
Depreciation and amortization...... 26,006 22,447
Operating income(2)................ 26,158 32,916
Operating lease facility expense... -- 5,702
Interest expense................... 34,327 18,600
Income tax expense (benefit)....... (1,994) 4,384
Net income (loss).................. (5,982) 4,424
OTHER FINANCIAL DATA:
EBITDA(3).......................... $ 55,557 $ 55,557
Capital expenditures:
Expansion........................ $(49,871) $(49,871)
Maintenance...................... (9,920) (9,920)
Other............................ (1,312) (1,312)
Cash flows from (used in):
Operating activities............. $ 47,144 $ 51,955
Investing activities............. (61,103) (56,482)
Financing activities............. 12,435 3,003
OTHER DATA:
Total number of rental units (end
of period)....................... 2,645 2,645
Aggregate horsepower (end of
period).......................... 633,398 633,398
Average horsepower per unit (end of
period).......................... 240 240
Average horsepower
utilization(4)................... 80.7% 80.7%
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------
ACTUAL AS ADJUSTED(6)
----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 7,209 $ 10,015
Total assets.............................................. 469,942 416,020
Total debt(5)............................................. 377,485 186,939
Stockholders' equity...................................... 74,677 211,301
</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
expense.

(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) Includes capital lease obligations.

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

6
<PAGE> 13

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 fiscal year ended March 31, 2000,
we invested approximately $61.1 million in net capital investments after giving
effect to $4.4 million of asset sales. 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 negotiating to enter 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> 14

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 through the issuance of new debt and/or equity
securities. This could result in dilution to our existing
8
<PAGE> 15

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 March 31, 2000, we had approximately $377.5 million in outstanding
indebtedness, including capital lease obligations and the current portion of
long-term debt. Of this amount, approximately $148.3 million bears interest at
floating rates. In addition, our financing lease transactions bear interest at
floating rates. Both the interest payments under our new credit facility and the
lease payments under our operating lease facility that will close concurrently
with this offering bear interest at a floating rate (based on a base rate or
LIBOR, at our option, in the case of the credit facility, and based on LIBOR, in
the case of the operating lease facility), 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
lease payments 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, sales and operating lease 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 10.8% of our revenues during the fiscal year ended March 31,
2000 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

9
<PAGE> 16

will be implemented, or if implemented, will achieve the desired effect. We may
experience economic loss 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.

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

Upon completion of the offering, Castle Harlan Partners III and its
affiliates will own approximately 24.9% of our common stock (23.0% if the
underwriters' over-allotment option is exercised in full). In addition, Castle
Harlan is a party to various voting agreements and voting trusts with our
stockholders that currently give Castle Harlan 100% control over our voting
stock. Following the offering, some of our stockholders, including all of our
employees and officers and four of our directors, will be released from these
voting arrangements. As a result, Castle Harlan will have voting control of up
to 42.7% of our common stock (excluding the effect of stock options and the
underwriters' over-allotment option) following this offering. Further, we have
agreed to nominate a total of three persons designated by Castle Harlan for
election to our board of directors, so long as Castle Harlan and its affiliates
beneficially own at least 15% of our outstanding stock (including shares over
which it has voting control pursuant to voting agreements and trusts). In
addition, shares held by Samuel Urcis, one of our directors who will not be
considered a director designee of Castle Harlan, will continue to be subject to
a voting trust agreement with Castle Harlan. Castle Harlan's significant
ownership and control of our stock and board representation give it the ability
to exercise substantial influence over our policies, management and affairs and
significant control over corporate actions requiring stockholder approval,
including the approval of transactions involving a change in control. The
interests of Castle Harlan could conflict with the interests of our other
stockholders.

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 12,983,584 shares of
common stock outstanding (14,033,584 shares if the underwriters' over-allotment
option is exercised in full). Of these shares, the 7,000,000 shares of common
stock offered by

10
<PAGE> 17

this prospectus and, if exercised in full, the 1,050,000 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, the remaining 5,983,584 shares of our common stock
will be eligible for resale, of which 155,444 shares will be freely tradeable as
of the date of this prospectus and another 9,720 shares will be freely tradeable
90 days later. We, our executive officers and directors, and our other
significant stockholders holding a total of 5,818,420 shares of our common stock
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 Merrill Lynch. Upon
expiration of the 180-day lock-up period, 2,141,076 of such shares will become
freely tradeable. The remaining 3,677,344 of such shares after the 180-day
period 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, holding period and other limitations of Rule 144; however, 3,230,797 of
such shares are not subject to the holding period restrictions of Rule 144. In
addition, options to purchase 612,399 shares of our common stock will be
exercisable by our officers, directors and employees upon completion of the
offering. In addition, we intend to grant, in connection with this offering,
options to purchase an aggregate of up to 250,000 shares of our common stock and
we expect to grant additional options in the future. We intend to file a
registration statement covering the sale of the approximately 1.9 million shares
of our common stock reserved for issuance under our incentive stock option plan.
The sale of a substantial number of shares within a short period of time could
cause our stock price to decrease, or make it more difficult for us to raise
funds through future offerings of common stock.

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 have applied 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
our 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."

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.

11
<PAGE> 18

grow at a compounded rate of 6.25% per quarter. As of April 1, 2000, assuming an
initial public offering price of $22.00 per share was applied to all of the
shares owned by Castle Harlan, there would have been no payment due in the event
the provisions of the Purchase Price Adjustment Agreement were triggered. In any
event, no payment is triggered by this offering or the stock split and
conversion effected concurrently with this offering.

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 of these payment events 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.

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.
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, and will be restricted under our new
credit facility and 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 $13.16
per share, assuming an initial public offering price of $22.00 per share. To the
extent outstanding options to purchase our common stock are exercised, there may
be further dilution. See "Dilution."

12
<PAGE> 19

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, growth 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> 20

USE OF PROCEEDS

Our net proceeds from the sale of the 7,000,000 shares of common stock in
this offering, assuming an initial public offering price of $22.00 per share,
are estimated to be $142.9 million, after deducting underwriting discounts and
commissions and estimated offering expenses. If the underwriters' over-
allotment option is exercised in full, our net proceeds will be approximately
$164.4 million.

Concurrently with the completion of this offering, we are negotiating to
enter into a new $200.0 million operating lease facility, with initial proceeds
expected to be approximately $61.3 million, and to enter into a new $50.0
million revolving credit facility. This offering will not be consummated unless
we concurrently close our new operating lease facility and revolving credit
facility. As of March 31, 2000, 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.............................. $73.3 million $73.3 million 8.69% 2005
Revolving credit facility.............. 75.0 million 75.0 million 8.36% 2003
11 3/8% senior discount notes.......... 31.7 million 35.3 million 11.38% 2009
Colombian financing lease 10.6 million 10.6 million 10.45% 2004
arrangements.........................
</TABLE>

We will use the approximately $10.0 million of remaining net proceeds for
general corporate purposes, which will include the cost of solicitation of
consent of the holders of, and 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 and our new operating lease facility. 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> 21

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 net tangible book value
as of March 31, 2000 was approximately $(24.6) million, or $(4.44) per share.
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 common stock
split and conversion of all outstanding shares of preferred stock and non-voting
common stock into common stock that will occur concurrently with this offering.
After giving effect to the receipt of the net proceeds from this offering and
our concurrent operating lease facility and deducting the underwriting discounts
and commissions and estimated offering expenses, our pro forma net tangible book
value as of March 31, 2000 would have been approximately $112.2 million, or
$8.84 per share. This represents an immediate increase in pro forma net tangible
book value of $13.28 per share to existing stockholders and an immediate
dilution of $13.16 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............. $22.00
Pro forma net tangible book value per share as of March 31,
2000...................................................... (4.44)
Increase per share attributable to the offering........... 13.28
-------
Pro forma net tangible book value per share after the
offering............................................... 8.84
------
Dilution per share to new investors......................... $13.16
======
</TABLE>

The following table sets forth, as of March 31, 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>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ---------- -------- -------------
(IN
THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 5,707,769 44.9% $ 86,164 35.9% $15.10
New investors.......................... 7,000,000 55.1 154,000 64.1 22.00
---------- ----- -------- -----
Total........................ 12,707,769 100.0% $240,164 100.0%
========== ===== ======== =====
</TABLE>

The data in the table above assumes no exercise of the underwriters'
over-allotment option and excludes 612,399 shares of common stock issuable upon
exercise of options outstanding as of April 28, 2000 with a weighted average
exercise price of $14.91 per share. Assuming the underwriters' over-allotment
option and all stock options are exercised, pro forma net tangible book value
per share would increase $1.22 per share to $10.06 per share.

15
<PAGE> 22

CAPITALIZATION

The following table sets forth our actual capitalization as of March 31,
2000 and our capitalization as of such date as adjusted to give effect to the
issuance of 7,000,000 shares of our common stock in this offering at an assumed
initial public offering price of $22.00 per share and the following:

- the conversion of all of our non-voting common stock into common stock on
a one-for-one basis, a 7.4248-for-1 common stock split and the conversion
of all of our outstanding preferred stock at a post-split ratio of one
share of preferred stock into 2.3256 shares of common stock, in each case
concurrently with this offering, and with a payment in cash in lieu of
issuance of a fractional share,

- the issuance of 156,818 shares of our common stock upon the closing of
this offering in connection with service agreements with certain of our
affiliates,

- the application of the estimated net proceeds of $142.9 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 $61.3 million of proceeds from
our concurrent operating lease facility that we are currently
negotiating, less expenses associated with the 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 MARCH 31, 2000
--------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS, EXCEPT FOR
SHARE AMOUNTS)
<S> <C> <C>
Long-term debt, excluding current portion:
Term loan................................................. $ 72,563 $ --
Revolving credit facility................................. 75,000 --
9 7/8% Senior discount notes.............................. 183,820 183,820
11 3/8% Senior discount notes............................. 31,653 --
Other..................................................... 10,243 1,719
-------- --------
Total long-term debt................................... 373,279 185,539
Stockholders' equity:
Series A preferred stock, $0.01 par value, 5,000,000
shares authorized, 1,320,128 shares issued and
1,318,896 outstanding; 50,000,000 authorized and none
outstanding as adjusted................................ 13 --
Common stock, $0.01 par value, 994,000 shares authorized,
330,032 shares issued and 329,724 shares outstanding;
200,000,000 shares authorized, 12,707,769 shares issued
and 12,695,861 shares outstanding as adjusted.......... 3 127
Class A non-voting common stock, $0.01 par value, 6,000
shares authorized, 4,120 shares issued, 3,210 shares
outstanding; none as adjusted.......................... -- --
Additional paid-in capital................................ 82,697 219,210
Retained deficit.......................................... (7,913) (7,913)
Treasury stock, 2,450 shares at cost; 11,908 as
adjusted............................................... (123) (123)
-------- --------
Total stockholders' equity............................. 74,677 211,301
-------- --------
Total capitalization.............................. $447,956 $396,840
======== ========
</TABLE>

The data in the table above excludes approximately 612,399 shares of common
stock issuable upon the exercise of options outstanding as of April 28, 2000
with a weighted average exercise price of $14.91 per share. The data also
excludes 287,723 shares issued on April 28, 2000 in connection with our
acquisition of Spectrum.

16
<PAGE> 23

PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The pro forma consolidated balance sheet as of March 31, 2000 and the pro
forma consolidated statement of operations for the year ended March 31, 2000
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 income statement period.

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> 24

UNIVERSAL COMPRESSION HOLDINGS, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS

Current assets:
Cash and equivalents..................................... $ 1,403 $ -- $ 1,403
Accounts receivable, net................................. 17,267 -- 17,267
Inventories.............................................. 8,727 -- 8,727
Current deferred tax asset............................... 227 -- 227
Other.................................................... 1,571 -- 1,571
-------- --------- --------
Total current assets............................. 29,195 -- 29,195
Property, plant and equipment
Rental equipment(1)...................................... 349,198 (64,544) 284,654
Other.................................................... 19,617 -- 19,617
Less: accumulated depreciation(1)........................ (38,466) 3,227 (35,239)
-------- --------- --------
Net property, plant, and equipment............... 330,349 (61,317) 269,032
-------- --------- --------
Goodwill and intangibles, net of amortization.............. 99,250 -- 99,250
Other assets, net(2)....................................... 7,570 1,461 9,031
Long-term deferred tax asset(3)............................ 3,578 5,934 9,512
-------- --------- --------
Total assets..................................... $469,942 $ (53,922) $416,020
======== ========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued liabilities................. $ 17,780 $ -- $ 17,780
Current portion of long-term debt(4)..................... 4,206 (2,806) 1,400
-------- --------- --------
Total current liabilities........................ 21,986 (2,806) 19,180
Capital lease obligation(4)................................ 10,243 (8,524) 1,719
Long-term deferred tax liabilities......................... -- -- --
Long-term debt(4).......................................... 363,036 (179,216) 183,820
-------- --------- --------
Total liabilities................................ 395,265 (190,546) 204,719
Total stockholders' equity(5).............................. 74,677 136,624 211,301
-------- --------- --------
Total liabilities and stockholders' equity....... $469,942 $ (53,922) $416,020
======== ========= ========
</TABLE>

18
<PAGE> 25

UNIVERSAL COMPRESSION HOLDINGS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 2000
---------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
--------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Rental................................................... $ 98,295 $ -- $ 98,295
Sales.................................................... 38,000 -- 38,000
Other.................................................... 154 -- 154
-------- ----------- --------
Total revenue.................................... 136,449 -- 136,449
Costs and expenses:
Rentals, exclusive of depreciation and amortization...... 35,352 -- 35,352
Cost of sales, exclusive of depreciation and
amortization.......................................... 31,943 -- 31,943
Depreciation and amortization(6)......................... 26,006 (3,559) 22,447
Operating lease(7)....................................... -- 5,702 5,702
Selling, general and administrative(8)................... 16,797 (3,200) 13,597
Interest expense(9)...................................... 34,327 (15,727) 18,600
-------- ----------- --------
Total costs and expenses......................... 144,425 (16,783) 127,642
Income (loss) before income taxes.......................... (7,976) 16,783 8,807
-------- ----------- --------
Income taxes (benefit)(10)................................. (1,994) 6,378 4,384
-------- ----------- --------
Net income (loss).......................................... $ (5,982) $ 10,406 $ 4,424
======== =========== ========
Earnings per share
Basic.................................................... $ 0.35
========
Diluted.................................................. $ 0.34
========
</TABLE>

19
<PAGE> 26

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

(1) Reflects the estimated initial funding of the sale of compression equipment
pursuant to the proposed operating lease facility that we are negotiating
to enter into concurrently with this offering. The appraised value of the
compression equipment covered by 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 ($3.5 million),
(b) the recording of prepaid finance costs associated with our new
revolving credit facility ($1.0 million) and (c) the capitalization of
costs associated with entering into the operating lease facility ($4.0
million).

(3) Reflects the estimated deferred income taxes related to expense items
associated with this offering and the operating lease facility.

(4) Redemption of debt:

<TABLE>
<S> <C>
Credit agreement.......................................... $148.3 million
11 3/8% senior discount notes............................. $ 31.7 million
Other..................................................... $ 10.6 million
--------------
Total........................................... $190.6 million
</TABLE>

(5) Represents (a) the estimated net proceeds from this offering of $142.9
million, (b) the additional paid-in capital attributable to stock issued to
Castle Harlan in connection with the termination of its management
agreement, to Mr. Urcis for termination of his consulting agreement and to
Mr. Danner for services upon closing of this offering ($3.4 million), and
(c) the effect of the following items associated with the consummation of
this offering and concurrent operating lease transaction, gross of tax: (x)
the write-off of prepaid financing costs ($3.5 million), (y) the redemption
premium on the 11 3/8% senior discount notes ($3.6 million) and the cost of
solicitation of the consent of the holders of the 9 7/8% senior discount
notes ($1.9 million) and (z) the recognition of $6.6 million for the
termination of the Castle Harlan management agreement, the termination of
Mr. Urcis' consulting agreement and the payment for Mr. Danner's services.

(6) Reflects the elimination of depreciation expense associated with the sale
of compression equipment pursuant to the operating lease facility, with
initial funding under the operating lease of $61.3 million.

(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 $177.8 million
and $12.8 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.

20
<PAGE> 27

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 included elsewhere in this prospectus and include the
impact of the Tidewater Compression acquisition from the date of acquisition.

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 and March 31, 2000
have been derived from the respective audited 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.

21
<PAGE> 28

<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
------------------------------- 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:
Revenues................................. $ 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......................... 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> 29

<TABLE>
<CAPTION>
UNIVERSAL
--------------------------
YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31,
1999 2000
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................................. $129,498 $136,449
Gross margin(1)........................................... 61,887 68,961
Selling, general and administrative expenses.............. 16,863 16,797
Depreciation and amortization............................. 19,314 26,006
Operating income(2)....................................... 25,710 26,158
Interest expense.......................................... 29,313 34,327
Income tax expense (benefit).............................. (1,031) (1,994)
Net income (loss)......................................... (2,361) (5,982)
OTHER FINANCIAL DATA:
EBITDA(3)................................................. $ 48,435 $ 55,557
Acquisitions(4)(5)........................................ -- --
Capital expenditures:
Expansion............................................... $(63,408) $(49,871)
Maintenance............................................. (7,626) (9,920)
Other................................................... 8,038 (1,312)
Cash flows from (used in):
Operating activities.................................... $ 22,793 $ 47,144
Investing activities.................................... (62,996) (61,103)
Financing activities.................................... 40,748 12,435
OTHER DATA:
Total number of rental units (end of period).............. 2,701 2,645
Aggregate horsepower (end of period)...................... 544,600 633,398
Average horsepower per unit (end of period)............... 202 240
Average horsepower utilization(6)......................... 80.3% 80.7%
</TABLE>

<TABLE>
<CAPTION>
TIDEWATER COMPRESSION
(PREDECESSOR COMPANY) UNIVERSAL
--------------------- ------------------------------
AS OF MARCH 31, AS OF MARCH 31,
--------------------- ------------------------------
1996 1997 1998 1999 2000
--------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(9)........................................ $ 16,192 $ 13,953 $ 13,882 $ 23,742 $ 7,209
Total assets.............................................. 274,312 257,090 380,226 437,991 469,942
Total debt(10)............................................ 229,657 194,371 286,862 344,677 377,485
Stockholders' equity...................................... 49,705 57,547 81,680 80,774 74,677
</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.

(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) 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.

(footnotes continued on next page)

23
<PAGE> 30

(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
----------------
(IN THOUSANDS)
<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.

(10) Includes capital lease obligations.

24
<PAGE> 31

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.

FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999

Revenues. Our total revenues for the fiscal year ended March 31, 2000
increased $6.9 million, or 5.3%, to $136.4 million compared to $129.5 million
for the fiscal year ended March 31, 1999 due to an increase in rental revenues.
Rental revenues increased by $12.7 million, or 14.8%, to $98.3 million during
the fiscal year ended March 31, 2000 from $85.6 million during the fiscal year
ended March 31, 1999. Domestic rental revenues increased by $4.8 million, or
6.0%, to $83.6 million during the fiscal year ended March 31, 2000 from $78.8
million during the fiscal year ended March 31, 1999. International rental
revenues increased by $7.9 million, or 116%, to $14.7 million during the fiscal
year ended March 31, 2000 from $6.8 million during the fiscal year ended March
31, 1999. The increase in both domestic and international rental revenues
primarily resulted from expansion of our rental fleet. Domestic average rented
horsepower for the fiscal year ended March 31, 2000 increased by 11.3% to
approximately 444,000 horsepower from approximately 399,000 horsepower for the
fiscal year ended March 31, 1999. In addition, international average rented
horsepower more than doubled to approximately 45,000 horsepower for the fiscal
year ended March 31, 2000 from approximately 20,000 horsepower for the fiscal
year ended March 31, 1999, primarily through additional service in Argentina and
Colombia. Revenues from fabrication and sales decreased to $38.1 million from
$43.6 million, a decrease of 12.6%, due to a lower level of equipment and parts
activity.

Gross Margin. Gross margin before depreciation and amortization for the
fiscal year ended March 31, 2000 increased $7.1 million, or 11.5%, to $69.0
million from gross margin of $61.9 million for the fiscal year ended March 31,
1999. The rental gross margin for the fiscal year ended March 31, 2000 increased
$8.3 million, or 15.2%, to $62.9 million compared to gross margin of $54.6
million for the fiscal year ended March 31, 1999. Gross margin increased
primarily as the result of the revenue growth discussed above while rental
margins remained constant at 64% for the fiscal years ended March 31, 2000 and
1999.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the fiscal year ended March 31, 2000 decreased $0.1
million, or 0.5%, to $16.8 million compared to $16.9 million for the fiscal year
ended March 31, 1999. As a percentage of revenue, selling, general and
administrative expenses represented 12.3% of revenues for the fiscal year ended
March 31, 2000 compared to 13.0% of revenues for the fiscal year ended March 31,
1999.

Interest Expense. Interest expense increased $5.0 million to $34.3 million
for the fiscal year ended March 31, 2000 from $29.3 million for the fiscal year
ended March 31, 1999, primarily as the result of

25
<PAGE> 32

increased borrowings under the revolving credit facility, increased accretion of
discount notes, the financing lease and increased interest rates.

Net Loss. We had a net loss of $6.0 million for the fiscal year ended March
31, 2000 compared to a net loss of $2.4 million for the fiscal year ended March
31, 1999. This increase in net loss was primarily due to interest expense
increasing from $29.3 million to $34.3 million and depreciation and amortization
related to the continued expansion of our assets increasing from $19.3 million
to $26.0 million, which was offset by an increased income tax benefit and the
factors discussed above.

FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO PRO FORMA FISCAL YEAR ENDED MARCH
31, 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. Revenues for fiscal year 1999 increased $20.7 million, or 19.0%,
to $129.5 million compared to revenues of $108.8 million for pro forma fiscal
1998, due to increases in both rental revenues and revenues from fabrication and
equipment sales. Rental revenues increased 6.1% to $85.6 million. The increase
in rental revenues 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 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.

PRO FORMA FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH
31, 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.

Revenues. Pro forma revenues 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 revenues from fabrication and equipment sales.
Revenues 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 revenues increased 11.0% to $80.7 million, principally due to a 6%
increase in utilized horsepower and a 1% increase in rental pricing.
Additionally,

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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 March 31, 2000 was $1.4 million
compared to $2.9 million at March 31, 1999. For the fiscal year ended March 31,
2000, we generated cash flow from operations of $47.1 million, received $4.4
million from the sale of assets and obtained $13.7 million in additional
financing. We primarily used this cash flow to make capital expenditures of
$65.5 million and net principal payments of $1.2 million under our established
lines of credit.

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 during fiscal 2001 will be to fund our working
capital needs and to meet required principal and interest payments on our 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 March 31, 2000, we had $73.3
million outstanding under the term loan, which matures in February 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
March 31, 2000 was approximately $7.7 million after giving effect to outstanding
letters of credit. As of March 31, 2000, the interest rate on the term loan was
8.69% and the interest rate on the revolving credit facility was 8.36%. 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 some of 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 March 31, 2000, and will repay all of the
outstanding indebtedness of the term loan and

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the revolving credit facility with a portion of the proceeds from this offering
and our concurrent operating lease facility.

We are in negotiations with Deutsche Bank Securities Inc., as lead
arranger, 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
8.13%. The revolver will be secured by a lien on all of our personal property
that is 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 our existing credit agreement, as of March 31, 2000 we had
approximately $183.8 million outstanding under our 9 7/8% Senior Discount Notes
due 2008 and approximately $31.7 million outstanding under our 11 3/8% Senior
Discount Notes due 2009. We have solicited and received the required consent of
holders of our 9 7/8% senior discount notes to amend the indenture governing
these notes to permit the liens on equipment required under our new operating
lease facility and any future lease arrangements that we may enter into. We have
covenanted that immediately after giving effect to any operating lease
arrangements, we will continue to have at least $100 million total book assets.
In exchange for the consent, our operating subsidiary will pay a fee to
consenting holders of $10.00 per $1,000 of accreted value of the 9 7/8% notes
(up to approximately $2.0 million in the aggregate at the closing of this
offering). The effectiveness of the amendment is subject to the successful
consummation of this offering with proceeds contributed as equity to our
operating subsidiary of not less than $58.0 million. In addition, we have agreed
to pay an aggregate of $450,000 to Deutsche Bank Securities Inc. and Wasserstein
Perella Securities, Inc., who acted as solicitation agents with respect to the
consent solicitation. We did not solicit the consent of holders of our 11 3/8%
senior discount notes as we intend to exercise a covenant defeasance and redeem
these 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. We may purchase a portion of our 9 7/8% notes from time
to time in privately negotiated transactions.

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 March 31, 2000.

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%. We will repay all amounts outstanding under this financing
lease with a portion of the proceeds from this offering.

We are currently negotiating a new $200.0 million operating lease facility
that will close concurrently with this offering. Under this facility, we will
sell some of our currently owned and hereafter acquired compression equipment to
a newly formed Delaware business trust, the equity interests of which will be
owned by Deutsche Bank AG, New York Branch, its affiliates or other financial
institutions, and lease it back from the trust for a five-year term. The rental
payments under the lease will include an amount

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based on LIBOR plus a variable amount depending on our operating results,
applied to the funded amount of the lease. Initially, this rate will be
approximately 8.38%. The first funding of the lease facility will be for
approximately $61.3 million and will be funded concurrently with the closing of
this offering. The subsequent fundings will be for up to $138.7 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 to
the lease payments, we will pay a $3.5 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, in which Bankers Trust Company, an affiliate of Deutsche Bank Securities
Inc., will participate.

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. In addition, we have the right to repurchase at such price all of
the equipment at any time during the term of the lease facility. We have
substantial residual value guarantees on the equipment under our operating lease
facility (approximately 85% 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, permit
additional liens on our assets and pay dividends. Our obligations under this
lease facility will be secured by liens on our compression equipment subject to
the lease and certain related rights.

This offering will not be consummated unless we concurrently close our new
revolving credit facility and operating lease facility.

As of March 31, 2000, we had net operating losses for federal tax purposes
totalling approximately $91.8 million. As currently contemplated, this offering
constitutes an ownership change for tax purposes which may limit our ability to
fully utilize these loss carryforwards in future years. See Note 6 to Universal
Compression Holdings, Inc. Notes to Consolidated Financial Statements.

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 our new 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 fiscal
years ended March 31, 1999 and 2000, 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

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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.

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 $75.0 million as of March 31,
2000. Our existing term loan bears interest at LIBOR plus 2.5%, is due February
2003 and had an outstanding principal balance of $73.3 million as of March 31,
2000. The Colombian financing lease bears interest at LIBOR plus 4.25%, is due
October 2004 and had an outstanding principal balance of $10.6 million as of
March 31, 2000. Our new revolving credit facility and operating lease facility
that we are negotiating to enter into concurrently with the closing of this
offering will have interest and lease payments based on a floating rate (a base
rate or LIBOR, at our option, in the case of the credit facility, and LIBOR, in
the case of the operating lease facility) plus a variable amount depending on
our operating results. Initially, this rate will be 8.13% for the revolving
credit facility and 8.38% for the operating lease facility. The operating lease
facility has a five-year term and will have an outstanding principal balance of
approximately $61.3 million at the time of the closing. The LIBOR rate at March
31, 2000 was 6.13%. 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. Since 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. Today, we own one of the largest gas
compressor fleets in the United States, and have a growing presence in key
international markets.

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Southeast Asia. Our revenues from international operations have increased by
116% in the last year, from $6.8 million for the fiscal year ended March 31,
1999 to $14.7 million for the fiscal year ended March 31, 2000.

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 30 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.

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 strengthens our
relationships with our existing customers, helps us to attract new customers and
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
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 29%.

- 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 52,000 horsepower operating internationally as of March 31,
2000, 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 approximately 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, we have completed
six acquisitions, including our recent acquisition of Spectrum Rotary
Compression Inc., 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 and assets in the future.

On April 28, 2000, we acquired all of the stock of Spectrum Rotary
Compression Inc. from Energy Spectrum Partners LP in exchange for 17,201
shares of our common stock and 68,804 shares of our preferred stock (which
common stock and preferred stock will be converted into an aggregate of
287,723 shares of common stock concurrently with this offering),
representing 4.91% and 4.96%, respectively, of our outstanding shares of
these classes prior to this offering and 2.2% of our common stock
following this offering. Spectrum has approximately 10,700 horsepower in
its fleet and provides us with an increased presence in the screw
compressor market. The shares issued to Spectrum are subject to a voting
agreement to be voted in the same manner as the Castle Harlan shares are
voted until completion 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 continually dropping pressure levels in natural gas fields require constant
modification and variation of on-site compression equipment.

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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 13% 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 27 to 30 trillion
cubic feet by 2010.

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 services
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%. 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,

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- 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

- 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 market. We have
increased the overall size and average horsepower of our fleet and have
increased our fabrication of upper range units (generally over 600 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 29%.

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<PAGE> 43

As of March 31, 2000, we owned 2,645 natural gas compressors ranging in
size from 15 horsepower to 3,000 horsepower, with an average of 240 horsepower,
as reflected in the following table:

<TABLE>
<CAPTION>
HORSEPOWER RANGE NUMBER OF UNITS TOTAL HORSEPOWER % OF HORSEPOWER
- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
0 - 99............................. 902 55,591 8.8%
100 - 299.............................. 1,132 189,711 30.0%
300 - 599.............................. 331 121,178 19.1%
600 and over............................ 280 266,918 42.1%
----- ------- ------
Total......................... 2,645 633,398 100.0%
</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 581,000 horsepower and approximately 2,595 units as
of March 31, 2000. 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.

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.

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<PAGE> 44

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 March 31, 2000, we had 50 units aggregating approximately 52,000
horsepower operating under contract in these markets. In addition, in March
2000, we were awarded significant contract 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. For the fiscal year ended March 31, 2000,
approximately 15% 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 designs
and concepts. International service agreements differ significantly from
domestic service agreements as individual contracts are negotiated for each
project.

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<PAGE> 45

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 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.

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<PAGE> 46

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. Twenty-eight percent of our total
revenues for the year ended March 31, 2000 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 2000, no single customer
accounted for as much as 10% of our total revenues. Our top 20 customers
accounted for approximately 54% of our rental revenues in fiscal year 2000.

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 19 domestic field service
offices, seven domestic sales 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 March 31, 2000, our main competitors were Hanover Compression
Company, Weatherford Global Compression Services, Production Operators, Inc. (a
subsidiary of Schlumberger Limited), 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.

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

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<PAGE> 47

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 most of 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.

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

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<PAGE> 48

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 31, 2000, we had 550 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> 49

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 or, where noted,
its operating subsidiary:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen A. Snider.............. 52 President, Chief Executive Officer and Director
Ernie L. Danner................ 45 Executive Vice President and Director
Richard W. FitzGerald.......... 46 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 of Universal
Compression, Inc.
Kirk E. Townsend............... 42 Vice President of Sales of Universal Compression,
Inc.
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
William M. Pruellage........... 26 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, and also serves as a director of Energen
Corporation.

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 KN 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.

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<PAGE> 50

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 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 Senior Vice President of Operations of
Universal Compression, Inc., our operating subsidiary, 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 of Universal Compression,
Inc., our operating subsidiary, 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.

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<PAGE> 51

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.

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.

William M. Pruellage became a Director of Universal in April 2000. Mr.
Pruellage is an Associate with Castle Harlan, Inc. Prior to joining Castle
Harlan in July 1997, Mr. Pruellage worked as an investment banking analyst at
Merrill Lynch since July 1995. Prior to that time, Mr. Pruellage was a student
at Georgetown University, where he studied finance and international business.
Mr. Pruellage is also a director of Wilshire Restaurant Group, Inc. and Taylor
Publishing Company.

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, and Mr.
Pruellage, who was elected in April 2000.

Following this offering, we will appoint one additional individual who is
independent of Universal and Castle Harlan to serve on our board of directors.
In addition, in connection with the early termination of our management
agreement with Castle Harlan, we have agreed that at Castle Harlan's request, we
will nominate an additional director designated by Castle Harlan. See "Related
Transactions -- Management Agreement."

ELECTION OF CERTAIN DIRECTORS

We have agreed with Castle Harlan to nominate three persons designated by
it as directors, so long as these designees are reasonably qualified, and we
have agreed that we will recommend in our future proxy statements that our
stockholders vote for these designees. Castle Harlan will have this right as
long as it, together with its affiliates, continues to beneficially own at least
15% of our outstanding common stock (including the shares over which it has
voting control pursuant to voting agreements and voting trusts).

CLASSIFIED BOARD OF DIRECTORS

Our directors are divided 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.

C. Kent May and Thomas C. Case serve as Class A Directors, whose terms
expire at the 2001 annual meeting of our stockholders, Ernie L. Danner and
Stephen A. Snider serve as Class B Directors, whose terms expire at the 2002
annual meeting of our stockholders, and John K. Castle, Samuel Urcis and William
M. Pruellage serve as Class C Directors, whose terms expire at the 2003 annual
meeting of our stockholders.

COMMITTEES OF THE BOARD

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

45
<PAGE> 52

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, Pruellage 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.

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,
Pruellage and Urcis.

EXECUTIVE COMPENSATION

The following table sets forth the annual and long-term compensation for
fiscal 2000, 1999 and 1998 for our Chief Executive Officer and our other four
highest paid officers, plus Robert D. Ryan, whose employment terminated February
1, 2000 and who would have been among the four most highly compensated officers
if he remained employed by us as of the end of fiscal 2000.

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........................ 2000 170,000 35,000 6,619 15,000(1)
President & Chief Executive Officer 1999 170,000 43,890 6,619 41,965(1)
1998 170,000 172,500 6,619 1,128,976(1)
Richard W. FitzGerald(2)................. 2000 146,049 20,000 2,206 34,132(3)
Senior Vice President & 1999 -- -- -- --
Chief Financial Officer 1998 -- -- -- --
Newton H. Schnoor........................ 2000 100,000 15,000 2,206 8,191(4)
Senior Vice President & Controller 1999 95,000 26,058 2,206 6,851(4)
1998 78,354 48,600 2,206 106,245(4)
Kirk E. Townsend......................... 2000 229,521(5) 15,000 1,550 21,878(6)
Vice President of Sales of 1999 154,436(5) -- 900 9,331(6)
Universal Compression, Inc. 1998 235,041(5) -- 132 12,722(6)
Jack B. Hilburn, Jr. .................... 2000 110,000 15,000 2,206 4,843(7)
Senior Vice President of Operations 1999 91,250 17,310 900 7,774(7)
of Universal Compression, Inc. 1998 85,000 34,500 900 91,985(7)
Robert D. Ryan(8)........................ 2000 95,833 -- -- 9,087(9)
Senior Vice President of Sales 1999 107,500 29,780 2,206 7,245(9)
1998 89,250 38,800 2,206 80,072(9)
</TABLE>

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

(1) Includes (a) matching contributions made by Tidewater and Universal to Mr.
Snider's 401(k) account of $5,100 during fiscal 2000 and 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, 1999 and 2000, (c) payments made by Tidewater
and

46
<PAGE> 53

Universal on behalf of Mr. Snider pursuant to their Supplemental Savings
Plans of $3,187 during fiscal 2000 and fiscal 1999 and $3,031 during fiscal
1998, (d) $29,800 paid by Universal to Mr. Snider for moving expenses during
fiscal 1999 and (e) $1,120,000 paid to Mr. Snider in fiscal 1998 as
incentive compensation pursuant to the completion of the Tidewater
Compression acquisition.

(2) Mr. FitzGerald joined Universal in April 1999.

(3) Includes (a) matching contributions made to Mr. FitzGerald's 401(k) account
of $3,750, (b) health care premiums paid on behalf of Mr. FitzGerald under
our Executive Medical Plan of $3,553, (c) payment made on behalf of Mr.
FitzGerald pursuant to our Supplemental Savings Plan of $750 and (d) $25,886
paid to Mr. FitzGerald for moving expenses.

(4) Includes (a) matching contributions made to Mr. Schnoor's 401(k) account of
$3,000 during fiscal 2000, $2,850 during fiscal 1999 and $2,350 during
fiscal 1998, (b) $3,876 in health care premiums paid on behalf of Mr.
Schnoor under our Executive Medical Plan during each of fiscal 2000 and
1999, (c) payment made on behalf of Mr. Schnoor pursuant to our Supplemental
Savings Plan of $1,000 during fiscal 2000 and $125 during fiscal 1999 and
(d) $103,500 paid to Mr. Schnoor during fiscal 1998 as incentive
compensation pursuant to the completion of the Tidewater Compression
acquisition.

(5) Includes sales commissions.

(6) Includes (a) matching contributions made to Mr. Townsend's 401(k) account of
$6,886 during fiscal 2000, $7,051 during fiscal 1999 and $4,449 during
fiscal 1998, (b) $3,876 in health care premiums paid on behalf of Mr.
Townsend under our Executive Medical Plan during fiscal 2000, (c) payment
made on behalf of Mr. Townsend to our Supplemental Savings Plan of $2,543
during fiscal 2000, (d) an automobile allowance paid to Mr. Townsend of
$4,281 during fiscal 2000, $4,068 during fiscal 1999 and $5,412 during
fiscal 1998 and (e) $4,200 paid to Mr. Townsend for club dues during fiscal
2000.

(7) Includes (a) matching contributions made to Mr. Hilburn's 401(k) account of
$2,225 during fiscal 1999 and $1,381 during fiscal 1998, (b) health care
premiums paid on behalf of Mr. Hilburn of $3,876 in each of fiscal 2000 and
fiscal 1999 and $162 in fiscal 1998, (c) an automobile allowance paid to Mr.
Hilburn of $720 in fiscal 2000, $1,341 in fiscal 1999 and $2,631 in fiscal
1998 and (d) $87,500 paid to Mr. Hilburn during fiscal 1998 as incentive
compensation pursuant to the completion of the Tidewater Compression
acquisition.

(8) Mr. Ryan's employment with the Company terminated on February 1, 2000.

(9) Includes (a) matching contributions made to Mr. Ryan's 401(k) account of
$2,875 during fiscal 2000, $3,225 during fiscal 1999 and $2,678 during
fiscal 1998, (b) health care premiums paid on behalf of Mr. Ryan under its
Executive Medical Plan of $3,230 during fiscal 2000, $3,876 during fiscal
1999 and $394 during fiscal 1998, (c) payment made on behalf of Mr. Ryan
pursuant to our Supplemental Savings Plan of $1,126 during fiscal 2000 and
$144 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.

47
<PAGE> 54

The following table sets forth grants of options to purchase shares of
common stock during fiscal 2000:

OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)

<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(2)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION --------------------
GRANTED IN 2000 ($/SHARE) DATE 5% 10%
---------- ---------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Snider.......... -- -- -- -- -- --
Richard W. FitzGerald...... 16,379 30.8% $6.73 4/09 $69,324 $175,679
Newton H. Schnoor.......... -- -- -- -- -- --
Kirk E. Townsend........... 4,826 9.1 6.73 11/09 20,426 51,763
Jack B. Hilburn............ 9,697 18.3 6.73 4/09 41,042 104,009
Robert D. Ryan(3).......... -- -- -- -- -- --
</TABLE>

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

(1) All outstanding options will vest in full upon completion of this offering.

(2) 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.

(3) In connection with his termination of employment in February 2000, all
options held by Mr. Ryan lapsed and were forfeited.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
UNEXERCISED OPTIONS AS OF VALUE OF OPTIONS
MARCH 31, 2000(1)(2) AS OF MARCH 31, 2000(3)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen A. Snider.......................... 32,763 16,382 $500,291 $250,153
Richard W. FitzGerald...................... -- 16,379 -- 250,107
Newton H. Schnoor.......................... 10,919 5,460 166,733 83,374
Kirk E. Townsend........................... 653 10,855 9,971 165,756
Jack B. Hilburn............................ 4,455 11,924 68,028 182,079
Robert D. Ryan(4).......................... 0 0 0 0
</TABLE>

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

(1) No options were exercised by any named executive officer during fiscal year
2000.

(2) All unexercisable options will vest in full upon completion of this
offering.

(3) Calculated using an assumed initial public offering price of $22.00 per
share as the assumed fair market value per share of common stock on March
31, 2000.

(4) In connection with his termination of employment in February 2000, all
options held by Mr. Ryan lapsed and were forfeited.

EMPLOYMENT AGREEMENTS

We have entered into employment agreements with the following officers:

- Stephen Snider on February 20, 1998 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 on February 20, 1998 pursuant to which Mr. Danner serves as
our Executive Vice President for an annual base salary of $24,000, plus a
discretionary bonus;

48
<PAGE> 55

- Richard FitzGerald on April 12, 1999 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 on June 1, 1998 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 on February 20, 1998 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 an initial term 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.

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 the executive's 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.

INCENTIVE STOCK OPTION PLAN

In February 1998, we adopted our incentive stock option plan to advance the
interests of our company and to improve stockholder value by providing
additional incentives to motivate and retain key employees. Our stock option
plan was amended on April 20, 2000 to increase the number of shares subject to
the plan, expand the eligible participants and revise the plan provision
addressing adjustment of options upon changes in our capitalization. Our board
of directors or the compensation committee of our board of directors administers
our stock option plan.

Shares Subject to the Plan: General Terms

Under our stock option plan, we can grant options totaling 1,912,421
post-split shares of our common stock. That number will be adjusted
automatically if there shall be any future change in our capitalization from a
stock dividend or split and may be adjusted to reflect a change in our
capitalization resulting from a merger, consolidation, acquisition, separation
(including a spin-off or spin-out), reorganization or liquidation. As of March
31, 2000, we have options outstanding under our stock option plan to acquire
273,207 shares of our common stock at an exercise price of $6.73 per share, none
of which have been

49
<PAGE> 56

exercised. On April 20, 2000, we granted options to purchase an additional
339,192 shares of our common stock at an exercise price of $21.50 per share, all
of which remain outstanding. These options vest over various periods, however,
all of the outstanding options will accelerate and fully vest upon the closing
of this offering. We intend to grant, in connection with this offering, options
to purchase an aggregate of up to 250,000 shares of our common stock at an
exercise price equal to the initial public offering price.

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.

Eligibility

Our key employees, non-employee directors or consultants, including those
of our subsidiaries, are eligible to be selected by our board of directors or
compensation committee to receive options under our stock option plan. Our board
of directors or compensation committee, as administrator of our stock option
plan, determines, subject to the terms of the plan, the exercise prices, vesting
schedules, expiration dates and other material conditions under which recipients
may exercise their options.

Types of Stock Options

Options granted under our stock option plan may be either options that are
intended to qualify for treatment as "incentive stock options" under Section 422
of the Internal Revenue Code or options that are not so intended, which are
non-qualified stock options. The exercise price of options under our stock
option plan must be at least the fair market value of a share of our common
stock on the date of grant, and not less than 110% of such fair market value in
the case of an incentive stock option granted to a participant owning 10% or
more of our common stock. Our stock option plan limits the number of shares
covered by incentive stock options exercisable by an individual for the first
time in a calendar year to an aggregate fair market value of $100,000, as
measured on the date of the grant.

Our board of directors or compensation committee may condition the exercise
of any option upon any factors the board of directors or compensation committee
may determine. No option granted under our stock option plan is transferrable by
an optionee other than by will or by the laws of descent and distribution.

Termination of Awards

The term of an option may not exceed ten years (or five years in the case
of an incentive stock option granted to a participant owning 10% or more of our
common stock.) In addition, an optionee who leaves our employment will generally
have no more than 30 days to exercise an option to the extent exercisable,
reduced to no days if employment is terminated for cause, and increased to three
months if termination is due to death, disability or retirement after age 65.

Amendments to our Incentive Stock Option Plan

Our board of directors may amend, suspend or terminate our stock option
plan, as long as no amendments or termination adversely affects options or
awards previously granted.

Federal Income Tax Consequences

The following is a brief summary of federal income tax consequences of
certain transactions under the stock option plan, based on federal income tax
laws and regulations in effect on May 1, 2000 applicable to participants who are
both citizens and residents of the United States. This summary is not intended
to be exhaustive and does not describe tax consequences other than federal
income taxes, such as foreign, state and local taxes and estate or inheritance
taxes. Additional or different federal income tax consequences to a participant
or to us may result depending on individual circumstances and considerations not
described below.

50
<PAGE> 57

Incentive stock options. In general, a participant will not recognize
taxable income upon the grant or the exercise of an incentive stock option. For
purposes of the alternative minimum tax, however, the participant will be
required to treat an amount equal to the difference between the fair market
value of the common stock on the date of exercise over the exercise price as an
item of adjustment in computing the participant's alternative minimum taxable
income. If the participant does not dispose of the common stock received
pursuant to the exercise of the incentive stock option within either (i) two
years after the date of the grant of the incentive stock option or (ii) one year
after the date of exercise of the incentive stock option, a subsequent
disposition of the common stock will generally result in long-term capital gain
or loss to such individual with respect to the difference between the amount
realized on the disposition and the exercise price. We will not be entitled to
any income tax deduction as a result of such disposition. We also normally will
not be entitled to take an income tax deduction at either the grant or the
exercise of an incentive stock option. If the participant disposes of the common
stock acquired upon exercise of the incentive stock option within either of the
above-mentioned time periods, then in the year of such disposition, the
participant generally will recognize ordinary income, and we generally will be
entitled to an income tax deduction (provided we satisfy applicable federal
income tax reporting requirements), in an amount equal to the lesser of (i) the
excess of the fair market value of the common stock on the date of exercise over
the exercise price or (ii) the amount realized upon disposition over the
exercise price. Any gain in excess of such amount recognized by the participant
as ordinary income would be taxed to the individual as short-term or long-term
capital gain (depending on the applicable holding period).

Non-qualified stock options. A participant will not recognize any taxable
income upon the grant of a non-qualified stock option, and will not be entitled
to take an income tax deduction at the time of such grant. Upon the exercise of
a non-qualified stock option, the participant generally will recognize ordinary
income and we generally will be entitled to take an income tax deduction
(provided we satisfy applicable federal income tax reporting requirements) in an
amount equal to the excess of the fair market value of the common stock on the
date of exercise over the exercise price. Upon a subsequent sale of the common
stock by the participant, the participant will recognize short-term or long-term
capital gain or loss (depending on the applicable holding period).

The preceding summary does not discuss special rules that will apply to a
participant who exercises an option by paying the exercise price, in whole or in
part, by the transfer of common stock.

EMPLOYEE STOCK PURCHASES

Under our Non-Qualified Stock Purchase Plan, all of our employees and
directors were offered the opportunity to purchase shares of our stock, and 44
employees and two directors purchased at $50 per share during March 1999, a
total of 1,996 shares of common stock and 7,984 shares of Series A preferred
stock (which shares of common stock and preferred stock will be split and
converted into 33,387 shares of common stock concurrently with the closing of
this offering). There will be no additional shares offered under this Stock
Purchase Plan and the plan will be terminated upon consummation of this
offering.

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. Upon completion of
this offering, Samuel Urcis also will be 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.

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

51
<PAGE> 58

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, William M. Pruellage and Samuel Urcis 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.

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<PAGE> 59

PRINCIPAL STOCKHOLDERS

The table below sets forth certain information regarding beneficial
ownership of our common stock as of March 31, 2000 and as adjusted to reflect
(1) the sale of shares of common stock offered in this offering, (2) the
conversion of preferred stock and non-voting common stock to common stock to be
effected concurrently with the offering, and (3) the 7.4248-for-one common stock
split also to be effected concurrently with the 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 having the right to acquire
them within 60 days, which include outstanding stock options, all of which will
become fully exercisable upon completion of this offering, 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(1)
SHARES OF -------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK BEFORE THE OFFERING AFTER THE OFFERING
- ------------------------------------ ------------ ---------------------- ------------------
<S> <C> <C> <C>
Castle Harlan Partners III(2)(3)
150 East 58th Street
New York, New York 10155................... 6,669,584 100.0% 41.6%
DB Capital Partners SBIC, L.P.(4)
130 Liberty Street, 25th Floor
New York, New York 10006................... 535,269 8.0% 3.9%
First Union Capital Partners, Inc.(4)
301 S. College Street, 5th Floor
One First Union Center
Charlotte, North Carolina 28288............ 535,269 8.0% 3.9%
Mellon Bank N.A., as Trustee for the
Bell Atlantic Master Trust(4)
245 Park Avenue, 40th Floor
New York, New York 10166................... 535,269 8.0% 3.9%
Wilmington Trust, as Trustee of
Du Pont Pension Trust(4)
Delaware Corporate Center
1 Righter Parkway
Wilmington, Delaware 19803................. 535,269 8.0% 3.9%
Thomas C. Case............................... 334 * *
John K. Castle(3)(5)(6)...................... 6,669,584 100.0% 41.6%
Samuel Urcis(7).............................. 219,698 3.3% 1.6%
C. Kent May.................................. 334 * *
William M. Pruellage......................... 167 * *
</TABLE>

53
<PAGE> 60

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

* Indicates less than 1% of the outstanding stock.

(1) Based upon 6,669,584 shares and 13,669,584 shares of common stock
outstanding before and after the offering, respectively, which numbers
include 287,723 shares issued in connection with our acquisition of
Spectrum. There are presently 11,908 treasury shares issued that are not
counted as outstanding in calculating the beneficial ownership percentage.

(2) Includes, after the completion of this offering, 3,228,205 shares of common
stock held by related entities and persons and 2,461,125 shares of common
stock held by certain other entities and individuals, all of which Castle
Harlan Partners III, L.P. may direct the voting of such shares pursuant to
voting trust agreements or a voting agreement. Prior to the completion of
this offering, includes 980,254 shares of common stock subject to such
voting trust agreements or voting agreement which will terminate with
respect to such shares upon the completion of this offering. All such
shares may be deemed to be beneficially owned by Castle Harlan Partners
III, L.P. Castle Harlan Partners III, L.P. disclaims beneficial ownership
of these shares.

(3) John K. Castle and Leonard M. Harlan are the controlling stockholders of
Castle Harlan Partners III, G.P., Inc., the general partner of the general
partner of Castle Harlan Partners III, L.P., and as such, each of them may
be deemed to be a beneficial owner of the shares owned by Castle Harlan
Partners III, L.P. Both Mr. Castle and Mr. Harlan disclaim beneficial
ownership of the shares in excess of their respective pro rata partnership
interests in Castle Harlan Partners III, L.P. and its affiliates.

(4) All shares subject to the voting agreement referred to in notes (2) and
(6).

(5) Includes, after the completion of this offering, 3,514,801 shares of common
stock held by entities and persons related to Castle Harlan Partners III,
L.P. and certain other individuals, the voting of which John K. Castle may
direct pursuant to unrelated voting trust agreements under which Mr. Castle
acts as voting trustee. Prior to the completion of this offering, includes
an additional 692,465 shares of common stock subject to such voting trust
agreements which will terminate with respect to such shares upon the
completion of this offering. All such shares may be deemed to be
beneficially owned by Mr. Castle. Mr. Castle disclaims beneficial ownership
of the shares subject to the voting trust agreements, other than 19,449
shares of common stock owned by Branford Castle Holdings, Inc. subject to
the voting trust.

(6) Includes, after the completion of this offering, 2,174,529 shares of common
stock held by certain entities, the voting of which Castle Harlan Partners
III, L.P. may control pursuant to a voting agreement. All such shares may
be deemed to be beneficially owned by Mr. Castle. Mr. Castle disclaims
beneficial ownership of these shares.

(7) Includes 99,135 shares subject to options which will become fully
exercisable upon completion of the offering. Also includes 40,145 shares of
common stock owned by Castle Harlan Partners, which shares Mr. Urcis has
the option to purchase. Also includes 6,818 shares (based on assumed
initial public offering price of $22.00 per share) that Mr. Urcis will
receive at the closing of this offering in connection with termination of
his finders and consulting agreement. All of Mr. Urcis's shares will remain
subject to the voting trust agreement with Castle Harlan.

(8) Includes 110,152 shares of common stock subject to options granted by
Universal to Mr. Snider which will become fully exercisable upon completion
of this offering.

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<PAGE> 61

(9) Includes 79,548 shares of common stock subject to an option granted by
Universal to Mr. Danner, all of which are fully exercisable. Also includes
13,636 shares (based on assumed initial public offering price of $22.00 per
share) that Mr. Danner will receive upon the closing of this offering for
his services. Also includes 33,455 shares of common stock owned by Castle
Harlan Partners, which shares Mr. Danner has an option to purchase.

(10) Includes 36,712 shares of common stock subject to an option granted by
Universal to Mr. FitzGerald which will become fully exercisable upon
completion of this offering and 1,337 shares of common stock purchased by
Mr. FitzGerald on January 31, 2000.

(11) Includes 36,712 shares of common stock subject to an option granted by
Universal to Ms. Banner which will become fully exercisable upon completion
of this offering, and 668 shares of common stock purchased by Ms. Banner on
January 31, 2000.

(12) Includes 36,712 shares of common stock subject to an option granted by
Universal to Mr. Schnoor which will become fully exercisable upon
completion of this offering.

(13) Includes 36,712 shares of common stock subject to options granted by
Universal to Mr. Hilburn which will become fully exercisable upon
completion of this offering.

(14) Includes 25,794 shares of common stock subject to options granted by
Universal to Mr. Townsend which will become fully exercisable upon
completion of this offering.

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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, Pruellage and Urcis, directors of Universal, are affiliates of Castle
Harlan. We have agreed with Castle Harlan that this management agreement (other
than the indemnification provisions) will terminate upon the completion of this
offering in exchange for (1) our payment to Castle Harlan of $3.0 million in
cash, 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 (136,364 shares based on an assumed initial public
offering price of $22.00 per share), which shares are subject to registration
rights. We will make this payment and issue these shares concurrently with the
closing of the offering. We have also agreed with Castle Harlan to nominate a
total of three Castle Harlan designees for election to our board for so long as
such designees are reasonably qualified and Castle Harlan and its affiliates
beneficially own at least 15% of our outstanding stock (including shares over
which it has voting control pursuant to voting agreements and trusts).

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 our
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

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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.

Pursuant to its terms, all substantive provisions of the stockholders
agreement will terminate upon completion of this offering, including the tag
along rights, preemptive rights, drag along rights, right of first offer,
transfer restrictions and board observer rights currently held by four of our
significant stockholders.

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 was entered into
in connection with the Spectrum Compression acquisition in April 2000. The
voting trust agreements provide that all of our other stockholders, including
our employees, officers and directors, 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 (other than the indemnification provisions of
the trusts) will terminate with respect to Energy Spectrum, our employees,
officers, and four directors, not including Mr. Urcis, upon the completion of
this offering, but may otherwise continue. As a result of the arrangements set
forth in the voting agreement and the voting trust agreements, Castle Harlan
currently has voting control over 100% of our common stock and will have control
over up to 42.7% after this offering, including the 24.9% of shares owned by it
or its affiliates, but excluding the effect of stock options and the
underwriters' over-allotment option.

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 finder's 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 in cash, 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
(6,818 shares based on an assumed initial public offering price of $22.00 per
share), which shares are subject to registration rights. We will make this
payment and issue these shares concurrently with the closing of this offering.
In addition, Mr. Urcis has options to purchase from us 44,230 shares and 54,905
shares of our common stock at exercise prices of $6.73 and $21.50, respectively.
Also, Castle Harlan granted Mr. Urcis a ten-year option in 1998 to purchase from
it 17,820 shares and 22,326 shares of our common stock at exercise prices of
$6.73 and $21.50, respectively.

TRANSACTIONS WITH ERNIE DANNER

In consideration for consulting services rendered by Ernie Danner, one of
our directors, in connection with the Tidewater Compression acquisition, Castle
Harlan granted Mr. Danner a ten-year option to purchase from it 18,605 shares
and 14,850 shares of our common stock at a price of $21.50 and $6.73 per share,
respectively. Also, Castle Harlan agreed that upon its sale of more than 75% of
our outstanding common stock, Castle Harlan will pay Mr. Danner $500,000 or
$750,000 if they realize a return in excess of 100% and 300%, respectively, of
their initial investment in our company. Upon completion of the

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Tidewater Compression acquisition, Mr. Danner received from us 1,000 shares of
common stock and 4,000 shares of Series A preferred stock (convertible into
16,727 shares of common stock upon the closing of this offering) and $100,000 in
cash. Also, Mr. Danner has options to purchase from us 35,491 shares and 44,057
shares of our common stock at exercise prices of $6.73 and $21.50, respectively.
Upon completion of this offering, Mr. Danner will receive from us for his
services shares of our common stock valued at $300,000 based on the initial
public offering price (13,636 shares based on an assumed initial public offering
price of $22.00 per share), which shares are subject to registration rights. In
addition, Mr. Danner is a director and 45% stockholder, along with Robert Ryan,
formerly an officer of Universal, in a company that purchased certain standard
air compressor equipment and related distributorship rights from us for $1.6
million in February 2000. We have agreed to provide this company with transition
services for one year for a fee of approximately $300,000.

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.

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. Any payment is to be made in the same form of consideration as
received by Castle Harlan. Any 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. As of April 1, 2000,
Castle Harlan's accreted investment was approximately $24.00 per share, which
will continue to grow at a compounded rate of 6.25% per quarter. As of April 1,
2000, assuming an initial public offering price of $22.00 per share was applied
to all of the shares owned by Castle Harlan, there would have been no payment
due in the event the provisions of the Purchase Price Adjustment Agreement were
triggered. In any event, no payment is triggered by this offering or the stock
split and the conversion effected concurrently with this offering.

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.

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 restated
certificate of incorporation will be amended to eliminate the non-voting common
stock designations. We will effect a 7.4248-for-1 common stock split and a
conversion of all of our outstanding preferred stock and non-voting common stock
into common stock concurrently with this offering based on a $21.50 price per
share and a payment in cash in lieu of issuance of a fractional share. If the
stock split and the conversion of the non-voting common stock and all of our
preferred stock had occurred on March 31, 2000, 5,539,043 shares of our common
stock would have been outstanding and held of record by 369 stockholders on such
date. Holders of our common stock are

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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 new revolving credit facility, senior notes and new operating lease facility
to be entered into concurrently with this offering 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 3,227,209 shares of common stock on a one
share of preferred stock for 2.3256 shares of common stock basis and a payment
in cash in lieu of issuance of a fractional share. 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. 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 EquiServe Trust
Company.

LISTING

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

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 and 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 does not permit stockholders the
right to cumulate votes in the election of directors.

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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 or the
chairman of the board or the president, acting as such.

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 45 days nor more than
75 days prior to the anniversary of the date on which we are first mailed the
proxy materials for the preceding year's annual meeting of the 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 later of 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.
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 later of the tenth day following the day on
which notice of the date of the special meeting and of the nominees proposed by
the board of directors was mailed or public disclosure of the date of the
special meeting was made or 90 days before the meeting. 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 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.

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;

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- 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.

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. Our current significant stockholders are not
subject to this provision.

LIMITATIONS ON DIRECTORS' LIABILITY

Our 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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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, 5,828,140
shares of our common stock outstanding as of the completion of this offering
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 12,983,584
shares of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, the 7,000,000
shares of common stock sold in this offering will be freely tradable without
restriction under the Securities Act unless purchased by our "affiliates."
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. Of the remaining 5,983,584 shares of our outstanding
common stock eligible for resale, 155,444 will be freely tradeable, including
under Rules 144(k) and 701, upon the date of this prospectus and another 9,720
shares will be freely tradeable 90 days later pursuant to the lock-up period in
our registration rights agreement. We and our executive officers, directors and
other significant stockholders holding 5,818,420 shares of our common stock 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 Merrill Lynch. Upon expiration of
the 180-day lock-up period, 2,141,076 of such shares will become freely
tradeable. The remaining 3,677,344 of such shares after the 180-day period 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,
holding period and other limitations of Rule 144; however, 3,230,797 of such
shares are not subject to the holding period restrictions of Rule 144.

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 129,836 shares immediately after
this offering; or (b) the average weekly trading volume of our common stock on
the New York Stock Exchange 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.

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LOCK-UP AGREEMENTS

In connection with this offering, we, our executive officers and directors,
Castle Harlan, Spectrum Energy Partners and our other significant stockholders
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. See
"Underwriting -- No Sales of Similar Securities."

REGISTRATION RIGHTS

A description of our registration rights agreement is set forth under
"Related Transactions -- Registration Rights Agreement." In addition, certain of
our executive officers have registration rights with respect to their shares of
our stock. All registration rights in connection with this offering have been
waived.

STOCK OPTION PLAN

In connection with the offering, we intend to file a registration statement
covering the sale of approximately 1,912,412 million shares of our 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 612,399 million shares of our common stock will also be
outstanding upon completion of the offering. Such options generally provide for
incremental vesting over a three-year period, but vest in full upon completion
of this offering. In addition, we intend to grant options to purchase up to an
additional 250,000 shares of our common stock in connection with this offering.
See "Management -- Incentive Stock Option Plan."

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

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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 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

64
<PAGE> 71

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.

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.

65
<PAGE> 72

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
1,400,000 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.......................................... 5,600,000
=========
</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 5,600,000 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 1,400,000 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.

66
<PAGE> 73

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
840,000 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 210,000
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 other significant 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,

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

67
<PAGE> 74

- 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 have applied 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 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.

68
<PAGE> 75

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

The 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

We engaged Deutsche Bank Securities Inc. and Wasserstein Perella
Securities, Inc. to act as solicitation agents in connection with our
solicitation of the written consents of the holders of our outstanding 9 7/8%
senior discount notes to an amendment to the indenture governing such notes.
Deutsche Bank Securities Inc. and Wasserstein Perella Securities, Inc. will
receive ordinary and customary fees for their services as solicitation agents.
We have agreed to reimburse Deutsche Bank Securities Inc. and Wasserstein
Perella Securities, Inc. for all reasonable out-of-pocket expenses incurred in
connection with these engagements. Bankers Trust Company, an affiliate of
Deutsche Bank Securities Inc., will participate in our operating lease facility
and our new revolving credit facility, for which these affiliates will receive
ordinary and customary fees. In addition, DB Capital Partners SBIC, L.P., an
affiliate of Deutsche Bank Securities Inc., and First Union Capital Partners,
Inc., an affiliate of First Union Securities, Inc., are stockholders of our
company.

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 2000 and for the period from December 12, 1997 (inception)
through March 31, 1998 and for the years ended March 31, 1999 and 2000 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 in the
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and 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.

69
<PAGE> 76

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.

70
<PAGE> 77

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, 1999 and March
31, 2000............................................... F-3
Consolidated Statements of Operations for the period from
December 12, 1997 (inception) through March 31, 1998
and for the years ended March 31, 1999 and 2000........ F-4
Consolidated Statements of Stockholders' Equity for the
period from December 12, 1997 (inception) through March
31, 1998 and for the years ended March 31, 1999 and
2000................................................... F-5
Consolidated Statements of Cash Flows for the period from
December 12, 1997 (inception) through March 31, 1998
and for the years ended March 31, 1999 and 2000........ F-6
Notes to Consolidated Financial Statements................ F-7

TIDEWATER COMPRESSION SERVICE, INC.
Independent Auditors' Report of Deloitte & Touche LLP....... F-19
Financial Statements:
Statement of Operations for the period from April 1, 1997
through February 20, 1998.............................. F-20
Statement of Stockholders' Equity for the period from
April 1, 1997 through February 20, 1998................ F-21
Statement of Cash Flows for the period from April 1, 1997
through February 20, 1998.............................. F-22
Notes to Financial Statements............................. F-23
</TABLE>

F-1
<PAGE> 78

INDEPENDENT AUDITORS' REPORT

To the Board of Directors

Universal Compression Holdings, Inc.

We have audited the accompanying consolidated balance sheets of Universal
Compression Holdings, Inc. and subsidiary (the "Company") as of March 31, 1999
and 2000, 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 years ended March 31, 1999 and 2000. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits 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,
1999 and 2000, and the results of its operations and its cash flows for the
period from December 12, 1997 (inception) through March 31, 1998 and for the
years ended March 31, 1999 and 2000, in conformity with accounting principles
generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Houston, Texas

April 28, 2000

F-2
<PAGE> 79

UNIVERSAL COMPRESSION HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 2000
---------- ----------
(IN THOUSANDS, EXCEPT
FOR SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents................................. $ 2,927 $ 1,403
Receivables, net of allowance for bad debts of $123 and
$227 as of March 31, 1999 and 2000, respectively........ 22,469 17,267
Inventories............................................... 10,272 8,727
Current deferred tax asset................................ 426 227
Other..................................................... 938 1,571
-------- --------
Total current assets............................... 37,032 29,195
-------- --------
Property and equipment:
Rental equipment.......................................... 296,049 349,198
Other..................................................... 17,122 19,617
Accumulated depreciation.................................. (17,647) (38,466)
-------- --------
Total property and equipment....................... 295,524 330,349
-------- --------
Goodwill, net of accumulated amortization of $2,564 and
$5,202 as of March 31, 1999, and 2000, respectively....... 96,345 99,250
Other assets, net........................................... 8,632 7,570
Long-term deferred tax asset................................ 458 3,578
-------- --------
Total assets....................................... $437,991 $469,942
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of capital lease obligation............... $ -- $ 3,456
Current portion of long-term debt......................... 750 750
Accounts payable.......................................... 8,591 10,911
Accrued expenses.......................................... 3,949 6,869
-------- --------
Total current liabilities.......................... 13,290 21,986
Capital lease obligation.................................... -- 10,243
Long-term debt.............................................. 343,927 363,036
-------- --------
Total liabilities.................................. 357,217 395,265
-------- --------
Commitments and contingencies (Note 10)
Stockholders' equity:
Series A preferred stock, $.01 par value, 5,000,0000
shares authorized, 1,320,144 and 1,320,128 shares
issued, 1,320,144 and 1,318,896 shares outstanding at
March 31, 1999 and 2000, 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 329,724
shares outstanding at March 31, 1999 and 2000,
respectively............................................ 3 3
Class A non-voting common stock, $0.01 par value, 6,000
shares authorized, 4,120 shares issued, 4,080 and 3,210
shares outstanding at March 31, 1999 and 2000,
respectively............................................ -- --
Additional paid-in capital................................ 82,698 82,697
Retained deficit.......................................... (1,931) (7,913)
Treasury stock, 170 and 2,450 shares at cost at March 31,
1999 and 2000, respectively............................. (9) (123)
-------- --------
Total stockholders' equity......................... 80,774 74,677
-------- --------
Total liabilities and stockholders' equity......... $437,991 $469,942
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 80

UNIVERSAL COMPRESSION HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
DECEMBER 12, 1997 FOR THE FOR THE
(INCEPTION) THROUGH YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1999 MARCH 31, 2000
-------------------- --------------- ---------------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Rentals....................................... $ 9,060 $ 85,599 $ 98,295
Sales......................................... 4,037 43,588 38,000
Other......................................... 22 311 154
-------- -------- --------
Total revenues........................ 13,119 129,498 136,449
-------- -------- --------
Costs and expenses:
Rentals, exclusive of depreciation and
amortization............................... 2,804 31,010 35,352
Cost of sales, exclusive of depreciation and
amortization............................... 3,408 36,390 31,943
Depreciation and amortization................. 1,560 19,314 26,006
Selling, general and administrative........... 1,305 16,863 16,797
Interest expense.............................. 3,203 29,313 34,327
-------- -------- --------
Total costs and expenses.............. 12,280 132,890 144,425
-------- -------- --------
Income (loss) before income taxes............... 839 (3,392) (7,976)
Income taxes (benefit).......................... 409 (1,031) (1,994)
-------- -------- --------
Net income (loss)........................ $ 430 $ (2,361) $ (5,982)
======== ======== ========
Earnings per share:
Basic......................................... $ 1.32 $ (7.17) $ (17.94)
======== ======== ========
Diluted....................................... $ 1.32 $ (7.17) $ (17.94)
======== ======== ========
Weighted average shares outstanding:
Shares of common stock........................ 325,000 329,493 333,520
Dilutive potential shares of common stock..... -- -- --
-------- -------- --------
Total weighted average shares of
common stock outstanding............ 325,000 329,493 333,520
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 81

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, 2000

<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PREFERRED 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............. $ 3 $13 $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............. $ 3 $13 $82,698 $(1,931) $ (9) $80,774
Common stock cancellation (4
shares at $.01 per share par
value)......................... -- -- -- -- -- --
Series A Preferred stock
cancellation (16 shares at $.01
per share par value)........... -- -- (1) -- -- (1)
Treasury stock purchase (2,880
shares at $50 per share)....... -- -- -- -- (144) (144)
Sale of treasury stock (600 shares
at $50 per share).............. -- -- -- -- 30 30
Net loss for the year ended March
31, 2000....................... -- -- -- (5,982) -- (5,982)
--- --- ------- ------- ----- -------
Balance, March 31, 2000............. $ 3 $13 $82,697 $(7,913) $(123) $74,677
=== === ======= ======= ===== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 82

UNIVERSAL COMPRESSION HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 12, 1997
(INCEPTION) FOR THE FOR THE
THROUGH YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1999 MARCH 31, 2000
----------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 430 $ (2,361) $ (5,982)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization...................... 1,560 19,314 26,006
Gain on asset sales................................ (13) (192) (124)
Deferred income taxes.............................. 339 (1,223) (2,921)
Amortization of debt issuance costs................ 121 1,162 1,162
(Increase) Decrease in receivables................. (1,263) (10,807) 5,202
(Increase) Decrease in inventories................. (223) (2,594) 1,545
(Increase) Decrease in other current assets........ (2,951) 2,183 (633)
Increase (Decrease) in accounts payable............ (1,472) 2,537 2,320
Increase (Decrease) in accrued expenses............ 587 (3,569) 411
Deferred interest on notes payable................. 1,880 18,316 20,258
(Increase) Decrease in non-current assets.......... -- 27 (100)
--------- -------- --------
Net cash provided by (used in) operating
activities.................................. (1,005) 22,793 47,144
--------- -------- --------
Cash flows from investing activities:
Proceeds from asset sales............................ 765 8,038 4,442
Additions to property and equipment.................. (2,038) (68,081) (60,002)
Acquisition of Tidewater Compression Service, Inc.... (351,872) -- --
Other acquisitions................................... -- (2,953) (5,543)
--------- -------- --------
Net cash used in investing activities......... (353,145) (62,996) (61,103)
--------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments) under revolving line of
credit............................................. 285,018 40,249 (400)
Repayments of long-term debt......................... (36) (750) (750)
Common stock issuance................................ 16,200 252 --
Preferred stock issuance (cancellation).............. 64,800 1,006 (1)
Debt issuance costs.................................. (9,450) -- --
Net proceeds from sale-leaseback of vehicles......... -- -- 3,119
Net proceeds from financing lease.................... -- -- 10,581
Purchase of treasury stock........................... -- (249) (144)
Sale of treasury stock............................... -- 240 30
--------- -------- --------
Net cash provided by financing activities..... 356,532 40,748 12,435
--------- -------- --------
Net increase (decrease) in cash and cash equivalents... 2,382 545 (1,524)
--------- -------- --------
Cash and cash equivalents at beginning of period....... -- 2,382 2,927
--------- -------- --------
Cash and cash equivalents at end of period............. $ 2,382 $ 2,927 $ 1,403
========= ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest............................... $ 1,202 $ 9,653 $ 10,471
========= ======== ========
Cash paid for income taxes........................... $ -- $ 697 $ 772
========= ======== ========
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> 83

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998

AND FOR THE YEARS ENDED MARCH 31, 1999 AND 2000

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.

F-7
<PAGE> 84

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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 years
ended March 31, 1999 and 2000 the Company wrote off bad debts totaling $80,000,
$330,000 and $116,000, 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 expenses 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 years ended March 31, 1999 and 2000 was $1,366,226, $16,942,554 and
$23,368,262, 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
$8,287,000 and $7,125,000 at March 31, 1999 and 2000, 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

F-8
<PAGE> 85

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 7.

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 the years ended March 31, 1999 and 2000 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. The fair value of the senior discount notes was approximately $172.0
million and $181.6 million, as compared to a carrying amount of $195.2 million
and $215.5 million at March 31, 1999 and 2000, respectively. The estimated fair
value amounts have been determined by the Company using appropriate valuation
methodologies and information available to management as of March 31, 2000 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 years ended March 31, 1999 and 2000, 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.

F-9
<PAGE> 86

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 voting agreements.

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>
1999 2000
------- ------
<S> <C> <C>
Finished goods.............................................. $ 5,279 $5,551
Work-in-progress............................................ 4,993 3,176
------- ------
Total............................................. $10,272 $8,727
======= ======
</TABLE>

F-10
<PAGE> 87

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>
1999 2000
-------- --------
<S> <C> <C>
Term loan, bearing interest of LIBOR + 2.5%, due February
2005 and collateralized by property of Universal.......... $ 74,063 $ 73,313
Revolving credit facility, bearing interest of LIBOR +
2.25%, due February 2003 and collateralized by property of
Universal................................................. 75,400 75,000
Senior discount notes, bearing interest of 9 7/8% per annum,
due 2008, net of discount of $75,615 and $58,680 at March
31, 1999 and 2000, respectively, unsecured................ 166,885 183,820
Senior discount notes, bearing interest of 11 3/8% per
annum, due 2009, net of discount of $15,171 and $11,847 at
March 31, 1999 and 2000, respectively, unsecured.......... 28,329 31,653
-------- --------
Total debt........................................ 344,677 363,786
Less current maturities..................................... 750 750
-------- --------
Total long-term debt.............................. $343,927 $363,036
======== ========
</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, 1999 and 2000 was
approximately $8,143,000 and $7,701,000, respectively, after giving effect to
outstanding letters of credit. The interest rates on the term loan and the
revolving credit facility at March 31, 1999 were 7.44% and 7.19%, respectively.
The interest rates on the term loan and the revolving credit facility at March
31, 2000 were 8.69% and 8.36%, 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, 2000. 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, 2000, in thousands, are
2001 -- $750; 2002 -- $750; 2003 -- $82,125; 2004 -- $30,938; 2005 -- $33,750;
and $215,473 thereafter.

5. CAPITAL LEASES

On July 21, 1999, a wholly owned subsidiary of the Company entered into a
financing lease with Societe Generale Financial Corporation regarding certain
compression equipment. 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
Colombian operations of the Company's subsidiary.

On June 17, 1999, Universal signed a master lease agreement with GE Capital
Fleet Services completing a sale and lease back of the majority of its service
vehicle fleet. Under the agreement, the

F-11
<PAGE> 88

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

vehicles were sold and leased back by Universal at lease terms ranging from 20
months to 56 months and will continue to be deployed by Universal under its
normal operating procedures.

Principal amortization associated with both leases is recorded in the
Consolidated Statements of Cash Flows. Property and equipment at March 31, 2000
include the following amounts for capitalized leases (in thousands):

<TABLE>
<S> <C>
Compression equipment...................................... $11,925
Service vehicles........................................... 4,363
-------
16,288
Less accumulated depreciation.............................. (2,365)
-------
Net assets under capital leases............................ $13,923
</TABLE>

Future minimum lease payments under non-cancelable capital leases as of
March 31, 2000 are as follows (in thousands):

<TABLE>
<S> <C>
2001....................................................... $ 3,456
2002....................................................... 3,302
2003....................................................... 3,171
2004....................................................... 2,774
2005....................................................... 996
Thereafter................................................. --
-------
Total $13,699
</TABLE>

6. INCOME TAXES

For the period from December 12, 1997 (inception) through March 31, 1998
and the years ended March 31, 1999 and 2000, substantially all of the Company's
income and losses before income taxes were derived from its U.S. operations.

Income tax expense (benefit) for the period from December 12, 1997
(inception) through March 31, 1998 and the years ended March 31, 1999 and 2000
consisted of the following (in thousands):

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 12, 1997
(INCEPTION) THROUGH
MARCH 31, 1998 1999 2000
------------------- ------- -------
<S> <C> <C> <C>
Current:
Foreign........................................ $ 71 $ 145 $ 889
Deferred:
Federal........................................ 303 (1,055) (2,655)
State.......................................... 35 (121) (228)
---- ------- -------
Total.................................. $409 $(1,031) $(1,994)
==== ======= =======
</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 for the period from December 12, 1997

F-12
<PAGE> 89

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(inception) through March 31, 1998 and the years ended March 31, 1999 and 2000
is as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 12, 1997
(INCEPTION) THROUGH
MARCH 31, 1998 1999 2000
------------------- ------- -------
<S> <C> <C> <C>
Benefit for income taxes at statutory rate....... $294 $(1,187) $(2,791)
State taxes...................................... 30 (121) (228)
Foreign taxes.................................... 71 145 889
Non-deductible expenses and other................ 14 132 136
---- ------- -------
Total.................................. $409 $(1,031) $(1,994)
==== ======= =======
</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>
1999 2000
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 24,235 $ 35,217
Other..................................................... 630 1,172
-------- --------
Total............................................. 24,865 36,389
Valuation allowance......................................... (145) (889)
-------- --------
Total............................................. 24,720 35,500
-------- --------
Deferred tax liabilities:
Depreciation differences on property and equipment........ (21,905) (28,319)
Other..................................................... (1,931) (3,376)
-------- --------
Total............................................. (23,836) (31,695)
-------- --------
Net deferred tax asset............................ $ 884 $ 3,805
======== ========
</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.

As a result of the activity for the period from December 12, 1997
(inception) through March 31, 1998 and the years ended March 31, 1999 and 2000,
the Company has net operating loss ("NOL") carryforwards available to offset
future taxable income. The Company has NOL carryforwards of approximately
$91,752,000 at March 31, 2000 which will expire, if not utilized, as follows:
2018 -- $4,185,000; 2019 -- $30,939,000 and 2020 -- $56,628,000. Unrestricted
utilization of the carryforwards could be dependent on future changes in
ownership.

7. 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.

F-13
<PAGE> 90

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REDEEMABLE PREFERRED STOCK

At March 31, 2000, the Company has issued 1,320,128 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, 2000 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 generally vest over the following time period:

The following is a summary of stock option activity for the period from
December 12, 1997 (inception) through March 31, 1998 and the years ended March
31, 1999 and 2000:

<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
------ ---
Options granted........................................... 7,152 $50
Options cancelled......................................... (5,826) $50
------ ---
Options outstanding, March 31, 2000......................... 36,800 $50
------ ---
</TABLE>

As of March 31, 2000, under the incentive stock option plan the Company had
5,938 stock options available for grant.

F-14
<PAGE> 91

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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............................................... 6.4%
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 123, compensation
expense would have been approximately $8,000, $76,000 and $109,000 for the
period from December 12, 1997 (inception) through March 31, 1998 and the years
ended March 31, 1999 and 2000, respectively.

8. 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,
$493,000 and $473,000 for the period from December 12, 1997 (inception) through
March 31, 1998 and the years ended March 31, 1999 and 2000, respectively.

9. 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 less than 20% of the then outstanding stock
of the Company. The Company paid Castle Harlan Inc. $3,000,000, $750,000 and
$3,000,000 during the period from December 12, 1997 (inception) through March
31, 1998 and the years ended March 31, 1999 and 2000, respectively. The fee is
recorded at the rate of $750,000 per quarter in selling, general and
administrative expenses.

As of March 31, 2000, 4,520 shares of common stock and 18,080 shares of
preferred stock held by certain officers of the Company are subject to certain
repurchase requirements by the Company in the 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
substantially all of its obligations 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 "finders fee") related to services provided by the Director for
the Acquisition. Upon consummation of the Acquisition, $1,100,000 of the finders
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 finders 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, $165,523 and $140,264 during the period from December 12, 1997
(inception) through March 31, 1998 and the years ended March 31, 1999 and 2000,
respectively.

F-15
<PAGE> 92

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

10. COMMITMENTS AND CONTINGENCIES

Rent expense for the period from December 12, 1997 (inception) through
March 31, 1998 and the years ended March 31, 1999 and 2000 was approximately
$43,000, $427,000 and $415,000, respectively. Commitments for future lease
payments were not significant at March 31, 2000.

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 $1,100,000 at March 31, 2000 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.

At the time of the Acquisition, the Company entered into a Purchase Price
Adjustment Agreement with Tidewater, Inc. The agreement provides for potential
additional amounts to be paid to Tidewater, Inc. upon a liquidity event, as
defined in the agreement. The potential amount is based upon a formula related
to accreted growth on Castle Harlan's initial investment above a certain growth
rate which is compounded quarterly.

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.

11. 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 based operations.

F-16
<PAGE> 93

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 2000 (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.............................. $ 83,577 $14,718 $25,258 $12,896 $136,449
Operating income (loss)............... $ 22,262 $ 3,974 $ 971 $(1,049) $ 26,158
Depreciation and amortization......... $ 19,104 $ 3,947 $ 196 $ 2,759 $ 26,006
Capital expenditures.................. $ 50,980 $ 8,079 $ 899 $ 44 $ 60,002
Identifiable assets................... $310,563 $49,204 $10,205 $99,970 $469,942
</TABLE>

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 (loss)............... $ 22,394 $ 2,483 $ 949 $ (116) $ 25,710
Depreciation and amortization......... $ 15,626 $ 1,020 $ 161 $ 2,507 $ 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 $ 166 $ 4,026
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 is
defined as income before income taxes less gain on asset sales and interest
income plus interest expense. 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-17
<PAGE> 94

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. QUARTERLY FINANCIAL DATA (UNAUDITED):

Summarized quarterly financial data for the year ended March 31, 2000 is as
follows (in thousands):

<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenues................................. $33,808 $34,988 $33,729 $33,924
Operating income......................... $ 5,966 $ 6,632 $ 6,697 $ 6,863
Net loss................................. $(1,238) $(1,578) $(1,276) $(1,890)
</TABLE>

F-18
<PAGE> 95

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 in the United States of America. 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 in the United States of
America.

DELOITTE & TOUCHE LLP

Houston, Texas
June 1, 1998

F-19
<PAGE> 96

TIDEWATER COMPRESSION SERVICE, INC.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1997
THROUGH
FEBRUARY 20, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Revenues:
Rentals................................................... $71,644
Sales..................................................... 19,924
Other..................................................... 3,024
Gain on asset sales....................................... 1,094
-------
Total revenues.................................... 95,686
-------
Costs and expenses:
Rentals................................................... 31,924
Cost of sales............................................. 14,753
Depreciation and amortization............................. 23,310
General and administrative................................ 8,669
Interest expense.......................................... --
-------
Total costs and expenses.......................... 78,656
-------
Income before income taxes.................................. 17,030
Income taxes................................................ 6,271
-------
Net income........................................ $10,759
=======
</TABLE>

See accompanying notes to financial statements.

F-20
<PAGE> 97

TIDEWATER COMPRESSION SERVICE, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, April 1, 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> 98

TIDEWATER COMPRESSION SERVICE, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1997
THROUGH
FEBRUARY 20, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net income................................................ $10,759
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 23,310
Gain on asset sales.................................... (1,094)
Deferred income tax benefit............................ (1,825)
Decrease in receivables................................ 700
Increase in inventories................................ (610)
Decrease in other current assets....................... 11
Increase in accounts payable........................... 2,716
Decrease in accrued expenses........................... (476)
-------
Net cash provided by operating activities................... 33,491
-------
Cash flows from investing activities:
Proceeds from asset sales................................. 3,803
Additions to properties and equipment..................... (17,600)
-------
Net cash used in investing activities....................... (13,797)
-------
Cash flows from financing activities:
Net change in amount due to Tidewater Inc................. (17,870)
Repayments of long-term debt.............................. --
-------
Net cash used in financing activities....................... (17,870)
-------
Net increase in cash........................................ 1,824
Cash at beginning of period................................. --
-------
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> 99

TIDEWATER COMPRESSION SERVICE, INC.

NOTES TO FINANCIAL STATEMENTS

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> 100
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 sheet 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 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. Export sales for the period from April 1, 1997
through February 20, 1998 were $15,528,000.

2. INCOME TAXES

For the period from April 1, 1997 through February 20, 1998, 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
FEBRUARY >20,
1998
-------------
<S> <C>
Current:
U.S. Federal.............................................. $ 7,220
State and foreign......................................... 876
Deferred.................................................... (1,825)
-------
Total............................................. $ 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> 101
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 for the period from April 1, 1997 through February 20,
1998.

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 for the period from
April 1, 1997 through February 20, 1998.

4. COMMITMENTS AND CONTINGENCIES

Rent expense for the period from April 1, 1997 through February 20, 1998
was approximately $390,000. 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> 102

Picture depicting a natural gas compressor used in field production.
<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.

7,000,000 SHARES

[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 MAY 3, 2000

PROSPECTUS

7,000,000 SHARES

[UNIVERSAL COMPRESSION LOGO]

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

This is Universal Compression Holdings, Inc.'s initial public offering.
Universal is selling all of the shares. The international managers are offering
1,400,000 shares outside the U.S. and Canada and the U.S. underwriters are
offering 5,600,000 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 210,000
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
additional 840,000 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 5,600,000 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....................................................... 1,400,000
=========
</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
1,400,000 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 5,600,000 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
210,000 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 840,000 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 have applied 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, 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, 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.

U-3
<PAGE> 109

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

U-4
<PAGE> 110

receive ordinary and customary fees. In addition, DB Capital Partners SBIC,
L.P., an affiliate of Deutsche Bank Securities Inc., and First Union Capital
Partners, Inc., an affiliate of First Union Securities, Inc., are stockholders
of our company.

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-5
<PAGE> 111

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

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.

7,000,000 SHARES

[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> 112

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, the NASD filing fee and the New York Stock
Exchange listing fee, all amounts are estimates.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 46,754
NASD filing fee............................................. 18,210
New York Stock Exchange listing fee......................... 123,100
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 Restated
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 provide 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 or officer 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. In addition, the registrant has
entered into indemnification agreements with each of its officers and directors,
as well as officers of its operating subsidiary. The form of these
indemnification agreements is filed as Exhibit 10.27 hereto.

II-1
<PAGE> 113

Under the U.S. Purchase Agreement and International Purchase Agreement, the
U.S. Underwriters and the international managers 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 forms of U.S. Purchase
Agreement and International Purchase Agreement filed as Exhibits 1.1 and 1.2,
respectively, hereto.

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, (i) on August 1, 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 and (ii) on April 28, 2000, the Company issued an aggregate of 17,201
shares of its common stock and 68,804 shares of its Series A Preferred Stock to
Energy Spectrum Partners L.P. (the "Spectrum Acquisition") in exchange for all
of the issued and outstanding equity stock of Spectrum Rotary Compression Inc.
All securities listed in this Item 15 were valued at $50 per share (except for
the Spectrum Acquisition) 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> 114

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 Compression
Holdings, Inc., 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 Compression Holdings, Inc.
(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** -- Amendment to Bylaws of Universal Compression Holdings,
Inc.
3.5* -- Form of Proposed Bylaws of Universal Compression
Holdings, Inc., to be effective upon the closing of the
offering.
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
(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
(File No. 333-48279)).
4.7* -- Form of First Amendment to Indenture between Universal
Compression, Inc. and United States Trust Company of New
York, as Trustee, with respect to the 9 7/8% Senior
Discount Notes.
4.8 -- Specimen of Universal Compression, Inc.'s 9 7/8% Senior
Discount Notes 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.
333-48279)).
</TABLE>

II-3
<PAGE> 115

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
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)).
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 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).
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 Holdings, 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 (File No. 333-48283)).
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 thereto (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* -- First Amendment to Voting Agreement among Castle Harlan
Partners, Universal Compression Holdings, Inc. and
certain other parties thereto.
9.6* -- Voting Agreement, dated April 28, 2000, between Universal
Compression Holdings, Inc. and Energy Spectrum 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 -- 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* -- First Amendment to Incentive Stock Plan.
</TABLE>

II-4
<PAGE> 116

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
10.4 -- 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. 333-48283)).
10.5 -- 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)).
10.6 -- 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)).
10.7 -- 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)).
10.8 -- Executive Employment Agreement, dated 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).
10.9 -- 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).
10.10 -- 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)).
10.11* -- Master Transaction Agreement among Universal Compression
Holdings, Inc., Castle Harlan Partners III, L.P. and
Castle Harlan, Inc.
10.12 -- 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)).
10.13* -- Finders and Consulting Termination Agreement between
Universal Compression Holdings, Inc. and Samuel Urcis.
10.14 -- 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)).
10.15 -- Co-Investor Subscription Agreement, dated February 20,
1998, among Universal Compression Holdings, Inc. and
certain co-investors party thereto (incorporated by
reference to Exhibit 10.12 to Registrant's Registration
Statement on Form S-4 dated March 19, 1998 (File No.
333-48283)).
10.16 -- Registration Rights Agreement, dated February 20, 1998,
among Universal Compression Holdings, Inc. and certain
stockholders party thereto (incorporated by reference to
Exhibit 10.14 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
10.17 -- Stockholders Agreement, dated February 20, 1998, among
Universal Compression Holdings, Inc. and certain
stockholders party thereto (incorporated by reference to
Exhibit 10.15 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
</TABLE>

II-5
<PAGE> 117

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
10.18+ -- Form of Instruments of Accession to Stockholders
Agreement for each of Richard W. FitzGerald and Valerie
L. Banner.
10.19 -- Management Subscription Agreement, dated February 20,
1998, among 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 on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.20 -- Management Stock Buyback Agreement among 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)).
10.21+ -- Form of Management Stock Buyback Agreements between
Universal Compression Holdings, Inc. and each of Richard
W. FitzGerald and Valerie L. Banner.
10.22 -- 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)).
10.23 -- Stock Option Agreement, dated April 12, 1999, between
Universal Compression Holdings, Inc. and Richard W.
FitzGerald (incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the period
ended December 31, 1999).
10.24** -- Form of Stock Option Agreements between Universal
Compression Holdings, Inc. and each of Jack B. Hilburn
and Kirk E. Townsend.
10.25+ -- Agreement, dated October 27, 1999, among Universal
Compression, Inc., Universal Compression Holdings, Inc.
and Jack B. Hilburn.
10.26+ -- Agreement, dated October 27, 1999, among Universal
Compression Inc., Universal Compression Holdings, Inc.
and Kirk E. Townsend.
10.27** -- Form of Indemnification Agreements for each of Samuel
Urcis, Stephen Snider, John K. Castle, Jeffrey Siegal,
William M. Pruellage, Newton Schnoor, C. Kent May, Jack
Hilburn, Ernie Danner, Thomas Case, Valerie Banner,
Duncan Allison, Kirk Townsend, Dana H. Cook, H. Pat Jones
and Richard FitzGerald.
10.28 -- Credit Agreement, dated 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)).
10.29 -- Security Agreement, dated 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)).
10.30 -- Pledge Agreement, dated February 20, 1998, among
Universal Compression, Inc., Universal Compression
Holdings, Inc., Bankers Trust Company and the banks party
thereto (incorporated by reference to Exhibit 4.8 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
</TABLE>

II-6
<PAGE> 118

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
10.31 -- 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)).
10.32 -- 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).
10.33** -- Second Amendment to Credit Agreement, dated April 14,
2000, among Universal Compression Holdings, Inc.,
Universal Compression, Inc., Bankers Trust Company as
agent and the lenders party thereto.
10.34 -- 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 (File No.
333-72859)).
10.35* -- Form of Operating Lease Agreement among Universal
Compression Holdings, Inc., Deutsche Bank and the lenders
party thereto.
10.36* -- Form of Participation Agreement among Universal
Compression, Inc., Universal Compression Holdings, Inc.,
the Trust, Deutsche Bank AG, New York Branch, Bankers
Trust Company, the Collateral Agent and the lenders party
thereto.
10.37* -- Form of Master Lease Agreement between Universal
Compression, Inc. and the Trust.
10.38* -- Form of Loan and Security Agreement among the Trust,
Bankers Trust Company, the Collateral Agent and the
lenders party thereto.
10.39* -- Form of Guaranty made by Universal Compression Holdings,
Inc. in favor of the Trust, Deutsche Bank AG, New York
Branch, Bankers Trust Company, the Collateral Agent and
the lenders party thereto.
10.40* -- Form of Assembly Agency Agreement between Universal
Compression, Inc. and the Trust.
10.41* -- Form of Credit Agreement among Universal Compression
Holdings, Inc., Universal Compression, Inc., Deutsche
Bank Securities, Inc., Bankers Trust Company and the
lenders party thereto.
10.42* -- Form of Security Agreement among Universal Compression
Holdings, Inc., Universal Compression, Inc., Bankers
Trust Company and the lenders party thereto.
10.43* -- Form of Pledge Agreement among Universal Compression
Holdings, Inc., Universal Compression, Inc., Bankers
Trust Company and the lenders party thereto.
21.1* -- Subsidiaries of Universal Compression Holdings, Inc.
23.1* -- Consent of King & Spalding (contained in Exhibit 5.1).
23.2** -- Consent of Deloitte & Touche LLP.
24.1+ -- Powers of Attorney (contained in signature page to
initial filing of this Registration Statement on Form S-1
(Registration No. 333-34090) filed on April 5, 2000).
24.2** -- Power of Attorney of William M. Pruellage.
27.1** -- Financial data schedule (for SEC filing purposes only).
</TABLE>

II-7
<PAGE> 119

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

* To be filed by amendment.

** Filed herewith.

+ Previously filed.

(b) Financial Statement Schedules

Not Applicable.

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-8
<PAGE> 120

SIGNATURES AND POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on May 2, 2000.

UNIVERSAL COMPRESSION HOLDINGS, INC.

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

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 has been signed by the following persons in the capacities indicated on
May 2, 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
Richard FitzGerald and Accounting Officer)

* Director
- -----------------------------------------------------
Thomas C. Case

* Director
- -----------------------------------------------------
John K. Castle

* Director
- -----------------------------------------------------
Ernie L. Danner

* Director
- -----------------------------------------------------
C. Kent May

/s/ WILLIAM M. PRUELLAGE Director
- -----------------------------------------------------
William M. Pruellage

* Director
- -----------------------------------------------------
Samuel Urcis

* By /s/ STEPHEN A. SNIDER
------------------------------------------------
Stephen A. Snider
Attorney-in-fact
</TABLE>

II-9
<PAGE> 121

EXHIBIT INDEX

<PAGE> 122

<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 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).
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 Holdings, 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 (File No. 333-48283)).
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 thereto (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* -- First Amendment to Voting Agreement among Castle Harlan
Partners, Universal Compression Holdings, Inc. and
certain other parties thereto.
9.6* -- Voting Agreement, dated April 28, 2000, between Universal
Compression Holdings, Inc. and Energy Spectrum 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 -- 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* -- First Amendment to Incentive Stock Plan.
10.4 -- 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. 333-48283)).
10.5 -- 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)).
10.6 -- 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)).
10.7 -- 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>

<PAGE> 123

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
10.8 -- Executive Employment Agreement, dated 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).
10.9 -- 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).
10.10 -- 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)).
10.11* -- Master Transaction Agreement among Universal Compression
Holdings, Inc., Castle Harlan Partners III, L.P. and
Castle Harlan, Inc.
10.12 -- 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)).
10.13* -- Finders and Consulting Termination Agreement between
Universal Compression Holdings, Inc. and Samuel Urcis.
10.14 -- 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)).
10.15 -- Co-Investor Subscription Agreement, dated February 20,
1998, among Universal Compression Holdings, Inc. and
certain co-investors party thereto (incorporated by
reference to Exhibit 10.12 to Registrant's Registration
Statement on Form S-4 dated March 19, 1998 (File No.
333-48283)).
10.16 -- Registration Rights Agreement, dated February 20, 1998,
among Universal Compression Holdings, Inc. and certain
stockholders party thereto (incorporated by reference to
Exhibit 10.14 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
10.17 -- Stockholders Agreement, dated February 20, 1998, among
Universal Compression Holdings, Inc. and certain
stockholders party thereto (incorporated by reference to
Exhibit 10.15 to Registrant's Registration Statement on
Form S-4 dated March 19, 1998 (File No. 333-48283)).
10.18+ -- Form of Instruments of Accession to Stockholders
Agreement for each of Richard W. FitzGerald and Valerie
L. Banner.
10.19 -- Management Subscription Agreement, dated February 20,
1998, among 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 on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.20 -- Management Stock Buyback Agreement among 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)).
10.21+ -- Form of Management Stock Buyback Agreements between
Universal Compression Holdings, Inc. and each of Richard
W. FitzGerald and Valerie L. Banner.
10.22 -- 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)).
</TABLE>

<PAGE> 124

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
10.23 -- Stock Option Agreement, dated April 12, 1999, between
Universal Compression Holdings, Inc. and Richard W.
FitzGerald (incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the period
ended December 31, 1999).
10.24** -- Form of Stock Option Agreements between Universal
Compression Holdings, Inc. and each of Jack B. Hilburn
and Kirk E. Townsend.
10.25+ -- Agreement, dated October 27, 1999, among Universal
Compression, Inc., Universal Compression Holdings, Inc.
and Jack B. Hilburn.
10.26+ -- Agreement, dated October 27, 1999, among Universal
Compression Inc., Universal Compression Holdings, Inc.
and Kirk E. Townsend.
10.27** -- Form of Indemnification Agreements for each of Samuel
Urcis, Stephen Snider, John K. Castle, Jeffrey Siegal,
William M. Pruellage, Newton Schnoor, C. Kent May, Jack
Hilburn, Ernie Danner, Thomas Case, Valerie Banner,
Duncan Allison, Kirk Townsend, Dana H. Cook, H. Pat Jones
and Richard FitzGerald.
10.28 -- Credit Agreement, dated 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)).
10.29 -- Security Agreement, dated 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)).
10.30 -- Pledge Agreement, dated February 20, 1998, among
Universal Compression, Inc., Universal Compression
Holdings, Inc., Bankers Trust Company and the banks party
thereto (incorporated by reference to Exhibit 4.8 to
Registrant's Registration Statement on Form S-4 dated
March 19, 1998 (File No. 333-48283)).
10.31 -- 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)).
10.32 -- 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).
10.33** -- Second Amendment to Credit Agreement, dated April 14,
2000, among Universal Compression Holdings, Inc.,
Universal Compression, Inc., Bankers Trust Company as
agent and the lenders party thereto.
10.34 -- 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 (File No.
333-72859)).
10.35* -- Form of Operating Lease Agreement among Universal
Compression Holdings, Inc., Deutsche Bank and the lenders
party thereto.
10.36* -- Form of Participation Agreement among Universal
Compression, Inc., Universal Compression Holdings, Inc.,
the Trust, Deutsche Bank AG, New York Branch, Bankers
Trust Company, the Collateral Agent and the lenders party
thereto.
10.37* -- Form of Master Lease Agreement between Universal
Compression, Inc. and the Trust.
10.38* -- Form of Loan and Security Agreement among the Trust,
Bankers Trust Company, the Collateral Agent and the
lenders party thereto.
</TABLE>

<PAGE> 125

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT AND DESCRIPTION
------- ------------------------
<C> <S>
10.39* -- Form of Guaranty made by Universal Compression Holdings,
Inc. in favor of the Trust, Deutsche Bank AG, New York
Branch, Bankers Trust Company, the Collateral Agent and
the lenders party thereto.
10.40* -- Form of Assembly Agency Agreement between Universal
Compression, Inc. and the Trust.
10.41* -- Form of Credit Agreement among Universal Compression
Holdings, Inc., Universal Compression, Inc., Deutsche
Bank Securities, Inc., Bankers Trust Company and the
lenders party thereto.
10.42* -- Form of Security Agreement among Universal Compression
Holdings, Inc., Universal Compression, Inc., Bankers
Trust Company and the lenders party thereto.
10.43* -- Form of Pledge Agreement among Universal Compression
Holdings, Inc., Universal Compression, Inc., Bankers
Trust Company and the lenders party thereto.
21.1* -- Subsidiaries of Universal Compression Holdings, Inc.
23.1* -- Consent of King & Spalding (contained in Exhibit 5.1).
23.2** -- Consent of Deloitte & Touche LLP.
24.1+ -- Powers of Attorney (contained in signature page to
initial filing of this Registration Statement on Form S-1
(Registration No. 333-34090) filed on April 5, 2000).
24.2** -- Power of Attorney of William M. Pruellage.
27.1** -- Financial data schedule (for SEC filing purposes only).
</TABLE>

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

* To be filed by amendment.

** Filed herewith.

+ Previously filed.

<PAGE> 1
EXHIBIT 3.4

AMENDMENT TO BYLAWS

RESOLVED, that Article III, Section 2 of the By-Laws of the
Corporation be deleted and replaced with the following:

Section 2. Election and Term. The directors, other than those
who may be elected by the holders of any series of Preferred
Stock under specified circumstances, shall be divided into
three classes, with the term of office of the first class to
expire at the Corporation's first annual meeting of
stockholders (or action by written consent in lieu thereof)
after the annual meeting at which directors are first elected
to such classes, the term of office of the second class to
expire at the Corporation's second annual meeting of
stockholders (or action by written consent in lieu thereof)
after the annual meeting at which the directors are first
elected to such classes, and the term of office of the third
class to expire at the Corporation's third annual meeting of
stockholders (or action by written consent in lieu thereof)
after the annual meeting at which directors are first elected
to such classes. At each annual meeting of stockholders,
directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after their
election. Except as otherwise provided by law, by the
Certificate of Incorporation of the Corporation or by these
By-Laws, the directors shall be elected at the annual meeting
of the stockholders and the persons receiving a plurality of
the votes cast shall be so elected. Subject to his earlier
death, resignation or removal as provided in Section 3 of this
Article III, each director shall hold office until his
successor shall have been elected and shall have qualified.

<PAGE> 1
EXHIBIT 10.24

FORM OF
STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT, executed and effective this ___ day of
_____, ____, by and between UNIVERSAL COMPRESSION HOLDINGS, INC., a Delaware
corporation ("Holdings") and ______________ (the "Employee"), who is an
Employee of Universal Compression, Inc. ("Universal"), a wholly owned and
subsidiary of Holdings.

WHEREAS, Holdings has agreed to grant to the Employee an option to
purchase Holdings Common Stock, $.01 par value per share (the "Common Stock"),
pursuant to the terms and conditions of this Agreement in consideration for
services to Universal; and

NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties agree as
follows:

1. GRANT OF OPTION. Holdings hereby grants to the Employee an option
(the "Option") to purchase ___ shares of Common Stock at $50 per share. This
Option shall become effective on the effective date of this Agreement as set
forth above ("Date of Grant") and unless sooner terminated under the provisions
hereof, shall expire at 12:00 midnight on _____ __, ____ (the "Expiration
Date"). This Option is granted under Holdings' Incentive Stock Option Plan (the
"Plan"), a copy of which is attached hereto as Exhibit "A" and is incorporated
herein by reference, and shall constitute, to the extent permissible, an
Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986,
as amended, and otherwise shall be a Non-qualified Stock Option.

2. OPTION TERMS AND CONDITIONS.

(a) Exercise of Option. The Option shall become exercisable in
accordance with the following schedule:

<TABLE>
<CAPTION>
Date Aggregate Amount Exercisable
---- ----------------------------
<S> <C>
_____ _, ____ 33 1/3%

_____ _, ____ 66 2/3%

_____ _, ____ 100%
</TABLE>

Notwithstanding the foregoing, Options shall become immediately
exercisable upon: (i) a public offering of Common Stock of the Corporation; (ii)
the acquisition by any Person other than an affiliate of Castle Harlan Partners
III, L.P. (as defined in the Plan), of fifty one percent (51%) or more of the
Common Stock of the Corporation; or (iii) a sale of all or substantially all of
the assets of the Corporation.

(b) Termination of Employment.

(i) Termination due to Death, Disability or Retirement. In the
event the Employee's employment with Universal terminates on account of death,
Disability (as defined in the Plan) or retirement after age 65, the Option shall
terminate as of the date of Employee's termination of employment, except for the
portion of the Option which is exercisable as of the date of termination of
employment, which shall terminate unless exercised by Employee within three
months following the date of Employee's death, disability or retirement after
age 65.

1
<PAGE> 2

(ii) Termination of Employment Without Cause. In the event the
Employee's employment with Universal shall terminate without cause, the Option
shall terminate as of the date of Employee's termination of employment except
for the portion of the Option which is exercisable as of the date of termination
of employment, which shall terminate unless exercised by Employee within 30 days
following the date of such termination of employment.

(iii) Termination of Employment for Cause. In the event the
Employee's employment with Universal shall terminate for Cause (as defined in
the Plan), the Option, whether or not exercisable as of the date of termination
of employment, shall terminate in its entirety on the date of termination.

3. NON-TRANSFERABILITY. No Option granted hereby and no right arising
thereunder shall be transferable other than by will or by the laws of descent
and distribution. During the lifetime of the Employee, the Option shall be
exercisable only by the Employee. If the Option is exercisable at the date of
the Employee's death and is transferred by will or by the laws of descent and
distribution, the Option shall be exercisable in accordance with the terms of
such Option by the executor or administrator, as the case may be, of the
Employee's estate for a period of three (3) months after the date of the
Employee's death and shall then terminate.

4. MODE OF EXERCISE. The Option shall be exercised by giving to
Holdings written notice stating (a) the number of shares with respect to which
the Option is being exercised, (b) the aggregate Exercise Price for such shares,
and (c) the method of payment. At the option of the Employee, such aggregate
Exercise Price may be paid: (i) in cash; (ii) with the consent of the Board of
Directors of Holdings (the "Board"), which consent may be given or withheld in
its sole discretion, by delivery of a promissory note to Holdings payable over a
three (3) year period and bearing interest at the prime rate; (iii) by delivery
of shares of Common Stock owned by the Employee having a Fair Market Value (as
determined by Section 5 hereof) equal in amount to the aggregate Exercise Price
of the Option being exercised; (iv) by any combination of (i), (ii) and (iii);
or (v) by cancellation of any portion of the Option, in which case the number of
shares of Common Stock to be received shall be computed using the following
formula:

X = Y x (A - $50)
-------------
A

Where: X = the number of shares of Common Stock to be issued
pursuant to clause (v) above;

Y = the number of shares of Common Stock that
otherwise would have been issuable in
respect of that portion of the Option to be
exercised pursuant to clause (v) above if
such exercise had been pursuant to clause
(i), (ii), (iii) or (iv) above;

A = the Fair Market Value of one share of Common Stock
on the date of exercise;

provided, however, that clauses (iii) and (v) shall be inapplicable if no Fair
Market Value is applicable under clause (iv) of Section 5.

5. FAIR MARKET VALUE OF COMMON STOCK. The "Fair Market Value" of the
Common Stock on any day shall be determined by the Holdings Board as follows:
(i) if the Common Stock is listed on a national securities exchange or quoted
through the NASDAQ National Market System, the Fair Market Value on any day
shall be the average of the high and low

2
<PAGE> 3

reported Consolidated Trading sales prices, or if no such sale is made on such
day, the average of the closing bid and asked prices reported on the
Consolidated Trading listing for such day; (ii) if the Common Stock is quoted on
the NASDAQ inter-dealer quotation system, the Fair Market Value on any day shall
be the average of the representative bid and asked prices at the close of
business for such day; (iii) if the Common Stock is not listed on a national
stock exchange or quoted on NASDAQ, the Fair Market Value on any day shall be
the average of the high bid and low asked prices reported by the National
Quotation Bureau, Inc. for such day; or (iv) if none of clauses (i) - (iii) are
applicable, the Fair Market Value as may be determined by the Board or the
Administrator of the Plan, there being no obligation to make such determination.

6. STOCK CERTIFICATES. All stock certificates representing shares of
Common Stock acquired pursuant to the exercise of an Option that are issued by
Holdings shall contain a legend substantially in the following form:

"SHARES OF UNIVERSAL COMPRESSION HOLDINGS, INC. ("HOLDINGS")
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT,
DATED AS OF February 20, 1998, AS MAY BE AMENDED, WHICH CONTAINS
PROVISIONS REGARDING THE RESTRICTIONS ON THE TRANSFER OF SUCH SHARES AND
OTHER MATTERS. A COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT
THE PRINCIPAL OFFICE OF HOLDINGS. THE SHARES REPRESENTED BY THIS
CERTIFICATE WERE NOT REGISTERED UNDER, AND ARE SUBJECT TO, THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
UNDER THE SECURITIES ACT OR IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT."

In the event that the shares of Common Stock issued pursuant to the
Option are (i) registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to an effective registration statement which
complies with the then applicable regulations, rules and procedures and
practices of the Securities and Exchange Commission, and are registered and/or
qualified in accordance with any applicable state laws, regulations, rules and
administrative procedures practices, or (ii) transferred pursuant to an
exemption from registration under the Securities Act and, at the request of
Holdings, Holdings has received an executed legal opinion, satisfactory to its
counsel, as to the availability of and compliance with such exemption and that
such shares need not bear the restrictive legend stating that such shares have
not been registered under the Securities Act, Holdings may issue new
certificates representing such shares omitting that portion of such restrictive
legend.

The shares of Common Stock acquired pursuant to the Option shall be
subject to the provisions regarding transfers of shares in the Stockholders
Agreement dated as of February 20, 1998, among Holdings and the partners named
on the signature pages thereto, as amended from time to time (the "Stockholders
Agreement"). At the request of Holdings, the Employee shall become a party to
the Stockholders Agreement prior to the issuance of any shares under this
Agreement.

7. OPTION SUBJECT TO SECURITIES AND OTHER REGULATIONS. The Option
granted hereunder and the obligation of Holdings to sell and deliver shares
under such Option shall be subject to all applicable federal and state laws,
rules and regulations and to such approvals by any government or regulatory
agency as may be required. Holdings, in its discretion, may postpone the

3
<PAGE> 4

issuance or delivery of shares upon any exercise of the Option until completion
of any stock exchange listing, or other qualification of such shares under any
state or federal law, rule or regulation as Holdings may consider appropriate,
and may require the Employee, his beneficiary or his legal representative to
make such representations and furnish such information as it may consider
appropriate in connection with the issuance or delivery of the shares in
compliance with applicable laws, rules and regulations.

Upon demand by the Board, the Employee (or any person acting under
Section 3 of this Agreement) shall deliver to the Board at the time of exercise
of the Option a written representation that the shares to be acquired upon the
exercise of the Option are being acquired for his own account and not with a
view to, or for resale in connection with, any distribution in violation of
federal or state securities laws. Upon such demand, delivery of such
representation prior to the delivery of any shares issued upon exercise of the
Option shall be a condition precedent to the right of the Employee or such other
person to purchase any shares.

8. ANTI-DILUTION ADJUSTMENTS. In the event of any change in the Common
Stock by reason of any stock dividend, stock split, recapitalization, merger,
consolidation, combination or exchange of shares, separation, spin-off,
reorganization, liquidation, or of any similar change affecting the Common
Stock, the number and kind of shares subject to the Option and the Option price
thereof shall be appropriately adjusted consistent with such change in such
manner as the Administrator of the Plan may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or available for,
the Employee.

9. BUYBACK RIGHT. Upon any termination of the employment of the
Employee prior to a public offering of Common Stock, Holdings or its designee
may at its option purchase all Common Stock acquired upon any exercise of the
Option then held by the Employee for a purchase price equal to the determined
value of such stock at the time of purchase. For purposes of this Section 9,
"determined value" shall mean the determined value of the shares of Common Stock
being purchased by Holdings pursuant to this Section 9, such value to be
determined annually as of March 31 of each year by a nationally recognized
investment banking or appraisal firm selected by Holdings. This valuation will
serve as the determined value for the shares until the next valuation unless the
Board determines that a significant change in Holdings performance or prospects
requires a revaluation of the shares.

The purchase by Holdings pursuant to this Section 9 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.

10. NO RIGHTS AS STOCKHOLDER PRIOR TO EXERCISE OF OPTION. The
Participant shall not have any rights as a stockholder with respect to any
shares subject to the Option prior to the date on which the Employee is recorded
as the holder of such shares on the records of Holdings.

11. NO RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT. Neither the
grant of the Option nor any action taken with respect thereto shall be construed
as giving the Employee the right to be retained in the employ of Universal or
any subsidiary or affiliate, nor shall it interfere in any way with the right of
Universal or any such subsidiary or affiliate to terminate any Employee's
employment at any time for any reason, or for no reason at all.

4
<PAGE> 5

12. TAXES. Holdings may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of all Federal, state,
local and other taxes required by law to be withheld with respect to the Option
including, but not limited to: (i) reducing the number of shares of Common Stock
otherwise deliverable, based upon their Fair Market Value on the date of
exercise, to permit deduction of the amount of any such withholding taxes from
the amount otherwise payable under this Agreement; (ii) deducting the amount of
any such withholding taxes from any other amount then or thereafter payable to
the Employee; or (iii) requiring the Employee, his beneficiary or his legal
representative to pay to Holdings the amount required to be withheld or to
execute such documents as Holdings deems necessary or desirable to enable it to
satisfy its withholding obligations as a condition of releasing the Common
Stock.

13. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware applicable to contract made
and to be performed entirely within such state.

14. 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.

15. 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
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, at:

Universal Compression Holdings, Inc.
4440 Brittmoore Road
Houston, Texas 77041-8004
Attention: Richard FitzGerald, C.F.O.
Telecopier No.: (713) 466-6720

with a copy to:
Universal Compression, Inc.
4440 Brittmoore Road
Houston, Texas 77041-8004
Attention: Valerie L. Banner, General
Counsel
Telecopier No.: (713) 466-6720

with a copy to:

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

5
<PAGE> 6

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

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

16. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not in any manner define or limit the scope or intent
of any provisions of this Agreement.

17. 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.

18. 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 parties hereto, intending to be legally bound
hereby, have executed this Agreement effective as of the day and year first
above mentioned.

EMPLOYEE

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

UNIVERSAL COMPRESSION HOLDINGS, INC.

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

<PAGE> 1
EXHIBIT 10.27

FORM OF
INDEMNIFICATION AGREEMENT

This INDEMNIFICATION AGREEMENT made and entered into effective
as of _________________, ("Agreement"), by and between UNIVERSAL COMPRESSION
HOLDINGS, INC., a Delaware corporation ("Company"), and _______________________
("Indemnitee").

W I T N E S S E T H:

WHEREAS, highly skilled and competent persons are becoming
more reluctant to serve public corporations as directors or officers unless they
are provided with adequate protection through insurance and indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and

WHEREAS, uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and

WHEREAS, the Board of Directors has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and

WHEREAS, it is reasonable, prudent and necessary for the
Company contractually to obligate itself to indemnify Indemnitee to the fullest
extent permitted by applicable law so that Indemnitee will serve or continue to
serve the Company free from undue concern that Indemnitee will not be so
indemnified; and

WHEREAS, Indemnitee is willing to serve, continue to serve and
to take on additional service for or on behalf of the Company on the condition
that Indemnitee be so indemnified;

NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Company and Indemnitee do hereby covenant and
agree as follows:

Section 1. Services by Indemnitee. Indemnitee agrees to
continue to serve as a director and/or officer of Universal Compression, Inc.
("Universal"), a wholly-owned subsidiary of the Company. This Agreement does not
create or otherwise establish any right on the part of Indemnitee to be and
continue to be nominated to be a director and/or officer of Universal or the
Company and does not create an employment contract between Universal or the
Company and Indemnitee.

Section 2. Indemnification. The Company shall indemnify
Indemnitee to the fullest extent permitted by applicable law in effect on the
date hereof or as such laws may from time to time be amended. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of Indemnitee provided hereunder shall include but
shall not be limited to those rights, except to the extent expressly prohibited
by applicable law.

Section 3. Action or Proceeding Other Than an Action by or in
the Right of the Company. Indemnitee shall be entitled to the indemnification
rights provided in this Section 3 if Indemnitee is a party or is threatened to
be made a party to any threatened, pending or

<PAGE> 2

completed action, suit or proceeding, whether civil, criminal, administrative or
investigative in nature, other than an action by or in the right of the Company,
by reason of the fact that Indemnitee is or was a director, officer, agent, or
fiduciary of the Company or is or was serving at the request of the Company as a
director, officer, agent, or fiduciary of Universal or any other entity or by
reason of anything done or not done by him or her in any such capacity. Pursuant
to this Section 3, Indemnitee shall be indemnified against expenses (including
attorneys' fees and disbursements), judgments, penalties, fines and amounts paid
in settlement actually and reasonably incurred by Indemnitee in connection with
such action, suit or proceeding (including, but not limited to, the
investigation, defense or appeal thereof), if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of Universal or the Company, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.

Section 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in this
Section 4 if Indemnitee is a person who was or is made a party or is threatened
to be made a party to any threatened, pending or completed action or suit
brought by or in the right of the Company to procure a judgment in its favor by
reason of the fact that Indemnitee is or was a director, officer, agent, or
fiduciary of the Company or is or was serving at the request of the Company as a
director, officer, agent, or fiduciary of Universal or any other entity by
reason of anything done or not done by Indemnitee in any such capacity. Pursuant
to this Section 4 Indemnitee shall be indemnified against expenses (including
attorneys' fees and disbursements) actually and reasonably incurred by
Indemnitee in connection with such action or suit (including, but not limited
to, the investigation, defense, settlement or appeal thereof) if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of Universal or the Company; provided,
however, that no such indemnification shall be made in respect of any claim,
issue or matter as to which applicable law expressly prohibits such
indemnification by reason of an adjudication of liability of Indemnitee to the
Company, unless, and only to the extent that, the Court of Chancery of the State
of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite such adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnification for such expenses as such court shall deem proper.

Section 5. Indemnification for Expenses of Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit or proceeding referred to in Section 4 hereof, or in defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against all
expenses (including attorneys' fees and disbursements) actually and reasonably
incurred by Indemnitee or on Indemnitee's behalf in connection therewith.

Section 6. Indemnification for Expenses of a Witness. To the
extent that Indemnitee is, by reason of Indemnitee's Corporate Status (as
hereinafter defined), a witness in any proceeding, Indemnitee shall be
indemnified by the Company against all expenses actually and reasonably incurred
by Indemnitee or on Indemnitee's behalf in connection therewith.

Section 7. Partial Indemnification. If Indemnitee is only
partially successful in the defense, investigation, settlement or appeal of any
action, suit, investigation or proceeding described in Section 4 hereof, and as
a result is not entitled under Section 5 hereof to

2
<PAGE> 3

indemnification by the Company for the total amount of the expenses (including
attorneys' fees and disbursements), judgments, penalties, fines, and amounts
paid in settlement actually and reasonably incurred by Indemnitee, the Company
shall nevertheless indemnify Indemnitee, as a matter of right pursuant to
Section 5 hereof, to the extent Indemnitee has been partially successful.

Section 8. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to Section 3 or
4 hereof, the entitlement of the Indemnitee to indemnification pursuant to the
terms of this Agreement shall be determined by the following person or persons
who shall be empowered to make such determination: (a) the Board of Directors of
the Company by a majority vote of the Disinterested Directors (as hereinafter
defined) even if less than a quorum; or (b) if such vote is not obtainable or,
even if obtainable, if such Disinterested Directors so direct by majority vote,
by Independent Counsel (as hereinafter defined) in a written opinion to the
Board of Directors, a copy of which shall be delivered to Indemnitee; or (c) by
the stockholders. Such Independent Counsel shall be selected by the Board of
Directors and approved by Indemnitee. Upon failure of the Board to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by the Chancellor of the State of Delaware
or such other person as such Chancellor shall designate to make such selection.
Such determination of entitlement to indemnification shall be made not later
than 60 days after receipt by the Company of a written request for
indemnification. Such request shall include documentation or information which
is necessary for such determination and which is reasonably available to
Indemnitee. Any expenses (including attorneys' fees) incurred by Indemnitee in
connection with Indemnitee's request for indemnification hereunder shall be
borne by the Company. The Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom irrespective of the outcome of the determination
of Indemnitee's entitlement to indemnification. If the person making such
determination shall determine that Indemnitee is entitled to indemnification as
to part (but not all) of the application for indemnification, such person shall
reasonably prorate such partial indemnification among such claims, issues or
matters.

Section 9. Presumptions and Effect of Certain Proceedings. The
Secretary of the Company shall, promptly upon receipt of Indemnitee's request
for indemnification, advise in writing the Board of Directors or such other
person or persons empowered to make the determination as provided in Section 8
that Indemnitee has made such request for indemnification. Upon making such
request for indemnification, Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in the
making of any determination contrary to such presumption. If the person or
persons so empowered to make such determination shall have failed to make the
requested indemnification within 60 days after receipt by the Company of such
request, the requisite determination of entitlement to indemnification shall be
deemed to have been made and Indemnitee shall be absolutely entitled to such
indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation or
proceeding described in Section 3 or 4 hereof by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself: (a) create a presumption that Indemnitee did not act in good faith and
in a manner which Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, that Indemnitee had reasonable cause to believe that his or her
conduct was unlawful; or (b) otherwise adversely affect the rights of Indemnitee
to indemnification except as may be provided herein.

3
<PAGE> 4

Section 10. Advancement of Expenses. All reasonable expenses
incurred by Indemnitee (including attorneys' fees, retainers and advances of
disbursements required of Indemnitee) shall be paid by the Company in advance of
the final disposition of such action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature, at the request of
Indemnitee within twenty days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time. Indemnitee's entitlement to such expenses shall include those incurred in
connection with any proceeding by Indemnitee seeking an adjudication or award in
arbitration pursuant to this Agreement. Such statement or statements shall
reasonably evidence the expenses incurred by Indemnitee in connection therewith
and shall include or be accompanied by an undertaking by or on behalf of
Indemnitee to repay such amount if it is ultimately determined that Indemnitee
is not entitled to be indemnified against such expenses and costs by the Company
as provided by this Agreement or otherwise. The Company shall have the burden of
proof in any determination under this Section 10.

Section 11. Remedies of Indemnitee in Cases of Determination
Not to Indemnify or to Advance Expenses. In the event that a determination is
made that Indemnitee is not entitled to indemnification hereunder or if payment
has not been timely made following a determination of entitlement to
indemnification pursuant to Sections 8 and 9, or if expenses are not advanced
pursuant to Section 10, Indemnitee shall be entitled to a final adjudication in
the Delaware Court of Chancery, first, and then in any other court of competent
jurisdiction of Indemnitee's entitlement to such indemnification or advance.
Alternatively, Indemnitee, at Indemnitee's option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association, such award to be made within sixty days
following the filing of the demand for arbitration. The Company shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration or any
other claim. Such judicial proceeding or arbitration shall be made de novo and
Indemnitee shall not be prejudiced by reason of a determination (if so made)
that Indemnitee is not entitled to indemnification. If a determination is made
or deemed to have been made pursuant to the terms of Section 8 or 9 hereof that
Indemnitee is entitled to indemnification, the Company shall be bound by such
determination and is precluded from asserting that such determination has not
been made or that the procedure by which such determination was made is not
valid, binding and enforceable. The Company further agrees to stipulate in any
such court or before any such arbitrator that the Company is bound by all the
provisions of this Agreement and is precluded from making any assertion to the
contrary. If the court or arbitrator shall determine that Indemnitee is entitled
to any indemnification hereunder, the Company shall pay all reasonable expenses
(including attorneys' fees and disbursements) actually incurred by Indemnitee in
connection with such adjudication or award in arbitration (including, but not
limited to, any appellate proceedings).

Section 12. Other Rights to Indemnification. The
indemnification and advancement of expenses (including attorneys' fees) provided
by this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may now or in the future be entitled under any provision of the
by-laws, agreement, provision of the Certificate of Incorporation, as amended,
vote of stockholders or Disinterested Directors, provision of law, or otherwise;
provided, however, that this Agreement supersedes any other Agreement that has
been entered into with the Indemnitee which has as its principal purpose the
indemnification of Indemnitee.

Section 13. Attorneys' Fees and Other Expenses To Enforce
Agreement. In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or

4
<PAGE> 5

enforceability of this Agreement is at issue or seeks an adjudication or award
in arbitration to enforce Indemnitee's rights under, or to recover damages for
breach of, this Agreement, Indemnitee, if Indemnitee prevails in whole or in
part in such action, shall be entitled to recover from the Company and shall be
indemnified by the Company against, any actual expenses for attorneys' fees and
disbursements reasonably incurred by Indemnitee, provided that in bringing the
advancement action, Indemnitee acted in good faith.

Section 14. Duration of Agreement. This Agreement shall apply
with respect to Indemnitee's occupation of any of the position(s) described in
Sections 3 and 4 of this Agreement prior to the date of this Agreement and with
respect to all periods of such service after the date of this Agreement, even
though the Indemnitee may have ceased to occupy such positions(s). This
Agreement shall be binding upon the Company and its successors and assigns
(including any transferee of all or substantially all of its assets and any
successor by merger of operation of law) and shall inure to the benefit
Indemnitee and Indemnitee's spouse, assigns, heirs, devises, executors,
administrators or other legal representatives. This Agreement supersedes any
prior indemnification arrangement between the Company (or its predecessor) and
Indemnitee.

Section 15. Severability. If any provision of provisions of
this Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and enforceability of the
remaining provisions of this Agreement (including without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall not in any way be affected or impaired thereby;
and (b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision held invalid, illegal
or unenforceable.

Section 16. Identical Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall for all purposes be
deemed to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.

Section 17. Headings. The headings of the sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.

Section 18. Definitions. For purposes of this Agreement:

(a) "Disinterested Director" shall mean a director
of the Company who is not or was not a party to the action, suit, investigation
or proceeding in respect of which indemnification is being sought by Indemnitee.

(b) "Independent Counsel" shall mean a law firm or
a member of a law firm that neither is presently nor in the past five years has
been retained to represent: (i) the Company or Indemnitee in any matter material
to either such party, or (ii) any other party to the action, suit, investigation
or proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person

5
<PAGE> 6

who, under the applicable standards of professional conduct then prevailing,
would have a conflict of interest in representing either the Company or
Indemnitee in an action to determine Indemnitee's right to indemnification under
this Agreement.

(c) "Corporate Status" shall mean the status of a
person who is or was a director, officer, employee, agent or fiduciary of the
Company or any majority-owned subsidiary or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
that such person is or was serving at the request of the Company.

Section 19. Modification and Waiver. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.

Section 20. Notice by Indemnitee. (a) Indemnitee agrees
promptly to notify the Company in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any matter which may be subject to indemnification covered
hereunder, either civil, criminal, administrative, investigative or otherwise,
provided, however, that the failure to so notify the Company will not relieve
the Company from any liability it may have to Indemnitee except to the extent
that such failure materially prejudices the Company's ability to defend such
claim. With respect to any such action, suit, proceeding, inquiry or
investigation as to which Indemnitee notifies the Company of the commencement
thereof:

(i) The Company will be entitled to participate
therein at its own expense; and

(ii) Except as otherwise provided below, to the
extent that it may wish, the Company jointly with any other indemnifying party
similarly notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Company to
Indemnitee of its election so to assume the defense thereof, the Company will
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof other
than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ Indemnitee's own counsel in such
action, suit, proceeding, inquiry or investigation, but the fees and expenses of
such counsel incurred after notice from the Company of its assumption of the
defense thereof shall be at the expense of Indemnitee and not subject to
indemnification hereunder unless (x) the employment of counsel by Indemnitee has
been authorized by the Company; (y) in the reasonable opinion of counsel to
Indemnitee there is or may be a conflict of interest between the Company and
Indemnitee in the conduct of the defense of such action; or (z) the Company
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel shall be at the expense of
the Company.

(b) Neither the Company nor the Indemnitee shall
settle any claim without the prior written consent of the other (which shall not
be unreasonably withheld).

Section 21. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been

6
<PAGE> 7

directed or if (b) mailed by certified or registered mail with postage prepaid,
on the third business day after the date on which it is so mailed:

(i) If to Indemnitee, to the address set forth
below his or her signature.

(ii) If to the Company to:

Universal Compression Holdings, Inc.
4440 Brittmoore Road
Houston, Texas 77041-8004
Attn: Chief Executive Officer

or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.

Section 22. Governing Law. The parties agree that this
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware.

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.

UNIVERSAL COMPRESSION HOLDINGS, INC.

By:
----------------------------------
Name:
Title:

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

Address:
----------------------------------

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

<PAGE> 1
EXHIBIT 10.33

SECOND AMENDMENT

SECOND AMENDMENT TO THE CREDIT AGREEMENT (this "Amendment"),
dated as of April 14, 2000, among UNIVERSAL COMPRESSION HOLDINGS, INC.
("Holdings"), UNIVERSAL COMPRESSION, INC. (the "Borrower"), various lenders
party to the Credit Agreement referred to below (the "Banks") and BANKERS TRUST
COMPANY, as Agent (the "Agent"). All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings provided such terms
in the Credit Agreement referred to below.

WITNESSETH:

WHEREAS, Holdings, the Borrower, the Banks and the Agent are
parties to a Credit Agreement, dated as of February 20, 1998 (as amended,
modified or supplemented to, but not including, the date hereof, the "Credit
Agreement");

WHEREAS, Holdings and the Borrower have requested that the
Banks waive certain provisions of the Credit Agreement as herein provided and
the Banks have agreed to such waivers to the extent provided herein; and

WHEREAS, the parties hereto wish to amend the Credit Agreement
as herein provided;

NOW, THEREFORE, it is agreed:

1. Section 9.05 of the Credit Agreement is hereby amended by
(x) deleting the text "and" appearing at the end of clause (x) of said Section,
(y) deleting the period at the end of clause (xi) of said Section and inserting
the text "; and" in lieu thereof and (z) inserting the following new clause
(xii) at the end of said Section.

"(xii) the Borrower and its Subsidiaries may effect Permitted
Section 9.02(viii) Acquisitions in accordance with the requirements of
Section 9.02(viii)."

2. Pursuant to Section 9.14 of the Credit Agreement, and
subject to the provisions of Section 9.02(viii) of the Credit Agreement, the
Banks party hereto hereby authorize:

(i) the acquisition of 100% of the capital stock of Spectrum
Rotary Compression Inc. by the Borrower as described in the Form S-1
Registration Statement filed by Holdings with the Securities and
Exchange Commission on April 5, 2000, provided that, within 60 days
after the closing of such acquisition, Holdings and the Borrower shall
cause Spectrum Rotary Compression Inc. to either (x) merge into the
Borrower or any Subsidiary Guarantor or (y) execute and deliver to the
Agent, (I) a counterpart of the Subsidiaries Guaranty in the form of
Exhibit I to the Credit Agreement, (II) counterparts of the Pledge
Agreement and Security Agreement and (III) an officer's certificate,

- 1 -
<PAGE> 2

together with Exhibits A, B and C thereto, in the form of Exhibit F to
the Credit Agreement; and

(ii) the formation of Universal Compression de Mexico SA de CV
and a second entity, both Wholly-Owned Subsidiaries of the Borrower
organized under the laws of Mexico, in connection with the sale and/or
leasing, operations and servicing of compressors in Mexico.

In addition, the Banks hereby waive the provision of Section 9.14 requiring
prior written consent of the Required Banks solely inasmuch as such provision
relates to the acquisition and/or formation of the new Subsidiaries described
above in this paragraph 2.

3. In order to induce the Banks to enter into this Amendment,
Holdings and the Borrower hereby represent and warrant that (i) no Default or
Event of Default exists on the Second Amendment Effective Date (as defined
below), both before and after giving effect to this Amendment, and (y) on the
Second Amendment Effective Date, and both before and after giving effect to this
Amendment, all representations and warranties contained in the Credit Agreement
and in the other Credit Documents are true and correct in all material respects
as though such representations and warranties were made on the Second Amendment
Effective Date (it being understood and agreed that any representation or
warranty which by its terms is made as of a specified date shall be required to
be true and correct in all material respects only as of such date).

4. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision (or of
any provision beyond the specific waivers granted herein with respect to such
provision) of the Credit Agreement or any other Credit Document.

5. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be delivered to the Borrower and the Agent.

6. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.

7. This Amendment shall become effective on the date (the
"Second Amendment Effective Date") when Holdings, the Borrower and the Required
Banks shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Agent at the Notice Office.

8. From and after the Second Amendment Effective Date, all
references in the Credit Agreement and each of the other Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement as
amended hereby.

* * *

- 2 -

<PAGE> 3

IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.

UNIVERSAL COMPRESSION HOLDINGS, INC.

By:
------------------------------------------
Name:
Title:

UNIVERSAL COMPRESSION, INC.

By:
------------------------------------------
Name:
Title:

BANKERS TRUST COMPANY,
Individually and as the Agent

By:
------------------------------------------
Name:
Title:

[BANK OF SCOTLAND

By:
------------------------------------------
Name:
Title:

CREDIT LYONNAIS NEW YORK BRANCH

By:
------------------------------------------
Name:
Title:

- 3 -
<PAGE> 4

FIRST NATIONAL BANK OF COMMERCE

By:
------------------------------------------
Name:
Title:

FIRST UNION NATIONAL BANK

By:
------------------------------------------
Name:
Title:

ABN AMRO BANK N.V.

By:
------------------------------------------
Name:
Title:

BANQUE PARIBAS

By:
------------------------------------------
Name:
Title:

- 4 -

<PAGE> 5

WELLS FARGO BANK (TEXAS)
NATIONAL ASSOCIATION

By:
------------------------------------------
Name:
Title:

UNION BANK OF CALIFORNIA, N.A.

By:
------------------------------------------
Name:
Title:

SOCIETE GENERALE,
SOUTHWEST AGENCY

By:
------------------------------------------
Name:
Title:

THE BANK OF NOVA SCOTIA]

By:
------------------------------------------
Name:
Title:

- 5 -

<PAGE> 1
EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 1 to 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 years
ended March 31, 2000 and 1999 and for the period from December 12, 1997
(inception) through March 31, 1998 dated April 28, 2000 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
May 2, 2000

<PAGE> 1

EXHIBIT 24.2

UNIVERSAL COMPRESSION HOLDINGS, INC.

POWER OF ATTORNEY

WHEREAS, UNIVERSAL COMPRESSION HOLDINGS, INC., a Delaware
corporation (the "Company"), filed on April 5, 2000 with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), a Registration Statement on Form S-1 (the
"Registration Statement"), including a prospectus; and

WHEREAS, the Company intends to file with the Commission an
amendment or amendments to the Registration Statement, whether pre-effective or
post-effective, in each case as may be necessary or appropriate, together with
any and all exhibits and other documents having a relation to the Registration
Statement in connection with the registration of common stock of the Company;

KNOW ALL MEN BY THESE PRESENTS, that William M. Pruellage
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 such person's name, place and stead, in any and all
capacities, to sign any and all amendments to the Registration Statement
(including post-effective amendments), and to file the same, with all exhibits
thereto and other documents in connection therewith, with the 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,
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.

IN WITNESS WHEREOF, the undersigned has executed this
instrument on this 2nd day of May, 2000.

/s/ WILLIAM M. PRUELLAGE
----------------------------------
William M. Pruellage
Director

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