10-Q 1 a2031429z10-q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 ------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________ TO _________________________. COMMISSION FILE NUMBER 0-18205 ----------------- OEC COMPRESSION CORPORATION -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Oklahoma 73-1345732 -------------------------------------------------------------------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 2501 Cedar Springs Road, Suite 600, Dallas, Texas 75201 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 214-953-9560 -------------------------------------------------------------------------------- (Issuer's telephone number) CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO Number of Shares of Common Stock Outstanding on September 30, 2000 - 37,060,766 Transitional Small Business Format (Check one): Yes ; No X --- --- 1 OEC COMPRESSION CORPORATION TABLE OF CONTENTS

2 OEC COMPRESSION CORPORATION CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of the consolidated financial statements. 3 OEC COMPRESSION CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED

The accompanying notes are an integral part of the consolidated financial statements. 4 OEC COMPRESSION CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED

The accompanying notes are an integral part of the consolidated financial statements. 5 OEC COMPRESSION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION OEC Compression Corporation, formerly Equity Compression Services Corporation, formerly Hawkins Energy Corporation (the "Company") is engaged in the leasing, contract management, outsourcing, re-manufacturing and direct sale of gas compression equipment to operators of producing natural gas wells and gas gathering systems and in the production of natural gas and oil. Its principal geographical operating areas lie within the states of Alabama, Mississippi, Louisiana, Oklahoma, Arkansas, Kansas, New Mexico and Texas. The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries Ouachita Energy Corporation ("Ouachita"), Equity Leasing Corporation and Sunterra Energy Corporation ("Sunterra"). All intercompany transactions have been eliminated. In the opinion of the Company, the accompanying financial statements contain all adjustments necessary (all of which are of a normal recurring nature) to present fairly the financial position of OEC Compression Corporation and its wholly owned subsidiaries as of September 30, 2000, and the results of its operations and cash flows for the periods ended September 30, 2000 and 1999. Certain prior year amounts have been reclassified to conform to the current year presentation. The financial statements should be read in conjunction with the Company's Form 10-K for the year-ended December 31, 1999. The year-end Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. NOTE 2 PROPERTY AND EQUIPMENT

NOTE 3 TRANSACTIONS WITH RELATED PARTIES The Company transacts business with certain companies, which are directly controlled by members of the Company's Board of Directors and employees. The terms of these transactions are equivalent to the terms of transactions conducted with non-related parties. NOTE 4 COMMITMENTS The Company leases compressor equipment under contracts with terms ranging from month to month to six years. The future revenues to be received under contracts at September 30, 2000 are $2.1 million, $3.5 million, $1.6 million, $854,000 and $7,000 in 2000, 2001, 2002, 2003 and 2004, respectively. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5 EARNINGS PER SHARE Earnings per share ("EPS") is computed based on the weighted average number of shares of common stock outstanding during the period. The following is a reconciliation of basic and dilutive EPS computations:

NOTE 6 MERGER WITH HANOVER COMPRESSION On July 17, 2000, the Company and Hanover Compressor Company ("Hanover") announced the two companies had executed a definitive merger agreement under which Hanover will acquire the Company in an all-stock transaction. Under the terms of the merger agreement, the Company's common stock will be valued at $1.00 per share on the closing date of the merger. The Company's shares being acquired will be exchanged for newly issued Hanover Common shares equal to the average of the closing price for Hanover common shares for the 20 day trading period ending two days prior to the merger. The conversion ratio is subject to a Hanover share price floor and ceiling of $30.00 and $32.50, respectively. One of the conditions to the consummation of the proposed merger between OEC and Hanover is the approval of the OEC shareholders of such merger. Under Securities and Exchange Commission rules, this approval must be done at a special meeting of the shareholders of OEC following delivery of a merger proxy and registration statement for the Hanover common stock to be issued to the OEC shareholders in the merger. In September of 2000, Hanover acquired the Dresser-Rand Compression Services Division ("DRCS") from Ingersoll-Rand Company and under SEC rules, the registration/proxy statement needed to include audited financial statements of DRCS and certain pro forma financial statements. The required DRCS audit was just recently completed. Hanover and OEC expect to file a proxy/registration statement shortly and to consummate the merger in either December of 2000 or early 2001. Due to the delay in filing the proxy/registration statement, on November 14 2000, the Company's Board of Directors and Hanover agreed to (i) extend the outside date for closing the merger from January 15, 2001 to March 1, 2001,(ii) agreed that actions and events that have occurred prior to November 14, 2000 are not material adverse changes under the Merger Agreement, (iii) change the definition of material adverse change in the merger agreement such that changes in the financial performance or condition of the Company will not be grounds for Hanover refusing to close the merger, and 7 (iv) eliminated the requirement that the Company have in place an agreement for one of the Company's lenders to cancel certain warrants prior to the closing of the merger. Given the extended delay in closing the proposed merger of the Company and/ Hanover, on November 14, 2000 the Company's board of Directors and Hanover agreed to enter into a management agreement whereby Hanover will assume management responsibilities for the Company's shop and field operations through completion of the merger. Hanover will receive monthly compensation under the agreement of $900,000 effective beginning in October of this year. . The Company's senior management will continue to oversee all marketing, administrative, accounting and financial operations as well as oversight of the Company's shop and field management. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS The following is Management's discussion and analysis of certain significant factors which have affected the Company's earnings and financial condition during the periods included in the accompanying Consolidated Balance Sheets, Statements of Operations and Cash Flows. Certain matters discussed in this Report on Form 10-Q are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes", "anticipates", "expects", "estimates" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those anticipated as of the date of this report. The risks and uncertainties include (1) the loss of market share through competition, (2) a prolonged substantial reduction in natural gas prices which would cause a decline in the demand for the Company's compression and oil and gas production equipment, (3) the introduction of competing technologies by other companies, (4) new governmental safety, health and environmental regulations which could require significant capital expenditures by the Company and (5) changes in economics in the markets in which the Company operates. The forward-looking statements included herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. RESULTS OF OPERATIONS 3RD QUARTER, 2000 VERSUS 3RD QUARTER, 1999 Gas compressor rentals, service & treating fees of $5.3 million for the three months ended September 30, 2000 ("QTR-2000") represented a 9% reduction from that achieved in the three months ended September 30, 1999 ("QTR-1999"). The February, 2000 sale of a 50% undivided interest in the Will-o-Mills gas treating plant accounted for approximately a third of the revenue decline. The balance was due to a slight drop in the average amount of compression horsepower deployed during QTR-2000 and a slight increase in the average unit size of a deployed unit. Regarding the latter, compression rental rates and, in general, operating costs, on a per horsepower basis is inversely related to unit size. The decline in rental service and treating fees was more than offset by a 35% decline, from QTR-1999 levels, in the associated direct operating costs to $1.6 million. The comparative period cost reduction was due to 1) the previously described economies of scale in cost structure from deploying larger horsepower equipment, and 2) continued focus on cost structure efficiencies in the Company's field operations. As a result, the Company's gas compressor rentals, service and treating operations generated a gross profit (revenues - direct expense) of $3.7 million for QTR-2000 versus QTR-1999's $3.3 million, a 12% improvement. QTR-2000's and QTR-1999's gross margins for these operations (gross profit divided by revenue) were 69% and 58%, respectively. QTR-2000 compressor sales and remanufacturing revenues increased 18% from QTR-1999 levels to $97,000. The associated cost of goods sold fell 14% from QTR-1999 levels to $51,000. As a result the gross profit from these operations rose 100% from QTR-1999 levels to $46,000. The gross margin improved to 47% from QTR-1999's 28%. Depreciation and amortization costs remained virtually unchanged from QTR-1999 levels at $1.5 million. 8 QTR-2000's selling, general and administrative expense ("G&A") fell 33% from QTR-1999 levels to $.579 million. The decrease reflected the Company's continued focus on expense controls. The bulk of the G&A reduction was achieved through personnel reductions. The Company's improved cost structure in both its field operations and selling / administration more than offset QTR-2000's revenue decline from the comparative quarter. As a result, Income from Operations rose $690,000 (69%) from QTR-1999 levels to $1.7 million. Cashflow, defined here as earnings before interest, taxes, depreciation, amortization and non-recurring expenses (commonly referred to as "EBITDA"), rose $643,000 (26%) from QTR-1999's performance level to $3.1 million. Interest income for QTR-2000 of $135,000 represents a $128,000 increase over QTR-1999 levels and is due to the increase in short-term cash investments held by the Company during QTR-2000. As of September 30, 2000, the Company had $8.7 million in cash and short-term investments. The bulk of the cash investments are the result of a common stock warrant exercise by three officers of the Company in mid-June, 2000. QTR-2000 interest expense of $1.4 million represented an 8% increase over QTR-1999 levels and was due predominantly to higher debt interest rates in the current period. On July 17, 2000, the Company and Hanover Compressor Company ("Hanover") announced the two companies have executed a definitive merger agreement under which Hanover will acquire the Company in an all-stock transaction. The merger, which is subject to the approval of the Company's shareholders, is expected to close in late December, 2000 or early January, 2001. Prior to the merger announcement, the Company's board approved a company wide employee retention plan to incentivise Company employees to remain during the sale and merger process. During QTR-2000, the Company incurred legal costs of approximately $150,000 associated with the planned merger and paid retention bonuses under the employee retention plan totaling $458,000. These combined costs have been included as a line item under "Other income (expense)" in the financial statements. For QTR-2000, the Company reported pretax net income of $407,000 before the previously described merger and employee retention expense versus a QTR-1999 pretax loss of $5,000. Included in QTR-1999's pretax earnings is a $313,000 gain on the sale of the Company's oil and gas operations during that quarter. Inclusion of the merger and employee retention expense generates a pretax loss of $201,000 for QTR-2000 with a $72,000 tax benefit generating a net loss for the quarter of $129,000. This compares with QTR-1999 net income of $373,000 after a $378,000 tax benefit offset the $5,000 pretax loss. 9 MONTHS ENDED SEPTEMBER 30, 2000 VERSUS 9 MONTHS ENDED SEPTEMBER 30, 1999 Gas compressor rentals, service & treating fees of $16.5 million for the nine months ended September 30, 2000 ("9 Mo.-2000") represented a 6% reduction from that achieved in the nine months ended September 30, 1999 ("9 Mo.-1999"). The decline was due to a slight drop in the average amount of compression horsepower deployed during the 9 Mo.-2000 period as compared to the 9 Mo.-1999 period and a slight increase in the average unit size of a deployed unit. As stated earlier, compression rental rates and, in general, operating costs, on a per horsepower basis is inversely related to unit size. The decline in rental service and treating fees was more than offset by a 22% decline, from 9 Mo.-1999 levels, in the associated direct operating costs to $5.8 million. The comparative period cost reduction was due to 1) the previously described economies of scale in cost structure from deploying larger horsepower equipment, and 2) continued focus on cost structure efficiencies in the Company's field operations. As a result, the Company's gas compressor rentals, service and treating operations generated a gross profit (revenues - direct expense) of $10.7 million for 9 Mo.-2000 versus 9 Mo.-1999's $10.1 million, a 6% improvement. 9 Mo.-2000's and 9 Mo.-1999's gross margins for these operations (gross profit divided by revenue) were 65% and 58%, respectively. 9 Mo.-2000 compressor sales and remanufacturing revenues decreased 31% from 9 Mo.-1999 levels to $198,000. The associated cost-of-goods-sold fell 40% from 9 Mo.-1999 levels to $108,000. As a result the gross profit from these operations declined just 15% from 9 Mo.-1999 levels to $90,000. The gross margin improved to 45% from 9 Mo.-1999's 37%. The Company continues to minimize its focus on this business sector in favor of the typically more profitable gas compression rental, service and treating sector. Oil and gas revenues and the associated operating costs fell to $0 in the 9 Mo.-2000 period due to the July, 1999 sale of 100% of its oil and gas operations to Prize Petroleum. The Company exited the oil and gas production business to redirect its capital investment into its core gas compression, service and treating business. 9 Depreciation, depletion and amortization costs for the 9 Mo.-2000 period fell 10% from 9 Mo.-1999 levels. The loss of depletion due to the July, 1999 sale of the oil and gas operations was the predominant cause. 9 Mo.-2000's selling, general and administrative expense ("G&A") fell $1.2 million (-40%) from 9 Mo.-1999 levels to $1.8 million. The decrease reflected the Company's continued focus on expense controls. The bulk of the G&A reduction was achieved through personnel reductions. The 9 Mo.-2000 G&A expense also includes an estimated $130,000 in legal, professional and other expenses associated with 1) the Company's response to a shareholder proxy solicitation instigated by three dissident directors of the Company and 2) costs associated with the Company's support of the investment bank, engaged in February, 2000, in its efforts to market the Company (see Note 6, Subsequent Events). At the July 13th, 2000 annual OEC shareholders' meeting, the Company's shareholders overwhelming rejected the dissident directors' alternative slate of directors to that proposed by the Company and the three dissident directors were not reelected to the Company's board. Additionally, the Company rejected the dissident group's request, delivered by their legal counsel, to reimburse the dissident group's legal and proxy solicitation expenses. The Company's improved cost structure in both its field operations and selling / administration more than offset 9 Mo.-2000's revenue decline from the comparative quarter. As a result, Income from Operations rose $1.3 million (39%) from 9 Mo.-1999 levels to $4.7 million. Cashflow, defined here as earnings before interest, taxes, depreciation, amortization and non-recurring expenses (commonly referred to as "EBITDA"), rose $855,000 (10%) from QTR-1999's performance level to $9.0 million. Interest income for 9 Mo.-2000 of $173,000 represents a $95,000 increase over 9 Mo.-1999 levels and is due to the increase in short-term cash investments held by the Company during the last three months of the 9 Mo.-2000 period. As of September 30, 2000, the Company had $8.7 million in cash and short-term investments. The bulk of the cash investments are the result of a common stock warrant exercise by three officers of the Company in mid June, 2000. 9 Mo.-2000 interest expense of $4.3 million represented a 9% increase over QTR-1999 levels and was due 1) slightly higher levels of senior debt and 2) higher debt interest rates in the current period. On July 17, 2000, the Company and Hanover Compressor Company ("Hanover") announced the two companies have executed a definitive merger agreement under which Hanover will acquire the Company in an all-stock transaction. The merger, which is subject to the approval of the Company's shareholders, is expected to close in late December, 2000 or early January, 2001(see Note 6, Merger with Hanover Compression). Prior to the merger announcement, the Company's board approved a company wide employee retention plan to incentivise Company employees to remain during the sale and merger process. During 9 Mo.-2000, the Company incurred legal costs of approximately $150,000 associated with the planned merger and paid retention bonuses under the employee retention plan totaling $458,000. These combined costs have been included as a line item under "Other income (expense)" in the financial statements. In February, 2000, the Company sold a 50% undivided interest in the Will-o-Mills gas treating plant for cash proceeds of $2 million. The sale generated a gain-on-sale of $738,000 during the first quarter of 2000. This compares with a $310,000 gain taken in July, 1999 with the previously described sale of the Company's oil and gas operations to Prize Petroleum. Minority interest was eliminated with the Prize sale. As result of the improved operating margins and reduced G&A expenses, the Company reported pretax net income of $727,000 for the 9 Mo.-2000 period versus a $237,000 pretax loss for the comparative 9 Mo.-1999 period. The 9 Mo.-2000 period's pretax net income, before 1) the merger and employee retention Expenses and 2) one time gains on asset sales, was $587,000. The comparative 9 Mo.-1999 period generated a pretax net loss before comparable expenses and sale gains of $572,000. Income tax expense for the 9 Mo.-2000 period of $290,000 resulted in net income for the period of $437,000. A $454,000 tax benefit in the comparative 9 Mo.-1999 period reversed the period's $237,000 pretax net loss to a positive net income of $217,000. 10 CAPITAL RESOURCES AND LIQUIDITY As of September 30, 2000, the Company has in place a $39.5 million senior credit facility with a major international bank. The facility is a borrowing base revolver effective through July 2001, due in full on July 31, 2001. The September 30, 2000 borrowing base is $48 million but is limited to the current commitment that reduces by $150,000 per month through the July 31, 2001 maturity. The credit facility is collateralized by substantially all of the assets of the Company. On September 30, 2000, the senior credit facility's outstanding balance was $39.3 million which was classified as a current maturity. In July 1997, the Company entered into a senior subordinated term note agreement and senior floating rate note agreement with The Prudential Insurance Company of North America ("Prudential") for $15 million and $5 million, respectively. The $15 million term note agreement contained a warrant purchase agreement authorizing Prudential to purchase up to 1 million shares of the Company's common stock at an initial exercise price of $2.80 per share until the termination date of the related term note. The fair value of the warrants, $870,000, was determined using the Black-Scholes model and was treated as an addition to paid-in capital. The resulting term note amount of $14,130,000 will be accreted over the 10-year term using its effective interest rate of 11.14%. The exercise price of the warrants was subsequently lowered to $1.00 per share in 1999 in connection with the waiver of covenants. The Company's cash interest payout over the term of the note is at the stated rate of 10.15%. Covenants related to the debt agreements include the maintenance of specific levels of working capital, tangible net worth, and various debt service ratios, as defined by the agreements. Further, the debt agreements prohibit the payment of dividends, limit the Company's repurchase of its own stock, and restrict new borrowings. At September 30, 2000, the Company was in compliance with all covenants in both its senior and subordinated credit facilities. The Company relies primarily on the collection of revenues associated with rental-with-maintenance and contract compression contracts to fund the Company's working capital and capital expenditure needs. Borrowings from the Company's senior credit facility are used primarily to finance the growth of the Company. The coordination of the cash flow from operations and borrowings from the senior credit facility allows the Company to optimize its cash flow. On June 12, 2000, the Company's Co-Chief Executive Officers and Chief Financial Officer exercised a warrant, issued by the Company in December 1996, for 8 million shares of the Company's common stock at an exercise price of $0.91 per share. The Company received cash proceeds of $7.28 million upon the warrant exercise. The Company has invested the cash in short-term liquid investments. In July 1999, the Company sold approximately 5,000 horsepower of idle compression equipment (approximately 2% of the total fleet) in a single transaction for $2 million. The purchase and sale agreement contains put and call features that permit 1) the Company to repurchase, at its option, ("Call") the equipment by the end of 1999 at cost, and 2) the purchaser to ("Put") the equipment back to the Company and recover the purchase price plus accrued interest at 10%. The Put and Call features, which were to expire on December 31, 1999, were extended by mutual agreement of the Company and the purchaser to August 30, 2000. On July 17, 2000, the Company announced that it had executed a definitive merger agreement with Hanover Compressor Company (see Note 6), the purchaser of the equipment. The merger is expected to close between late December, 2000 and earlry January, 2001. The Company expects that the existing terms of the equipment purchase and sale agreement will be extended until the merger's completion. Regardless, the Company has sufficient cash reserves to pay-off the note. The Company has treated the transaction as a loan for accounting purposes until such time as the put and call features have either been exercised or expire. To that end, the $2 million sale is carried as a $2 million current note payable at September 30, 2000. Net cash provided by operating activities decreased to $3.8 million in the first nine months, ending September 30, 2000 from $7.0 million in the comparable Nine months of 1999 primarily due to a $1.3 million reduction in accounts payable and accrued liabilities as well as the backing out of the $.748 million gain on asset sale from the previously described February,2000 sale of a 50% interest in the Will-O-Mills gas treating plant. Net cash used in investing activities fell from 1999's $8.4 million to 2000's $2.0 million. The principal causes were 1) a $5.2 million reduction in capital expenditure levels for acquisitions to and enhancements of the Company's compressor fleet and 2) the $2 million cash proceeds from the previously described February 2000 Gas plant interest sale. Net cash provided by financing activities increased from 1999's $1.7million to 2000's $6.5 million due primarily to the $7.28 million in cash proceeds received from the previously described June 12, 2000 stock warrant exercise and a $658 thousand net reduction in borrowings. 11 At September 30, 2000, the Company had current assets of $17.0 million and current liabilities, excluding the $39.3 million senior revolver balance, of $7.3 million. The Company has minimal availability under its senior credit facility and does not have access to the borrowing base above the current $39.0 million commitment (as of November 8, 2000) unless additional lenders are recruited into the credit facility. Given the planned Hanover merger (see Note 6), the Company has no plans to recruit additional lenders at this time. Further, as of September 30, 2000, the Company possesses $8.7 million in cash reserves which management believes is sufficient, along with cash from operations, to support working capital and capital investments through completion of the Hanover merger (See Note 6 - Subsequent Events). YEAR 2000 The Company prepared a Year 2000 Plan and reviewed all Company hardware, software and embedded systems for Year 2000 compliance. As part of the review, the Company tested all critical compressor equipment and systems to the extent possible. The Company incurred no material costs in testing its internal compressor equipment and systems. There have been no issues involving the Year 2000, therefore the Company does not anticipate any future concerns. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK EFFECTS OF INFLATION In recent years inflation has not had a significant impact on the Company's operations or financial condition. The impact of inflation on the Company in the future will depend on the relative increases, if any, the Company may realize from its compressor sales, interest rates on debt, rental rates and the selling price of gas. DERIVATIVE FINANCIAL INSTRUMENTS The Company had used derivative financial instruments such as commodity futures agreements to hedge against fluctuations in oil and gas prices. Gains and losses on these derivative instruments are recorded as adjustments to oil and gas sales. The Board of Directors of the Company have adopted a policy governing the use of derivative instruments which requires that all derivatives used by the Company relate to an anticipated transaction and prohibits the use of speculative or leveraged derivatives. As of September 30, 2000, the Company did not have any derivative financial instruments. INTEREST RATE RISK Total debt at September 30, 2000, included $15 million of fixed rate debt and $45 million of floating-rate debt attributed to borrowings. As a result, the Company's annual interest cost will fluctuate based on changes in short-term interest rates. The impact on annual cash flow of a 10% change in the short-term interest rate would be less than $400,000. 12 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not currently involved in any material litigation or proceeding and is not aware of any such litigation or proceeding threatened against it. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS In May 2000, three members of the Company's board of directors, Dennis W. Estis, Charles M. Butler, III and Don Smith ("the Estis Group"), filed proxy materials to solicit votes from the Company's shareholders to elect an alternative slate of directors in lieu of the directors nominated by the Company's board of directors. On July 13, 2000, the Company held its annual shareholders' meeting at which was present, in person or by proxy, 65% of the Company's issued and outstanding shares. 98% of the shares present voted in favor of the Company's slate of directors, which will serve for a one-year term. No votes were cast for the Estis Group's slate of directors. Messer's Estis, Butler and Smith are no longer directors of the Company. ITEM 5. OTHER INFORMATION On July 17, 2000, the Company and Hanover Compressor Company ("Hanover") announced the two companies had executed a definitive merger agreement under which Hanover will acquire the Company in an all-stock transaction. Under the terms of the merger agreement, the Company's common stock will be valued at $1.00 per share on the closing date of the merger. The Company's shares being acquired will be exchanged for newly issued Hanover Common shares equal to the average of the closing price for Hanover common shares for the 20 day trading period ending two days prior to the merger. The conversion ratio is subject to a Hanover share price floor and ceiling of $30.00 and $32.50, respectively. One of the conditions to the consummation of the proposed merger between OEC and Hanover is the approval of the OEC shareholders of such merger. Under Securities and Exchange Commission rules, this approval must be done at a special meeting of the shareholders of OEC following delivery of a merger proxy and registration statement for the Hanover common stock to be issued to the OEC shareholders in the merger. In September of 2000, Hanover acquired the Dresser-Rand Compression Services Division ("DRCS") from Ingersoll-Rand Company and under SEC rules, the registration/proxy statement needed to include audited financial statements of DRCS and certain pro forma financial statements. The required DRCS audit was just recently completed. Hanover and OEC expect to file a proxy/registration statement shortly and to consummate the merger in either December of 2000 or early 2001. Due to the delay in filing the proxy/registration statement, on November 14 2000, the Company's Board of Directors and Hanover agreed to (i) extend the outside date for closing the merger from January 15, 2001 to March 1, 2001,(ii) agreed that actions and events that have occurred prior to November 14, 2000 are not material adverse changes under the Merger Agreement, (iii) change the definition of material adverse change in the merger agreement such that changes in the financial performance or condition of the Company will not be grounds for Hanover refusing to close the merger, and (iv) eliminated the requirement that the Company have in place an agreement for one of the Company's lenders to cancel certain warrants prior to the closing of the merger. Given the extended delay in closing the proposed merger of the Company and/ Hanover, on November 14, 2000 the Company's board of Directors and Hanover agreed to enter into a management agreement whereby Hanover will assume management responsibilities for the Company's shop and field operations through completion of the merger. Hanover will 13 receive monthly compensation under the agreement of $900,000 effective beginning in October of this year. The Company's senior management will continue to oversee all marketing, administrative, accounting and financial operations as well as oversight of the Company's shop and field management. ITEM 6. EXHIBITS (a) Exhibits:

14 SIGNATURES Pursuant to the requirements of Sections 13 of 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OEC COMPRESSION CORPORATION DATE: November 14, 2000 By: /s/ Kelcy L. Warren ------------------------------------------ KELCY L. WARREN Co-Chief Executive Officer DATE: November 14, 2000 By: /s/ Ray C. Davis ------------------------------------------ RAY C. DAVIS Co-Chief Executive Officer DATE: November 14, 2000 By: /s/ Jack D. Brannon ------------------------------------------ JACK D. BRANNON Senior Vice President and Chief Financial Officer 15 EXHIBIT INDEX

OEC COMPRESSION CORP 10-Q