Edgar Filing: UNIVERSAL COMPRESSION HOLDINGS INC

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 2001.

REGISTRATION NO. 333-61774
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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UNIVERSAL COMPRESSION HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 13-3989167
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
organization)

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:

MARK L. CARLTON CHRISTINE B. LAFOLLETTE T. MARK KELLY
SENIOR VICE PRESIDENT AND KING & SPALDING VINSON & ELKINS L.L.P.
GENERAL COUNSEL 1100 LOUISIANA STREET, SUITE 3300 1001 FANNIN, SUITE 2300
UNIVERSAL COMPRESSION HOLDINGS, HOUSTON, TEXAS 77002-5219 HOUSTON, TEXAS 77002-6760
INC. (713) 751-3239 (713) 758-4592
4440 BRITTMOORE ROAD FACSIMILE: (713) 751-3290 FACSIMILE: (713) 615-5531
HOUSTON, TEXAS 77041
(713) 335-7454
FACSIMILE: (713) 466-6720

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL 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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2

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 JUNE 28, 2001

PROSPECTUS

4,000,000 SHARES

[UNIVERSAL COMPRESSION LOGO]

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

Universal Compression Holdings, Inc. is selling 1,333,333 shares and some of
our stockholders are selling 2,666,667 shares.

The shares trade on the New York Stock Exchange under the symbol "UCO." On
June 27, 2001, the last sale price of the shares as reported on the New York
Stock Exchange was $28.50 per share.

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

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PER SHARE TOTAL
--------- -----

Public offering price....................................... $28.50 $114,000,000
Underwriting discount....................................... $1.425 $5,700,000
Proceeds, before expenses, to Universal Compression......... $27.075 $36,099,991
Proceeds, before expenses, to the selling stockholders...... $27.075 $72,200,009

The underwriters may also purchase on a pro rata basis up to an additional
200,000 shares from Universal Compression Holdings, Inc., and up to an
additional 400,000 shares from the selling stockholders, at the public offering
price, less the underwriting discount, within 30 days from the date of this
prospectus to cover overallotments.

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 July 3, 2001.

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

MERRILL LYNCH & CO.

SALOMON SMITH BARNEY FIRST UNION SECURITIES, INC.

LEHMAN BROTHERS
HOWARD WEIL
A division of Legg Mason Wood Walker, Inc.

SIMMONS & COMPANY
INTERNATIONAL

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The date of this prospectus is , 2001.
3

TABLE OF CONTENTS

PAGE
----

Summary..................................................... 1
Risk Factors................................................ 7
Disclosure Regarding Forward-Looking Statements............. 13
Use of Proceeds............................................. 15
Price Range of Common Stock................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Selected Historical and Pro Forma Consolidated Financial and
Operating Data............................................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 29
Management.................................................. 45
Principal and Selling Stockholders.......................... 52
Related Transactions........................................ 55
Description of Capital Stock................................ 57
Anti-Takeover Provisions of Our Restated Certificate of
Incorporation and Bylaws.................................. 58
Material United States Federal Tax Consequences to Non-U.S.
Holders of Common Stock................................... 60
Underwriting................................................ 63
Legal Matters............................................... 65
Experts..................................................... 65
Where You Can Find More Information......................... 66
Index to Financial Statements............................... F-1

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You should rely only on the information contained in this prospectus. We
have not, and the selling stockholders and 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 selling stockholders 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 as of the date on the front cover of this prospectus, and we will
maintain the accuracy of this prospectus until the completion of the offering.
Our business, financial condition, results of operations and prospects may have
changed since that date.

i
4

SUMMARY

The following summary highlights the material information contained in this
prospectus. You should read the entire prospectus carefully, including our
financial data and related notes. The terms "our company," "we" and "us" when
used in this prospectus refer to Universal Compression Holdings, Inc. and its
subsidiaries, including Universal Compression, Inc. ("UCI"), as a combined
entity, except where it is made clear that such term means only the parent
company, and includes its predecessors. Unless we indicate otherwise, the
information contained in this prospectus assumes that the underwriters'
overallotment option is not exercised.

OUR COMPANY

OVERVIEW

We are the second largest natural gas compression services company in the
world in terms of rental fleet horsepower, with a fleet of over 7,400 compressor
units comprising approximately 1.9 million horsepower. We provide a full range
of compression rental, sales, operations, maintenance and fabrication services
and products to the natural gas industry, both domestically and internationally.
These services and products are essential to the natural gas industry as gas
must be compressed to be delivered from the wellhead to end-users.

We operate in three primary business segments: compression rental services,
equipment fabrication, and parts sales and service. Our core business,
compression rental, involves the rental of compression equipment to customers.
In most cases, we provide, operate and maintain these compressors for our
customers. 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.

In addition to our compression rental business, we provide a broad range of
compression services and products to customers who choose to own their
compression equipment. Our equipment fabrication business involves the design,
engineering and assembly of natural gas and air compressors for sale to third
parties in addition to those that we use in our rental fleet. We believe that
our ability to fabricate compressors ranging in size from under 100 horsepower
to over 5,000 horsepower, coupled with our reputation as a high quality
fabricator, enables us to provide compressors that are used in all facets of
natural gas production, transmission and distribution, from the wellhead to the
end-user. Our parts sales and service business sells components and provides
maintenance to customers who continue to own their compression equipment. Our
ability to provide a full range of compression services and products broadens
our customer relationships and helps us to identify potential new customers as
well as new applications for existing customers. As the compression needs of our
customers increase due to the growing demand for natural gas throughout the
world, we believe our geographic scope and broad range of compression services
and products will enable us to participate in that growth.

Since our initial public offering in May 2000, we have grown significantly,
completing four strategic acquisitions. In addition, on May 25, 2001, we entered
into a purchase agreement with respect to the acquisition of KCI, Inc., a Tulsa,
Oklahoma-based fabricator of large horsepower compressors, and on June 12, 2001,
we entered into an agreement to acquire Louisiana Compressor Maintenance Co.,
Inc., a Louisiana-based provider of compressor maintenance and repair services.
Our most significant acquisition was that of Weatherford Global Compression
Services L.P. in February 2001, which added approximately 950,000 horsepower to
our fleet and more than doubled our size. In addition to increased size, this
acquisition provided us with numerous strategic and operational benefits,
including increased geographic scope, expanded international operations, an
enhanced parts sales and service business, cost savings and synergies and
increased financial strength. In addition to expanding and extending our service
and product offerings, these acquisitions have allowed us to enter geographic
areas with rapidly growing demand for compression, such as California, Canada
and the Gulf of Mexico.
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5

The following table illustrates our growth in the last fiscal year:

YEAR ENDED MARCH 31,
-----------------------
2000 2001
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(DOLLARS IN THOUSANDS)

Domestic horsepower (end of period)......................... 630,215 1,631,138
International horsepower (end of period).................... 56,768 254,450
-------- ----------
Total horsepower (end of period).................. 686,983 1,885,588
Average utilization rate.................................... 80.7% 87.6%
Revenues.................................................... $136,449 $ 232,761
Percentage of revenues from:
Compression rental services............................... 72.0% 64.1%
Fabrication............................................... 18.5% 26.5%
Parts sales and service................................... 9.3% 9.2%
EBITDA, as adjusted(a)...................................... $ 55,557 $ 88,610

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(a) EBITDA, as adjusted, is defined on page 6 of this prospectus.

INDUSTRY CONDITIONS

The compression rental industry has grown rapidly, driven by the steady
increase in demand for natural gas, the aging of producing natural gas fields
and the attractiveness of outsourcing compression needs. We believe there is
approximately 16.3 million horsepower of domestic field compression equipment,
of which approximately 35%, or 5.7 million horsepower, is outsourced. We believe
our industry has grown at an estimated compound annual growth rate of 16% per
year in the United States in terms of horsepower, with the percentage of
outsourced domestic field compression horsepower increasing from approximately
20% in 1993 to an estimated 35% in 2000. Our industry also has recently begun to
expand significantly internationally.

The demand for compression services is principally tied to natural gas
consumption rather than exploration or drilling 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 increasing demand for natural gas, the
aging of producing natural gas fields, the attractiveness of outsourcing gas
compression requirements and the growth in international markets. 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, fabrication
capabilities and range of product and service offerings to meet the full service
needs of customers worldwide.

OUR GROWTH STRATEGY

Our growth strategy is to continue to focus on meeting the evolving needs
of our customers by providing consistent, superior service and dependable, high
quality products, and to leverage our size and broad geographic scope to further
expand our customer base. We believe that this approach strengthens our
relationships with our existing customers, helps us attract new customers and
diversifies our revenue base, resulting in increased market share, revenues and
earnings. The key elements of our growth strategy are described below:

- Focusing on providing a complete range of high quality compression
services and products;

- Continuing to expand our operations in select international markets;

- Expanding and leveraging our fabrication and parts sales and service
business;

- Extending our compression service markets beyond field and gathering to
pipeline applications; and

- Pursuing additional acquisitions within the compression industry.

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6

RECENT DEVELOPMENTS

Weatherford Global Acquisition. In February 2001, we acquired Weatherford
Global for 13,750,000 shares of our common stock (approximately 48% of our then
total outstanding shares and approximately 46% following this offering) and the
restructuring and refinancing of approximately $323 million in debt and
operating lease obligations. Prior to the acquisition, Weatherford Global was
the second largest natural gas compression services company in the world in
terms of horsepower, with a fleet consisting of over 950,000 horsepower as of
December 31, 2000. For the year ended December 31, 2000, Weatherford Global had
revenues of approximately $234.8 million and EBITDA (defined as net income plus
income taxes, interest expense, leasing expense and depreciation and
amortization, less interest income) of approximately $59.4 million.

We believe the Weatherford Global acquisition provides us with a number of
important strategic and operational benefits. Our significantly larger fleet,
increased geographic scope and resulting broader customer base, for instance,
provide opportunities for more efficient utilization of our fleet. In addition
to substantially increasing our parts sales and service business, the
Weatherford Global acquisition added important sales and service infrastructure
and additional expertise in a number of international markets, including
Argentina, Canada, Thailand, Mexico, Australia, Peru and Brazil. Further, we
believe that as a result of our increased cash flow and larger equity
capitalization, we will have improved financial resources that will enhance our
future operations and increase our opportunities for growth.

We have realized significant cost savings in integrating Weatherford Global
into our business through streamlining administrative functions, combining
operating activities, consolidating purchasing activities and inventory
management. As of March 31, 2001, we have realized approximately $15 million in
cost savings on an annualized basis, primarily through the closing of one
fabrication facility and 14 sales and service offices and the elimination of
approximately 200 personnel positions. These cost savings have been realized as
anticipated in our integration plan. During the second quarter of fiscal year
2002, we also expect to close our fabrication facility located in Corpus
Christi, Texas and additional sales and services offices and eliminate
additional positions that we expect will add additional annual cost savings of
$5 million by the end of the fiscal year. Additionally, we expect to achieve
savings in purchasing activities and inventory management, as well as other
components of working capital, that are not reflected in the $20 million of
anticipated cost savings by the end of fiscal year 2002.

Other Recent Acquisitions. Since our Weatherford Global acquisition, we
have also completed in February 2001 the acquisition of ISS Compression, Inc.
and its operating subsidiary, IEW Compression, Inc., a gas compression services
provider based in Lafayette, Louisiana, for approximately $15 million in cash,
which included the concurrent discharge of its debt and operating leases. The
IEW acquisition added approximately 26,000 horsepower to our fleet, most of
which is located in the Gulf of Mexico, and an offshore sales and service
business. We also acquired in April 2001 the international operations of
Compressor Systems, Inc. based in Midland, Texas for approximately $30 million
in cash. This acquisition added approximately 34,000 horsepower of compression
equipment in Mexico and Argentina.

Pending Acquisitions. In addition to our recently completed acquisitions,
on May 25, 2001, we entered into a purchase agreement to acquire KCI, Inc., a
fabricator of large horsepower compressors based in Tulsa, Oklahoma, for
approximately $22.9 million in cash and, at our election, up to 727,273 shares
of our common stock or an additional $18.8 million in cash, subject to
adjustment. Concurrently with the acquisition, we will repay all of KCI's
approximately $57 million of indebtedness. This acquisition will provide us with
significant fabrication expertise and capabilities and a 100,000 square foot
fabrication facility in Tulsa and will add approximately 125,000 horsepower to
our rental fleet. In addition, on June 12, 2001, we entered into an agreement to
acquire Louisiana Compressor Maintenance Co., Inc. for approximately $25 million
in cash. Louisiana Compressor Maintenance, based in Houma, Louisiana, provides
maintenance, repair, overhaul and upgrade services for compressors used in
pipelines and related applications. These acquisitions enable us to expand our
focus into the pipeline compression market. We intend to finance these
acquisitions with proceeds from this offering and additional funds obtained
under our operating lease facilities or revolving credit facility. These
acquisitions are subject to various closing conditions, and there can be no
assurance that either or both will be consummated. Consummation of these
acquisitions is not a condition to this offering.
---------------------

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.

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7

THE OFFERING

Common stock offered:

By Universal Compression Holdings,
Inc................................. 1,333,333 shares

By the selling stockholders....... 2,666,667 shares

Total shares offered...... 4,000,000 shares

Shares outstanding after the
offering............................ 29,816,956 shares

Use of proceeds..................... We estimate that our net proceeds from
this offering without exercise of the
overallotment option will be
approximately $35.1 million. We intend
to use these net proceeds:

- for our pending acquisitions of KCI
and Louisiana Compressor Maintenance
and

- for general corporate purposes.

To the extent these acquisitions are
not consummated, we expect to repay
amounts outstanding under our operating
lease facility. We will not receive any
proceeds from the sale of shares by the
selling stockholders.

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

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

The number of shares outstanding after the offering excludes up to 727,273
shares that may be issued in our KCI acquisition, as well as grants of 110,000
restricted shares to our executive officers pursuant to our new restricted stock
grant plan, which plan is subject to approval by our stockholders. The number
also excludes 3,012,421 shares reserved for issuance under our stock option
plan, of which options to purchase 1,775,294 shares at a weighted average
exercise price of $26.33 per share are outstanding as of May 1, 2001. The number
of shares outstanding after this offering assumes that the underwriters'
overallotment option is not exercised. If the overallotment option is exercised
in full, we will issue and sell an additional 200,000 shares and the selling
stockholders will sell an additional 400,000 shares.

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8

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 us and for our predecessor, Tidewater
Compression Service, Inc., which we acquired on February 20, 1998, for the
periods and dates indicated, as well as our balance sheet data as of March 31,
2001. The summary unaudited pro forma information for the year ended March 31,
2001 gives effect to our acquisition of Weatherford Global and related financing
transactions as if they had occurred on April 1, 2000. The pro forma financial
data shown in the table below are not necessarily indicative of what our results
of operations or financial position would have been had the Weatherford Global
acquisition and related financing transactions been completed as of April 1,
2000 or that may be achieved in the future. See "Selected Historical and Pro
Forma Consolidated Financial and Operating Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Unaudited Pro
Forma Combined Condensed Statement of Operations" and related notes for more
information regarding our historical, pro forma and other financial and
operating data.

TIDEWATER COMPRESSION UNIVERSAL
(PREDECESSOR COMPANY) ------------------------------------------------------------
-------------------------- PERIOD FROM
PERIOD FROM DECEMBER 12, PRO FORMA
APRIL 1, 1997 1997 YEAR
YEAR ENDED THROUGH THROUGH YEAR ENDED MARCH 31, ENDED
MARCH 31, FEBRUARY 20, MARCH 31, -------------------------------- MARCH 31,
1997 1998 1998 1999 2000 2001 2001
---------- ------------- ------------ -------- -------- ---------- ----------
(IN THOUSANDS)

INCOME STATEMENT DATA:
Revenues....................... $113,886 $ 95,686 $ 13,119 $129,498 $136,449 $ 232,761 $ 443,970
Gross margin(1)................ 48,332 47,752 6,891 61,887 68,961 109,583 191,041
Selling, general and
administrative expenses...... 11,004 8,669 1,305 16,863 16,797 21,092 48,711
Depreciation and
amortization................. 26,163 23,310 1,560 19,314 26,006 33,491 57,813
Operating income(2)............ 11,165 15,773 4,026 25,729 26,227 55,000 84,517
Interest expense, net.......... -- -- 3,203 29,313 34,327 23,220 20,365
Operating lease expense........ -- -- -- -- -- 14,443 38,898
Income tax expense (benefit)... 4,724 6,271 409 (1,031) (1,994) 3,645 10,435
Income (loss) before
extraordinary loss........... 7,842 10,759 430 (2,361) (5,982) 5,112 15,192
Net income (loss).............. 7,842 10,759 430 (2,361) (5,982) (4,391) 15,192
OTHER FINANCIAL DATA:
EBITDA, as adjusted(3)......... $ 38,729 $ 40,340 $ 5,930 $ 48,435 $ 55,557 $ 88,610 $ 142,330
Capital expenditures:
Expansion.................... $(12,464) $(11,902) $ (1,820) $(63,408) $(49,871) $ (55,384) N/A
Maintenance.................. (4,056) (5,698) (218) (7,626) (9,920) (9,901) N/A
Other........................ 7,684 3,803 (351,107) 8,038 (1,312) (2,721) N/A
Cash flows from (used in):
Operating activities......... $ 41,923 $ 33,491 $ (1,005) $ 22,793 $ 47,144 $ 88,631 N/A
Investing activities......... (8,836) (13,797) (353,145) (62,996) (61,103) (3,318) N/A
Financing activities......... (33,121) (17,870) 356,532 40,748 12,435 (75,282) N/A
OTHER DATA:
Total number of rental units
(end of period).............. 2,764 2,780 2,749 2,701 2,645 7,464 7,464
Aggregate horsepower (end of
period)...................... 514,070 537,585 534,075 590,672 686,983 1,885,588 1,885,588
Average horsepower per unit
(end of period).............. 186 193 194 219 260 253 253
Average horsepower
utilization(4)............... 77.4% 81.8% 83.9% 80.3% 80.7% 87.6% 87.6%

MARCH 31,
2001
--------------
(IN THOUSANDS)

BALANCE SHEET DATA:
Working capital............................................. $ 97,763
Total assets................................................ 1,176,256
Total debt(5)............................................... 215,107
Stockholders' equity........................................ 652,574

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9

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

(1) Gross margin is defined as total revenue less cost of rentals, cost of sales
(exclusive of depreciation and amortization), gain on asset sales and
interest income.

(2) Operating income is defined as income before income taxes less gain on asset
sales and interest income plus non-recurring items, interest expense and
operating lease expense.

(3) EBITDA, as adjusted, is defined as net income plus income taxes, interest
expense, leasing expense, management fees, depreciation and amortization
excluding non-recurring items and extraordinary gains or losses. EBITDA, as
adjusted, represents a measure upon which management assesses financial
performance, and financial covenants in our current borrowing arrangements
are tied to similar measures. The financial covenants in our current
financing arrangements permit us to exclude non-recurring and extraordinary
gains and losses from our calculation of EBITDA, as adjusted. EBITDA, as
adjusted, is not a measure of financial performance under generally accepted
accounting principles ("GAAP") 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, as adjusted, computation used
herein may not be comparable to other similarly titled measures of other
companies.

The following table reconciles our EBITDA, as adjusted, to net income:

TIDEWATER COMPRESSION
(PREDECESSOR COMPANY) UNIVERSAL
-------------------------- ----------------------------------------------------------
PERIOD FROM
PERIOD FROM DECEMBER 12,
APRIL 1, 1997 1997 PRO FORMA
YEAR ENDED THROUGH THROUGH YEAR ENDED MARCH 31, YEAR ENDED
MARCH 31, FEBRUARY 20, MARCH 31, ------------------------------ MARCH 31,
1997 1998 1998 1999 2000 2001 2001
---------- ------------- ------------ -------- -------- -------- ----------
(IN THOUSANDS)

EBITDA, AS ADJUSTED......... $ 38,729 $ 40,340 $ 5,930 $ 48,435 $ 55,557 $ 88,610 $ 142,330
Depreciation and
amortization............ (26,163) (23,310) (1,560) (19,314) (26,006) (33,491) (57,813)
Operating lease expense... -- -- -- -- -- (14,443) (38,898)
Interest expense, net..... -- -- (3,203) (29,313) (34,327) (23,220) (20,365)
Management fee............ -- -- (328) (3,200) (3,200) -- --
Other, including non-
recurring............... -- -- -- -- -- (8,699) 373
Income taxes.............. (4,724) (6,271) (409) 1,031 1,994 (3,645) (10,435)
Extraordinary loss, net... -- -- -- -- -- (9,503) --
NET INCOME (LOSS)........... $ 7,842 $ 10,759 $ 430 $ (2,361) $ (5,982) $ (4,391) $ 15,192

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

(5) Includes capital lease obligations and excludes $527.5 million outstanding
under our operating lease facilities.

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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 DEPEND ON STRONG 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 significantly dependent upon the demand for
natural gas. Demand may be affected by, among other factors, natural gas prices,
weather, 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. Similarly, a decrease in capital spending by our customers could
result in reduced demand for our fabrication services or our parts sales and
service business. These events could materially adversely affect our business,
results of operations and financial condition.

WE INTEND TO CONTINUE TO MAKE SUBSTANTIAL CAPITAL INVESTMENTS TO IMPLEMENT OUR
BUSINESS STRATEGY, WHICH MAY REDUCE FUNDS AVAILABLE FOR OTHER OPERATIONS.

We anticipate that we will continue to make substantial capital investments
to expand our compressor rental fleet. For the year ended March 31, 2001, net of
asset sales (other than under our operating leases), we invested approximately
$68.0 million in capital investments, excluding acquisitions. We expect to spend
between $180 and $220 million on capital expenditures during the current fiscal
year 2002, excluding acquisitions. Historically, we have financed these
investments through internally generated funds, debt offerings and our credit
facility and lease financings. 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 results of operations, financial condition and growth.

WE MAY NOT BE SUCCESSFUL IN IMPLEMENTING OUR BUSINESS STRATEGY, WHICH MAY
ADVERSELY AFFECT OUR ABILITY TO FINANCE OUR FUTURE GROWTH.

Our ability to implement our business strategy successfully depends upon a
number of factors including competition, availability of working capital and
general economic conditions. Significant elements of our business strategy
include growth of our market share and broader participation in the
international market for compression services. We cannot assure you that we will
succeed in implementing our strategy or be able to obtain financing for this
strategy on acceptable terms. The indenture governing our 9 7/8% senior discount
notes and our new revolving credit facility and operating lease facilities
substantially limit our ability to incur additional debt to finance our growth
strategy. See "Business -- Growth Strategy."

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

In most cases, the initial terms of our compressor leases with customers
are short, with the most common initial term being six months and continuing on
a month-to-month basis thereafter at the election of the customer. The initial
terms of our leases 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

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not recovering our entire investment in the equipment we acquire or fabricate.
Although we historically have been successful in subsequently leasing our
compressors, we may not be able to continue to do so and a substantial number of
our rental customers could terminate their leases at approximately the same
time. Even if we are successful in re-leasing our compressors as we have been in
the past, we may not be able to obtain favorable rental rates. This would have
an adverse effect on our revenues.

WE DO NOT INSURE AGAINST ALL POTENTIAL LOSSES AND COULD BE SERIOUSLY HARMED BY
UNEXPECTED LIABILITIES.

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,
insurance covering the risks we face or in the amounts we desire may not be
available in the future or, if available, the premiums may not 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 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 foreign, federal, state and local
laws and regulatory standards, including laws and regulations regarding the
discharge of materials into the environment, emission controls and other
environmental protection and occupational health and safety concerns. See
"Business -- Environmental and Other Regulations." Environmental laws and
regulations may, in certain circumstances, impose strict liability for
environmental contamination, rendering us liable for remediation 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 owners or
operators or other third parties. In addition, where contamination may be
present, it is not uncommon for neighboring landowners and other third parties
to file claims for personal injury, property damage and recovery of response
costs. Remediation costs and other damages arising as a result of environmental
laws and regulations, and costs associated with new information, changes in
existing environmental laws and regulations or the adoption of new environmental
laws and regulations could be substantial and could have a material adverse
effect on our business, financial condition or results of operations. 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. The cost of these activities has not been,
and we currently do not expect it to be, material to us. We believe that former
owners and operators of some of these properties may be responsible under
environmental laws and contractual agreements to pay for or perform some of
these activities, or to indemnify us for some of our remediation 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 recycle hazardous wastes and substances such
as solvents, thinner, waste paint, waste oil, washdown wastes and sandblast
material. Although it is our policy to use generally accepted operating and
disposal practices in accordance with applicable environmental laws and
regulations, hydrocarbons or other hazardous substances or 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 substances or wastes have been
taken for disposal. These properties may be subject to investigatory,
remediation and monitoring requirements under foreign, federal, state and local
environmental laws and regulations.

We believe that our operations are in substantial compliance with
applicable environmental laws and regulations. Nevertheless, the modification or
interpretation of existing environmental laws or regulations, the
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12

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 FACE SIGNIFICANT COMPETITION THAT MAY CAUSE US TO LOSE MARKET SHARE AND HARM
OUR FINANCIAL PERFORMANCE.

The natural gas compression rental service, equipment fabrication, and
parts sales and service businesses are highly competitive. Many of our
competitors also offer a wide range of compressors for sale or lease, and there
are low barriers to entry for individual projects. In addition, we compete with
several large national and multinational companies which provide compression
services to third parties, many of which have greater financial and other
resources than we do. If our competitors substantially increase the resources
they devote to the development and marketing of competitive products and
services, we may not be able to compete effectively. In addition, in our
Weatherford Global acquisition, we acquired most, but not all, of the
compression operations of Weatherford International Inc. Weatherford retained
certain foreign compression assets that it acquired in a recent acquisition and
is not contractually restricted from competing with us.

RISKS SPECIFIC TO OUR COMPANY

WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE WEATHERFORD GLOBAL INTO OUR
BUSINESS, WHICH COULD CAUSE US NOT TO REALIZE ALL OF THE EXPECTED BENEFITS OF
THE WEATHERFORD GLOBAL ACQUISITION.

Our Weatherford Global acquisition was significantly larger than any of our
previous acquisitions and doubled our size. Integrating Weatherford Global's
business into ours is an ongoing process involving a number of potential
challenges and costs, including combining, reducing and relocating workforces,
facilities and offices and combining systems, processes, administrative
functions and corporate cultures. Management issues facing our company are
likely to be more complex and challenging than those faced by us prior to our
acquisition of Weatherford Global. In addition, we acquired in that acquisition
significant foreign operations in areas where we have little or no prior
operating experience. The integration process could cause operational
difficulties, divert the attention of our management away from managing our
business to the assimilation of the operations and personnel of Weatherford
Global and have adverse effects on our operating results. Furthermore, if our
integration of Weatherford Global is not successful, we may lose personnel, not
be able to retain our customer base to the extent expected and experience
increased costs and reduced revenues.

WE MAY NOT ACHIEVE ALL OF THE COST SAVINGS AND OTHER SYNERGIES WE EXPECT TO
RESULT FROM OUR RECENT WEATHERFORD GLOBAL ACQUISITION.

We expect the integration of Weatherford Global into our business to result
in significant cost savings. However, our success in realizing these cost
savings, and the timing of this realization, depends on the quality and speed of
the integration of our two companies. Although we have realized the benefit of
some of these costs savings, we may not realize the remaining cost savings that
we anticipate from integrating our operations as quickly or as fully as we
expect for a number of reasons, including:

- the large size and broad geographic presence and the resulting complexity
of our company following the Weatherford Global acquisition;

- our lack of operating experience in several international areas added in
the Weatherford Global acquisition;

- errors in our planning or integration;

- loss of key personnel;

- information technology systems failure;

- unexpected events such as major changes in the markets in which we
operate; and

- costs associated with the acquisition and integration of Weatherford
Global into our business may exceed our current expectations.

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Further, our ability to realize cost savings could be affected by a number
of factors beyond our control, such as general economic conditions and
regulatory developments.

WE ARE HIGHLY LEVERAGED AND VULNERABLE TO INTEREST RATE INCREASES.

As of June 1, 2001, we had approximately $795.1 million in outstanding
indebtedness, including capital leases and operating lease facilities. Of this
amount, approximately $88 million bears interest at floating rates. As of that
date, we also had unused availability of approximately $173.5 million ($114
million under our new revolving credit facility, subject to commitment of the
additional $15 million, and approximately $59.5 million under our new
asset-backed securitization operating lease facility). Both the interest
payments under our new credit facility and a portion of the lease payments under
our new operating lease facilities 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. If, during the term of the operating
lease facilities, the realizable value of the equipment under the facilities is
insufficient to satisfy the obligations under the facilities, we may be required
to record a loss for our residual value guarantees and may have insufficient
funds to provide for repayment of our obligations. Our significant leverage
increases our vulnerability to general adverse economic and industry conditions.
In addition, a substantial portion of our cash flow must be used to service our
debt and lease obligations, which may affect our ability to make acquisitions or
capital expenditures.

OUR FINANCING ARRANGEMENTS CONTAIN RESTRICTIONS THAT MAY LIMIT OUR ABILITY TO
FINANCE FUTURE OPERATIONS OR ENGAGE IN ATTRACTIVE BUSINESS TRANSACTIONS.

Substantially all of our assets are pledged as collateral under our new
credit facility and our new operating lease facilities, each of which contains
covenants that restrict our operations. The indenture governing our 9 7/8%
senior discount notes also contains restrictive covenants. These covenants place
limitations on, among other things, our ability to enter into acquisitions,
asset sales and operating lease transactions, and to incur additional
indebtedness and create liens. These covenants could hinder our flexibility and
restrict our ability to take advantage of market opportunities or respond to
changing market conditions. In addition, the completion of this offering will
result in a change of control under the indenture governing our 9 7/8% senior
discount notes. As a result, each holder of the 9 7/8% senior discount notes
will have the right to require us to repurchase their notes at a price equal to
101% of the accreted value, plus accrued and unpaid interest, if any, to the
date of the repurchase. To the extent that holders of the 9 7/8% senior discount
notes require us to repurchase the notes, we currently intend to finance the
repurchase through our new revolving credit facility and operating lease
facilities, which may reduce our funds available for our other business needs.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

OUR INTERNATIONAL OPERATIONS, WHICH INCREASED SIGNIFICANTLY AS A RESULT OF OUR
WEATHERFORD GLOBAL ACQUISITION, SUBJECT US TO RISKS THAT ARE DIFFICULT TO
PREDICT.

For the year ended March 31, 2001, we derived approximately 16.0% of our
revenues from international operations. We have limited operating experience in
some of the international regions we acquired through our Weatherford Global
acquisition, including Canada and Thailand. We intend to continue to expand our
business in Canada, Latin America and Southeast Asia and, ultimately, into other
international markets.

Our international operations are affected by global economic and political
conditions, and we may encounter difficulties managing our international
operations. Changes in economic or political conditions and in legal or
regulatory requirements in any of the countries in which we operate could result
in exchange rate movement, new currency or exchange controls, expropriation or
other trade restrictions, including tariffs, being imposed on our operations.
Many of these factors are outside of our control. In addition, the financial
condition of foreign customers may not be as strong as that of our current
domestic customers.

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WEATHERFORD'S VOTING POWER MAY GIVE IT THE ABILITY TO CONTROL THE OUTCOME OF
MATTERS SUBMITTED TO A VOTE OF OUR STOCKHOLDERS, AND THUS LIMIT THE RIGHTS OF
OUR OTHER STOCKHOLDERS TO INFLUENCE OUR AFFAIRS.

Currently, an affiliate of Weatherford beneficially owns approximately 48%
of our outstanding common stock. Following this offering, Weatherford will
beneficially own approximately 46% of our outstanding common stock. Pursuant to
a voting agreement entered into concurrently with our acquisition of Weatherford
Global, Weatherford has agreed to limit its voting power to 33 1/3% of our
outstanding common stock until the earlier of two years from the closing of that
acquisition or the date that Castle Harlan and its affiliates own less than 5%
of our outstanding common stock. The sale of shares by Castle Harlan in this
offering may result in a termination of the voting agreement if the
underwriters' overallotment option is exercised, giving Weatherford voting
control over the full amount of our shares that it then owns.

In addition to its voting control, Weatherford and its affiliates are
entitled to designate three persons to serve on our board of directors for so
long as they own at least 20% of our outstanding common stock. If Weatherford's
ownership falls below 20%, Weatherford may designate only two directors. If
Weatherford's ownership falls below 10%, it will no longer have the right to
designate directors to our board. Currently, Bernard J. Duroc-Danner, Curtis W.
Huff and Uriel E. Dutton are serving as Weatherford's designees to our board.
Castle Harlan also is entitled currently to designate a total of three persons
to our board of directors. Although it will lose this right following this
offering, its current designees, John K. Castle and William M. Pruellage, are
serving terms that do not expire until our 2003 annual meeting of stockholders.

This voting power, significant stock ownership and board representation
gives Weatherford the ability to exercise substantial influence over our
ownership, policies, management and affairs and significant control over actions
requiring approval of our stockholders. Weatherford's interests could conflict
with our other stockholders. See "Related Transactions" for further information
regarding our relationship with Weatherford.

SALES OF A SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK COULD DEPRESS OUR
STOCK PRICE.

Sales of substantial amounts of our common stock in the public market could
adversely affect the market price of our common stock, particularly as our stock
is thinly traded. Upon completion of this offering, we will have 29,816,956
shares of common stock outstanding (30,016,956 shares if the underwriters'
overallotment option is exercised in full), all of which are freely tradeable
without restriction or further registration under the Securities Act unless they
are held by persons deemed to be our "affiliates" or acting as "underwriters,"
as those terms are defined in the Securities Act. We, our executive officers and
directors, and some of our other significant stockholders have agreed not to
sell any shares of common stock for a period of 90 days from the date of this
prospectus without the consent of Merrill Lynch. We had reserved 3,012,421
shares of our common stock for issuance under our incentive stock option plan,
and options covering 1,775,294 of these shares are outstanding as of May 1,
2001. In addition, the shares of our common stock issued to a subsidiary of
Weatherford in our acquisition of Weatherford Global and to some of our other
stockholders, including the remaining shares held by Castle Harlan following
this offering, are subject to demand and piggyback registration rights and may
be resold at anytime. Any shares issued in our pending acquisition of KCI (up to
727,273 shares) also will be subject to registration rights following the
lock-up period. The sale of a substantial number of shares within a short period
of time could cause our stock price to decrease, making it more difficult for us
to raise funds through future offerings of our common stock and to acquire
businesses using our stock as consideration.

THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE.

Historically, the market price of common stock of companies engaged in the
natural gas industry has been highly volatile. Similarly, the market price of
our common stock has varied significantly since our initial public offering in
May 2000. In particular, changes in natural gas prices or in the demand for
natural gas could affect the price of our common stock.

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WE MAY NOT BE SUCCESSFUL IN IDENTIFYING POTENTIAL ACQUISITION CANDIDATES AND IT
MAY BE MORE DIFFICULT OR EXPENSIVE TO COMPLETE FUTURE ACQUISITIONS USING OUR
STOCK AS CONSIDERATION IF OUR STOCK PRICE DECREASES.

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
suitable candidate will become available or the likelihood of a material
acquisition being completed.

Even if 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 away from managing our business 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. 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 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 OPERATIONS MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN THE
VALUE OF THE U.S. DOLLAR.

Our revenues from international operations and, as a result, our exposure
to currency exchange rate fluctuations, have increased as a result of our
Weatherford Global acquisition. Although we attempt to match costs and revenues
in local currencies, we anticipate that as we continue our expansion on a global
basis, there may be many instances in which costs and revenues will not be
matched with respect to currency denomination. As a result, we expect that
increasing portions of our revenues, costs, assets and liabilities will be
subject to fluctuations in foreign currency valuations. Although we may use
foreign currency forward contracts or other currency hedging mechanisms from
time to time to minimize our exposure to currency exchange rate fluctuations, we
may not elect or have the ability to implement hedges or, if we do implement
them, that they will achieve the desired effect. We may experience economic
losses and a negative impact on earnings or net assets solely as a result of
foreign currency exchange rate fluctuations. Further, the markets in which we
operate could restrict the removal or conversion of the local or foreign
currency, resulting in our inability to hedge against these risks.

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, and in
some cases may be contractually restricted from doing so. 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 control of
us, even if a change in control would result in the purchase of
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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 credit facility, the indenture
governing our 9 7/8% senior discount notes and our operating lease facilities
and other financing arrangements.

GOODWILL AND OTHER ASSETS REPRESENT A SUBSTANTIAL PERCENTAGE OF OUR ASSETS, THE
AMORTIZATION OF WHICH WILL ADVERSELY AFFECT OUR EARNINGS.

As of March 31, 2001, our balance sheet reflected $294.4 million of
goodwill and other assets, net of amortization, which includes a preliminary
allocation of goodwill of approximately $164.5 million added in connection with
our acquisition of Weatherford Global. We had total assets as of March 31, 2001
of $1,176 million. Amortization of goodwill and other assets will have a
negative impact on our earnings. In addition, we periodically evaluate whether
events and circumstances have occurred that indicate the remaining balance of
these assets may not be recoverable or should be amortized over a shorter
period. When factors indicate that assets should be evaluated for possible
impairment, we may be required to reduce the carrying value of these assets.
When factors indicate that these assets will be valuable for a period shorter
than originally anticipated, we may be required to amortize a larger portion of
the remaining balance of these assets over a shorter remaining life. The
reduction in carrying value or amortization period could have a material adverse
effect on our results of operations.

YOU SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, AS OUR ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN OUR FORWARD-LOOKING
STATEMENTS.

This prospectus contains forward-looking statements about our operations,
economic performances and financial condition. These statements are based on a
number of assumptions and estimates which are inherently subject to significant
uncertainties and contingencies, many of which are beyond our control, and
reflect future business decisions which are subject to change. Some of these
assumptions inevitably will not materialize, and unanticipated events will occur
which will affect our results of operations.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains "forward-looking statements" intended to qualify
for the safe harbors from liability established by the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical fact contained in this prospectus are forward-looking statements,
including, without limitation, statements regarding future financial position,
business strategy, proposed acquisitions, budgets, litigation, projected costs
and plans and objectives of management for future operations. You can identify
many of these statements by looking for words such as "believes," "expects,"
"will," "intends," "projects," "anticipates," "estimates," "continues" or
similar words or the negative thereof.

Forward-looking statements in this prospectus include, without limitation:

- anticipated cost savings and other synergies resulting from our
acquisition of Weatherford Global and other businesses;

- the sufficiency of our available cash flows to fund our continuing
operations;
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- anticipated synergies, future revenues and EBITDA, as adjusted, resulting
from our acquisitions of Weatherford Global, Gas Compression Services,
Inc., IEW Compression, Inc. and other businesses, and our pending
acquisitions of KCI and Louisiana Compressor Maintenance;

- capital improvements;

- the expected amount of capital expenditures;

- our future financial position;

- the future value of our equipment;

- our growth strategy and projected costs; and

- plans and objectives of our management for our future operations.

These forward-looking statements are subject to various risks and
uncertainties that could cause our actual results to differ materially from
those anticipated as of the date of this prospectus. The risks related to our
business described under "Risk Factors" and elsewhere in this prospectus could
cause our actual results to differ from those described in, or otherwise
projected or implied by, the forward-looking statements. Although we believe
that the expectations reflected in these forward-looking statements are based on
reasonable assumptions, no assurance can be given that these expectations will
prove to be correct. Important factors that could cause our actual results to
differ materially from the expectations reflected in these forward-looking
statements include, among other things:

- our inability to successfully integrate the business of Weatherford
Global and other businesses that we have acquired or may acquire in the
future, including KCI and Louisiana Compressor Maintenance;

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

- competition among the various providers of compression services and
products;

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

- changes in economic or political conditions in operating markets;

- introduction of competing technologies by other companies;

- our ability to retain and grow our customer base;

- employment workforce factors, including loss of key employees; and

- liability claims related to the use of our products and services.

All subsequent written and oral forward-looking statements made by us or on
our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. The forward-looking
statements included in this prospectus are only made as of the date of this
prospectus and we undertake no obligation to publicly update such
forward-looking statements to reflect new information, subsequent events or
otherwise.

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the 1,333,333
shares of common stock we are offering will be approximately $35.1 million. If
the underwriters fully exercise their overallotment option, the net proceeds to
us will be approximately $40.5 million. "Net proceeds" is what we expect to
receive after we pay the underwriting discount and other estimated expenses for
this offering.

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

We expect to use the net proceeds to us from this offering for our pending
acquisitions of KCI and Louisiana Compressor Maintenance. These acquisitions are
subject to various closing conditions, including regulatory approvals, and there
can be no assurance that either or both will be consummated. Consummation of
these acquisitions is not a condition to this offering. If one or both of these
acquisitions is not consummated, we expect to use any remaining net proceeds to
repay a portion of the amounts outstanding under our asset-backed securitization
operating lease facility, which we entered into in February 2001, and for
general corporate purposes. Pending these uses, we may invest these proceeds
temporarily in short-term, investment grade, interest-bearing securities or
guaranteed obligations of the U.S. government. The lease payments under our
asset-backed securitization operating lease facility are based on a variable
rate which, as of March 31, 2001, was 6.9% per year, and the maturity of the
leases under this facility range from three to eight years. Amounts repaid under
this facility may subsequently be reborrowed to finance future acquisitions or
for other corporate or working capital purposes.

PRICE RANGE OF COMMON STOCK

Our common stock is traded on the New York Stock Exchange under the symbol
"UCO." The following table sets forth the range of high and low sale prices for
our common stock for the periods indicated, beginning on May 24, 2000, the first
day of trading for our common stock:

PRICE RANGE
---------------
HIGH LOW
------ ------

Quarter Ended:
June 30, 2000............................................. $35.50 $20.63
September 30, 2000........................................ 34.13 22.13
December 31, 2000......................................... 39.50 25.50
March 31, 2001............................................ 40.50 31.88
June 30, 2001 (through June 27th)......................... 37.95 27.50

On June 27, 2001, the closing price of our common stock was $28.50 per
share. As of June 1, 2001, there were approximately 435 holders of record of our
common stock.

DIVIDEND POLICY

We have never declared or paid any cash dividends to our stockholders and
do not plan to pay any cash dividends in the foreseeable future. We currently
intend to retain our earnings for use in the operation and expansion of our
business. Furthermore, our credit facility, operating lease facilities, senior
notes indenture and other financing arrangements restrict the payment of
dividends. 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.

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CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2001 on
an actual basis and as adjusted to give effect to the issuance of 1,333,333
shares of common stock by us in this offering at the public offering price of
$28.50 per share and the receipt of the proceeds to us from this offering, after
deducting underwriting discounts payable by us and estimated offering expenses.

You should read the following table in conjunction with "Selected
Historical and Pro Forma Consolidated Financial and Operating Data" and related
notes, "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.

AS OF MARCH 31, 2001
-------------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
(IN THOUSANDS, EXCEPT FOR
SHARE AMOUNTS)

Cash and cash equivalents................................... $ 12,279 $ 47,379
======== ========
Long-term debt, including current portion:
Revolving credit facility(1).............................. -- --
9 7/8% senior discount notes(2)........................... 200,800 200,800
Other..................................................... 5,291 5,291
-------- --------
Total long-term debt(3)........................... $206,091 $206,091
-------- --------
Stockholders' equity:
Common stock, $0.01 par value, 200,000,000 shares
authorized; 28,491,379 shares issued and 28,478,137
shares outstanding; 29,991,379 shares issued and
29,978,137 shares outstanding as adjusted.............. 652,574 687,674
-------- --------
Total capitalization.............................. $858,665 $893,765
======== ========

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

(1) $125 million facility with $110 million currently committed for future
borrowings and $15 million of additional commitment expected to be available
upon payment of additional fees.

(2) Our 9 7/8% senior discount notes accrete interest through February 14, 2003,
with the first semi-annual cash interest payment to be made August 15, 2003.

(3) The table above excludes our operating lease facility and asset-backed
securitization operating lease facility. These lease obligations are
represented in the table below at the estimated residual value guarantee of
82% of the amount funded under our operating lease facility and 85% of the
amount funded under our asset-backed securitization operating lease
facility. Subject to restrictions contained in both agreements, we currently
have $64.5 million available under our asset-backed securitization operating
lease facility and up to $354 million available under our operating lease
facility.

AS OF
MARCH 31, 2001
--------------
(IN THOUSANDS)

Operating lease facility.............................. $427,000
Asset-backed securitization operating lease
facility............................................ 100,500
--------
Total....................................... $527,500
========

(4) As adjusted to reflect the receipt of the estimated $35.1 million net
proceeds to us from this offering as cash and the corresponding increase to
stockholders' equity. The proceeds will be used to finance our pending
acquisitions of KCI and Louisiana Compressor Maintenance, together with an
additional approximately $69.8 million that we will fund under our operating
leases or our revolving credit facility for these acquisitions and, at our
election, the issuance of up to 727,273 shares of our common stock or an
additional $18.8 million in cash for our acquisition of KCI. The number of
shares that may be issued in the KCI acquisition will depend on the closing
price of our shares for a specified period prior to the closing of that
acquisition. These transactions are subject to various closing conditions,
including regulatory approvals. If either or both of these acquisitions is
not consummated, we expect to use any remaining net proceeds to repay a
portion of the amounts outstanding under our asset-backed securitization
operating lease facility and for general corporate purposes. Amounts repaid
under this facility may subsequently be reborrowed to finance future
acquisitions or for other corporate or working capital purposes. See "Use of
Proceeds."

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20

SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL
AND OPERATING DATA

The following selected historical and pro forma consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and related notes and unaudited pro forma financial information and
related notes included elsewhere in this prospectus. The selected historical
financial and operating data for Tidewater Compression, our predecessor, as of
and for the year ended March 31, 1997 and for the period from April 1, 1997
through February 20, 1998 and the selected historical financial data as of and
for the 39-day period ending March 31, 1998 and for the three years in the
period ended March 31, 2001 have been derived from the respective audited
financial statements. The unaudited pro forma information gives effect to our
acquisition of Weatherford Global and related financing transactions as if they
had occurred on April 1, 2000, and has been derived from the unaudited pro forma
statement of operations for the year ended March 31, 2001 and the related notes.
The pro forma financial data shown in the table below are not necessarily
indicative of what our results of operations or financial position would have
been had the Weatherford Global acquisition and related financing transactions
been completed as of April 1, 2000 or that may be achieved in the future. The
consolidated financial statements and report thereon and unaudited pro forma
statement of operations for the year ended March 31, 2001 are included elsewhere
in this prospectus.

TIDEWATER COMPRESSION UNIVERSAL
(PREDECESSOR COMPANY) -----------------------------------------------------------
-------------------------- PERIOD FROM
PERIOD FROM DECEMBER 12,
APRIL 1, 1997 1997 PRO FORMA
YEAR ENDED THROUGH THROUGH YEAR ENDED MARCH 31, YEAR ENDED
MARCH 31, FEBRUARY 20, MARCH 31, ------------------------------- MARCH 31,
1997 1998 1998(6) 1999 2000 2001 2001
---------- ------------- ------------ -------- -------- --------- ----------
(IN THOUSANDS)

STATEMENT OF OPERATIONS DATA:
Revenues........................ $113,886 $ 95,686 $ 13,119 $129,498 $136,449 $ 232,761 $443,970
Gross margin(1)................. 48,332 47,752 6,891 61,887 68,961 109,583 191,041
Selling, general and
administrative expenses....... 11,004 8,669 1,305 16,863 16,797 21,092 48,711
Depreciation and amortization... 26,163 23,310 1,560 19,314 26,006 33,491 57,813
Operating income(2)............. 11,165 15,773 4,026 25,729 26,227 55,000 84,517
Interest expense, net........... -- -- 3,203 29,313 34,327 23,220 20,365
Operating lease expense......... -- -- -- -- -- 14,443 38,898
Income tax expense (benefit).... 4,724 6,271 409 (1,031) (1,994) 3,645 10,435
Income (loss) before
extraordinary items........... 7,842 10,759 430 (2,361) (5,982) 5,112 15,192
Net income (loss)............... 7,842 10,759 430 (2,361) (5,982) (4,391) 15,192
OTHER FINANCIAL DATA:
EBITDA, as adjusted(3).......... $ 38,729 $ 40,340 $ 5,930 $ 48,435 $ 55,557 $ 88,610 $142,330
Acquisitions(4)(5).............. -- -- 351,872 -- -- 464,761 55,338
Capital expenditures:
Expansion..................... $(12,464) $(11,902) $ (1,820) $(63,408) $(49,871) $ (55,384) N/A
Maintenance................... (4,056) (5,698) (218) (7,626) (9,920) (9,901) N/A
Other......................... 7,684 3,803 (351,107) 8,038 (1,312) (2,721) N/A
Cash flows from (used in):
Operating activities.......... $ 41,923 $ 33,491 $ (1,005) $ 22,793 $ 47,144 $ 88,631 N/A
Investing activities.......... (8,836) (13,797) (353,145) (62,996) (61,103) (3,318) N/A
Financing activities.......... (33,121) (17,870) 356,532 40,748 12,435 (75,282) N/A

TIDEWATER COMPRESSION UNIVERSAL
(PREDECESSOR COMPANY) -------------------------------------------
---------------------- AS OF MARCH 31,
AS OF MARCH 31, -------------------------------------------
1997 1998 1999 2000 2001
---------------------- -------- -------- -------- ----------
(IN THOUSANDS)

BALANCE SHEET DATA:
Working capital(7)......................... $ 13,953 $ 13,882 $ 23,742 $ 7,209 $ 97,763
Total assets............................... 257,090 380,226 437,991 469,942 1,176,256
Total debt(8).............................. 194,371 286,862 344,677 377,485 215,107(9)
Stockholders' equity....................... 57,547 81,680 80,774 74,677 652,574

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

(1) Gross margin is defined as total revenue less cost of rentals, cost of sales
(exclusive of depreciation and amortization), gain on asset sales and
interest income.

(2) Operating income is defined as income before income taxes less gain on asset
sales and interest income plus non-recurring items, interest expense and
operating lease expense.

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21

(3) EBITDA, as adjusted, is defined as net income plus income taxes, interest
expense, leasing expense, management fees, depreciation and amortization
excluding non-recurring items and extraordinary gains or losses. EBITDA, as
adjusted, represents a measure upon which management assesses financial
performance, and financial covenants in our current borrowing arrangements
are tied to similar measures. The financial covenants in our current
financing arrangements permit us to exclude non-recurring and extraordinary
gains and losses from our calculation of EBITDA, as adjusted. EBITDA, as
adjusted, is not a measure of financial performance under GAAP 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, as
adjusted, computation used herein may not be comparable to other similarly
titled measures of other companies.

The following table reconciles our EBITDA, as adjusted, to net income:

EBITDA, AS ADJUSTED.......... $ 38,729 $ 40,340 $ 5,930 $ 48,435 $ 55,557 $ 88,610 $142,330
Depreciation and
amortization............. (26,163) (23,310) (1,560) (19,314) (26,006) (33,491) (57,813)
Operating lease expense.... -- -- -- -- -- (14,443) (38,898)
Interest expense, net...... -- -- (3,203) (29,313) (34,327) (23,220) (20,365)
Management fee............. -- -- (328) (3,200) (3,200) -- --
Other, including
non-recurring............ -- -- -- -- -- (8,699) 373
Income taxes............... (4,724) (6,271) (409) 1,031 1,994 (3,645) (10,435)
Extraordinary loss, net.... -- -- -- -- -- (9,503) --
NET INCOME (LOSS)............ $ 7,842 $ 10,759 $ 430 $ (2,361) $ (5,982) $ (4,391) $ 15,192

(4) 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.

(5) In April 2000, we acquired all of the outstanding stock of Spectrum Rotary
Compression Inc. from Energy Spectrum Partners LP in exchange for 287,723
shares of our common stock. Spectrum added approximately 11,600 horsepower
to our fleet and provided us with an increased presence in the screw
compressor market.

On September 15, 2000, we completed the acquisition of Gas Compression
Services, Inc. for a combination of approximately $12 million in cash and
1,400,726 shares of our common stock valued at approximately $39 million,
the assumption and refinancing of approximately $57 million in debt and
operating leases of GCSI, and $6 million of debt related to GCSI's customer
equipment financing and associated customer notes receivable. The results of
GCSI's operations have been included in our operations from the date of the
acquisition.

On February 9, 2001, we completed our acquisition of Weatherford Global
Compression Services and certain related entities, a supplier of natural gas
compression equipment and services and a division of Weatherford
International, Inc. Under the terms of the agreement, a subsidiary of
Weatherford International was merged into our operating subsidiary in
exchange for 13.75 million shares of our common stock, which represented
approximately 48% of the outstanding shares of the combined company. In
connection with the acquisition, Weatherford agreed, subject to certain
conditions, to limit its voting rights to 33 1/3% of our voting power for up
to two years, which agreement may terminate in connection with this
offering. In addition, we restructured approximately $323 million in debt
and operating leases of Weatherford Global. The transaction was accounted
for as a purchase. Prior to closing, Weatherford International acquired the
interest of its minority partner in Weatherford Global. Also, Weatherford
International retained certain assets and operations related to Weatherford
Global's Singapore-based operations and approximately $10 million in
accounts receivable.

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22

(6) 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.

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

(8) Includes capital lease obligations.

(9) Excludes $527.5 million outstanding under our operating lease facilities.

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23

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

The following discussion and analysis of financial condition and results of
operations should be read in conjunction with our financial statements, and the
notes thereto, and the other financial information appearing elsewhere in this
prospectus. The following discussion includes forward-looking statements that
involve certain risks and uncertainties. See "Disclosure Regarding
Forward-Looking Statements" and "Risk Factors."

GENERAL

We were formed in December 1997 to acquire all of the outstanding stock of
Tidewater Compression Service, Inc. 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.

During the quarter ended June 30, 2000, we completed an initial public
offering of 7,275,000 shares of our common stock (including 275,000 shares of
common stock issued pursuant to an overallotment option granted to the
underwriters), which provided us with net proceeds (after deducting underwriting
discounts and commissions) of approximately $149.2 million. Concurrently with
our initial public offering, we implemented a recapitalization pursuant to which
all then existing classes of our stock were converted into common stock. We used
the proceeds of the offering and the $62.6 million in initial proceeds from an
operating lease facility to repay $192.7 million of indebtedness, and the
remaining proceeds for working capital and to pay expenses associated with the
offering and concurrent financing transactions.

Since our initial public offering, we have completed four acquisitions. In
addition, on May 25, 2001, we entered into an agreement to acquire KCI, a
fabricator of large horsepower compressors, and on June 12, 2001, we entered
into an agreement to acquire Louisiana Compressor Maintenance, a provider of
compressor maintenance and repair services. Our completed acquisitions include
Gas Compression Services in September 2000, Weatherford Global and IEW
Compression in February 2001, and Compressor Systems International, Inc., the
international operations of Compressor Systems, Inc., in April 2001. GCSI added
approximately 138,000 horsepower to our fleet and provided us with an increased
customer base, additional market segments and additional fabrication
capabilities. IEW added approximately 26,000 horsepower to our fleet, as well as
important offshore service capabilities. Compressor Systems International added
approximately 34,000 horsepower to our fleet in Mexico and Argentina.

Our Weatherford Global acquisition in February 2001 more than doubled our
size. We acquired Weatherford Global, which was the second largest natural gas
compression services company in the world in terms of horsepower, for 13,750,000
shares of our common stock (approximately 48% of our then total outstanding
shares and 46% following this offering) and the restructuring of approximately
$323 million in debt and operating lease obligations. This acquisition added
over 950,000 horsepower to our fleet and provided us with a number of important
strategic and operational benefits, including expanded international operations,
an increased parts sales and service business and cost savings and synergies.

In addition to these acquisitions, we entered into agreements to acquire
KCI on May 25, 2001 and Louisiana Compressor Maintenance on June 12, 2001. In
the KCI acquisition, we will pay approximately $22.9 million in cash and, at our
election, up to 727,273 shares of our common stock or an additional $18.8
million in cash. Concurrently with the KCI acquisition, we will repay all of
KCI's approximately $57 million of indebtedness. KCI, based in Tulsa, Oklahoma,
will provide us with significant fabrication expertise and a 100,000 square foot
fabrication facility in Tulsa and will add approximately 125,000 horsepower to
our rental fleet, primarily in large horsepower units. We will acquire Louisiana
Compressor Maintenance for approximately $25 million in cash.

Currently, we are the second largest provider of natural gas compressor
rental, sales, operations, maintenance and fabrication services to the natural
gas industry in terms of horsepower, with one of the largest gas compressor
fleets in the U.S., and a strong presence in key international markets.

20
24

FISCAL YEAR ENDED MARCH 31, 2001 COMPARED TO FISCAL YEAR ENDED MARCH 31, 2000

Revenues. Our total revenue for the fiscal year ended March 31, 2001
increased $96.4 million, or 70.7%, to $232.8 million, compared to $136.4 million
for the fiscal year ended March 31, 2000. Our rental revenues increased by $50.9
million, or 51.8%, to $149.2 million during the fiscal year ended March 31, 2001
from $98.3 million during the fiscal year ended March 31, 2000. Domestic rental
revenues increased by $43.1 million, or 51.6%, to $126.7 million during the
fiscal year ended March 31, 2001 from $83.6 million during the fiscal year ended
March 31, 2000. Our international rental revenues increased by $7.8 million, or
53.1%, to $22.5 million during the fiscal year ended March 31, 2001 from $14.7
million during the fiscal year ended March 31, 2000. The increase in domestic
rental revenue primarily resulted from expansion of our rental fleet through the
acquisition of GCSI, Weatherford Global and core growth. The increase in
international rental revenue resulted from expansion of our international rental
fleet primarily through the addition of horsepower from our acquisitions,
continued high utilization rates and the impact of our Weatherford Global
acquisition. During the quarter ended December 31, 2000, we started our first
rental project in Mexico consisting of 10,000 horsepower. This project
contributed approximately $4.7 million in one-time turnkey installation revenue.

Domestic average rented horsepower for the fiscal year ended March 31, 2001
increased by 61.0% to approximately 776,000 horsepower from approximately
482,000 horsepower for the fiscal year ended March 31, 2000. In addition,
international average rented horsepower for the fiscal year ended March 31, 2001
increased by 81.6% to approximately 89,000 horsepower from approximately 49,000
horsepower for the fiscal year ended March 31, 2000, primarily through expansion
of our international rental fleet, continued high utilization rates and
additional service in South America. Our average horsepower utilization rate for
the fiscal year ended March 31, 2001 was approximately 87.6%, up from 80.7% in
the fiscal year ended 2000. At the end of the quarter, we had approximately 1.9
million available horsepower with an additional 69,000 horsepower operated and
maintained for customers. Our average horsepower utilization rate for the
quarter ended March 31, 2001 was 88.8% and at March 31, 2001 was approximately
88.4%. These horsepower and utilization amounts include GCSI for the full fourth
quarter and Weatherford Global for the 50 days from the date of the merger.

Our revenue from fabrication increased to $61.8 million from $25.3 million,
an increase of 144.3%. The increase in fabrication revenue, consisting mostly of
equipment fabrication, for the last half of the fiscal year was due primarily to
our acquisitions of GCSI and Weatherford Global. Revenues from fabrication vary
quarter to quarter due to the time of completion of the equipment being sold.
Our backlog of fabrication projects at the end of the fiscal year ended March
31, 2001 was approximately $34.2 million, compared with a backlog of $11.1
million at the same time a year earlier. From December 31, 2000 to March 31,
2001, our backlog increased $3.7 million.

Our revenues from parts sales and service increased to $21.5 million during
the fiscal year ended March 31, 2001 from $12.7 million during the fiscal year
ended March 31, 2000, an increase of 69.3%. The increase for the last half of
the fiscal year was due primarily to our acquisitions of GCSI and Weatherford
Global.

As a result of our Weatherford Global acquisition, our parts sales and
service segment has become a more significant part of our business. Our parts
sales and service revenue increased to $12.6 million from $2.4 million in the
quarter ended March 31, 2001, an increase of 425.0% from the prior year period,
with a gross margin of $2.2 million on the fiscal year as compared to a gross
margin of $0.6 million for the prior year period.

Gross Margin. Our gross margin (defined as total revenue less rental
expense, cost of sales (exclusive of depreciation and amortization), gain on
asset sales and interest income) for the fiscal year ended March 31, 2001
increased $40.6 million, or 58.8%, to $109.6 million from gross margin of $69.0
million for the fiscal year ended March 31, 2000. Our rental gross margin for
the fiscal year ended March 31, 2001 increased $34.0 million, or 54.1%, to $96.9
million compared to gross margin of $62.9 million for the fiscal year ended
March 31, 2000. Rental gross margin increased primarily as the result of our
rental revenue growth discussed above and operating cost improvements realized
by rental operations. Our fabrication gross margin for the
21
25

fiscal year ended March 31, 2001 increased $5.6 million, or 164.7%, to $9.0
million compared to a gross margin of $3.4 million for the fiscal year ended
March 31, 2000. Fabrication gross margin increased primarily due to strong
customer demand, cost reductions and their resulting gross margin effects.

Our parts sales and service gross margin for the fiscal year ended March
31, 2001 increased $0.8 million or 29.6%, to $3.5 million compared to a gross
margin of $2.7 million for the fiscal year ended March 31, 2000. Parts sales and
service revenue increased primarily due to our acquisition of Weatherford
Global.

Selling, General and Administrative Expenses. Our selling, general and
administrative expenses for the fiscal year ended March 31, 2001 increased $4.3
million compared to the fiscal year ended March 31, 2000. Selling, general and
administrative expenses represented 9.1% of revenue for the fiscal year ended
March 31, 2001 compared to 12.3% of revenue for the fiscal year ended March 31,
2000. The percentage decrease was primarily due to the approximately $4.7
million in one-time turnkey installation revenues associated with a large rental
project in Mexico and the elimination of management fees in connection with our
initial public offering in May 2000, in addition to synergies achieved in our
acquisitions of GCSI and Weatherford Global. These reductions have been offset
partially by increases in certain expenses related to our operating as a
publicly traded company.

EBITDA, as adjusted, for the fiscal year ended March 31, 2001 increased
59.4% to $88.6 million from $55.6 million for the fiscal year ended March 31,
2000, primarily due to increases in horsepower and utilization of the
compression rental fleet, gross margin contribution from fabrication and sales,
operating cost improvements realized by rental operations, and a decreased
percentage of selling, general and administrative expenses, as discussed above.
EBITDA, as adjusted, is defined as net income plus income taxes, interest
expense, leasing expense, management fees, depreciation and amortization,
excluding non-recurring items and extraordinary gains or losses. EBITDA, as
adjusted, 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 its liquidity. Additionally,
the EBITDA, as adjusted, computation used herein may not be comparable to other
similarly titled measures of other companies. EBITDA, as adjusted, represents a
measure upon which management assesses financial performance, and certain
covenants in our borrowing arrangements will be tied to similar measures. We
believe that EBITDA, as adjusted, is a standard measure of financial performance
used for valuing companies in the compression industry. EBITDA, as adjusted, is
a useful common yardstick as it measures the capacity of companies to generate
cash without reference to how they are capitalized, how they account for
significant non-cash charges for depreciation and amortization associated with
assets used in the business (the majority of which are long-lived assets in the
compression industry), or what their tax attributes may be.

Non-recurring Charges. During the fiscal year ended March 31, 2001, we
incurred non-recurring charges of $8.7 million related to the early termination
of a management agreement and a consulting agreement and other related fees in
connection with our initial public offering and concurrent financing
transactions as well as costs related to facilities and headcount reduction
associated with our Weatherford Global acquisition.

Depreciation and Amortization. Depreciation and amortization increased by
$7.5 million to $33.5 million during the fiscal year ended March 31, 2001,
compared to $26.0 million during the fiscal year ended March 31, 2000. The
increase resulted primarily from the expansion of our rental fleet offset
partially by the compressor equipment sold and leased back under our previous
operating lease facility.

Operating Lease. We incurred leasing expense of $14.4 million during the
fiscal year ended March 31, 2001 resulting from our operating lease facilities.
The outstanding balance under the operating lease facilities at March 31, 2001
was $527.5 million, consisting of $427.0 million under our new operating lease
facility and $100.5 million under our asset-backed securitization operating
lease facility.

Interest Expense. Interest expense decreased $10.2 million to $24.2
million for the fiscal year ended March 31, 2001 from $34.4 million for the
fiscal year ended March 31, 2000, primarily as a result of the reduction of debt
resulting from our initial public offering and financing restructurings. The
decrease in

22
26

interest expense was offset partially by increased accretion of our 9 7/8%
senior discount notes and the assumption and refinancing of debt related to our
GCSI acquisition.

Extraordinary Loss. During the fiscal year ended March 31, 2001, we
incurred extraordinary losses of $15.2 million ($9.5 million net of income tax)
related to debt restructurings that occurred concurrently with our initial
public offering and the Weatherford Global acquisition.

Net Loss. We had a net loss of $4.4 million for the fiscal year ended
March 31, 2001 compared to a net loss of $6.0 million for the fiscal year ended
March 31, 2000, primarily as a result of an increase in our gross margins and
interest expense decreasing from $34.4 million to $24.2 million, offset
partially by increased depreciation and amortization related to the continued
expansion of our assets, leasing expense of $14.4 million resulting from our
operating lease facilities, non-recurring charges, an increase of the income tax
provision to $3.6 million from an income tax benefit of $2.0 million, and an
extraordinary loss of $9.5 million.

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.
Our 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. Our 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 482,000 horsepower from approximately 433,000 horsepower for the
fiscal year ended March 31, 1999. In addition, international average rented
horsepower more than doubled to approximately 49,000 horsepower for the fiscal
year ended March 31, 2000 from approximately 22,000 horsepower for the fiscal
year ended March 31, 1999, primarily through additional service in Argentina and
Colombia. Our revenues from fabrication increased to $25.3 million from $22.4
million, an increase of 12.9%, due to a moderate increase in equipment orders.
Our revenues from parts sales and service decreased to $12.7 million from $21.2
million, a decrease of 40.1%, due to our concentration on growing our rental
segments as well as a lower level of parts sales and service activity.

Gross Margin. Gross margin 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. Our fabrication gross margin for the
fiscal year ended March 31, 2000 increased $0.2 million or 6.3% to $3.4 million
compared to a gross margin of $3.2 million for the fiscal year ended March 31,
1999. Fabrication gross margin increased primarily as a result of moderate
increases in orders and capacity.

Our parts sales and service gross margin for the fiscal year ended March
31, 2000 decreased $1.2 million or 30.8%, to $2.7 million compared to a gross
margin of $3.9 million for the fiscal year ended March 31, 1999. Parts sales and
service gross margin decreased primarily due to a decrease in revenues.

Selling, General and Administrative Expenses. Our 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.

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27

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 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.

EFFECTS OF INFLATION

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

SEASONAL FLUCTUATIONS

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

LIQUIDITY AND CAPITAL RESOURCES

In May 2000, concurrently with our initial public offering, we entered into
a $200 million, five-year operating lease facility, which involved a sale and
leaseback of compression equipment to a trust. Under this operating lease
facility, certain of our compression equipment was sold to the trust for
approximately $155 million and leased back by us for a five-year period. At the
same time, we repaid and terminated a term loan and revolving credit facility
and entered into a $50 million secured revolving credit facility which had a
five-year term. This revolver and our previous operating lease facility were
repaid and terminated in February 2001 in connection with our Weatherford Global
acquisition, as described below.

Our cash and cash equivalents balance at March 31, 2001 was $12.3 million,
compared to $1.4 million at March 31, 2000. For the year ended March 31, 2001,
we generated cash flow from operations of $88.6 million, used $3.3 million of
cash for investing activities and another $75.2 million of cash in financing
activities and had a $0.8 million positive effect of exchange rate change.

During the year ended March 31, 2001, $527.5 million was received for
compression equipment under our new operating lease facility and asset-backed
securitization operating lease facility, $154.6 million was received from the
sale of compression equipment under our previous operating lease facility and
$149.2 million was received from the initial public offering of our common
stock. We used this cash as follows: $455.7 million in connection with the
restructuring and refinancing of our and Weatherford Global's existing operating
lease facilities, $19.3 million to increase inventory in order to meet increased
customer demand, $68.0 million for capital expenditures, $464.8 million for
acquisitions, and $204.3 million to make net principal payments on our then
outstanding indebtedness, which included termination of our term loan and credit
facility, redemption of all of our 11 3/8% senior discount notes and retirement
of a financing lease arrangement. Our accounts receivable balance increased
disproportionately compared to revenues primarily due to our acquisition of
Weatherford Global in February 2001, increased rental billings during the fourth
quarter due to additions of rental equipment in our fleet and improved
horsepower utilization rates.

In April 2000, we acquired all of the outstanding stock of Spectrum Rotary
Compression Inc. from Energy Spectrum Partners LP in exchange for 287,723 shares
of our common stock. Spectrum added approximately 11,600 horsepower to our fleet
and provided us with an increased presence in the screw compressor market.

On September 15, 2000, we completed our acquisition of GCSI, a supplier of
natural gas compression equipment and services with fabrication and overhaul
facilities in Michigan and Texas for a combination of approximately $12 million
in cash, 1,400,726 shares of our common stock and the assumption or refinancing
of approximately $63 million of indebtedness. All of the assumed or refinanced
indebtedness of GCSI, except
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for approximately $10 million, was paid off concurrently with the GCSI merger
using proceeds received under our previous operating lease facility. This
acquisition was accounted for under the purchase method of accounting and
resulted in the recognition of approximately $33 million in goodwill. The GCSI
acquisition added approximately 138,000 horsepower to our fleet and provided us
with an increased customer base, additional market segments and additional
fabrication capabilities. Under current operating conditions, we expect to add
$35 million to $38 million in revenue per year and approximately $15 million in
EBITDA per year as a result of our GCSI acquisition.

On February 9, 2001, we completed our acquisition of Weatherford Global
Compression Services, L.P. and certain related compression service entities that
supply natural gas compression equipment and services from Weatherford
International, Inc. Under the terms of the merger agreement, a subsidiary of
Weatherford International was merged into UCI in exchange for 13.75 million
shares of our common stock, which represented approximately 48% of our then
outstanding shares (approximately 46% following this offering), and the
restructuring of approximately $323 million in debt and operating leases of
Weatherford Global. The transaction was accounted for as a purchase. Prior to
closing, Weatherford International acquired the interest of its minority partner
in Weatherford Global. In addition, Weatherford International retained certain
assets and operations related to Weatherford Global's Singapore-based operations
and approximately $10 million in accounts receivable.

Concurrently with our Weatherford Global acquisition, we raised $427
million under a new operating lease facility funded primarily through the
offering of 8 7/8% senior secured notes by BRL Universal Equipment A, L.P., a
third party leasing company, which notes are payable from our lease payments
under the operating lease. We also entered into a new $125 million secured
revolving credit facility and a new $200 million asset-backed securitization
operating lease facility. As of the closing of the Weatherford Global
acquisition, we had approximately $80 million outstanding under the asset-backed
securitization operating lease facility and no amounts outstanding under the
revolving credit facility. We used the proceeds from the two new operating lease
facilities to restructure existing operating lease obligations, including our
previous operating lease facility and those of Weatherford Global, and to
refinance a significant portion of our existing indebtedness and that of
Weatherford Global. These new facilities, like our previous facilities, contain
restrictions on our operations, including our ability to incur additional
indebtedness, engage in acquisitions and pay dividends, among other things. The
deferred gain from our old operating lease facility was transferred to the new
operating lease facilities and will be assessed annually for realizability.

As of the closing of our Weatherford Global acquisition and related
financing transactions on February 9, 2001, we had approximately $198 million
outstanding under our 9 7/8% senior notes and approximately $13 million of other
indebtedness. We also had approximately $427 million outstanding under our new
operating lease facility and approximately $80 million outstanding under our new
asset-backed securitization operating lease facility. In addition, on February
28, 2001, we funded approximately $20 million under our asset-backed
securitization operating lease facility primarily for our acquisition of IEW,
and on April 23, 2001, we funded an additional $35 million under this facility,
primarily for our acquisition of Compressor Systems International.

As of March 31 2001, we had $200.8 million aggregate principal amount
outstanding under our 9 7/8% senior discount notes due 2008. In January 2001,
UCI, the issuer of these notes, commenced an offer to repurchase all of the
notes, and solicited the consent of the holders of the notes to amend the
indenture to eliminate substantially all of the restrictive covenants. The
tender offer was conditioned upon UCI's receipt of the consent of requisite
holders to approve the proposed amendments to the indenture. Because the
requisite consents were not received prior to the deadline, UCI terminated the
tender offer without purchasing any of the 9 7/8% senior discount notes.
Pursuant to the indenture governing those notes, the holders of the notes had
the right to require UCI to repurchase the notes as a result of the consummation
of the Weatherford Global acquisition at a price equal to 101% of the accreted
value, plus accrued and unpaid interest to date. None of the 9 7/8% senior
discount notes were tendered by the holders for repurchase. The holders of the
9 7/8% senior discount notes will again have the right to require us to
repurchase their 9 7/8% senior discount notes upon consummation of this offering
as Castle Harlan's ownership of less than 20% of our common stock

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constitutes a change of control under the indenture. We expect to finance any
repurchases of the 9 7/8% senior discount notes through our new revolving credit
facility or our operating lease facilities.

As of June 1, 2001, we had unused availability of approximately $173.5
million (approximately $59.5 million under our asset-backed securitization
facility and $114 million under our revolving credit facility). Under the
revolving credit facility, $110 million is currently committed and $15 million
is obtainable upon payment of additional fees. Since we have only made
short-term borrowings for cash management purposes under the revolving credit
facility, we have delayed incurring the additional fees to have such additional
$15 million committed for future borrowing. Subject to certain covenant
restrictions, we also have up to an additional $354 million available under our
new operating lease facility until one year from February 9, 2001. Additional
amounts under this facility would be funded through an additional issuance of
senior secured notes by BRL and a corresponding increase in the related BRL term
loan and equity investment. The proceeds, if any, from the additional notes,
term loan and equity investment would then be used to purchase additional
equipment to lease to UCI under the operating lease.

We entered into an agreement to acquire KCI on May 25, 2001 for
approximately $22.9 million in cash and, at our election, up to 727,273 shares
of our common stock, depending on the closing price of our shares for a
specified period prior to the closing date, or an additional $18.8 million in
cash, subject to adjustment. Concurrently with the KCI acquisition, we will
repay all of KCI's approximately $57 million of indebtedness. This acquisition
will provide us with significant fabrication expertise and capabilities and will
add approximately 125,000 horsepower to our rental fleet with an average
horsepower utilization rate of 85%. As of April 30, 2001, we estimate that KCI's
fabrication backlog was approximately $72 million. Under current operating
conditions and with anticipated synergies, we expect to add approximately $100
million in revenue, approximately $14.5 million in EBITDA, as adjusted, and
approximately $0.10 in earnings per share for the first full year of combined
operations if the KCI acquisition is consummated. In addition, on June 12, 2001,
we entered into an agreement to acquire Louisiana Compressor Maintenance, a
provider of compressor maintenance and repair services, for approximately $25
million in cash. Under current operating conditions, we expect to add
approximately $18 million in revenue and approximately $4.5 million in EBITDA,
as adjusted, in the first full year of combined operations if this acquisition
is consummated. We intend to finance these acquisitions with proceeds of this
offering and with an additional approximately $69.8 million ($88.6 million if we
elect not to issue shares in our acquisition of KCI) of funds obtained under our
operating lease facilities or revolving credit facility. These transactions are
subject to various closing conditions, including regulatory approvals. Although
there can be no assurance that these acquisitions will close, we expect them to
be consummated in July 2001.

As of March 31, 2001, we have realized approximately $15 million of cost
savings on annualized basis from our Weatherford Global acquisition, and we
expect to realize an additional $5 million in annual cost savings by the end of
fiscal 2002, primarily through consolidation and streamlining of operations.
However, we may not realize these remaining cost savings as quickly or as fully
as we expect. The key drivers for the savings are the overlap of various
domestic operations, including fabrication facilities, as well as duplicate
selling, general and administrative activities. As a result of our Weatherford
Global acquisition, we expect to eliminate a total of two fabrication
facilities, 17 sales and service offices and 250-300 personnel positions for an
aggregate expected cost to us of approximately $10 million.

Based upon current levels of activity as well as modest increases in our
business due to current market conditions and anticipated customer demands but
excluding our pending acquisitions of KCI and Louisiana Compressor Maintenance,
we expect to generate revenues between $120 to $130 million and corresponding
EBITDA, as adjusted, of $43 million to $45 million for the quarter ending June
30, 2001. In addition, we expect to generate approximately $500 million to $525
million in annual revenue going forward, and the corresponding EBITDA, as
adjusted, including the full amount of our estimated $20 million of annual cost
savings associated with our Weatherford Global acquisition, is expected to be
approximately $190 million to $198 million. Approximately 45 to 50% of revenues
in fiscal 2002 is expected to result from domestic rentals, with international
revenues accounting for 12 to 15%, fabrication accounting for approximately 20%
and parts sales and service revenues at 15 to 20%. The expected gross margins
after the cost savings are realized are an initial 62% with a fiscal year-end
target of 64 to 65% for the domestic rental business, an
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initial 68 to 69% with a fiscal year-end target of 72 to 74% for the
international rental business, 11 to 15% for the fabrication segment and an
initial 21 to 22% with a fiscal year-end target of 25 to 30% for parts sales and
service. We anticipate margins will improve as a result of our operating
leverage efficiencies as we continue to grow our fleet and the remaining cost
savings and synergies from our Weatherford Global acquisition to be achieved, as
well as other activities we plan to implement. We anticipate that the capital
expenditures during fiscal 2002 will be approximately $180 million to $220
million, including approximately $25 million of maintenance capital
expenditures, $30 million of international horsepower expenditures and the
remainder primarily for domestic horsepower expenditures, but excluding
acquisitions. We continue to emphasize our investment in larger horsepower
compression rental units and, to a lesser extent, the acquisition leaseback of
customer owned equipment. Our other principal uses of cash will be to meet
interest and lease payments and to support changes in our working capital.

Our average horsepower utilization rate for the year ended March 31, 2001
was 87.6%, and as of June 1, 2001, our utilization rate was approximately 89%.
We expect this rate to improve slightly over the 90% level during the next year
as we continue to improve the utilization of the Weatherford Global assets in
the integration process. Our compressor unit fabrication backlog was
approximately $34.2 million as of March 31, 2001, an increase of $23.1 million
over the prior year. Not including our pending acquisition of KCI, we expect our
fabrication segment to maintain a $40 million backlog consistent with the past
few months.

In addition, we expect to achieve additional savings in purchasing
activities and inventory management, as well as other components of working
capital, that are not reflected in the $20 million cost savings by the end of
fiscal year 2002. We expect these additional cost savings, which will impact
operating and selling, general and administrative expenses, to be fully realized
by the end of fiscal 2002. We expect our selling, general and administrative
expenses of 9.2% of revenues for the quarter ended March 31, 2001 to be an
indication of these expenses for our fiscal year 2002. We anticipate that our
effective tax rate in fiscal 2002 will be 39%.

We believe that funds generated from our operations, together with our
existing cash, the net proceeds to us from this offering, and the additional
capacity available under our new credit facility and operating lease facilities
will be sufficient to finance our current operations, planned capital
expenditures and internal growth for fiscal year 2002. If we were to make
significant additional acquisitions for cash, we may need to obtain additional
debt, equity or operating lease financing.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, the FASB issued
SFAS 138, which amends certain provisions of SFAS 133 to clarify four areas
causing difficulties in implementation. The amendment included expanding the
normal purchase and sale exemption for supply contracts, permitting the
offsetting of certain intercompany foreign currency derivatives and thus
reducing the number of third party derivatives, permitting hedge accounting for
foreign-currency denominated assets and liabilities, and redefining interest
rate risk to reduce sources of ineffectiveness. SFAS 133 requires that an entity
recognize all derivative instruments as either assets or liabilities in the
balance sheet and measure those instruments at fair value. If certain conditions
are met, a derivative may be specifically designated as (1) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (2) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (3) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. We
adopted SFAS 133 and the corresponding amendments under SFAS 138 on April 1,
2001. This statement had no impact on our consolidated results of operations,
financial positions or cash flows.

In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the
SEC's views in applying generally accepted

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accounting principles to revenue recognition in financial statements. On June
26, 2000, the SEC issued an amendment to SAB 101, effectively delaying its
implementation until the fourth quarter of fiscal years beginning after December
15, 1999. After reviewing SAB 101 and its amendment, we believe that our revenue
recognition policy is appropriate and that the effects of SAB 101 and its
amendment were immaterial to our results of operations.

On February 14, 2001, the FASB issued its tentative decisions on the
accounting for goodwill in an Exposure Draft, Business Combinations and
Intangible Assets -- Accounting for Goodwill. The FASB has tentatively concluded
that purchased goodwill should not be amortized; rather it should be reviewed
for impairment. The final statement is expected to be issued in late July 2001,
effective as to financial statements covering fiscal years beginning after
December 15, 2001.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to some market risk due to the floating or variable interest
rates under our financing arrangements. A portion of the interest and lease
payments under our financing arrangements are based on a floating rate (a base
rate or LIBOR, at our option, in the case of our revolving credit facility, and
LIBOR, in the case of our operating lease facilities) plus a variable amount
based on our operating results. The one-month LIBOR rate at March 31, 2001 was
5.08%. A 1.0% increase in interest rates would result in a $0.8 million annual
increase in interest and operating lease expense. As of March 31, 2001,
approximately $77 million of our indebtedness and other obligations outstanding
bear interest at floating rates.

In order to minimize any significant foreign currency credit risk, we
generally contractually require that payment by our customers 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

OUR COMPANY

In addition to our compression rental business, we provide a broad range of
compression services and products to customers who choose to own their
compression equipment. Our equipment fabrication business involves the design,
engineering and assembly of natural gas and air compressors for sale to third
parties in addition to those that we use in our rental fleet. We believe that
our ability to fabricate compressors ranging in size from under 100 horsepower
to over 5,000 horsepower, coupled with our reputation as a high quality
fabricator, enables us to provide compressors that are used in all facets of
natural gas production, transmission and distribution, from the wellhead to the
end user. Our parts sales and service business sells components and provides
maintenance to customers who continue to own their compression equipment. Our
ability to provide a full range of compression services and products broadens
our customer relationships and helps us to identify potential new customers as
well as new applications for existing customers. As the compression needs of our
customers increase due to the growing demand for natural gas throughout the
world, we believe our geographic scope and broad range of compression services
and products will enable us to participate in that growth.

Since our initial public offering in May 2000, we have grown significantly,
completing four strategic acquisitions. In addition, on May 25, 2001, we entered
into a purchase agreement with respect to the acquisition of KCI, a Tulsa,
Oklahoma-based fabricator of large horsepower compressors, and on June 12, 2001,
we entered into an agreement to acquire Louisiana Compressor Maintenance, a
Louisiana-based provider of compressor maintenance and repair services. Our most
significant acquisition was that of Weatherford Global Compression Services L.P.
in February 2001, which added approximately 950,000 horsepower to our fleet and
more than doubled our size. In addition to increased size, this acquisition
provided us with numerous strategic and operational benefits, including
increased geographic scope, expanded international operations, an enhanced parts
sales and service business, cost savings and synergies and increased financial
strength. In addition to expanding and extending our service and product
offerings, these acquisitions have allowed us to enter geographic areas with
rapidly growing demand for compression, such as California, Canada and the Gulf
of Mexico.

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The following table illustrates our growth in the last fiscal year:

YEAR ENDED MARCH 31,
-----------------------
2000(B) 2001
-------- ----------
(DOLLARS IN THOUSANDS)

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

(a) EBITDA, as adjusted, is defined on page 6 of this prospectus.

(b) Following our Weatherford Global acquisition and consistent with industry
standards, we changed our method of measuring horsepower to the
manufacturers' horsepower.

The compression rental industry has grown rapidly, driven by the steady
increase in demand for natural gas, the aging of producing natural gas fields
and the attractiveness of outsourcing compression needs. Demand for compression
services is principally tied to consumption of natural gas rather than
exploration or drilling activities. As a result, we have historically been less
affected by oil and gas price volatility than companies operating in other
sectors of the energy industry, resulting in relatively strong, stable cash
flows. We operate our highly standardized compressor fleet in every significant
producing natural gas region in the United States to serve this demand. In
addition, we have a significant presence in select international markets, with
current operations in Argentina, Canada, Colombia, Thailand, Mexico, Australia,
Venezuela, Peru and Brazil. For the year ended March 31, 2001, approximately
16.0% of our revenues were attributable to international operations.

Our financial performance is generally less affected by the short-term
market cycles and oil and gas price volatility than the financial performance of
companies operating in other sectors of the energy industry and we have a
strong, growing operating performance and margins because:

- compression is necessary in order for gas to be delivered from the
wellhead to end-users,

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

- compression equipment rental is often an economically advantageous
alternative for natural gas production, gathering and transportation
companies,

- we have a broad customer base,

- we operate in diverse geographic regions, 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.

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COMPETITIVE STRENGTHS

We believe that we have the following key competitive strengths:

- Comprehensive range of high quality services. We provide a complete
range of high quality compression services and products to meet the
changing compression needs of our customers in the diverse geographic
markets that we serve, whether they choose to outsource or continue to
own their compression assets. For those customers who outsource, we
believe our compression rental services and products generally allow our
customers to achieve higher run-times than they would achieve with owned
equipment, resulting in increased production and revenues for our
customers. Additionally, we continually expand, upgrade and reconfigure
our rental fleet and provide our operations and maintenance personnel
with extensive training to allow our customers the most flexibility with
regard to their compression needs while limiting their capital
requirements. We work closely with our rental customers to design and
implement customized strategic solutions to better serve their
compression needs over long periods of time.

We are able to fabricate highly specialized compression units ranging
in size from under 100 horsepower to over 5,000 horsepower that meet the
varying needs of our customers in all facets of natural gas production,
from the wellhead to the end user. Additionally, we sell parts and provide
maintenance and operation services to customers who choose to own their
compression equipment. Our parts sales and service business also allows us
to identify potential future counter-parties to a purchase and leaseback
transaction as we are in contact with customers other than our rental
customers on a regular basis. The broad range of compression services and
products allows us to broaden our customer base and gives us the
opportunity to identify potential new rental customers as we can
cross-sell those services and products. In addition to the services and
products that we provide to customers who choose to outsource their
compression requirements, our recent acquisition of Weatherford Global has
greatly enhanced, and our pending acquisitions of KCI and Louisiana
Compressor Maintenance will further enhance, our ability to provide
compression services and products to customers who decide to own their
compression assets.

- Ability to serve all gas compression markets. Historically, we have been
principally involved in providing compression services and products to
customers who used compression either at the wellhead or as part of a
gathering system, a segment of the compression market generally referred
to as field compression. Consummation of our pending acquisitions of KCI
and Louisiana Compressor Maintenance will enhance our field compression
capability and extend our capabilities into the pipeline compression
segment of the market, which generally is characterized by the
fabrication of larger horsepower units for sale to third parties and the
subsequent sales of parts and service for those units. The KCI
acquisition will substantially augment our large horsepower compressor
fabrication business. We believe these capabilities will allow us to
expand our scope in the compression industry to become a leading supplier
of large horsepower compressors to pipeline operators while maintaining
our ability to fabricate and provide parts for the smaller horsepower
units that service our more traditional producer and gatherer customers.
We believe that our ability to access both the field compression and
pipeline compression markets gives us a competitive advantage over other
compression companies that typically serve only one or the other, and
will allow us to continue to grow within the compression services
industry.

- Size and geographic scope. We operate in every significant natural gas
producing region in the U.S. and are one of a few compression service
companies with sufficient fleet size, personnel, logistical capabilities,
geographic scope, fabrication capabilities and range of compression
service and product offerings to meet the full service needs of customers
worldwide on a timely and cost-effective basis. Our large fleet and broad
geographic scope and customer base provide us with improved fleet
utilization opportunities. We believe that this enables us to better meet
the changing compression needs of our customers and positions us to
participate in a disproportionately high share of the future growth in
this industry. Companies in our industry can achieve significant
advantages through increased size and geographic scope. As a result, we
have relatively lower operating costs and higher

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margins than companies with smaller fleets due to economies of scale. Our
fleet consists of over 7,400 units and approximately 1.9 million
horsepower, and we have operations in 27 states and 9 foreign countries.
We have several fabrication facilities, including a high bay, heavy
capacity fabrication facility in Houston, Texas constructed in 1999 and a
fabrication facility in Calgary, Alberta, Canada. We are in the process
of expanding our Houston fabrication facility, which we expect to
complete this summer, and will add a 100,000 square foot fabrication
facility in Tulsa, Oklahoma as a result of our pending acquisition of
KCI.

- Large, well maintained fleet on three standardized platforms. We have
standardized our fleet of rental compressors with three primary
compressor platforms -- Ariel, Ajax and Gemini. Standardization enables
us to develop extensive expertise in operating and maintaining our
compressors, efficiently resize and reconfigure our compressors and
reduce our operating costs by minimizing inventory costs. Natural gas
compressors are long-lived assets with an expected economic life of 25-40
years. Our comprehensive preventive maintenance program is designed to
maximize the efficient operation of the units and maintain their economic
useful life.

- Experienced and focused management team. Our management team has
extensive experience in the compression services business. We believe our
management team has successfully demonstrated its ability to manage
growth through its focus on the core compression services business,
maintenance of high quality standards and commitment to customer service.
In order to attract, motivate and retain our highly experienced sales
force and operations personnel, we have implemented incentive and profit
sharing plans designed to link the compensation of our employees at all
levels with their individual performance as well as ours. In addition, we
have provided broad employee stock ownership opportunities. We have
awarded shares of our stock to some of our employees and, as of March 31,
2001, had granted stock options to approximately 12% of our workforce.
Our management team has a substantial financial interest in our continued
success through direct stock ownership, and participation in our
incentive stock option and bonus programs which are linked to our
performance. In addition, our board of directors has adopted an employee
stock purchase plan and a restricted stock grant plan, subject to
approval by our stockholders at our next annual meeting. If approved, the
employee stock purchase plan will allow our employees, including our
management team, to purchase shares of our stock at a discount and
without incurring brokerage commissions, and the restricted stock grant
plan will provide for grants of our shares to our officers, which grants
will vest over time.

GROWTH STRATEGY

- Focusing on providing a complete range of high quality compression
services and products. We intend to continue to provide a complete range
of high quality compression services and products to meet the increasing
compression needs of our customers. We believe our ability to provide
services and products to customers in all segments of the compression
market, including both field and pipeline compression, will allow us to
participate in a disproportionate amount of the growth of the compression
industry. Additionally, we will continue to offer the complete spectrum
of compression rental services, fabrication services and parts sales and
services throughout the world, allowing us to meet our customers' full
range of compression needs.

- Continuing to expand our operations in select international markets. Our
Weatherford Global acquisition significantly increased our international
presence. We plan to capitalize on the growing international compression
market by further expanding our existing operations in Latin America,
Canada and Asia and offering our services in other key markets, including
additional Southeast Asian

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and South American countries. We believe that our experience in these
markets, together with the international expertise we acquired through
our Weatherford Global acquisition and our strong reputation for the
engineering and fabrication of high specification gas and air
compressors, provide us with a solid foundation from which to further
expand our business internationally.

- Expanding and leveraging our fabrication and parts sales and service
business. As a result of our acquisitions of Weatherford Global and IEW,
we have significantly increased our parts sales and service business,
particularly in the U.S. and Canada, and we intend to continue to expand
this segment of our business. Our parts sales and service business
provides us with an opportunity to cross-sell our compression rental and
fabrication activities by exposing us to potential new customers, and to
expand our fleet by identifying equipment that may be suitable for
purchase and leaseback transactions. In addition, our pending acquisition
of KCI will expand our fabrication capabilities, particularly with
respect to large compression units which may be used in pipeline
transportation.

- Extending compression markets beyond field and gathering to pipeline
transmission. We continue to seek additional ways to serve the
compression needs of our customers. In addition to our field compression
services, we have broadened our focus to include pipeline compression
through our pending acquisitions of KCI and Louisiana Compressor
Maintenance, and offshore compression through our acquisitions of
Weatherford Global and IEW Compression. We believe the pipeline
compression market has significant growth potential for our services as
well as potential candidates for contract compression.

- Pursuing additional acquisitions within the compression industry. We
have completed four acquisitions since our initial public offering,
including our acquisition of Weatherford Global, which more than doubled
our size, bringing the total number of acquisitions we have completed
since 1993 to 13. Additionally, we have two acquisitions pending. On May
25, 2001, we entered into an agreement to acquire KCI, a Tulsa,
Oklahoma-based fabricator of large horsepower compressors, and on June
12, 2001, we entered into an agreement to acquire Louisiana Compressor
Maintenance, a Louisiana-based provider of compressor maintenance and
repair services. We intend to use the proceeds of this offering, together
with approximately $69.8 million in additional funds under our operating
lease facilities or revolving credit facility, for these acquisitions. In
addition, we will issue up to 727,273 shares of our common stock in the
KCI acquisition or, at our election, pay an additional $18.8 million in
cash (which would increase the amount of additional funds that we would
need under our operating lease facilities or revolving credit facility to
complete these acquisitions). We intend to continue to pursue
acquisitions of complementary businesses to expand our fleet, customer
base and geographic scope, and to increase the breadth of services we
provide within the compression industry. Additionally, we believe that
our experience in integrating acquired companies into our business will
allow us to realize the benefits of additional acquisitions in the
future.

On February 28, 2001, we acquired ISS Compression, Inc. and its operating
subsidiary, IEW Compression, Inc., for approximately $15 million in cash, which
included the concurrent discharge of its debt and operating leases. ISS is a
natural gas compression services provider based in Lafayette, Louisiana. This
acquisition added approximately 26,000 horsepower to our fleet, most of which is
located in the Gulf of Mexico. In addition to its rental fleet, ISS has an
offshore sales and service business. On April 23, 2001 we also acquired the
international operations of Compressor Systems, Inc. based in Midland, Texas for
approximately $30 million in cash. This acquisition added approximately 34,000
horsepower of compression equipment in Mexico and Argentina.

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

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delivery from one point to another. Low pressure or aging natural gas wells
require compression for delivery of produced gas into higher pressured gas
gathering or pipeline 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. In
addition, 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. Compressors
may also be used in combination with oil and gas production equipment to process
and refine oil and gas into more marketable energy sources. In addition, natural
gas compression services are used for compressing feedstocks in refineries and
for refrigeration applications in natural gas processing plants.

COMPRESSION REQUIREMENTS OF AN AGING WELL

[AGING WELL CHART]

Typically, compression is required several times during the natural gas
production cycle: at the wellhead, at the gathering lines, into and out of gas
processing facilities, into and out of storage facilities and through the
pipeline. Natural gas compression that is used prior to the "main line
transmission system" which transports gas from production to storage or to the
end user is considered "field" compression. Natural gas compression that is used
during the transportation of gas from the gathering systems to storage or the
end-user is considered "pipeline" compression. Historically, we have
concentrated on 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.

Through our pending acquisitions of KCI and Louisiana Compressor
Maintenance, we are extending our compression services and product offerings to
serve the pipeline compression market, which is generally
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characterized by the fabrication of large horsepower units for sale to third
parties and the subsequent provision of parts and services for those units.
Compressors are used to increase the efficiency of a low capacity gas field by
providing a central compression point from which the gas can be removed and
injected into a pipeline for transmission to facilities for further processing.
As gas is transported through a pipeline, compression equipment is applied to
allow the gas to continue to flow through the pipeline to its destination.

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. Changing well and pipeline pressures and conditions over the life of
a well often require producers to reconfigure their compressor units to optimize
the well production or pipeline efficiency. Due to the technical nature of
compression equipment and the need for a dedicated local parts inventory, a
diversified fleet of natural gas compressors and a highly trained staff of field
service personnel, independent natural gas producers, as well as natural gas
processors and transporters, are increasingly outsourcing their compression
needs to specialists such as us.

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.

Customers that elect to outsource compression equipment may choose full
maintenance or contract compression 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. Contract compression
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.

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 and drilling activities, that drives
the demand for compression services. As a result, our historical financial
performance has been affected less by the short-term market cycles and oil and
gas price volatility than the performance 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 22% from 1990 through 2000 to
approximately 23 trillion cubic feet, and industry sources
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forecast the domestic consumption of natural gas to increase approximately 25%
to 27 to 30 trillion cubic feet by 2010.

We believe there is approximately 16.3 million horsepower of domestic field
compression equipment, of which approximately 35%, or 5.7 million horsepower,
was outsourced. The compression rental industry has grown rapidly, increasing at
an estimated compound annual growth rate of 16% per year in the United States in
terms of horsepower, with the percentage of outsourced domestic field
compression horsepower increasing from approximately 20% in 1993 to an estimated
35% in 2000. We believe the domestic gas compression market will continue to
grow due to the following factors:

- higher natural gas consumption, which we expect will increase in the
United States at an average rate of 2.0% to 2.5% per year over the next
decade,

- 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

- increased outsourcing by companies with 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 we expect will increase
internationally at an average rate of 3.5% to 4.0% per year over the next
decade,

- implementation of international environmental and conservation laws
preventing the practice of flaring natural gas and recognition of natural
gas as a clean air fuel,

- 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 export of oil,

- increasing development of pipeline infrastructure, particularly in South
America and Canada, 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 energy producers, resulting in increased
outsourcing due to the focus on reducing capital expenditures and
enhancing cash flow and profitability.

In contrast to the domestic rental compression market, the international
compression market is comprised primarily 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 compressors and related gas treatment equipment by the rental
company. In these 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.

OPERATIONS

Rental Compressor Fleet

We have standardized our rental fleet around three primary gas compressor
platforms: Gemini for smaller horsepower applications (less than 150
horsepower), Ajax for mid-range applications (100-600 horsepower) and Ariel and
Gemini for larger horsepower applications (over 600 horsepower). These three
compressor platforms represent over 90% of our horsepower. While utilization and
profitability continue to be strong across all of our horsepower ranges,
including our smaller units, in recent years there has been substantial

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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 our initial
public offering in May 2000, the total horsepower of our fleet has increased by
166%. For the year ended March 31, 2001, the average horsepower utilization rate
for our fleet was approximately 87.6%, which reflects average horsepower
utilization based upon our total average fleet horsepower. For the quarter ended
March 31, 2001, this average rate was approximately 88.8%.

As of March 31, 2001, our fleet consisted of over 7,400 natural gas
compressors ranging in size up to 3,400 horsepower, with an average of 253
horsepower, as reflected in the following table:

TOTAL HORSEPOWER % OF HORSEPOWER NUMBER OF UNITS
AS OF MARCH 31, AS OF MARCH 31, AS OF MARCH 31,
-------------------- ---------------- ----------------
HORSEPOWER RANGE 2000 2001 2000 2001 2000 2001
---------------- ------- --------- ----- ----- ------ ------

0-99.......................... 60,294 203,123 8.8 10.8 902 3,083
100-299....................... 205,760 444,836 30.0 23.6 1,132 2,625
300-599....................... 131,430 328,378 19.1 17.4 331 864
600-999....................... 113,469 327,788 16.5 17.4 153 452
1,000 and over*............... 176,030 581,463 25.6 30.8 127 440
------- --------- --- --- ----- -----
Total............... 686,983 1,885,588 100% 100% 2,645 7,464

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

* The average size of the KCI fleet currently is approximately 1,090 horsepower.
If this acquisition is consummated, it will increase our horsepower in the
1,000 and over category to over 700,000 horsepower and 549 units, constituting
approximately 35% of our total horsepower. We expect that KCI's fleet will
increase by approximately 10,500 horsepower prior to the closing of that
transaction.

Our 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
overhaul operations, which enables us to achieve high run-time rates
while maintaining low operating costs, a benefit to us and to 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. The Ajax design enables these compressors to 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 and Gemini compressors powered by Caterpillar or Waukesha engines. These
compressors operate at higher speeds and, although larger than the lower
horsepower compressors, also 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 all segments of the production,
gathering and transportation process. We believe our rental fleet is in
excellent condition as we provide comprehensive maintenance on virtually all of
our operating units.

Domestic Operations

As of March 31, 2001, we own one of the largest domestic rental fleets of
natural gas compressors, comprising approximately 1.6 million horsepower and
over 7,000 units. As of such date, we have compressor

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services operations in 27 states and operate out of 48 sales and service
locations in every significant natural gas producing region in the U.S. 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.

In addition, we believe that our parts sales and service business, which
has grown significantly as a result of our Weatherford Global and IEW
acquisitions, will provide us with valuable opportunities to cross-sell our
compression rental services and fabrication capabilities as we are introduced to
potential new customers.

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

When a salesperson is advised of a new compression service opportunity,
that salesperson obtains relevant information concerning the project including
gas flow, pressure and gas composition. The salesperson will then search a
computerized data base to determine the availability of an appropriate
compressor unit in our fleet for that project. If an appropriate compressor is
available, it is immediately deployed. If a unit requires maintenance or
reconfiguration, our maintenance personnel will service it as quickly as
possible to meet the needs of the customer. If providing the appropriate unit
would entail significant overhaul cost, the salesperson will communicate with
the customer, engineering and field service personnel and a supervisor to
determine the timing and cost 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 significantly expanded our international
operations, particularly in Argentina, Canada, Thailand, Mexico, Australia,
Venezuela, Peru and Brazil in large part as a result of our Weatherford
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Global acquisition. As of March 31, 2001, we had 347 units aggregating
approximately 232,755 horsepower operating under contract in these markets. Our
recent acquisition of Compressor Systems International in April 2001 added an
additional approximately 34,000 horsepower to our fleet in Argentina and Mexico.
We expect that we will continue to expand our presence in these markets, and we
will pursue opportunities in other strategic international areas, including
other South American and Southeast Asian countries. For the year ended March 31,
2001, approximately 15.1% of our rental revenue and 16.0% of our total revenue
was generated from international operations.

International compression service projects usually generate higher margins
for us. Our international operations are focused on large horsepower compressor
markets and frequently involve longer-term and more comprehensive service
projects than our domestic projects. International projects generally require us
to provide complete engineering and design in the proposal process. Our
extensive engineering and design capabilities and reputation for high quality
fabrication give us a competitive advantage in these markets. In addition, our
high bay fabrication facility, as well as the facilities and larger horsepower
expertise we will acquire through our acquisition of KCI, positions us to be
able to meet increasing demand for these services and products in the future. We
are in the process of expanding our high-bay fabrication facility in Houston,
Texas to double its size, which we expect to complete this summer. In addition,
we hope to leverage the international contacts of Weatherford International, as
our significant stockholder, to develop additional international compression
customers and projects. International service agreements differ significantly
from domestic service agreements as individual contracts are negotiated for each
project.

Operations, Maintenance and Overhaul Services

We provide a comprehensive contract compression service, which includes
rental, operation and maintenance services, for most of our larger horsepower
units, including our international units, and also on units owned by our
customers. When providing these full contract compression services, we work
closely with a customer's field service personnel so that the compressor can be
adjusted to efficiently match changing characteristics of the gas produced. We
generally operate the large horsepower compressors, and include the operations
fee as part of its rental rate. Large horsepower units are more complex, and by
operating the equipment ourselves, we reduce 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 currently maintain major overhaul and repackaging facilities in
Edmonton, Alberta, Canada and in Yukon, Oklahoma and Schulenberg, Texas, in
addition to our fabrication and repackaging facility in Houston, Texas.
Following our Weatherford Global acquisition, we closed a number of facilities
and intend to close others, including our fabrication, overhaul and repackaging
facility in Corpus Christi, Texas, and are combining some of our operating
activities to achieve the cost savings and synergies referred to in this
prospectus. We also maintain 48 sales and service locations. 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 preventive maintenance repair and general up-keep of
compressor equipment. As a complement to our maintenance business, we offer
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 currently have approximately 600 trained and equipped field service
representatives and mechanics located throughout the United States and
approximately 300 such representatives in international locations. The field
service representatives are responsible for preventive maintenance, repair,
preparation and installation of rental units and perform major overhauls of
units in the field whenever it is economically feasible. Major overhaul and unit
rework is also performed 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.
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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 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 that is involved in our
comprehensive service proposals and monitors our larger horsepower units. This
group uses technologically advanced diagnostic equipment that permits
sophisticated field and remote diagnostic analyses of engines and compressors,
as well as emission analyses to ensure compliance with regulatory requirements.

Fabrication

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 primary fabrication facilities are located in Houston and
Schulenberg, Texas and in Calgary, Alberta, Canada. In April 1999, we completed
construction of a new 20,000 square foot heavy capacity fabrication shop and
paint booth in Houston, and we are in the process of expanding this facility to
double its size. This facility enhances our ability to expand our fleet of
higher horsepower compressors and allows us to fabricate units typically used in
pipeline operations. Our pending acquisition of KCI will provide us with an
additional 100,000 square foot fabrication facility.

When servicing our fabrication customers, we provide compressors that are
built in accordance with specific criteria of the customer as well as prepacked
compressors. 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. For the year ended March 31, 2001, approximately 26.5% or
$61.8 million of our total revenues were generated from fabrication operations.

We do not incur material research and development expenditures, as research
and development activities are not a significant aspect of our business. All
research and development costs are expensed as incurred.

Parts Sales and Service

Our parts sales and service business, which grew dramatically as a result
of our Weatherford Global and IEW acquisitions in February 2001, sells
compressor parts and services for customer-owned compression equipment. We
believe this business will continue to be a growth area for us in the future,
and will provide valuable cross-selling opportunities for our compression rental
services and fabrication capabilities. For the year ended March 31, 2001, we
generated $21.5 million in revenues, or 9.2% of our total revenues, from this
segment of our business.

Our inventory of parts is available either over-the-counter through our 14
service locations in the U.S. and 4 in Canada, on a bid basis for larger orders,
or as part of our compressor maintenance service. Our maintenance services are
available on an individual call basis, on a contract basis (which may cover a
particular unit, an entire compression project or all of the customer's
compression projects) or as part of our comprehensive operation and maintenance
service. We also provide offshore maintenance and service. In addition, we
provide overhaul and reconfiguration services for customer-owned compression
equipment, either on-site or in our overhaul shops.

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FACILITIES

The following table describes the material facilities owned or leased by
Universal as of May 1, 2001:

SQUARE
LOCATION FEET ACREAGE STATUS USES
-------- ------- ------- ------ ----

Houston, Texas.................. 114,000 30.0 Owned Corporate headquarters, rental,
sales, service, repackaging and
fabrication
Calgary, Alberta, Canada........ 105,760 9.22 Owned Rental, sales, service,
fabrication and overhaul
Corpus Christi, Texas*.......... 92,000 24.3 Owned Rental, sales, service,
repackaging, fabrication and
overhaul
Yukon, Oklahoma................. 72,000 14.7 Owned Rental, sales, service and
overhaul
Schulenberg, Texas.............. 23,000 13.3 Owned Repackaging, overhaul and
fabrication
Broussard, Louisiana............ 24,700 10.0 Leased Rental, sales, service and
overhaul

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

* We expect to close this facility later this year.

In addition, we will add a 100,000 square foot fabrication facility in
Tulsa, Oklahoma as a result of our pending acquisition of KCI. None of our owned
or leased facilities listed above are pledged as collateral to secure
indebtedness other than pursuant to immaterial amounts under industrial revenue
bonds with respect to two facilities.

CUSTOMERS

Our current customer base consists of over 1,000 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 some 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 the fiscal year ended March 31, 2001, no single customer accounted for
as much as 10% of our total revenues. Our top 20 customers accounted for
approximately 41.6% of our rental revenues in fiscal year 2001.

SUPPLIERS

Our principal suppliers include Caterpillar and Waukesha for engines, Air
Xchangers for coolers, and Ariel and Gemini for compressors. We also purchase a
significant number of Cooper compressors in Canada for sale to customers.
Although we rely primarily on these suppliers, we believe alternative sources
are generally available. We have not experienced any material supply problems to
date, and we believe our relations with our suppliers are good.

In addition, in December 1999, Weatherford Global sold its Gemini
compressor manufacturing operations in Corpus Christi, Texas to GE Packaged
Power. Under the terms of that sale, Weatherford Global agreed to purchase from
GE Packaged Power $38.0 million of compressor components over five years and
$3.0 million of parts over three years, and GE Packaged Power agreed to provide
compressors to Weatherford Global during that time period at negotiated prices.
As of March 31, 2001, $10.6 million of components and $5.5 million of parts had
been purchased.

BACKLOG

As of March 31, 2001, we had a compressor unit fabrication backlog for sale
to third parties of approximately $34.2 million, compared to $11.1 million as of
March 31, 2000. We estimate that as of
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April 30, 2001, KCI's fabrication backlog was approximately $72 million. A
majority of the backlog is expected to be produced within a 180-day period.
Generally, units to be sold to third parties are assembled according to each
customer's specifications and sold on a turnkey basis. We purchase components
for these compressor units from third party suppliers.

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 a comprehensive insurance program. 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,
many of our service contracts shift certain risks to our customers.

COMPETITION

The natural gas compressor rental, maintenance, parts sales and service and
fabrication businesses are highly competitive. We face competition from large
national and multinational companies with greater financial resources and, on a
regional basis, from numerous smaller companies.

Our main competitors in the compression rental business are Hanover
Compressor Company, Production Operators, Inc. (a subsidiary of Schlumberger
Limited) and Compressor Systems, Inc. In addition, Weatherford and its
subsidiaries may continue to compete with us as they are not contractually
restricted from doing so. In our fabrication activities, we currently compete
primarily with Hanover, Compressor Systems, KCI, Inc. and Enerflex Systems, Ltd.
Our parts sales and service business faces competition from manufacturers
including Cooper Cameron, Dresser-Rand and Hanover, from distributors of
Caterpillar and Waukesha engines, from a number of smaller companies and, in
Canada, from Enerflex.

We believe that we compete effectively on the basis of customer service,
including the availability of our personnel in remote locations, price,
technical expertise, parts service system, flexibility in meeting customer needs
and quality and reliability of our compressors and related services.

ENVIRONMENTAL AND OTHER REGULATIONS

We are subject to stringent and complex federal, state and local laws and
regulations regarding the environment, emission controls and other environmental
protection as well as employee health and safety concerns. Compliance with these
laws and regulations may affect the costs of our operations. Moreover, failure
to comply with these environmental laws and regulations may result in the
imposition of administrative, civil, and criminal penalties. Not all of our
properties may be in full compliance with all applicable environmental
requirements. However, as part of the regular evaluation of our operations, we
are updating the environmental condition of our existing and 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 more
stringent 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 business, financial condition or results of operations.

Under the Comprehensive Environmental Response, Compensation, and Liability
Act, referred to as "CERCLA," and comparable state laws and regulations, strict
and, under certain circumstances, 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
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substances released at the site. Under CERCLA, such persons (which may include
us) may be liable for the costs of remediating the hazardous substances that
have been released into the environment and for damages to natural resources. In
addition, where contamination may be present 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, treatment, transfer and disposal of
hazardous and nonhazardous 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 remediation 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. We have
performed in the past, and may perform in the future, certain remediation
activities governed by environmental laws. The cost of this remediation has not
been material to date and we currently do not expect it to be. We are currently
undertaking groundwater monitoring at certain of our facilities, which may
further define remedial obligations. Certain of our acquired properties may also
warrant groundwater monitoring and other remedial activities. We believe that
former owners and operators of many of these properties may be responsible under
environmental laws and contractual agreements to pay for or perform remediation,
or to indemnify us for our remedial costs. These other entities may fail to
fulfill their legal or contractual obligations, which 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 certain losses or liabilities 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.
Proposed federal regulations, if promulgated in their current form, are expected
to impose or increase obligations of operators to reduce emissions of nitrogen
oxides from internal combustion engines in transmission service. In most cases,
these obligations would be allocated to our customers under the above-mentioned
contracts.

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 remediation
requirements. Accordingly, new environmental laws or regulations or amendments
to existing environmental laws or regulations (including, but not limited to,
regulations concerning ambient air quality standards, waste water and storm
water discharge, and global climate change) could require us to undertake
significant capital expenditures and could otherwise have a material adverse
effect on our business, results of operations and financial condition.

Our international 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.

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

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may ultimately be the subject of such taxes, it is not possible to determine
whether any such tax will have a material adverse effect on us.

EMPLOYEES AND LABOR RELATIONS

As of March 31, 2001, we had approximately 1,200 domestic employees and 450
international employees. We intend to reduce our workforce by an additional 100
employees upon completion of various transition and integration activities
resulting from our Weatherford Global acquisition. We believe our relationship
with our employees is good. Approximately 100 of our employees in Canada are
covered by a collective bargaining agreement, which expires in June 2002.

LITIGATION AND OTHER LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date
of this prospectus, we were not party to any legal proceedings which, if
determined adversely to us, individually or in the aggregate, would have a
material adverse effect on our results of operations or financial position.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the name, age and position of each of our
directors and executive officers as of June 1, 2001.

NAME AGE POSITION DIRECTOR SINCE TERM EXPIRES
---- ---- -------- -------------- ------------

Stephen A. Snider............ 53 President, Chief Executive 1998 2002
Officer and Director
Ernie L. Danner.............. 47 Executive Vice President and 1998 2002
Director
Richard W. FitzGerald........ 47 Senior Vice President and * *
Chief Financial Officer
Mark L. Carlton.............. 45 Senior Vice President and * *
General Counsel
Jack B. Hilburn, Jr. ........ 56 Senior Vice President of * *
Operations of Universal
Compression, Inc.
Kirk E. Townsend............. 43 Senior Vice President of * *
Sales of Universal
Compression, Inc.
Hanford P. Jones............. 49 Senior Vice President of * *
Engineered Products of
Universal Compression, Inc.
Samuel Urcis................. 66 Director and Chairman of the 1998 2003
Executive Committee of the
Board
Thomas C. Case............... 52 Director 1999 2001
John K. Castle............... 60 Director 1998 2003
Bernard J. Duroc-Danner...... 47 Director 2001 2003
Uriel E. Dutton.............. 70 Director 2001 2001
Curtis W. Huff............... 43 Director 2001 2002
C. Kent May.................. 61 Director 1998 2001
William M. Pruellage......... 27 Director 2000 2003
Edmund P. Segner, III........ 47 Director 2000 2002

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

* Not applicable.

Stephen A. Snider. Mr. Snider has served as our President since
consummation of the Tidewater Compression acquisition in 1998, and serves on our
board of directors. 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 over 25 years of experience in
senior management of operating companies, and also serves as a Director of
Energen Corporation. Mr. Snider is a member of the Executive Committee of our
Board of Directors.

Ernie L. Danner. Mr. Danner joined us as Chief Financial Officer and
Executive Vice President upon consummation of the Tidewater Compression
acquisition. Mr. Danner also serves on our board of directors. In April 1999,
Mr. Danner's duties as Chief Financial Officer were assumed by Richard
FitzGerald, and Mr. Danner became our Executive Vice President. Prior to joining
us, 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

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President, Chief Financial Officer and Treasurer of INDSPEC Chemical Company and
he also served as a director of INDSPEC.

Richard W. FitzGerald. Mr. FitzGerald has served as our Senior Vice
President and Chief Financial Officer 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 time, 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.

Mark L. Carlton. Mr. Carlton joined us as Senior Vice President and
Co-General Counsel in October 2000 and, effective December 8, 2000, became our
Senior Vice President and General Counsel. From 1982 until April 2000, Mr.
Carlton held various legal positions with Mobil Corporation and its affiliates,
serving most recently as Senior Counsel for Mobil Business Resources
Corporation.

Jack B. Hilburn, Jr. Mr. Hilburn has served as Senior Vice President of
Operations of UCI since April 1999. Mr. Hilburn is responsible for all field
operations, overhaul shops and warehouses. Mr. Hilburn joined UCI 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. Mr. Townsend has been Vice President of Sales of UCI
since October 1999, and was promoted to Senior Vice President in February 2001.
Mr. Townsend is responsible for all sales activities both domestic and
international. Mr. Townsend joined UCI in 1979 as a domestic sales
representative. In 1986, he became an international sales representative for
UCI. 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.

Hanford P. Jones. Mr. Jones has been Vice President of Engineered Products
for UCI since April 1999, and became a Senior Vice President in February 2001.
Mr. Jones is responsible for all engineering and fabrication production of UCI's
packaging division. Mr. Jones joined UCI in January 1999 as General Manager of
Engineered Products. From May 1998 to January 1999, Mr. Jones performed
engineering and pipeline operation consulting services for various companies.
Prior to May 1998, Mr. Jones was employed by NorAm Energy Corporation for a
period in excess of 18 years in various capacities, including Region Manager of
NorAm's Western Region, and later as Chief Engineer and Engineering Manager. Mr.
Jones has over 25 years of engineering and management experience in the oil and
gas industry.

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

Samuel Urcis. Mr. 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 our director pursuant to an agreement entered into
in connection with the Tidewater Compression acquisition. Mr. Urcis is a member
of the Executive and Compensation Committees of our Board of Directors.

Thomas C. Case. Mr. 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
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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. Mr. Case is a member of the Audit Committee of
our Board of Directors.

John K. Castle. 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., one of our significant stockholders, and of Castle Connolly
Medical Ltd. and Castle Connolly Graduate Medical Publishing, LLC. He serves as
Chairman and Chief Executive Officer of Branford Castle, Inc., an investment
holding company. Immediately prior to forming Branford Castle, 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., Statia Terminals Group, N.V., Commemorative Brands, Inc., AdobeAir
Holdings, Inc., Wilshire Restaurant Group, Inc. and Equipment Support Services.
Mr. Castle is a member of the Corporation of the Massachusetts Institute of
Technology and a trustee of the New York Presbyterian Hospital, Inc. and the
Whitehead Institute of Biomedical Research. Formerly, Mr. Castle was a Director
of The Equitable Life Assurance Society of the United States and the New York
Medical College (for 11 years he was Chairman of the Board). Mr. Castle is a
member of the Executive and Compensation Committees of our Board of Directors.

Bernard J. Duroc-Danner. Mr. Duroc-Danner joined Weatherford
International, Inc. in May 1987 to initiate the start-up of Weatherford's
oilfield service and equipment business through EVI, Inc. He was elected EVI's
President in January 1990 and Chief Executive Officer in May 1990. In connection
with the merger of EVI, Inc. with Weatherford Enterra, Inc. in May 1998, Mr.
Duroc-Danner was elected as Weatherford International Inc.'s Chairman of the
Board, President and Chief Executive Officer. Mr. Duroc-Danner holds a Ph.D. in
economics from Wharton (University of Pennsylvania). In prior years, Mr. Duroc-
Danner held positions at Arthur D. Little and Mobil Oil Inc. Mr. Duroc-Danner is
a director of Parker Drilling Company (an oil and gas drilling company),
Cal-Dive International, Inc. (a company engaged in subsea services in the Gulf
of Mexico) and Dresser, Inc. (a provider of highly engineered equipment,
primarily for the energy industry). Mr. Duroc-Danner is also Chairman of the
Board of Grant Prideco, Inc. (a provider of drill pipe and other drill stem
products). Grant Prideco was a wholly owned subsidiary of Weatherford until
April 14, 2000, when Weatherford distributed all of the outstanding shares of
Grant Prideco to its stockholders. Mr. Duroc-Danner is a member of the Executive
Committee of our Board of Directors.

Uriel E. Dutton. Mr. Dutton has been counsel to and a partner with the law
firm of Fulbright & Jaworski L.L.P. for more than the past five years where his
practice focuses on real estate and oil and gas matters. Mr. Dutton is a member
of the Audit Committee of our Board of Directors.

Curtis W. Huff. Mr. Huff was elected President, Chief Executive Officer
and a Director of Grant Prideco, Inc. on February 5, 2001. Previously, he served
as Executive Vice President and Chief Financial Officer of Weatherford
International, Inc. since January 2000, and served as its General Counsel and
Secretary since May 1998. Prior to that time, Mr. Huff was a partner with the
law firm of Fulbright & Jaworski L.L.P., Weatherford's counsel, and held that
position for more than five years. Mr. Huff is a director of UTI Energy Corp.
(an oil and gas drilling company). Mr. Huff is a member of the Compensation
Committee of our Board of Directors.

C. Kent May. Mr. 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. He has been an associate, partner or
member of the law firm of Eckert Seamans Cherin & Mellott, L.L.C. since 1964 and
was Managing Partner of the firm from 1991 to 1996. Mr. May is a member of the
Audit Committee of our Board of Directors.

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William M. Pruellage. Mr. Pruellage is a Vice President of 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. Mr. Pruellage is
also a director of Wilshire Restaurant Group, Inc. and Commemorative Brands,
Inc. Mr. Pruellage is a member of the Compensation Committee of our Board of
Directors.

Edmund P. Segner, III. Mr. Segner has served as President and Chief of
Staff of EOG Resources since August of 1999. He joined Enron Corporation in 1988
as Vice President of Public and Investor Relations. He later served as Executive
Vice President and Chief of Staff until 1997 when he moved to Enron Oil & Gas
Company as Vice Chairman and Chief of Staff. Mr. Segner is a Certified Public
Accountant and a member of the Houston Society of Financial Analysts. He is also
a director and member of the Executive Committee of the Domestic Petroleum
Council. Mr. Segner serves as Chairman of the Audit Committee of our Board of
Directors.

No family relationship exists between any of our executive officers or
between any of them and any of our directors.

BOARD COMMITTEES

Our Board of Directors has established three committees -- an Executive
Committee, an Audit Committee, and a Compensation Committee. The Audit Committee
is comprised entirely of non-employee directors.

The Executive Committee, to the extent permitted under Delaware law, has
all powers and rights of our board of directors. The current members of the
Executive Committee are Messrs. Urcis (Chairman), Castle, Duroc-Danner 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:

- select, retain and dismiss our independent auditors,

- review the plans, scope and results of our 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,

- review our quarterly and annual SEC filings and earnings releases,

- manage our policies and procedures with respect to internal accounting
and financial controls and

- review any changes in accounting policy.

The current members of the Audit Committee are Messrs. Segner (Chairman), Case,
Dutton and May.

The Compensation Committee is authorized and directed to review and approve
the compensation and benefits of our 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. The Compensation Committee is also
responsible for the administration of our benefit plans. The current members of
the Compensation Committee are Messrs. Castle, Huff, Pruellage and Urcis.

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EXECUTIVE COMPENSATION

The following table sets forth the annual and long-term compensation for
fiscal 2001, 2000 and 1999 for our Chief Executive Officer, our other four
highest paid officers and a former officer who would have been one of our
highest paid officers had she been employed by us at the end of our most recent
fiscal year:

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------- SECURITIES ALL OTHER
FISCAL SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#) ($)
--------------------------- ------ ------- ------- ------------ ------------

Stephen A. Snider...................... 2001 222,917 350,437 161,007 17,159(1)
President & Chief Executive Officer 2000 170,000 35,000 -- 15,000(1)
1999 170,000 43,890 49,145 41,965(1)
Ernie L. Danner........................ 2001 69,250 232,365 104,057 310,019(2)
Executive Vice President 2000 37,875 -- -- 6,226(2)
1999 135,000 43,080 35,491 23,055(2)
Richard W. FitzGerald(3)............... 2001 178,333 232,365 90,333 12,506(4)
Senior Vice President & Chief 2000 146,049 20,000 16,379 34,132(4)
Financial Officer 1999 -- -- -- --
Kirk E. Townsend....................... 2001 163,750(5) 170,023 64,286 14,959(6)
Senior Vice President of Sales of 2000 229,521(5) 15,000 11,508 21,878(6)
Universal Compression, Inc. 1999 154,436(5) -- 2,970 9,331(6)
Jack B. Hilburn, Jr. .................. 2001 148,333 160,577 65,333 9,464(7)
Senior Vice President of Operations
of 2000 110,000 15,000 16,379 4,843(7)
Universal Compression, Inc. 1999 91,250 17,310 6,682 7,774(7)
Valerie L. Banner...................... 2001 92,443 87,690 30,333 157,159(9)
Former Senior Vice President & 2000 100,000 15,000 -- 4,435(9)
General Counsel(8) 1999 83,350 17,708 16,379 2,375(9)

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

(1) Includes (a) matching contributions to Mr. Snider's 401(k) account of $6,688
during fiscal 2001 and $5,100 during each of fiscal 2000 and fiscal 1999,
(b) $3,876 in health premiums paid on behalf of Mr. Snider under its
executive medical plans during each of fiscal 1999, 2000 and 2001, (c)
payments made on behalf of Mr. Snider pursuant to our Supplemental Savings
Plan of $4,063 during fiscal 2001 and $3,187 during fiscal 2000 and fiscal
1999 and (d) $29,800 paid to Mr. Snider for moving expenses during fiscal
1999.

(2) Includes (a) matching contributions to Mr. Danner's 401(k) account of $2,078
during fiscal 2001, $1,136 during fiscal 2000 and $4,050 during fiscal 1999,
(b) $3,876 in health premiums paid on behalf of Mr. Danner under our
executive medical plan during each of fiscal 2001, 2000 and 1999, (c)
payments made on behalf of Mr. Danner pursuant to our Supplemental Savings
Plan of $169 during fiscal 1999 and (d) a payment of $300,000 in shares of
our common stock during fiscal 2001.

(3) Mr. FitzGerald joined us in April 1999.

(4) Includes (a) matching contributions made to Mr. FitzGerald's 401(k) account
of $5,350 during fiscal 2001 and $3,750 during fiscal 2000, (b) health care
premiums paid on behalf of Mr. FitzGerald under our Executive Medical Plan
of $3,876 in fiscal 2001 and $3,553 in fiscal 2000, (c) payment made on
behalf of Mr. FitzGerald pursuant to our Supplemental Savings Plan of $2,844
in fiscal 2001 and $750 during fiscal 2000 and (d) $25,886 paid to Mr.
FitzGerald for moving expenses in fiscal 2000.

(5) Includes sales commissions.

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(6) Includes (a) matching contributions made to Mr. Townsend's 401(k) account of
$4,913 during fiscal 2001, $6,886 during fiscal 2000 and $7,051 during
fiscal 1999, (b) $3,876 in health care premiums paid on behalf of Mr.
Townsend under our Executive Medical Plan during fiscal 2001 and fiscal
2000, (c) payment made on behalf of Mr. Townsend to our Supplemental Savings
Plan of $413 during fiscal 2001 and $2,543 during fiscal 2000, (d) an
automobile allowance paid to Mr. Townsend of $5,646 during fiscal 2001,
$4,281 during fiscal 2000 and $4,068 during fiscal 1999 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
$2,963 during fiscal 2001 and $2,225 during fiscal 1999, (b) health care
premiums paid on behalf of Mr. Hilburn of $3,876 in each of fiscal 2001,
fiscal 2000 and fiscal 1999 and (c) an automobile allowance paid to Mr.
Hilburn of $2,118 in fiscal 2001, $720 in fiscal 2000 and $1,341 in fiscal
1999.

(8) Ms. Banner served as Senior Vice President and General Counsel until
December 2000.

(9) Includes (a) matching contributions to Ms. Banner's 401(k) account of $2,525
during fiscal 2001, $3,000 during fiscal 2000 and $2,250 during fiscal 1999,
(b) $2,584 in health premiums paid on behalf of Ms. Banner during fiscal
2001 and $323 during fiscal 2000, (c) payments made on behalf of Ms. Banner
pursuant to our Supplemental Savings Plan of $1,430 during fiscal 2001 and
$1,000 during fiscal 2000 and (d) $150,313 in severance paid to Ms. Banner
as a result of our termination of her employment agreement without cause
during fiscal 2001.

DIRECTORS' COMPENSATION

Directors other than our officers, those designated by Castle Harlan and
Mr. Duroc-Danner and Mr. Huff receive an annual director fee of $20,000, $750
per board of directors or committee meeting attended and reasonable
out-of-pocket expenses. Currently, five of our directors are entitled to this
compensation. Directors are not otherwise compensated for their services.

BENEFIT PLANS

We maintain a 401(k) employee retirement savings plan for the benefit of
our employees. We pay all administrative costs of the plan and match employee
contributions at a rate of 50% for the first 6% of salary contributed by the
employee. We have authorized the amendment of this plan to allow for our
matching contributions to be in the form of shares of our common stock. We also
maintain deferred compensation plans for certain key employees.

In February 1998, we adopted an incentive stock option plan to advance our
interests and to improve stockholder value by providing additional incentives to
motivate and retain key employees. Under this incentive stock option plan, as
amended, we can grant options totaling 3,012,421 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. Key employees, non-employee directors and consultants are eligible
to receive options under this incentive stock option plan.

In April 2001, our board of directors authorized a stock grant plan,
contingent upon approval of our stockholders, to help us attract and retain key
employees. The stock grant plan permits the granting of shares of our common
stock to our officers and key employees. Stock grants under the plan generally
will vest at the rate of 25% per year in each year following the first
anniversary date of the grant. Subject to stockholder approval of this plan at
our next annual meeting on August 16, 2001, initial grants to officers of an
aggregate of 110,000 shares of our common stock were approved.

Our board of directors also authorized, subject to approval of our
stockholders, the adoption of a discounted stock purchase plan. This plan would
permit our eligible employees to purchase shares of our common stock at a 15%
discount and without brokerage fees, subject to various limitations.

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We also maintain a supplemental savings plan and an executive medical plan
for our executive officers. The supplemental savings plan allows our executives
to defer a percentage of their salary and bonus, with us matching the first 3%
of compensation that is deferred. Matched amounts under the plan are not subject
to any vesting requirements. The executive medical plan supplements our general
medical plan by covering deductibles and co-payments of our executives up to an
annual maximum of $5,000 for each participant.

EMPLOYMENT AGREEMENTS

With the exception of Richard FitzGerald, our senior vice president and
chief financial officer, none of our officers have employment agreements. We
entered into the employment agreement with Mr. FitzGerald, effective April 12,
1999, pursuant to which Mr. FitzGerald is entitled to a current annual base
salary of $205,000, plus a target bonus of up to 60% of such base salary. Mr.
FitzGerald's employment agreement has an initial term of three years. If during
the stated duration or any extension of duration, a "change of control" of us
occurs, the agreement automatically extends to a date that is the second
anniversary of the change of control. In addition, the agreement provides that
if Mr. FitzGerald is terminated without cause during the initial term, he will
be paid for the remainder of the term, plus a bonus amount based on his previous
bonuses. Pursuant to Mr. FitzGerald's employment agreement and our officers'
incentive plan, bonuses are payable based on our safety record and financial
performance, plus a discretionary component. This agreement also places
restrictions on the ability of Mr. FitzGerald to disclose confidential
information, to compete against us and to hire or solicit certain of our
employees if his employment with us is terminated.

We also had an employment agreement with Valerie Banner, who served as our
Senior Vice President and General Counsel, which provided for an annual base
salary of $135,000, plus a target bonus of up to 50% of her base salary. We
terminated this agreement without cause effective December 8, 2000. Pursuant to
the terms of the agreement, we paid to Ms. Banner a lump sum severance payment
equal to the sum of her annual base salary as of the time of termination of the
agreement and the average of the annual bonuses she has received. Ms. Banner
also received a bonus prorated through December 8, 2000. Ms. Banner will
continue to assist us as needed with our new financing arrangements and other
legal matters for a reasonable hourly fee.

In addition, we have agreed that Stephen Snider, our president and chief
executive officer, and his spouse will be entitled to continue to participate,
at our expense, in our medical benefit plan following his retirement so long as
he remained an active employee of ours until retirement.

CHANGE OF CONTROL AGREEMENTS

We have entered into change of control agreements with Messrs. Carlton,
Hilburn and Townsend. Pursuant to these 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 re-elect a majority of the members of
our board of directors. These agreements also restrict the ability of these
individuals to compete against us.

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PRINCIPAL AND SELLING STOCKHOLDERS

Set forth below is information as of June 1, 2001 regarding the beneficial
ownership of our common stock and the percentage of outstanding shares
beneficially owned by

- the selling stockholders,

- any person known by us to own more than five percent of our voting
securities,

- all of our directors,

- each of our named executive officers identified in the Summary
Compensation Table and

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

Beneficial ownership is determined in accordance with the rules of the SEC.
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, including
outstanding stock options, are treated as outstanding only for purposes of
determining the percentage owned by such person or group, but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person. The address for each executive officer and director set forth below is
c/o Universal Compression Holdings, Inc., 4440 Brittmoore Road, Houston, Texas
77041. These amounts assume that the underwriters' overallotment option is not
exercised.

SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED FOLLOWING THIS
PRIOR TO THIS OFFERING SHARES OFFERING
-------------------------- OFFERED IN -----------------------
PERCENTAGE THIS PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OWNED(1) OFFERING NUMBER OWNED(1)
------------------------------------ ---------- ---------- ---------- ---------- ----------

WEUS Holding, Inc.(2)....................... 13,750,000 48.3%(2) -- 13,750,000 46.1%
515 Post Oak Boulevard, Suite 600
Houston, Texas 77027-3415
Castle Harlan Partners III, L.P. and
affiliates(3)(4).......................... 5,649,186(5) 19.8% 1,545,906(3) 1,895,302(6) 6.3%
150 East 58th Street
New York, New York 10155
Mellon Bank, N.A., as trustee for the Bell
Atlantic Master Trust, as directed by
Verizon Investment Management
Company(7)(8)............................. 535,269 1.9% 267,646 267,623 *
695 Main Street, 6th Floor
Stamford, Connecticut 06912
First Union Capital Partners, Inc.(7)(9).... 535,269 1.9% 267,646 267,623 *
301 S. College Street, 12th Floor
One First Union Center
Charlotte, North Carolina 28288-0732
DB Capital Partners SBIC, L.P.(7)........... 535,269 1.9% 267,646 267,623 *
130 Liberty Street, 25th Floor
New York, New York 10006
State Street Bank & Trust, as Trustee of
DuPont Pension Trust(7)................... 535,269 1.9% 267,646 267,623 *
Delaware Corporate Center
1 Righter Parkway
Wilmington, Delaware 19803
Brown University Third Century Fund(7)...... 33,453 * 16,727 16,726 *
110 Elm Street
Providence, Rhode Island 02963
The LaBorde Family.......................... 66,898 * 33,449 33,449 *
601 Poydras, Suite 1637
New Orleans, Louisiana 70130

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Thomas C. Case.............................. 334 * -- 334 *
John K. Castle(4)........................... 5,649,186(10)(11) 19.8% 1,545,906(3) 1,895,302(6) 6.3%
Samuel Urcis(12)............................ 219,699 * -- 219,699 *
C. Kent May................................. 334 * -- 334 *
William M. Pruellage........................ 167 * -- 167 *
Edmund P. Segner III(13).................... -- * -- -- *
Bernard J. Duroc-Danner(14)................. -- * -- -- *
Curtis W. Huff(14).......................... -- * -- -- *
Uriel E. Dutton(14)......................... -- * -- -- *
Stephen A. Snider(15)....................... 143,605 * -- 143,605 *
Ernie L. Danner(16)......................... 160,192 * -- 160,192 *
Richard W. FitzGerald(17)................... 41,382 * -- 41,382 *
Jack B. Hilburn, Jr.(18).................... 40,111 * -- 40,111 *
Kirk E. Townsend(19)........................ 39,011 * -- 39,011 *
Valerie L. Banner(20)....................... 668 * -- 668 *
All directors and executive officers as a
group (16 persons)(21).................... 6,060,810(5)(11) 21.3% 1,545,906 2,307,594 7.7%

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

* Indicates less than 1% of the outstanding stock.

(1) Based upon 28,478,137 shares of our common stock outstanding as of June 1,
2001 and 29,816,956 shares of our common stock outstanding after this
offering and, in each case, 13,242 treasury shares issued that are not
counted as outstanding in calculating the beneficial ownership percentage.
If the maximum number of shares that may be issued in our acquisition of
KCI are issued, the number of shares outstanding following the offering and
consummation of the acquisition will be 30,538,743.

(2) WEUS is a direct, wholly owned subsidiary of Weatherford International,
Inc., a publicly traded company. Pursuant to a voting agreement, WEUS has
agreed to limit its voting power to 33 1/3% of our total outstanding common
stock until the earlier of two years from the closing of that acquisition
or the date that Castle Harlan and its affiliates own less than 5% of our
outstanding common stock. This voting agreement may terminate upon
completion of this offering if the underwriters' overallotment option is
exercised.

(3) Includes 1,468,423 shares offered by Castle Harlan Partners III, L.P.,
24,072 shares offered by Castle Harlan Offshore Partners III, L.P., 24,541
shares offered by Castle Harlan Affiliates III, L.P., 5,591 shares offered
by Frogmore Forum Family Fund, LLC, 9,723 shares offered by Branford Castle
Holdings, Inc., 4,861 shares offered by Leonard M. Harlan, 5,018 shares
offered by David H. Chow, 669 shares offered by Howard Weiss, 167 shares
offered by the Michael D. Weiss Trust, 167 shares offered by the Mark A.
Weiss Trust, 1,672 shares offered by Jeffrey M. Siegal (a former director
of our company), 669 shares offered by Marcel Fournier, 167 shares offered
by Sylvia Rosen and 167 shares offered by William J. Lovejoy.

(4) John K. Castle, one of our directors, 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. and its affiliates. 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.

(5) Includes 3,091,843 shares of common stock directly held by Castle Harlan
Partners III, L.P., and its affiliates, 2,174,529 shares of common stock
held by certain entities for which Castle Harlan Partners III, L.P. may
direct the voting pursuant to a voting agreement, 90,909 shares of common
stock directly held by Mr. Castle, 45,454 shares of common stock directly
held by Mr. Harlan, and 279,095 shares of common stock held by certain
other entities and individuals (which includes

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99,135 shares subject to options held by Samuel Urcis, one of our
directors, which are fully vested) for which Mr. Castle may direct the
voting pursuant to unrelated voting trust agreements under which Mr. Castle
acts as voting trustee. 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 the shares not directly held by it.

(6) Reflects the termination of the voting agreement referred to in note (5)
above.

(7) These stockholders are parties to the voting agreement referred to in note
(5), which will terminate upon completion of this offering.

(8)Verizon Investment Management Corp., a wholly-owned subsidiary of Verizon
Communications Inc., is an investment manager to the Bell Atlantic Master
Trust and has the power to direct the trustee of the Bell Atlantic Master
Trust with respect to the disposition of and the voting of these shares.

(9)Consists of 297,676 shares owned by First Union Capital Partners, Inc. and
237,593 shares owned by its affiliate, First Union Merchant Banking 1998-II,
LLC. First Union Merchant Banking is selling all of its shares in this
offering, with the remaining 30,053 shares being sold by First Union Capital
Partners.

(10) Includes 90,909 shares of common stock directly held by Mr. Castle, 45,454
shares of common stock directly held by Mr. Harlan and 279,095 shares of
common stock held by certain entities and individuals (which includes
99,135 shares subject to options held by Samuel Urcis which are fully
vested) for which Mr. Castle may direct the voting pursuant to voting trust
agreements under which Mr. Castle acts as voting trustee. 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 19,445 shares of common stock owned by Branford Castle Holdings,
Inc. subject to the voting trust.

(11) Includes 3,091,843 shares of common stock directly held by Castle Harlan
Partners III, L.P. and its affiliates and 2,174,529 shares of common stock
held by certain entities, the voting of which Castle Harlan Partners III,
L.P. currently controls pursuant to a voting agreement. This voting
agreement will terminate upon completion of this offering. All such shares
may be deemed to be beneficially owned by Mr. Castle. Mr. Castle disclaims
beneficial ownership of these shares.

(12) Includes 99,135 shares subject to options which are fully vested. Also
includes 40,146 shares of common stock owned by Castle Harlan Partners,
III, L.P., which shares Mr. Urcis has the option to purchase. All of Mr.
Urcis's shares are subject to a voting trust agreement with Castle Harlan.

(13) Mr. Segner joined our board of directors effective October 1, 2000.

(14) Messrs. Duroc-Danner, Huff and Dutton joined our board of directors on
February 9, 2001 in connection with our acquisition of Weatherford Global.

(15) Includes 110,152 shares of common stock subject to options, all of which
are fully vested.

(16) Includes 79,548 shares of common stock subject to options, all of which are
fully vested. Also includes 33,455 shares of common stock owned by Castle
Harlan Partners, which shares Mr. Danner has an option to purchase.

(17) Includes 40,045 shares of common stock subject to options, all of which are
fully vested.

(18) Includes 40,045 shares of common stock subject to options, all of which are
fully vested.

(19) Includes 30,794 shares of common stock subject to options, all of which are
fully vested.

(20)Ms. Banner served as our Senior Vice President and General Counsel until
December 2000.

(21) Includes an aggregate of 493,297 shares of common stock subject to options,
all of which are fully vested.

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RELATED TRANSACTIONS

ARRANGEMENTS WITH WEATHERFORD

Registration Rights Agreement. Concurrently with our acquisition of
Weatherford Global, we entered into a registration rights agreement with WEUS
Holding, Inc., an affiliate of Weatherford. Under this agreement, WEUS has the
right, on up to three occasions, to cause us to register at our expense WEUS's
shares of our common stock under the Securities Act at any time by providing a
written demand to us, subject to certain minimum dollar values. The registration
rights agreement also provides WEUS with certain "piggyback" registration
rights, or rights to require us, subject to certain limitations, to include its
shares of our common stock in other registration statements that we may file.
Weatherford has elected to not to exercise its piggyback registration rights in
connection with this offering.

Voting Agreement. We also entered into a voting agreement with WEUS
concurrently with the Weatherford Global acquisition that provides that until
the earlier of (1) February 9, 2003 or (2) the date that Castle Harlan and its
affiliates own less than 5% of our outstanding common stock, WEUS and its
affiliates will vote any shares of our common stock that they own in excess of
33 1/3% of our total outstanding shares in the same proportion that shares of
our stock owned by the public are voted. Shares owned by the public include all
shares of our common stock other than shares owned by WEUS, Castle Harlan and
their respective affiliates. This agreement will remain in effect upon
completion of this offering as Castle Harlan and its affiliates will own more
than 5% of our outstanding shares. If the underwriters exercise their
overallotment option in full, Castle Harlan and its affiliates will own less
than 5% of our outstanding shares and this voting agreement will terminate,
giving WEUS voting control over the full amount of our shares that it then owns.

Transitional Services Agreement. Concurrently with the closing of the
Weatherford Global acquisition, Weatherford and Weatherford Global, as our
subsidiary, entered into a transitional services agreement under which
Weatherford provided certain administrative and support services, such as shared
corporate office space and general communication and information services, to
Weatherford Global until June 9, 2001. Weatherford Global paid Weatherford
$125,000 for the first thirty days of these services. For the period subsequent
to the initial thirty days, Weatherford earned a fee based on a proportional
amount of Weatherford's costs and expenses in providing the services plus a 10%
management fee.

Board Representation. Weatherford, through WEUS, has the right to
designate three members to our board of directors for so long as it owns at
least 20% of our outstanding common stock. One WEUS nominee is a Class A
director with a term of office expiring in 2001, the second WEUS nominee is a
Class B director with a term of office expiring in 2002, and the third WEUS
nominee is a Class C director with a term of office expiring in 2003. If WEUS's
ownership of our common stock falls below 20%, WEUS may designate only two
directors, and if its ownership falls below 10%, it may no longer designate
directors to our board. WEUS's current designees to our board are Mr. Dutton
(Class A), Mr. Huff (Class B) and Mr. Duroc-Danner (Class C).

REGISTRATION RIGHTS AGREEMENTS

In connection with our acquisition of Tidewater Compression in 1998, we
entered into a registration rights agreement with Castle Harlan Partners and
some of our other stockholders (including certain of our directors and officers
and, subsequently, Energy Spectrum Partners, L.P.). Under this registration
rights agreement, these stockholders generally have the right to require us to
register any or all of their shares of our common stock under the Securities
Act, at our expense, subject to certain minimum dollar values. 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 under the Securities Act, that we propose to file with
respect to our common stock as certain of them have in this offering. In
addition, we entered into a registration agreement with the two former
stockholders of GCSI concurrently with our GCSI acquisition. This agreement
provides the former GCSI stockholders with two demands for shelf registrations,

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both of which have been filed. We also agreed in these agreements to indemnify
the stockholders against specified liabilities, including liabilities under the
Securities Act.

VOTING AGREEMENTS

In connection with the Tidewater Compression acquisition in 1998, 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. This agreement will
terminate upon completion of this offering. The voting trust agreements provide
that certain of our other stockholders, including some of our directors, assign
their shares of our common stock to a voting trust which has John K. Castle as
its trustee in exchange for interests in the trust. These agreements will
continue in effect following this offering, except as to shares sold in this
offering or otherwise. Prior to our initial public offering in May 2000, these
voting agreements and trusts also covered Energy Spectrum and our employees,
officers, and some of our directors. Currently, only two of our directors,
Samuel Urcis and William Pruellage, and none of our employees or officers, are
subject to a voting trust agreement. As a result of the voting agreement and the
voting trust agreements, Castle Harlan currently has voting control over
approximately 20% of our common stock. Following this offering, it will have
voting control over approximately 6% of our common stock. Under the indenture
governing our 9 7/8% senior discount notes, this constitutes a change of control
and the holders of the 9 7/8% of senior discount notes will have the right to
require us to repurchase their notes following the completion of this offering.

TERMINATION OF MANAGEMENT AGREEMENT AND CONSULTING AGREEMENT

In connection with our 1998 acquisition of Tidewater Compression, we also
entered into a management agreement with Castle Harlan, Inc. pursuant to which
Castle Harlan agreed to provide us with business and organizational strategy,
financial and investment management and merchant and investment banking
services. We agreed to pay Castle Harlan a fee for these services of $3.0
million per year. This fee was paid in advance for the first year and quarterly
in advance thereafter. The agreement was for a term of five years, renewable
automatically from year to year 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 its
gross negligence or willful misconduct. We paid Castle Harlan Inc. $3.0 million,
$750,000 and $3.0 million during the period from December 12, 1997 (inception)
through March 31, 1998 and the years ended March 31, 1999 and 2000,
respectively. As of March 31, 2000, 33,560 shares of common stock and 18,080
shares of preferred stock (which shares of preferred stock were subsequently
split and converted to 42,046 shares of common stock on May 30, 2000 in
connection with our initial public offering) held by our officers were subject
to repurchase requirements in the event of our termination of the officer
without "cause," disability or death as specified in the stock repurchase
agreement. We maintained an insurance policy to fund substantially all of our
obligations in the event of disability or death of these officers. This option
repurchase requirement was terminated upon completion of our initial public
offering. In addition, in consideration for certain finder services in
connection with our Tidewater Compression acquisition, we entered into a
finder's and consulting agreement with Samuel Urcis, one of our directors. Under
that agreement, Mr. Urcis was entitled to a consulting fee of $150,000 per year
in exchange for various consulting services, as well as a seat on our board and
options to purchase shares of our common stock. We paid Mr. Urcis $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.

This management agreement (other than the indemnification provisions) and
consulting agreement were terminated upon the completion of our initial public
offering in May 2000 in exchange for (1) our payment to Castle Harlan of $3.0
million in cash (one year's management fee) and our issuance to Castle Harlan of
136,364 shares of our common stock, which shares are subject to registration
rights and (2) our payment to Mr. Urcis of $150,000 in cash (one year's
consulting fee) and our issuance to Mr. Urcis of 6,818 shares of our common
stock, which shares are also subject to registration rights. 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.
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We also have agreed with Castle Harlan to nominate a total of three Castle
Harlan designees for election to our board for so long as those 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). Although Castle Harlan will
lose this right upon completion of this offering, its current designees to our
board, Mr. Castle and Mr. Pruellage, serve terms expiring at our 2003 annual
meeting of stockholders.

TRANSACTIONS WITH ERNIE DANNER

In consideration for consulting services rendered by Ernie Danner, one of
our executive officers and directors, in connection with our Tidewater
Compression acquisition, Castle Harlan granted Mr. Danner a ten-year option to
purchase from it 14,850 shares of our common stock at a price of $6.73 per
share, and 18,605 shares of our common stock at a price of $21.50 per share.
Also, Castle Harlan agreed that upon its sale of more than 75% of the shares
that Castle Harlan owns of our outstanding common stock, Castle Harlan will pay
Mr. Danner $500,000 if it realizes a return in excess of 100%, or $750,000 if it
realizes a return in excess of 300%, of its initial investment in us. Upon
completion of our Tidewater Compression acquisition, we paid Mr. Danner for his
services $100,000 in cash and granted to him shares that were converted into
16,727 shares of our common stock, which shares are subject to registration
rights. Upon completion of our initial public offering in May 2000, we paid Mr.
Danner for his services 13,636 shares of our common stock, which shares are
subject to registration rights. As an officer, Mr. Danner also holds stock
options awarded by us.

TERMINATION OF PURCHASE PRICE ADJUSTMENT AGREEMENT

In connection with our acquisition of Tidewater Compression, we entered
into a Purchase Price Adjustment Agreement which provided that, upon the
occurrence of certain specified "liquidity events" (including certain sales of
our stock by Castle Harlan), we could be required to make payments to Tidewater.
We recently reached agreement with Tidewater to settle our acquisition-related
claims, which included costs for remediation pursuant to an environmental
assessment, in exchange for payment to us of $1 million and termination of the
purchase price adjustment agreement, thereby eliminating any obligation by us to
make a payment under that agreement.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 200,000,000 shares of common
stock, $.01 par value, and 50,000,000 shares of preferred stock, $.01 par value.
Our board of directors has authority, without any action on the part of our
stockholders, to issue and divide such preferred stock into one or more series
and has broad authority to fix and determine the relative rights and
preferences, including the voting rights of the shares of each such series. No
shares of our preferred stock are currently outstanding.

COMMON STOCK

Holders of our common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders, including the election of
directors. In connection with our acquisition of Weatherford Global, WEUS, which
owns approximately 48% of our outstanding shares (approximately 46% following
this offering), agreed to limit its voting power to 33 1/3% of our outstanding
shares for a period of two years from February 9, 2001, subject to certain
exceptions. Consummation of this offering may result in the termination of the
voting agreement if the underwriters' overallotment option is exercised, giving
WEUS voting power over the full amount of our shares that it then owns. 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 revolving credit facility, operating lease
facilities, senior notes and other financing arrangements restrict our ability
to do so. Our 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

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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.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A.

LISTING

Our common stock is listed 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 are summarized in the following paragraphs, may have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt of us
that could be in your best interest, including a takeover attempt that might
result in a premium over the market price for our shares.

CLASSIFIED BOARD OF DIRECTORS

Our restated certificate of incorporation divides our directors into three
classes serving staggered three-year terms. As a result, our stockholders elect
approximately one-third of our board of directors each year. These provisions,
when combined with the provision in our charter authorizing only our board of
directors to fill vacant or newly created board seats or increase the size of
our board 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 board seats and simultaneously gaining control of our board by
filling the vacancies or newly created board seats created by that removal or
increase with its own nominees.

CUMULATIVE VOTING

Our charter does not give our stockholders the right to cumulate votes in
the election of our directors.

STOCKHOLDER ACTION; SPECIAL MEETINGS OF STOCKHOLDERS

Our charter does not allow our stockholders to act by written consent and
provides that special meetings of our stockholders may be called only by a
majority of our board of directors or the chairman of our board or our
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 our 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 first mailed the proxy
materials for the preceding year's annual meeting; provided, that in the event
our annual meeting is called for a date that is not within 30 days before or
after the anniversary of the prior year's annual meeting or, if no proxy
materials were mailed, 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 public announcement of the date of the annual meeting is first
made or the 90th day 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 public announcement is first made of
the date of the special meeting and of the nominees proposed by the board of
directors or the 90th day before the meeting. Our bylaws also specify certain
requirements as to the form and content of a stockholder's notice. These
provisions may preclude our

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stockholders from bringing matters before an annual meeting of our stockholders
or from making nominations for directors at an annual meeting of our
stockholders.

AUTHORIZED BUT UNISSUED SHARES

The authorized but unissued shares of our common stock and preferred stock
are available for future issuance without stockholder approval by our
stockholders. 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 make it more
difficult or discourage an attempt to obtain control of us 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 charter or bylaws, unless a greater vote is
required. Our charter contains supermajority vote requirements with respect to
amendments to our bylaws and certain provisions of our charter, including those
provisions relating to our 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;

- 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 generally applies to
any corporation incorporated in Delaware unless the corporation expressly elects
not to be governed by such legislation. Our current significant stockholders,
including WEUS, are not subject to this provision.

LIMITATIONS ON DIRECTORS' LIABILITY

Our charter 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.

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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 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.

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 of the ownership and disposition of common stock that may be
relevant if you are a beneficial owner of common stock and you are a "non-U.S.
holder." You are a non-U.S. holder if you are a 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, (1) 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, or (2) that has made a
valid election under applicable U.S. Treasury regulations to be treated
as a United States person.

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. If a partnership holds our
common stock, the tax treatment of a partner generally will depend upon the
status of the partner and the activities of the partnership. If you are a
partner of a partnership holding our common stock, you should consult your tax
advisor. 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 our common stock are advised to consult their tax
advisors regarding the U.S. federal, state and local, 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 you 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 by you of a trade or
business within the United States. 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 you file the appropriate certification,
including Internal Revenue Service Form W-8ECI, or any successor form, with us
or our agent. Any dividends received by a foreign corporation that are
effectively

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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, U.S. Treasury Regulations
provide that a non-U.S. holder of common stock who wishes to claim the benefit
of a tax treaty rate is required to satisfy applicable certification and other
requirements. Special rules also apply to dividend payments made to foreign
intermediaries, U.S. or foreign wholly owned entities that are disregarded for
U.S. federal income tax purposes and entities that are treated as fiscally
transparent in the United States, the applicable income tax treaty jurisdiction,
or both.

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. To receive a reduced rate of
withholding under a treaty, you must furnish to us or our agent a duly completed
Form W-8BEN, W-81MY or similar appropriate documentation, or substitute form,
certifying your qualification for the reduced rate.

SALE OR DISPOSITION OF COMMON STOCK

You 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 a trade or business conducted by
you within the United States, or where a tax treaty applies, is
attributable to a U.S. permanent establishment maintained by, in which
case you would be taxed on the net gain derived from the sale or other
disposition under applicable graduated U.S. federal income tax rates. If
you are a foreign corporation, you may be subject to an additional branch
profits tax at a rate of 30% or a lower rate specified by an applicable
income tax treaty;

- You are an individual who holds shares of common stock as a capital asset
and are present in the United States for 183 days or more in the taxable
year of the disposition and meet certain other tests, in which case you
will be subject to a flat 30% tax on the gain derived from the sale or
other disposition, which may be offset by certain U.S. capital losses
(even though you are not considered to be a resident of the United
States);

- You are subject to tax under the provisions of U.S. federal income tax
law applicable to certain U.S. expatriates; or

- The common stock disposed of is treated as a "United States real property
interest" (defined below) in your hands, in which case you will be taxed
on the gain from the sale pursuant to the effectively connected rules
described above.

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 you
have not owned, actually or constructively, more than 5% of the outstanding
stock at any time during the five-year period preceding the sale or other
disposition. If the preceding exception does not apply, our common stock
nevertheless will not constitute a United States real property interest unless,
at some time during the five-year period ending on the date of your 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). If you may
approach or exceed the 5% ownership threshold discussed above, either alone or
in conjunction with related persons, you should consult your own tax advisor.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Under U.S. Treasury regulations, we must report annually to the Internal
Revenue Service and to each non-U.S. holder the amount of dividends paid to that
holder and the tax withheld with respect to those
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dividends. These information reporting requirements apply even if withholding
was not required because the dividends were effectively connected dividends or
withholding was reduced or eliminated. Pursuant to an applicable tax treaty,
that information may also be made available to the tax authorities in the
country in which the non-U.S. holder resides. You generally will be subject to
U.S. backup withholding tax on dividends at a 31% rate under the backup
withholding rules, rather than a 30% rate or other reduced rate as described
above, unless you comply with Internal Revenue Service certification procedures
or, in the case of payments made outside the United States with respect to an
offshore account, documentary evidence procedures. U.S. backup withholding tax
is imposed at the rate of 31% on certain payments to persons who fail to furnish
certain identifying information to the payor.

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 you certify under penalties of perjury as to your name,
address and status as a non-U.S. holder or otherwise establish 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," a foreign person that derives 50% or more of its gross
income from the conduct of a trade or business in the United States, or a
foreign partnership that at any time during its tax year either is engaged in
the conduct of a trade or business in the United States or has as partners one
or more U.S. persons that, in the aggregate, hold more than 50% of the income or
capital interest in the partnership such payment will be subject to information
reporting, but not backup withholding, unless such broker has documentary
evidence in its records that you are a non-U.S. holder and certain other
conditions are met or you otherwise establish an exemption.

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

ESTATE TAX

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

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UNDERWRITING

We intend to offer the shares through the underwriters. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc., First Union
Securities, Inc., Lehman Brothers Inc., Howard Weil, a division of Legg Mason
Wood Walker, Inc., and Simmons & Company International are acting as
representatives of the underwriters named below. Subject to the terms and
conditions described in a purchase agreement among us, the selling stockholders
and the underwriters, we and the selling stockholders have agreed to sell to the
underwriters, and the underwriters severally have agreed to purchase from us and
the selling stockholders, the number of shares listed opposite their names
below.

NUMBER OF
UNDERWRITER SHARES
----------- ---------

Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 1,365,000
Salomon Smith Barney Inc.................................... 780,000
First Union Securities, Inc. ............................... 780,000
Lehman Brothers Inc......................................... 390,000
Howard Weil, a division of Legg Mason Wood Walker, Inc...... 292,500
Simmons & Company International............................. 292,500
Doft & Co., Inc. ........................................... 100,000
---------
Total........................................... 4,000,000
=========

The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.

We have agreed to indemnify the underwriters and the selling stockholders
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments they 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 agreement, 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.

Merrill Lynch will be facilitating Internet distribution for this offering
to some of its Internet subscription customers. Merrill Lynch intends to
allocate a limited number of shares for sale to its online brokerage customers.
An electronic prospectus is available on the Internet Web site maintained by
Merrill Lynch. Other than the prospectus in electronic format, the information
on the Web site of Merrill Lynch is not part of this prospectus.

COMMISSIONS AND DISCOUNTS

The representatives have advised us and the selling stockholders that the
underwriters propose to offer the shares to the public at the public offering
price on the cover page of this prospectus and to dealers at that price less a
concession not in excess of $.85 per share. The underwriters may allow, and the
dealers may reallow, a discount not in excess of $.10 per share to other
dealers. After the offering, the public offering price, concession and discount
may be changed.

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The following table shows the public offering price, underwriting discount
and proceeds before expenses to us and to the selling stockholders. This
information assumes either no exercise or full exercise by the underwriters of
their overallotment option.

PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- ------------

Public offering price.......................... $28.50 $114,000,000 $131,100,000
Underwriting discount.......................... $1.425 $5,700,000 $6,555,000
Proceeds, before expenses, to us............... $27.075 $36,099,991 $41,514,991
Proceeds, before expenses, to the selling
stockholders................................. $27.075 $72,200,009 $83,030,009

The expenses of the offering, not including the underwriting discount, are
estimated at $1,000,000 and are payable by us.

OVERALLOTMENT OPTION

We and the selling stockholders have granted options to the underwriters to
purchase on a pro rata basis up to 200,000 additional shares from us and up to
an additional 400,000 shares from the selling stockholders at the public
offering price less the underwriting discount. The underwriters may exercise
this option for 30 days from the date of this prospectus solely to cover any
overallotments. If the underwriters exercise this option, each will be
obligated, subject to the conditions contained in the purchase agreement, to
purchase a number of additional shares proportionate to that underwriter's
initial amount reflected in the above table.

NO SALES OF SIMILAR SECURITIES

We, our executive officers and directors and some of our other significant
stockholders have agreed, with exceptions, not to sell or transfer any shares of
our common stock for 90 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 other than in
connection with our pending acquisition of KCI or shares issued in
connection with our previous acquisition of GCSI,

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

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

- grant any shares of common stock or option, right or warrant for the
purchase or sale of any common stock, other than pursuant to our employee
or director benefit plans,

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

Our common stock is listed on the New York Stock Exchange under the symbol
"UCO."

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

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68

PRICE STABILIZATION AND SHORT POSITIONS

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

If the underwriters create a short position in the common stock in
connection with this offering (i.e., if they sell more shares than are listed on
the cover page of this prospectus), the representatives may reduce that short
position by purchasing common stock in the open market. The representatives may
also elect to reduce any short position by exercising all or part of the
overallotment option described above. Purchases of our common stock to stabilize
or reduce a short position could cause the price of our 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 representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.

OTHER RELATIONSHIPS

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney
Inc. and First Union Securities, Inc. acted as the managers for our initial
public offering in May 2000. Merrill Lynch also served as our financial advisor
and issued a fairness opinion in connection with our acquisition of Weatherford
Global in February 2001, and is serving as our financial advisor with respect to
our pending acquisition of KCI. In addition, in connection with our
restructuring of debt and lease obligations in February 2001, First Union
Securities, Inc. or its affiliates served as the arranger and lender under our
new revolving credit facility and asset-backed securitization operating lease
facility. Affiliates of First Union participated in our other new operating
lease facility as a limited partner of the third party leasing company for the
operating lease, as initial purchasers of the 8 7/8% senior secured notes issued
to fund a portion of the operating lease and as lenders under the term loan
portion of the operating lease. These firms received customary fees and expense
reimbursement in connection with the services provided. Furthermore, First Union
Merchant Banking 1998-II, L.L.C., an affiliate of First Union Securities, Inc.,
is one of our stockholders and a selling stockholder in this offering.

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 underwriters.

EXPERTS

The consolidated financial statements for Universal Compression Holdings,
Inc. as of March 31, 1999, 2000 and 2001, and the results of operations and cash
flows for the years ended March 31, 1999, 2000 and 2001 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in its report appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.

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WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. These SEC filings are available to the public over the
Internet at the SEC's website at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549. You can obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
facilities. Our SEC filings are also available at the office of the New York
Stock Exchange, Inc., 11 Wall Street, New York, New York 10005.

The SEC allows us to incorporate by reference into this prospectus the
information that we file with the SEC, which means that we disclose important
information to you by referring to those documents. The information incorporated
by reference is an important part of this prospectus. In addition, any
information that we file with the SEC after the date of this prospectus will
automatically update and supersede this prospectus. We incorporate by reference
the documents listed below and any filings that we make with the SEC under
sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the initial filing
of the registration statement that contains this prospectus:

- Annual Report on Form 10-K for the fiscal year ended March 31, 2000, as
amended on November
3, 2000;

- Quarterly Reports on Form 10-Q for the quarters ended June 30, September
30, and December 31, 2000;

- Current Reports on Form 8-K filed on April 7, May 5, June 2, June 8,
August 9, September 29, October 26, November 9, and December 1, 2000 and
January 3, January 29, February 21, March 1, March 23, May 21, and June
5, 2001;

- The information contained on pages F-60 through F-115 of Amendment No. 3
to Registration Statement on Form S-4 (File No. 333-57302); and

- The description of our common stock included in our Registration
Statement on Form 8-A dated April 20, 2000, as amended on May 15, 2000.

You may request a copy of these filings (other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing)
at no cost, by writing to or telephoning us at Universal Compression Holdings,
Inc., 4440 Brittmoore Road, Houston, Texas 77041, (713) 335-7000.

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INDEX TO FINANCIAL STATEMENTS

PAGE
----

UNIVERSAL COMPRESSION HOLDINGS, INC.
Independent Auditors' Report of Deloitte & Touche LLP....... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 and
2001................................................... F-3
Consolidated Statements of Operations for the years ended
March 31, 1999, 2000 and 2001.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1999, 2000 and 2001.............. F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1999, 2000 and 2001.......................... F-6
Notes to Consolidated Financial Statements................ F-7
Unaudited Pro Forma Combined Condensed Statement of
Operations................................................ F-27

F-1
71

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
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, 2000
and 2001, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
2001. 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,
2000 and 2001, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Houston, Texas
May 25, 2001

F-2
72

UNIVERSAL COMPRESSION HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

MARCH 31, MARCH 31,
2000 2001
--------- ----------

ASSETS

Current assets:
Cash and cash equivalents................................. $ 1,403 $ 12,279
Accounts receivable, net of allowance for bad debts of
$227 and $2,771 as of March 31, 2000 and 2001,
respectively............................................ 14,615 87,088
Current portion of notes receivable....................... 1,535 3,928
Inventories............................................... 8,727 120,939
Current deferred tax asset................................ 227 --
Other..................................................... 1,571 20,284
-------- ----------
Total current assets............................... 28,078 244,518
Properties and equipment
Rental equipment............................................ 349,198 592,449
Other....................................................... 19,617 52,810
Accumulated depreciation.................................... (38,466) (55,634)
-------- ----------
Net properties and equipment....................... 330,349 589,625
Goodwill, net of accumulated amortization of $5,202 and
$8,773 as of March 31, 2000 and 2001, respectively........ 99,250 294,358
Notes receivable............................................ 1,117 4,803
Other non-current assets, net of accumulated amortization of
$2,450 and $1,777 as of March 31, 2000 and 2001,
respectively.............................................. 7,570 30,819
Non-current deferred tax asset.............................. 3,578 12,133
-------- ----------
Total assets....................................... $469,942 $1,176,256
======== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable, trade................................... $ 10,911 $ 67,450
Accrued liabilities....................................... 6,869 61,915
Current deferred tax liability............................ -- 13,938
Current portion of long-term debt and capital lease
obligation.............................................. 4,206 3,452
-------- ----------
Total current liabilities.......................... 21,986 146,755
Capital lease obligations................................... 10,243 6,086
Long-term debt.............................................. 363,036 205,569
Non-current deferred tax liability.......................... -- 90,126
Deferred gain............................................... -- 75,146
-------- ----------
Total liabilities.................................. 395,265 523,682
Commitments and Contingencies (see note 10)
Stockholders' equity:
Series A preferred stock, $.01 par value, 5,000 and 50,000
shares authorized, 1,320 and 0 shares issued, 1,319 and
0 shares outstanding in 2000 and 2001, respectively..... 13 --
Common stock, $.01 par value, 994 and 200,000 shares
authorized, 2,451 and 28,488 shares issued, 2,448 and
28,475 shares outstanding in 2000 and 2001,
respectively............................................ 3 285
Class A non-voting common stock, $.01 par value, 6 and 0
shares authorized, 4 shares and 0 issued, 3 and 0 shares
outstanding in 2000 and 2001, respectively.............. -- --
Treasury stock, 2 and 13 shares at cost in 2000 and 2001,
respectively............................................ (123) (134)
Additional paid-in capital................................ 82,697 663,882
Other Comprehensive Income................................ -- 845
Retained deficit.......................................... (7,913) (12,304)
-------- ----------
Total stockholders' equity......................... 74,677 652,574
-------- ----------
Total liabilities and stockholders' equity......... $469,942 $1,176,256
======== ==========

See accompanying notes to consolidated financial statements.

F-3
73

UNIVERSAL COMPRESSION HOLDINGS, INC.

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

FOR THE YEAR ENDED MARCH 31,
------------------------------------
1999 2000 2001
-------- -------- --------

Revenues:
Rentals.............................................. $ 85,599 $ 98,295 $149,235
Sales................................................ 43,588 38,000 83,231
Other................................................ 311 154 295
-------- -------- --------
Total revenues............................... $129,498 $136,449 $232,761
Costs and expenses:
Rentals, exclusive of depreciation and
amortization...................................... 31,010 35,352 52,345
Cost of sales, exclusive of depreciation and
amortization...................................... 36,390 31,943 70,714
Depreciation and amortization........................ 19,314 26,006 33,491
Selling, general and administrative.................. 16,863 16,797 21,092
Operating lease...................................... -- -- 14,443
Interest expense, net................................ 29,313 34,327 23,220
Non-recurring charges................................ -- -- 8,699
-------- -------- --------
Total costs and expenses..................... $132,890 $144,425 $224,004
-------- -------- --------
Income (loss) before income taxes and extraordinary
items................................................ (3,392) (7,976) 8,757
Income taxes (benefit)................................. (1,031) (1,994) 3,645
-------- -------- --------
Income (loss) before extraordinary items............. $ (2,361) $ (5,982) $ 5,112
-------- -------- --------
Extraordinary loss, net of $5,701 income tax
benefit........................................... -- -- (9,503)
Net loss............................................. $ (2,361) $ (5,982) $ (4,391)
======== ======== ========
Weighted average common and common equivalent shares
outstanding:
Basic................................................ 2,451 2,448 14,760
Diluted.............................................. 2,451 2,448 15,079
Earnings per share -- basic:
Income (loss) before extraordinary items............. $ (0.96) $ (2.44) $ 0.35
Extraordinary loss................................... -- -- (0.65)
Net (loss)........................................... $ (0.96) $ (2.44) $ (0.30)
======== ======== ========
Earnings per share -- diluted:
Income (loss) before extraordinary items............. $ (0.96) $ (2.44) $ 0.34
Extraordinary loss................................... -- -- (0.63)
Net (loss)........................................... $ (0.96) $ (2.44) $ (0.29)
======== ======== ========

See accompanying notes to consolidated financial statements.

F-4
74

UNIVERSAL COMPRESSION HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999, 2000 AND 2001
(IN THOUSANDS, EXCEPT FOR SHARE DATA)

CLASS A
COMMON STOCK PREFERRED STOCK NON VOTING ADDITIONAL RETAINED
------------------- ------------------- --------------- PAID IN EARNINGS TREASURY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) STOCK
---------- ------ ---------- ------ ------ ------ ---------- --------- --------

Balance, March 31, 1998...... 2,413,127 $ 3 1,300,000 $ 13 $ $ 81,234 $ 430 $ --
Common stock issuance....... 37,391 4,120 458
Series A preferred stock
issuance.................. 20,144 1,006
Treasury stock purchase
11,138 shares at $50 per
share..................... (7,128) (3,840) (170) (249)
Sale of treasury stock
10,968 shares at $50 per
share..................... 7,128 3,840 240
Net loss for the year ended
March 31, 1999............ (2,361)
---------- ---- ---------- ---- ------ ---- -------- -------- -----
Balance, March 31, 1999...... 2,450,518 $ 3 1,320,144 $ 13 3,950 $ $ 82,698 $ (1,931) $ (9)
Common stock cancellation... (30)
Series A preferred stock
cancellation.............. (16) (1)
Treasury stock purchase
5,630 shares at $50 per
share..................... (3,178) (1,712) (740) (144)
Sale of treasury stock 1,371
shares at $50 per share... 891 480 30
Net loss for the year ended
March 31, 2000............ (5,982)
---------- ---- ---------- ---- ------ ---- -------- -------- -----
Balance, March 31, 2000...... 2,448,201 $ 3 1,318,896 $ 13 3,210 $ $ 82,697 $ (7,913) $(123)
Stock issued for
acquisitions.............. 15,279,869 152 160,010 1 429,508
Option exercises............ 65,649 1 917
Shares issued in connection
with initial public
offering.................. 7,431,752 74 150,801
Conversion of preferred and
Class A non voting
stock..................... 3,249,695 55 (1,478,869) (14) (2,026) -- (41)
Purchases of treasury
stock..................... (30) (37) (1,184) -- (11)
Net loss.................... (4,391)
Foreign currency translation
adjustment................
---------- ---- ---------- ---- ------ ---- -------- -------- -----
Balance, March 31, 2001...... 28,475,136 $285 -- -- -- $663,882 $(12,304) $(134)
========== ==== ========== ==== ====== ==== ======== ======== =====

OTHER
COMPREHENSIVE
INCOME TOTAL
------------- --------

Balance, March 31, 1998...... $ -- $ 81,680
Common stock issuance....... 458
Series A preferred stock
issuance.................. 1,006
Treasury stock purchase
11,138 shares at $50 per
share..................... (249)
Sale of treasury stock
10,968 shares at $50 per
share..................... 240
Net loss for the year ended
March 31, 1999............ (2,361)
---- --------
Balance, March 31, 1999...... $ -- $ 80,774
Common stock cancellation...
Series A preferred stock
cancellation.............. (1)
Treasury stock purchase
5,630 shares at $50 per
share..................... (144)
Sale of treasury stock 1,371
shares at $50 per share... 30
Net loss for the year ended
March 31, 2000............ (5,982)
---- --------
Balance, March 31, 2000...... $ -- $ 74,677
Stock issued for
acquisitions.............. 429,661
Option exercises............ 918
Shares issued in connection
with initial public
offering.................. 150,875
Conversion of preferred and
Class A non voting
stock..................... --
Purchases of treasury
stock..................... (11)
Net loss.................... (4,391)
Foreign currency translation
adjustment................ 845 845
---- --------
Balance, March 31, 2001...... $845 $652,574
==== ========

See accompanying notes to consolidated financial statements.

F-5
75

UNIVERSAL COMPRESSION HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

FOR THE YEAR ENDED MARCH 31,
-------------------------------
1999 2000 2001
-------- -------- ---------

Cash flows from operating activities:
Net loss.................................................. $ (2,361) $ (5,982) $ (4,391)
Adjustments to reconcile net loss to cash provided by
operating activities, net of effect of acquisitions:
Depreciation and amortization.......................... 19,314 26,006 33,491
Gain on asset sales.................................... (192) (124) 119
Amortization of debt issuance costs.................... 1,162 1,162 1,472
Accretion of discount notes............................ 18,316 20,258 19,105
Increase (decrease) in deferred tax liabilities...... (1,223) (2,921) 108,161
(Increase) decrease in other assets.................. 2,183 (633) (18,978)
(Increase) decrease in receivables................... (10,807) 5,202 (21,887)
Increase in inventories.............................. (2,594) 1,545 (19,272)
Increase in accounts payable......................... 2,537 2,320 23,591
Increase (decrease) in accrued liabilities........... (3,569) 411 (32,780)
Other................................................ 27 (100) --
-------- -------- ---------
Net cash provided by operating activities......... 22,793 47,144 88,631
Cash flows from investing activities:
Additions to property, plant and equipment................ (68,081) (60,002) (68,006)
Acquisition of WGC........................................ -- -- (409,423)
Other acquisitions........................................ (2,953) (5,543) (55,338)
Proceeds from sale of fixed assets........................ 8,038 4,442 529,449
-------- -------- ---------
Net cash used in investing activities............. (62,996) (61,103) (3,318)
Cash flows from financing activities:
Principal repayments of long-term debt.................... (750) (750) (106,863)
Net proceeds (repayment) under revolving line of credit... 40,249 (400) (97,408)
Net proceeds (repayment) on sale-leaseback of vehicles.... -- 3,119 (1,484)
Net proceeds (repayment) of financing lease............... -- 10,581 (10,580)
Common stock issuance..................................... 252 -- 151,790
Preferred stock issuance (cancellation)................... 1,006 (1) --
Purchase of Treasury stock................................ (249) (144) (11)
Sale of Treasury stock.................................... 240 30 --
Debt issuance costs....................................... -- -- (10,726)
-------- -------- ---------
Net cash provided by financing activities......... 40,748 12,435 (75,282)
-------- -------- ---------
Effect of exchange rate..................................... -- -- 845
Net increase (decrease) in cash and cash equivalents........ 545 (1,524) 10,876
Cash and cash equivalents at beginning of period............ 2,382 2,927 1,403
-------- -------- ---------
Cash and cash equivalents at end of period.................. $ 2,927 $ 1,403 $ 12,279
======== ======== =========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 9,653 $ 10,471 $ 11,913
======== ======== =========
Cash paid for income taxes................................ $ 697 $ 772 $ 1,543
======== ======== =========
Supplemental schedule of non-cash investing and financing
activities:
Class A non-voting common stock (4,120 shares
given to employees)....................................... $ 206 $ -- $ --
Stock issued for acquisitions............................. $ -- $ -- $ 429,661
-------- -------- ---------
$ 206 $ -- $ 429,661
======== ======== =========

See accompanying notes to consolidated financial statements.
F-6
76

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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"). Upon completion of the acquisition on
February 20, 1998 (the "Tidewater Acquisition"), TCS became the Company's
wholly-owned subsidiary and changed its name to Universal Compression, Inc.
("Universal"). Through this subsidiary, the Company's gas compression service
operations date back to 1954. 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.

Effective May 30, 2000, the Company completed an initial public offering of
7,275,000 shares of its common stock (which includes 275,000 shares of common
stock issued pursuant to an overallotment option granted to the underwriters),
which provided the Company with net proceeds (after deducting underwriting
discounts and commissions) of approximately $149.2 million. Concurrently with
the initial public offering, the Company implemented a recapitalization pursuant
to which all existing classes of the Company's stock were converted into common
stock. Also concurrently with the initial public offering, the Company entered
into a $50 million revolving credit facility and $200 million operating lease
facility. The proceeds of the offering and the $62.6 million in initial proceeds
from the new operating lease facility were used to repay $192.7 million of
indebtedness, and the remaining proceeds were used for working capital and to
pay expenses associated with the offering and concurrent financing transactions.

Thereafter, the Company completed the merger of Gas Compression Services,
Inc. ("GCSI") into Universal on September 15, 2000. The Company also completed
its acquisition of Weatherford Global Compression Services, L.P. and certain
related entities on February 9, 2001 and its acquisition of ISS Compression,
Inc. and its operating subsidiary, IEW Compression, Inc., on February 28, 2001.
See Note 2.

Nature of Operations

The Company is the second largest natural gas compression services company
in the world in terms of rental fleet horsepower. The Company provides a full
range of compression rental, sales, operations, maintenance and fabrication
services and products to the natural gas industry, both domestically and
internationally. The compressors are used by oil and gas producers and
processors and pipeline companies 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 to be delivered to the end-users. The Company
also designs and fabricates compressors for its own fleet as well as for sale to
customers, and sells parts as well as services compressor units for companies.

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 presentation.

F-7
77
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. Cash flows are
computed using the indirect method.

Revenue Recognition

Revenue is recognized by the Company's four reportable business segments
using the following criteria: (a) persuasive evidence of an exchange arrangement
exists, (b) delivery has occurred or services have been rendered, (c) the
buyer's price is fixed or determinable and (d) collectibility is reasonably
assured.

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 sales and service revenue is recorded as products are delivered or
services are performed for the customer.

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
years ended March 31, 1999, 2000 and 2001, the Company wrote off bad debts
totaling $330,000, $116,000 and $77,000, respectively.

Inventories

Inventories are recorded at the lower of average 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:

Compression equipment.................................... 15 years
Other properties and equipment........................... 2-25 years

During the period, the Company effected a change in useful lives of
overhauls and major components from 3 years to 6.5 years and from approximately
5 years to 10 years, respectively. The change was based on
F-8
78
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

capitalization policies and an analysis of the time between overhauls as well as
an analysis of the length of time major components operate effectively.

Maintenance and repairs are charged to expenses as incurred. Overhauls and
major improvements that increase the value or extend the life of rental units
are capitalized and depreciated over the estimated period of benefits.
Depreciation expense for the years ended March 31, 1999, 2000 and 2001 was
$16,943, $23,368 and $29,920, respectively.

Properties and equipment are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable based upon undiscounted cash flows. Any impairment losses are
measured based upon the excess of the carrying value over the fair value. The
Company has not recognized any impairment losses for any of the periods
presented.

Goodwill

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.

Other Assets

Included in other assets are debt issuance costs, net of accumulated
amortization, totaling approximately $7,125 and $18,523 at March 31, 2000 and
2001, respectively. Such costs are amortized over the period of the respective
debt agreements on a straight-line method which approximates the effective
interest method and assets held for sale in the amount of $3.4 million. Assets
held for sale include rental compression units and land and buildings identified
by the Company as obsolete or to be closed. The Company expects the assets to be
sold or disposed of during fiscal 2002.

Stock-Based Compensation

Under Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," the Company elected to measure
compensation cost using the intrinsic value-based method as prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." As such, the Company is required to make pro forma disclosures of
net income and, if presented, earnings per share as if the fair value based
method of accounting defined by SFAS No. 123 had been applied. See Note 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 years ended March 31, 1999 and 2000 were not
significant. The resultant translation adjustment for the year ended March 31,
2001 was a gain of $0.8 million.

F-9
79
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 value of the Company's revolving credit facility (see Note 4) is
representative of its carrying value based upon variable rate terms. The fair
value of the senior discount notes was approximately $181.6 million and $252.1
million, as compared to a carrying amount of $215.5 million and $200.8 million
at March 31, 2000 and 2001, 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, 2001 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.

Net Income Per Share

Basic and diluted net loss per share are calculated in accordance with
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings per
Share.

The following table sets forth the computation of basic and diluted net
loss per share (in thousands, except per share amounts):

FOR THE YEAR ENDED MARCH 31,
-----------------------------
1999 2000 2001
------- ------- -------

BASIC EARNINGS PER SHARE
Income (loss) before extraordinary items............... $(2,361) $(5,982) $ 5,112
Extraordinary loss, net of income tax benefit.......... -- -- (9,503)
------- ------- -------
Net loss............................................... $(2,361) $(5,982) $(4,391)
======= ======= =======
Weighted average common stock outstanding.............. 2,451 2,448 14,760
Basic net loss per share:
Before extraordinary loss............................ $ (0.96) $ (2.44) $ 0.35
Extraordinary loss, net of income tax benefit........ -- -- (0.65)
------- ------- -------
Basic net loss per share............................... $ (0.96) $ (2.44) $ (0.30)
======= ======= =======
DILUTED EARNINGS PER SHARE
Income (loss) before extraordinary items............... $(2,361) $(5,982) $ 5,112
Extraordinary loss, net of income tax benefit.......... -- -- (9,503)
------- ------- -------
Net loss............................................... $(2,361) $(5,982) $(4,391)
======= ======= =======
Weighted average common stock outstanding.............. 2,451 2,448 14,760
Dilutive effect of stock options outstanding........... -- -- 319
------- ------- -------
Weighted average diluted shares of common stock
outstanding.......................................... -- -- 15,079
======= ======= =======
Diluted income loss per share
Before extraordinary loss............................ $ (0.96) $ (2.44) $ 0.34
Extraordinary loss, net of income tax benefit........ -- -- (0.63)
------- ------- -------
Diluted net loss per share............................. $ (0.96) $ (2.44) $ (0.29)
======= ======= =======

F-10
80
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

New Accounting Pronouncements

In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the
SEC's views in applying generally accepted accounting principles to revenue
recognition in financial statements. On June 26, 2000, the SEC issued an
amendment to SAB 101, effectively delaying its implementation until the fourth
quarter of fiscal years beginning after December 15, 1999. After reviewing SAB
101 and its amendment, we believe that our revenue recognition policy is
appropriate and that the effects of SAB 101 and its amendment were immaterial to
our results of operations.

On February 14, 2001, the FASB issued its tentative decisions on the
accounting for goodwill in an Exposure Draft, Business Combinations and
Intangible Assets -- Accounting for Goodwill. The FASB has tentatively concluded
that purchased goodwill should not be amortized; rather it should be reviewed
for impairment. The final statement is expected to be issued in late July 2001,
effective for financial statements covering fiscal years beginning after
December 15, 2001.

2. MERGERS & ACQUISITIONS

On February 20, 1998, the Company acquired 100% of the voting securities of
TCS for approximately $350 million. The Tidewater 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 Tidewater 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.

In April 2000, the Company acquired all of the outstanding stock of
Spectrum Rotary Compression Inc. from Energy Spectrum Partners, L.P. in exchange
for 287,723 shares of the Company's common stock. Spectrum added approximately
11,600 horsepower to the Company's fleet and provided an increased presence in
the screw compressor market.

On September 15, 2000, the Company completed the merger of GCSI, a supplier
of natural gas compression equipment and services with fabrication and overhaul
facilities in Michigan and Texas, into Universal for a combination of
approximately $12 million in cash, 1,400,726 shares of the Company's common
stock valued at approximately $39 million and the assumption or refinancing of
approximately

F-11
81
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$63 million of indebtedness. All of the assumed or refinanced indebtedness,
except for approximately $10 million, were paid off concurrently with the merger
using proceeds received under the Company's operating lease facility. The
acquisition was accounted for under the purchase method of accounting and
resulted in the recognition of approximately $33 million in goodwill. Results of
operations for GCSI are included in the accompanying consolidated financial
statements from September 15, 2000.

On February 9, 2001, the Company completed its acquisition of Weatherford
Global Compression Services and certain related entities ("WGC"), a supplier of
natural gas compression equipment and services and a division of Weatherford
International, Inc. Under the terms of the agreement, a subsidiary of
Weatherford International was merged into Universal in exchange for 13.75
million shares of the Company's common stock, which represented approximately
48% of the outstanding shares of the combined company. In connection with the
acquisition, Weatherford agreed, subject to certain conditions, to limit its
voting rights to 33 1/3% of the Company's voting power for up to two years (see
Note 16). In addition, the Company restructured approximately $323 million in
debt and operating leases of WGC. The transaction was accounted for as a
purchase. Prior to closing, Weatherford International acquired the interest of
its minority partner in WGC. Also, Weatherford International retained certain
assets and operations related to WGC's Singapore-based operations and
approximately $10 million in accounts receivable.

In connection with the acquisition, on February 9, 2001, the Company raised
$427 million under a new operating lease facility funded primarily through an
offering of $350 million 8 7/8% senior secured notes due 2008 by an unaffiliated
entity (the "SSN Operating Lease Facility"). The Company also entered into a new
$125 million secured revolving credit facility and a new $200 million
asset-backed securitization operating lease facility (the "ABS Operating Lease
Facility"). At the closing, the Company funded approximately $80 million under
the ABS Operating Lease Facility and had no amounts outstanding under the new
revolving credit facility. The proceeds from the two new operating lease
facilities were used to restructure existing operating lease obligations and
refinance certain existing indebtedness of the Company (including the previous
operating lease facility described in Note 13) and WGC.

Subsequent to the WGC acquisition and related financing transactions, the
Company had approximately $198 million outstanding under its 9 7/8% Senior
Discount Notes due 2008 and approximately $13 million of other indebtedness. In
addition, the Company funded approximately $427 million under the SSN Operating
Lease Facility and approximately $80 million under the ABS Operating Lease
Facility. These facilities contain restrictions similar to the Company's
previous operating lease facility and revolving credit facility.

On February 28, 2001, the Company acquired ISS Compression, Inc. and its
operating subsidiary, IEW Compression, Inc. ("IEW"), a natural gas compression
services provider based in Lafayette, Louisiana, for approximately $15 million
in cash, which included the concurrent discharge of IEW's debt and operating
leases.

On a pro forma basis, had the WGC acquisition taken place on April 1, 2000,
revenue, income before income taxes, net income and basic and diluted earnings
per share for the fiscal year ended March 31, 2001 would have been $444.0
million, $21.1 million, $11.5 million and $0.43 and $0.43, respectively. On a
pro forma basis, had the WGC acquisition taken place on April 1, 1999, revenue,
income before income taxes, net income and basic and diluted earnings per share
for the fiscal year ended March 31, 2000 would have been $374.2 million, $32.2
million, $18.1 million and $0.68 and $0.66, respectively. The pro forma effect
of other acquisitions was not material.

F-12
82
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

All of these acquisitions were accounted for as purchases and accordingly,
the results of operations of the acquired businesses are included in the
accompanying financial statements from their respective dates of acquisition.
Goodwill in the amounts listed below has been recognized for the amount of the
excess of the purchase price paid over the fair market value of the net assets
acquired and is amortized on a straight-line basis over 40 years.

Tidewater Compression Service............................... $104,452
Spectrum Rotary Compression................................. --
Gas Compression Services.................................... 32,668
Weatherford Global Compression Services..................... 164,492
ISS Compression............................................. 1,519
--------
Total....................................................... 303,131
--------
Less accumulated amortization............................. (8,773)
Goodwill, net............................................... $294,358
--------

3. INVENTORIES

Inventories consisted of the following (in thousands):

FOR THE YEAR ENDED
MARCH 31,
-------------------
2000 2001
------- ---------

Raw materials............................................... $ -- $ 47,222
Finished goods.............................................. 3,176 38,705
Work-in-progress............................................ 5,551 35,012
------ --------
Total............................................. $8,727 $120,939
====== ========

4. LONG-TERM DEBT

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

AS OF MARCH 31,
-------------------
2000 2001
-------- --------

Senior discount notes, bearing interest of 9 7/8% per annum,
due 2008, net of discount of $58,680 and $39,700 at March
31, 2000 and 2001, respectively, unsecured................ $183,820 $200,800
Term loan, bearing interest of LIBOR + 2.5%, due February
2005 and collateralized by property of Universal.......... 73,313 --
Revolving credit facility, bearing interest of LIBOR +
2.25%, due February 2003 and collateralized by property of
Universal................................................. 75,000 --
Senior discount notes, bearing interest of 11 3/8% per
annum, due 2009, net of discount of $11,847 at March 31,
2000, unsecured........................................... 31,653 --
Various term loans, bearing interest at 30 day commercial
paper rate plus 2.9%, due between August 2005 and April
2014. The March 31, 2001 rate was 7.85% and the weighted
average rate for fiscal 2001 was 8.975%................... -- 4,091
Limited revenue obligation bonds, bearing interest of 4.5%,
due October 2009 and collateralized by property of
Universal................................................. -- 1,200
-------- --------
Total Debt................................................ 363,786 206,091
Less current maturities..................................... 750 522
-------- --------
Total long-term debt.............................. $363,036 $205,569
======== ========

F-13
83
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In May 2000, the Company repaid and terminated its term loan and revolving
credit facility and entered into a $50.0 million secured revolving credit
facility, which had a five-year term. The revolver was secured by a lien on all
of the Company's personal property that was not subject to its previous
operating lease facility entered into in connection with the Company's initial
public offering (the "2000 Operating Lease Facility"). This revolver and the
2000 Operating Lease Facility were repaid and terminated in February 2001 in
connection with the WGC acquisition.

On February 9, 2001, the Company raised $427 million under the new
seven-year SSN Operating Lease Facility funded primarily through the offering of
$350 million of 8 7/8% senior secured notes due 2008 by an unaffiliated entity.
The Company also entered into a new $125 million secured revolving credit
facility and the new $200 million ABS Operating Lease Facility. At the closing,
the Company funded approximately $80 million under the ABS Operating Lease
Facility and had no amounts outstanding under the new revolving credit facility.
The proceeds from the two new operating lease facilities were used to
restructure existing operating lease obligations, including the 2000 Operating
Lease Facility, and refinance certain existing indebtedness of the Company and
WGC. These new facilities, like the Company's previous facilities, contain
restrictions on the Company's operations, including its ability to, among other
things, incur additional indebtedness, engage in acquisitions and pay dividends.
The deferred gain from the 2000 Operating Lease Facility was transferred to the
new operating lease facilities described in Note 13.

As of December 31, 2000, the Company had $196.1 million aggregate principal
amount outstanding under its 9 7/8% senior discount notes. On January 2, 2001,
Universal commenced an offer to repurchase all of these 9 7/8% senior discount
notes, and solicited the consent of the holders of the notes to amend the
indenture governing the notes to eliminate substantially all the restrictive
covenants. The tender offer was conditioned upon Universal's receipt of the
consent of requisite holders to approve the proposed amendments to the
indenture. The consent solicitation due date was January 24, 2001. The requisite
consents with respect to the 9 7/8% senior discount notes were not received
prior to the deadline. As a result, Universal terminated the tender offer
without purchasing any of the 9 7/8% senior discount notes. Pursuant to the
indenture governing the 9 7/8% senior discount notes, the holders of the notes
had the right to require Universal to repurchase the notes as a result of the
consummation of the WGC acquisition at a price equal to 101% of the accreted
value, plus accrued and unpaid interest to date. No holders required Universal
to repurchase any notes.

Subsequent to the WGC acquisition and related financing transactions, the
Company had approximately $198 million outstanding under its 9 7/8% senior
discount notes due 2008 and approximately $13 million of other indebtedness. In
addition, the Company had funded approximately $427 million under the SSN
Operating Lease Facility and approximately $80 million under the ABS Operating
Lease Facility. These facilities contain restrictions similar to the Company's
previous operating lease facility and revolving credit facility. On February 28,
2001, in connection with the acquisition of IEW, the Company funded an
additional $20.0 million under the ABS Operating Lease Facility.

The Company's senior secured credit agreement ("Credit Agreement") provides
for up to $125 million under the revolving credit facility, which includes a
sublimit for letters of credit. The revolver bears interest at the Company's
option of a base rate or LIBOR plus, in each case, a variable amount depending
on its operating results.

The available capacity on the revolving credit facility at March 31, 2000
and 2001 was approximately $7.7 million and $110.0 million, respectively, after
giving effect to outstanding letters of credit. The interest rates on the prior
revolving credit facility at March 31, 2000 and new revolving credit facility at
March 31, 2001 was 8.36% and 7.58%, 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

F-14
84
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 2001. 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.

Lease payments equal to the interest on the 8 7/8% senior discount notes
issued by the unaffiliated entity under the SSN Operating Lease Facility are
payable semi-annually on August 15 and February 15, commencing August 15, 2001.

Maturities of long-term debt as of March 31, 2001, in thousands, are
2002 -- $522; 2003 -- $503; 2004 -- $532; 2005 -- $463; 2006 -- $498; and
$203,573 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 had a term of 5 years and bore
interest at a rate of LIBOR plus 4.25%. The financing lease is related to the
Colombian operations of the Company's subsidiary, and was repaid in May 2000
with a portion of the proceeds from the Company's initial public offering.

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 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.

In connection with the GCSI and Weatherford Global acquisitions, we have
additional capital leases with GE Capital and Ford Motor Credit.

Principal amortization associated with both leases is recorded in the
Consolidated Statements of Cash Flows. Properties and equipment at March 31,
2001 include the following amounts for capitalized leases (in thousands):

MARCH 31,
2001
---------

Compression equipment..................................... $ 4,290
Service vehicles.......................................... 9,771
-------
Less accumulated depreciation............................. (3,915)
-------
Net assets under capital leases........................... $10,146
=======

Future minimum lease payments under non-cancelable capital leases as of
March 31, 2001 are as follows (in thousands):

2002....................................................... $3,362
2003....................................................... 2,549
2004....................................................... 1,687
2005....................................................... 1,562
2006....................................................... 111
Thereafter................................................. 267
------
Total............................................ $9,538
======

F-15
85
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INCOME TAXES

For the years ended March 31, 1999, 2000 and 2001, 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 years ended March 31, 1999, 2000 and
2001 consisted of the following (in thousands):

1999 2000 2001
------- ------- ------

Current:
Foreign................................................. $ 145 $ 889 $1,771
Deferred:
Federal................................................. (1,055) (2,655) 2,215
State................................................... (121) (228) 305
Foreign................................................. -- -- (646)
------- ------- ------
Total........................................... $(1,031) $(1,994) $3,645
======= ======= ======

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 and extraordinary item for the years ended March 31, 1999, 2000 and 2001
is as follows (in thousands):

1999 2000 2001
------- ------- ------

Benefit for income taxes at statutory rate................ $(1,187) $(2,791) $3,065
State taxes............................................... (121) (228) 217
Foreign taxes............................................. 145 889 (28)
Non-deductible expenses and other......................... 132 136 391
------- ------- ------
Total........................................... $(1,031) $(1,994) $3,645
======= ======= ======

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

2000 2001
-------- ---------

Deferred tax assets:
Net operating loss carryforwards.......................... $ 35,217 $ 69,547
Accrued Reserves.......................................... -- 19,997
Inventory Reserves and Unicap............................. -- 6,734
Foreign tax credit........................................ 889 1,779
Other..................................................... 283 1,162
-------- ---------
Total.................................................. 36,389 99,219
Valuation allowance......................................... (889) (1,779)
-------- ---------
Total.................................................. 35,500 97,440
-------- ---------
Deferred tax liabilities:
Depreciation differences on properties and equipment...... (28,319) (184,057)
Other..................................................... (3,376) (5,314)
-------- ---------
Total............................................. (31,695) (189,371)
-------- ---------
Net deferred tax asset (liability)................ $ 3,805 $ (91,931)
======== =========

A valuation allowance was established at March 31, 2000 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
F-16
86
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

At March 31, 2001, the Company had net operating loss ("NOL") carryforwards
of approximately $182,551,000 available to offset future taxable income. Annual
utilization of the carryforwards could be limited by Section 382 of the Internal
Revenue Code of 1986, as amended. If not utilized, the NOL carryforwards will
expire as follows (in thousands):

2008...................................................... $ 628
2009...................................................... 1,849
2010...................................................... 1,943
2011...................................................... 953
2018...................................................... 5,237
2019...................................................... 33,369
2020...................................................... 60,290
2021...................................................... 78,282
--------
Total........................................... $182,551
========

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.

Redeemable Preferred Stock

At March 31, 2000, the Company had issued 1,320,128 shares of Series A
preferred stock ("Preferred Stock") which was 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 were payable at March 31, 2000 on the Preferred Stock. Each share
of Preferred Stock equated to one vote on all matters taken to the common
shareholders. All holders of Preferred Stock and common stock were treated as
one class in relation to voting rights.

Initial Public Offering

During the quarter ended June 30, 2000, the Company completed an initial
public offering of 7,275,000 shares of its common stock (which includes 275,000
shares of common stock issued pursuant to an overallotment option granted to the
underwriters), which provided the Company with net proceeds (after deducting
underwriting discounts and commissions) of approximately $149.2 million.
Concurrently with the initial public offering, the Company implemented a
recapitalization pursuant to which all existing classes of the Company's stock
including the preferred stock were converted into common stock.

Mergers & Acquisitions

The Company completed the merger of Gas Compression Services, Inc. ("GCSI")
into Universal on September 15, 2000. In the merger, the GCSI shareholders
received approximately $12 million in cash, 1,400,726 shares of the Company's
common stock and the Company assumed or refinanced approximately $63 million of
indebtedness of GCSI.

F-17
87
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Weatherford International was merged into Universal in exchange for 13.75
million restricted shares of the Company's common stock, which represented
approximately 48% of the outstanding shares of the combined company. In
connection with the acquisition, Weatherford agreed, subject to certain
conditions, to limit its voting rights to 33 1/3% of the Company's voting power
for up to two years.

Stock Options

In order to motivate and retain key employees, the Company established an
incentive stock option 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. Upon the closing of
the Company's initial public offering in May 2000, all outstanding options were
accelerated and became fully vested. All other options generally vest over the
following time period:

Year 1...................................................... 33 1/3%
Year 2...................................................... 33 1/3%
Year 3...................................................... 33 1/3%

The Company has elected to follow Accounting Principles Board Opinion
("APBO") No. 25, Accounting for Stock Issued to Employees and related
interpretations in accounting for its stock-based compensation and to provide
the disclosures required under SFAS No. 123, Accounting for Stock Based
Compensation.

APBO No. 25 requires no recognition of compensation expense for the
stock-based compensation arrangements provided by the Company, namely option
grants where the exercise price is equal to the market value at the date of
grant. However, APBO No. 25 requires recognition of compensation expense for
variable award plans over the vesting periods of such plans, based upon the
then-current market values of the underlying stock. In contrast, SFAS No. 123
requires recognition of compensation expense for grants of stock, stock options,
and other equity instruments, over the vesting periods of such grants, based on
the estimated grant-date fair values of those grants.

Under the stock option plan, options to purchase common stock may be
granted until 2011. Options generally are granted at fair market value at the
date of grant, are exercisable in installments beginning one year from the date
of grant, and expire 10 years after the date of grant.

F-18
88
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of March 31, 2001, 1,311,544 stock options were outstanding under the
plan. Transactions are summarized as follows:

WEIGHTED-
AVERAGE
STOCK OPTIONS EXERCISE PRICE
------------- --------------

Options outstanding, March 31, 1998......................... 223,843 $ 6.73
Granted................................................... 86,247 6.73
Forfeited................................................. (46,702) 6.73
--------- ------
Options outstanding, March 31, 1999......................... 263,388 6.73
========= ======
Granted................................................... 53,102 6.73
Forfeited................................................. (43,257) 6.73
--------- ------
Options outstanding, March 31, 2000......................... 273,233 6.73
========= ======
Granted................................................... 1,139,803 25.03
Exercised................................................. (68,268) 14.19
Forfeited................................................. (33,224) 25.50
--------- ------
Options outstanding, March 31, 2001......................... 1,311,544 $21.63
========= ======
Shares exercisable at March 31, 1999........................ -- --
Shares exercisable at March 31, 2000........................ -- --
Shares exercisable at March 31, 2001........................ 439,537 $15.02

Exercise prices for options outstanding as of March 31, 2001 ranged from
$6.73 to $37.75. The following table provides certain information with respect
to stock options outstanding at March 31, 2001:

WEIGHTED WEIGHTED AVERAGE
STOCK OPTIONS AVERAGE REMAINING
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE
------------------------ ------------- -------------- ----------------

Under $7.00................................... 192,728 $ 6.73 7.7
$7.00-$19.99(a)............................... -- -- --
$20.00-$30.00................................. 527,809 22.25 9.3
Over $30.00................................... 591,007 33.48 9.9
--------- ------ ---
1,311,544 $21.63 9.2
========= ====== ===

The following table provides certain information with respect to stock
options exercisable at March 31, 2001:

WEIGHTED
STOCK OPTIONS AVERAGE
RANGE OF EXERCISE PRICES EXERCISABLE EXERCISE PRICE
------------------------ ------------- --------------

Under $7.00................................................. 192,728 $ 6.73
$7.00-$19.99(a)............................................. -- --
$20.00-$30.00............................................... 246,809 21.50
------- ------
439,537 $15.02
======= ======

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

(a) No options granted.

In electing to continue to follow APBO No. 25 for expense recognition
purposes, the Company is obligated to provide the expanded disclosures required
under SFAS No. 123 for stock-based compensation granted in 1998 and thereafter,
including, if materially different from reported results disclosure of pro forma

F-19
89
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

net income and earnings per share had compensation expense relating to 1999,
2000, and 2001 grants been measured under the fair value recognition provisions
of SFAS No. 123.

The weighted-average fair values at date of grant for options granted
during 1999, 2000 and 2001 were $6.73, $6.73 and $9.94, respectively, and were
estimated using the Black-Scholes option valuation model with the following
weighted-average assumptions:

1999 2000 2001
---- ---- -----

Expected life in years...................................... 3.00 3.00 3.00
Interest rate............................................... 6.40% 6.40% 4.33%
Volatility.................................................. 0.00% 0.00% 53.21%
Dividend yield.............................................. 0.00% 0.00% 0.00%

The Company's pro forma information for the years ended March 31, 1999,
2000 and 2001 prepared in accordance with the provisions of SFAS No. 123 is
provided below. For purposes of pro forma disclosures, stock-based compensation
is amortized to expense on a straight-line basis over the vesting period. The
following pro forma information is not representative of the pro forma effect of
the fair value provisions of SFAS No. 123 on the Company's net earnings in
future years because pro forma compensation expense related to grants made prior
to 1998 may not be taken into consideration:

1999 2000 2001
------- ------- -------
(IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)

Pro forma loss......................................... $(2,386) $(6,044) $(8,796)
Pro forma net loss per common share-basic.............. $ (0.97) $ (2.47) $ (0.60)
Pro forma net loss per common share assuming
dilution............................................. $ (0.97) $ (2.47) $ (0.58)

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 $493,000,
$473,000 and $614,000 for the years ended March 31, 1999, 2000 and 2001,
respectively.

9. RELATED-PARTY TRANSACTIONS

Management Agreement

Castle Harlan Inc., an affiliate of a significant 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 was 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. $750,000 and $3,000,000
during the years ended March 31, 1999 and 2000, respectively. The fee was
recorded at the rate of $750,000 per quarter in selling, general and
administrative expenses.

In connection with the initial public offering in the quarter ended June
30, 2000, the Company terminated its Management Agreement with Castle Harlan,
Inc. In exchange for such termination, the Company paid $3 million in cash and
issued 136,364 shares of its common stock to Castle Harlan.

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 were 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

F-20
90
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Repurchase Agreement. The Company maintained an insurance policy to fund
substantially all of its obligations in the event of disability or death. In
connection with the Company's initial public offering and recapitalization the
repurchase requirements were terminated.

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 Tidewater Acquisition. Upon consummation of the Tidewater 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 paid the Director an annual consulting fee of $150,000 for consulting
services for a stated term of five years. The agreement provided for automatic
extensions for one-year periods unless terminated by the parties. 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. In connection with the initial public offering in the
quarter ended June 30, 2000, the Company terminated the agreement and paid him
$150,000 in cash and issued him 6,818 shares of common stock.

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 Tidewater Acquisition prior to his
employment. Upon completion of the initial public offering in May 2000, the
Company paid one of its executive officers and directors for his services 13,636
shares of the Company's common stock, which shares are subject to registration
rights.

Transitional Services Agreement

Concurrently with the closing of the Weatherford Global acquisition,
Weatherford and WGC, as the Company's subsidiary, entered into a transitional
services agreement under which Weatherford will continue to provide certain
administrative and support services, such as shared corporate office space and
general communication and information services, to WGC until June 9, 2001. WGC
paid Weatherford $125,000 for the first thirty days of these services. For the
period subsequent to the initial thirty days, Weatherford Global, as the
Company's subsidiary, will pay Weatherford a fee based on a proportional amount
of Weatherford's costs and expenses in providing the services plus a 10%
management fee.

10. COMMITMENTS AND CONTINGENCIES

Rent expense for the years ended March 31, 1999, 2000 and 2001 was
approximately $427,000, $415,000 and $496,000, respectively. Commitments for
future lease payments were not significant at March 31, 2001.

An environmental assessment of the operations, physical premises and assets
of the Company was completed in connection with the Tidewater Acquisition. The
Company has recorded a provision of approximately $1.1 million at March 31, 2001
for environmental remediation costs.

In February 1998, in connection with the Tidewater Acquisition, the Company
entered into a Purchase Price Adjustment Agreement with Tidewater. The agreement
provides for potential additional amounts to be paid to Tidewater upon a
liquidity event, as defined in the agreement. If a liquidity event occurs and
Castle Harlan Partners III and its affiliates receive 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), the
Company 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
pursuant to this agreement would

F-21
91
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 March
31, 2001, Castle Harlan's accreted investment was approximately $30.58 per
share, which will continue to grow at a compounded rate of 6.25% per quarter. As
of March 31, 2001, no liquidity event, as defined in the agreement, that
required a payment had occurred.

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.

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

Prior to the WGC merger, the Company had three principal industry segments:
Domestic Rental and Maintenance, International Rental and Maintenance and
Engineered Products. Due to the WGC merger, the changing nature of the markets
we serve and in order to align ourselves with those markets, we changed our
internal business organization during fiscal 2001. We are now organized into
four principal businesses or operating segments: Domestic Rental and
Maintenance, International Rental and Maintenance, Fabrication and Parts Sales
and Service. The two Rental and Maintenance Segments provide natural gas
compression rental and maintenance services to meet specific customer
requirements. The Fabrication 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. The Parts Sales and Service Segment involves
the sale of parts to and the service of compressor units owned by oilfield
companies.

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. Each of
these business groups has one or more general managers who report directly to
the Chief Executive Officer ("CEO"). The CEO has been identified as the Chief
Operating Decision Maker as defined by SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." We have restated segment results for
prior periods as a result of our fiscal 2001 realignment.

In addition to these four operating segments, accounting, administration,
facilities, finance, human resources, legal, marketing, procurement and sales
groups also report to the CEO. The CEO does not evaluate the operating segments
based upon fully allocated profit and loss statements, and the segments'
reportable operating profit excludes allocated expenses. Operating segments do
not have material sales to other segments, and accordingly, there are no
inter-segment revenues to be reported. We also do not allocate our restructuring
charges, interest and other income, interest expense or income taxes to
operating segments.

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

DOMESTIC INTERNATIONAL
RENTAL AND RENTAL AND PARTS SALES CORPORATE
MAINTENANCE MAINTENANCE FABRICATION AND SERVICE AND OTHER TOTAL
----------- ------------- ----------- ----------- --------- --------

Revenues.................. $ 78,821 $ 6,778 $22,429 $21,159 $ 311 $129,498
Gross margin.............. 49,635 4,954 3,249 3,949 100 61,887
Depreciation and
amortization............ 17,306 1,146 463 399 -- 19,314
Capital expenditures...... 48,428 17,293 2,123 237 -- 68,081
Identifiable assets....... 311,490 16,093 11,421 2,642 96,345 437,991

F-22
92
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents sales and other financial information by
industry segment for the year ended March 31, 2000 (in thousands):

DOMESTIC INTERNATIONAL
RENTAL AND RENTAL AND PARTS SALES CORPORATE
MAINTENANCE MAINTENANCE FABRICATION AND SERVICE AND OTHER TOTAL
----------- ------------- ----------- ----------- --------- --------

Revenues.................. $ 83,577 $14,718 $25,258 $12,742 $ 154 $136,449
Gross margin.............. 52,411 10,532 3,358 2,699 (39) 68,961
Depreciation and
amortization............ 20,991 4,084 524 407 -- 26,006
Capital expenditures...... 50,980 8,079 899 44 -- 60,002
Identifiable assets....... 310,563 49,204 10,205 2,042 97,928 469,942

The following table presents sales and other financial information by
industry segment for the year ended March 31, 2001 (in thousands):

DOMESTIC INTERNATIONAL
RENTAL AND RENTAL AND PARTS SALES CORPORATE
MAINTENANCE MAINTENANCE FABRICATION AND SERVICE AND OTHER TOTAL
----------- ------------- ----------- ----------- --------- ----------

Revenues................ $126,686 $ 22,549 $61,779 $ 21,452 $ 295 $ 232,761
Gross margin............ 80,465 16,425 9,041 3,476 176 109,583
Depreciation and
amortization.......... 25,710 5,924 1,087 770 -- 33,491
Capital expenditures.... 54,535 11,560 746 951 214 68,006
Identifiable assets..... 476,201 178,718 88,170 133,587 295,897 1,176,256

Geographic Area

The following table illustrates revenues and total assets by geographic
locations for the year ended March 31, 1999 (in thousands):

UNITED STATES, CENTRAL AND AUSTRALIA AND
CANADA AND MEXICO SOUTH AMERICA THE FAR EAST TOTAL
----------------- ------------- ------------- ----------

Revenues...................... $ 122,858 $ 5,731 $ 909 $ 129,498
Total Assets.................. 422,297 14,113 1,581 437,991

The following table illustrates revenues and total assets by geographic
locations for the year ended March 31, 2000 (in thousands):

UNITED STATES, CENTRAL AND AUSTRALIA AND
CANADA AND MEXICO SOUTH AMERICA THE FAR EAST TOTAL
----------------- ------------- ------------- ----------

Revenues...................... $ 119,565 $ 15,946 $ 938 $ 136,449
Total Assets.................. 418,849 48,710 2,383 469,942

The following table illustrates revenues and total assets by geographic
locations for the year ended March 31, 2001 (in thousands):

UNITED STATES, CENTRAL AND AUSTRALIA AND
CANADA AND MEXICO SOUTH AMERICA THE FAR EAST TOTAL
----------------- ------------- ------------- ----------

Revenues...................... $ 211,905 $ 18,668 $ 2,188 $ 232,761
Total assets.................. 1,013,913 133,314 29,029 1,176,256

No one customer accounted for more than 10% of net sales for any of the
periods presented.

F-23
93
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for the years ended March 31, 2000 and
2001 is as follows (in thousands):

JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
-------- ------------ ----------- --------

2000:
Revenue............................... $ 33,808 $34,988 $33,729 $33,924
Operating income...................... 5,968 6,636 6,699 6,924
Net loss.............................. (1,238) (1,578) (1,276) (1,890)
Earnings per common share -- basic.... $ (0.51) $ (0.64) $ (0.52) $ (0.77)
Earnings per common
share -- diluted................... $ (0.51) $ (0.64) $ (0.52) $ (0.77)
2001:
Revenue............................... $ 34,760 $38,853 $60,014 $99,134
Operating income...................... 7,507 8,018 10,411 14,621
Net income (loss)..................... (10,928) 1,753 3,130 1,654
Earnings per common share -- basic.... $ (1.24) $ 0.13 $ 0.21 $ 0.07
Earnings per common
share -- diluted................... $ (1.24) $ 0.13 $ 0.21 $ 0.07

13. OPERATING LEASE FACILITIES

In May 2000, the Company and Universal entered into a $200 million
operating lease facility pursuant to which the Company may sell and lease back
certain compression equipment from a Delaware business trust for a five-year
term. The rental payments under the lease facility include an amount based on
LIBOR plus a variable amount depending on the Company's operating and financial
results, applied to the funded amount of the lease. Under the lease facility,
the Company received an aggregate of approximately $155 million in proceeds from
the sale of compression equipment in May, November and December 2000 and in
connection with the GCSI acquisition, in September 2000. The equipment was sold
and leased back by the Company for a five-year period from May 2000 and deployed
by the Company under its normal operating procedures. The equipment sold had a
book value of approximately $106 million and the equipment sale resulted in
deferred gain of approximately $49 million that was transferred to new operating
lease facilities.

The Company had residual value guarantees on the equipment under the
operating lease facility of approximately 85% of the funded amount that were due
upon termination of the lease and which could be satisfied by a cash payment or
the exercise of the purchase option. The facility contained certain covenants
restricting the Company's operations, including its ability to enter into
acquisition and sales transactions, incur additional indebtedness, permit
additional liens on its assets and pay dividends. The Company's obligations
under this facility were collateralized by liens on its compression equipment
subject to the lease and certain related rights. Under the operating lease
facility, Universal was the lessee and the Company guaranteed certain of
Universal's obligations thereunder. The Company has replaced this facility with
new operating lease facilities with similar terms.

In connection with the WGC acquisition, on February 9, 2001, the Company
raised $427 million under a new seven-year term SSN Operating Lease Facility
funded primarily through an offering of $350 million 8 7/8% senior secured notes
due 2008 by an unaffiliated entity. The Company also entered into a new $125
million secured revolving credit facility and a new $200 million asset-backed
securitization operating lease facility (the "ABS Operating Lease Facility"),
which facility has a series of six leases with terms ranging from three to eight
years. At the closing, the Company funded approximately $80 million under the
ABS Operating Lease Facility and had no amounts outstanding under the new
revolving credit facility. The proceeds from the two new operating lease
facilities were used to restructure existing operating lease obligations and
refinance certain existing indebtedness of the Company (including the previous
operating lease facility described in Note 4 and in the first paragraph of this
Note 13) and WGC. The equipment sold to the

F-24
94
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

two new operating lease facilities had a book value of approximately $431.9
million and the equipment sale resulted in a deferred gain of approximately
$75.1 million that the Company will annually assess for realizability.

Under the operating lease facilities, the Company, as lessee, makes rental
payments to the lessor for the leased equipment. Under the SSN Operating Lease
Facility, the rental payments include amounts based on the interest accrued on
the 8 7/8% senior secured notes and an amount based on LIBOR or a variable base
rate equal to the sum of the interest accrued on the lessor's term loan, the
yield on the equity investment in the lessor and other fees. The equipment
leased by the Company under the SSN Operating Lease Facility had an initial
appraised value of $427 million. The Company has residual value guarantees on
the equipment under the SSN Operating Lease Facility of approximately 82% of the
funded amount that are due upon termination of the lease in the event the
purchase option or renewal options are not selected by the lessee.

Under the ABS Operating Lease Facility, the rental payments are based on a
variable rate plus the yield on the equity investment in the facility. The ABS
Operating Lease Facility is collateralized by a first priority security interest
in all of the assets under the facility. At the end of each lease term under the
ABS Operating Lease Facility, the Company has residual value guarantees on the
equipment under the facility of approximately 85% of the funded amount.

The Company annually assesses whether it is probable that the value of the
property at the end of the lease terms will be less than the residual value
guarantee for each operating lease. On the date the deficiency becomes probable
the expected deficiency (up to the maximum for which the Company is responsible)
would be accrued by the Company using the straight-line method over the
remaining term of the leases.

Based on interest rates and funding amounts as of March 31, 2001, the
future minimum lease payments under the SSN Operating Lease Facility and the ABS
Operating Lease Facility as of March 31, 2001 are $44.8 million for each of the
next five years.

14. EXTRAORDINARY LOSSES

During the year ended March 31, 2001, the Company incurred extraordinary
losses of $15.2 million ($9.5 million net of tax) related to its debt
restructuring that occurred concurrently with the Company's initial public
offering of its common stock, and its debt restructuring that occurred
concurrently with the Company's acquisition of WGC.

15. NON-RECURRING CHARGES

During the year ended March 31, 2001, the Company recorded restructuring
charges of $8.7 million ($5.1 million net of tax, or earnings per share of
$0.34). The primary components of this charge were costs associated with the
early termination of a management agreement in the amount of $6.5 million, a
consulting agreement in the amount of $0.3 million, estimated severance for
Universal employees terminated or identified as transitional in connection with
the WGC merger in the amount of $0.8 million, fees associated with closing of
Universal locations in connection with the WGC merger in the amount of $0.9
million and other related fees in connection with the Company's initial public
offering and concurrent financing transactions in the amount of $0.2 million. At
March 31, 2001 $1.5 million was included in accrued liabilities representing the
portion of the restructuring charge not yet expended.

F-25
95
UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. SUBSEQUENT EVENTS (UNAUDITED)

On April 23, 2001, the Company acquired the international operations of
Compressor Systems, Inc. based in Midland, Texas for approximately $30 million
in cash. Concurrently with the acquisition, the Company funded approximately $35
million under the ABS Operating Lease Facility.

On May 24, 2001, the Company entered into an agreement with Tidewater to
settle acquisition-related claims, which included costs for remediation pursuant
to an environmental assessment, in exchange for payment to the Company of $1
million and termination of the purchase price adjustment agreement, which
eliminated any payment obligation by the Company under that agreement described
in Note 10.

On May 25, 2001, the Company entered into a purchase agreement to acquire
KCI, Inc. ("KCI"), a Tulsa, Oklahoma-based fabricator of large horsepower
compressors. Under the terms of the agreement, the Company will acquire KCI for
approximately $22.9 million cash and, at the Company's election, up to 727,273
shares of the Company's common stock or an additional $18.8 million in cash,
subject to adjustment. Concurrently with the acquisition, the Company will repay
all of KCI's approximately $57 million of indebtedness. The transaction is
subject to various conditions, including regulatory approvals. Although there
can be no assurance the transaction will close, it is expected to be consummated
in July 2001.

On May 29, 2001, the Company filed a Registration Statement on Form S-3 to
register the offering to the public of 1,500,000 shares of its common stock, par
value $.01 per share, under the Securities Act of 1933, as amended, 3,000,000
shares of the Company's common stock by certain selling stockholders, including
Castle Harlan, and up to 675,000 shares on a pro rata basis to cover
overallotments. As of the date of this prospectus, this Registration Statement
has not been declared effective.

Consummation of the offering described in the Registration Statement will
give the holders of Universal's 9 7/8% senior discount notes the right to
require Universal to repurchase those notes at a price equal to 101% of the
accreted value, plus accrued and unpaid interest to date. The Company expects to
finance any repurchases of the 9 7/8% senior discount notes through the Credit
Agreement or the operating lease facilities.

Currently, an affiliate of Weatherford beneficially owns approximately 48%
of the Company's outstanding common stock. Following this offering, Weatherford
will beneficially own approximately 46% of the Company's outstanding common
stock. Pursuant to a voting agreement entered into concurrently with the
Company's acquisition of Weatherford Global, Weatherford agreed to limit its
voting power to 33 1/3% of the Company's outstanding common stock until the
earlier of two years from the closing of that acquisition or the date that
Castle Harlan and its affiliates own less than 5% of the Company's outstanding
common stock. The sale of shares by Castle Harlan in the offering may result in
a termination of the voting agreement if the underwriters' overallotment option
is exercised, giving Weatherford voting control over the full amount of the
Company's shares that it then owns.

In addition to its voting control, Weatherford and its affiliates are
entitled to designate, which it has done, three persons to serve on our board of
directors for so long as they own at least 20% of our outstanding common stock.
If Weatherford's ownership falls below 20%, Weatherford may designate only two
directors. If Weatherford's ownership falls below 10%, it will no longer have
the right to designate directors to our board. Castle Harlan is also entitled to
designate a total of three persons to our board of directors. Although it will
lose this right following this offering, its two current designees, John K.
Castle and William M. Pruellage, are serving terms that do not expire until our
2003 annual meeting of stockholders.

There can be no assurance that the common stock offering will be
consummated.

F-26
96

UNIVERSAL COMPRESSION HOLDINGS, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

The following unaudited pro forma combined condensed statement of
operations is based on the historical consolidated financial statements and the
notes thereto of Universal and Weatherford Global (or "Enterra") and have been
prepared to illustrate the effect of Universal's acquisition of Weatherford
Global and the related financing transactions as if those transactions had
occurred on April 1, 2000 for the year ended March 31, 2001. The unaudited pro
forma combined condensed statement of operations should be read in conjunction
with the historical financial statements and accompanying disclosures contained
or incorporated by reference in this prospectus.

The unaudited pro forma combined condensed statement of operations gives
effect to:

- the initial public offering of Universal's common stock and concurrent
debt restructuring and operating lease facility, which occurred in May
2000, as well as its common stock split and conversion of preferred stock
and non-voting common stock that occurred concurrently with the initial
public offering;

- the transfer of certain assets not included in the Weatherford Global
acquisition to Weatherford entities other than Enterra and its
subsidiaries prior to the acquisition; and

- completion of the Weatherford Global acquisition and the related
financing transactions.

The unaudited pro forma combined condensed statement of operations does not
give effect to (1) our acquisitions of IEW in February 2001 or GCSI in September
2000, other than the historical information since the date of those
acquisitions, or related cost savings or (2) the remaining cost savings and
synergies that we expect to realize as a result of the Weatherford Global
acquisition. The unaudited pro forma statement of operations presented below
does not reflect future events that may occur after the Weatherford Global
acquisition.

We accounted for the Weatherford Global acquisition using the purchase
method of accounting. Weatherford Global's property, plant and equipment
balances have been adjusted to their estimated fair values. In addition,
Weatherford Global's reported current assets and current liabilities are assumed
to be their estimated fair values included in the unaudited pro forma combined
condensed financial statements. The final allocation of the purchase price of
the merger will differ from the amounts represented in the unaudited pro forma
statement of operations.

The accompanying unaudited pro forma combined condensed statement of
operations should be read in conjunction with the historical financial
statements of Universal and Weatherford Global and the notes thereto, which are
included elsewhere or incorporated by reference in this prospectus. The
unaudited pro forma statement of operations is provided for informational
purposes only and does not purport to represent what Universal's financial
position or results of operations would actually have been had the Weatherford
Global acquisition and related financing transactions occurred on such date or
to project Universal's results of operations or financial position for any
future period.

F-27
97

UNIVERSAL COMPRESSION HOLDINGS, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

YEAR ENDED MARCH 31, 2001
--------------------------------------------------------
ENTERRA ACTUAL
FOR THE PERIOD
ENTERRA ACTUAL FROM
UCH NINE MONTHS JANUARY 1,
IPO/DEBT ENDED 2001 THROUGH
UCH RESTRUCTURE DECEMBER 31, FEBRUARY 9,
ACTUAL ADJUSTMENTS 2000 2001
-------- ----------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues...................... $232,761 $ -- $212,626 $31,568
Rentals and cost of sales..... 123,059 -- 135,759 22,817
-------- ------- -------- -------
Gross margin........... 109,702 -- 76,867 8,751
Selling, general and
administrative............... 21,092 -- 26,503 4,545
-------- ------- -------- -------
Operating profit....... 88,610 -- 50,364 4,206
Depreciation and
amortization................. 33,491 (382)(2) 29,791 2,117
Operating lease............... 14,443 924(3) 16,756 2,375
Interest expense, net......... 23,220 (2,793)(4) 8,944 104
Other, net.................... 8,699 (7,059)(5) 15,925 (232)
-------- ------- -------- -------
Income (loss) before
income taxes and
minority interest.... 8,757 9,310 (21,052) (158)
Income taxes (benefit)........ 3,645 3,491(6) (3,834) 262
Minority interest expense, net
of taxes..................... -- -- (22) --
-------- ------- -------- -------
Income (loss) before
extraordinary
items................ $ 5,112 $ 5,819 $(17,196) $ (420)
======== ======= ======== =======
Weighted average common and
common equivalent shares
outstanding:
Basic........................ 14,760 2,166 -- --
-------- ------- -------- -------
Diluted...................... 15,079 2,331 -- --
-------- ------- -------- -------
Earnings per share:
Basic........................ $ 0.35 $ -- $ --
======== ======== =======
Diluted...................... $ 0.34 $ -- $ --
======== ======== =======

YEAR ENDED MARCH 31, 2001
-------------------------------------------

ADJUSTMENTS FOR ENTERRA
OPERATIONS NOT MERGER PRO FORMA
ACQUIRED(1) ADJUSTMENTS AS ADJUSTED
--------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues...................... $ 32,985 $ -- $443,970
Rentals and cost of sales..... 28,706 -- 252,929
-------- -------- --------
Gross margin........... 4,279 -- 191,041
Selling, general and
administrative............... 3,429 -- 48,711
-------- -------- --------
Operating profit....... 850 -- 142,330
Depreciation and
amortization................. 1,304 (5,900)(7) 57,813
Operating lease............... -- 4,400(8) 38,898
Interest expense, net......... 20 (9,090)(9) 20,365
Other, net.................... 12,271 (5,435)(10) (373)
-------- -------- --------
Income (loss) before
income taxes and
minority interest.... (12,745) 16,025 25,627
Income taxes (benefit)........ (862) 6,009(6) 10,435
Minority interest expense, net
of taxes..................... -- 22(11) --
-------- -------- --------
Income (loss) before
extraordinary
items................ $(11,883) $ 9,994 $ 15,192
======== ======== ========
Weighted average common and
common equivalent shares
outstanding:
Basic........................ -- 13,750 30,676(12)
-------- -------- --------
Diluted...................... -- 13,750 31,160(12)
-------- -------- --------
Earnings per share:
Basic........................ $ 0.50
========
Diluted...................... $ 0.49
========

See accompanying Notes to Unaudited Pro Forma Combined Condensed Statement of
Operations.

F-28
98

UNIVERSAL COMPRESSION HOLDINGS, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS

(1) Reflects the exclusion of Weatherford Global's Singapore-based
operations (other than Australia and Thailand) and $10 million of accounts
receivable, which were not included in the Weatherford Global acquisition.

(2) Reflects the elimination of depreciation expense associated with the
sale of compression equipment pursuant to Universal's prior operating lease
facility, with initial funding under that facility of $62.6 million.

(3) Reflects the expenses associated with Universal's prior operating lease
facility, including the related commitment fee.

(4) Reflects the adjustment of interest expense related to the redemption
of certain indebtedness at the beginning of the period and incremental borrowing
during the period with the proceeds of Universal's initial public offering and
Universal's prior operating lease facility. Also includes the commitment fees
associated with the new revolving credit facility.

(5) Represents the non-recurring charges related to the elimination of a
management agreement and a consulting agreement and other related fees in
connection with Universal's initial public offering and concurrent financing
transactions in May 2000.

(6) An estimated statutory tax rate of 37.5% is assumed for pro forma
adjustments. The effective tax rate may differ.

(7) Reflects (a) the decrease of goodwill amortization in the amount of
$2.2 million due to the decrease of goodwill recorded on Enterra's historical
financial statements, (b) the decrease in depreciation expense of $1.2 million
due to the devaluation of Enterra's other property, plant and equipment by $7
million, and (c) the reduction of depreciation expense in the amount of $2.5
million resulting from the additional funding of $63 million on the operating
lease facilities at the beginning of the period.

(8) Reflects the increase of operating lease expense of $4.4 million due to
the additional funding of the operating lease at the beginning of the period.

(9) Reflects (a) the adjustment of interest expense related to the
retirement of Weatherford Global's indebtedness at the beginning of the period
of $8.9 million and (b) the net adjustment for the amortization of deferred
financing costs and commitment fees associated with the new revolving credit
facility of $0.2 million.

(10) Reflects the elimination of non-recurring charges related to
severance, taxes and transaction costs.

(11) Reflects the elimination of Enterra's minority interest expense as a
result of the purchase of GE Capital's interest in Weatherford Global by Enterra
concurrently with the Weatherford Global acquisition.

(12) Includes the effect of the 7,275,000 shares of common stock offered
in, and the stock split and conversion that occurred concurrently with,
Universal's initial public offering and the 13,750,000 shares of Universal's
common stock issued to an affiliate of Weatherford in the Weatherford Global
acquisition as if these transactions had occurred at April 1, 2000. Also
includes the weighted average effect of the 1,400,726 shares of Universal's
common stock issued as partial consideration for the GCSI acquisition that
occurred on September 15, 2000. Excludes options to purchase up to 318,000
shares of Universal's common stock by former Weatherford Global employees in
connection with the Weatherford Global acquisition.

F-29
99

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

4,000,000 SHARES

[UNIVERSAL COMPRESSION LOGO]

COMMON STOCK

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

MERRILL LYNCH & CO.

SALOMON SMITH BARNEY
FIRST UNION SECURITIES, INC.
LEHMAN BROTHERS
HOWARD WEIL
A division of Legg Mason Wood Walker, Inc.
SIMMONS & COMPANY
INTERNATIONAL

, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
100

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 14. 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, all of
which will be borne by the registrant. Except for the SEC registration fee, all
amounts are estimates.

SEC registration fee.................................... $ 47,352
New York Stock Exchange listing fee..................... 5,250
National Association of Securities Dealers, Inc. fee.... 19,441
Legal fees and expenses................................. 350,000
Blue sky fees and expenses.............................. 2,000
Accounting fees and expenses............................ 100,000
Printing expenses....................................... 350,000
Miscellaneous........................................... 125,957
----------
Total......................................... $1,000,000
==========

ITEM 15. 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 some 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 incorporated by reference to Exhibit 10.33 to the
registrant's Registration Statement on Form S-1, File No. 333-34090.

II-1
101

ITEM 16. EXHIBITS

EXHIBIT NO. DESCRIPTION
----------- -----------

1.1+ -- Form of Underwriting Agreement.

4.1 -- Restated Certificate of Incorporation of Universal
Compression Holdings, Inc. (incorporated by reference to
Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 2000).

4.2 -- Restated Bylaws of Universal Compression Holdings, Inc.
(incorporated by reference to Exhibit 3.2 to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2000).

5.1+ -- Opinion of King & Spalding as to the legality of the
common stock being registered.

23.1+ -- Consent of King & Spalding (included as part of its
opinion filed as Exhibit 5.1).

23.2* -- Consent of Deloitte & Touche LLP.

23.3* -- Consent of Arthur Andersen LLP.

23.4* -- Consent of KPMG LLP.

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

* Filed herewith

+ Previously filed

ITEM 17. UNDERTAKINGS

A. Undertaking to Update

(1) The undersigned registrants hereby undertake:

(a) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and

(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;

(b) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof; and

(c) to remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 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

II-2
102

incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(3) The undersigned registrant hereby undertakes:

(a) 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.

(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.

(4) The undersigned registrant hereby further undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

II-3
103

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on June 27, 2001.

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
has been signed by the following persons in the capacities indicated on June 27,
2001.

SIGNATURE TITLE
--------- -----

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

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

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

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

/s/ ERNIE L. DANNER Executive Vice President and Director
---------------------------------------------
Ernie L. Danner

* Director
---------------------------------------------
Bernard J. Duroc-Danner

* Director
---------------------------------------------
Uriel E. Dutton

* Director
---------------------------------------------
Curtis W. Huff

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

* Director
---------------------------------------------
William M. Pruellage

II-4
104

SIGNATURE TITLE
--------- -----

* Director
---------------------------------------------
Edmund P. Segner, III

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

*By: /s/ STEPHEN A. SNIDER
---------------------------------------------
Stephen A. Snider
Attorney-in-fact

II-5
105

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION
----------- -----------

1.1+ -- Form of Underwriting Agreement.

4.2 -- Restated Bylaws of Universal Compression Holdings, Inc.
(incorporated by reference to Exhibit 3.2 to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2000).

5.1+ -- Opinion of King & Spalding as to the legality of the
common stock being registered.

23.1+ -- Consent of King & Spalding (included as part of its
opinion filed as Exhibit 5.1).

23.2* -- Consent of Deloitte & Touche LLP.

23.3* -- Consent of Arthur Andersen LLP.

23.4* -- Consent of KPMG LLP.

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

* Filed herewith

+ Previously filed