HANOVER COMPRESSOR CO, S-1/A, 1997-06-26

HANOVER COMPRESSOR CO
S-1/A, 1997-06-26
EQUIPMENT RENTAL & LEASING, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1997

REGISTRATION NO. 333-24953
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 2

TO
FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

HANOVER COMPRESSOR COMPANY
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 7369 75-2344249
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

12001 NORTH HOUSTON ROSSLYN
HOUSTON, TEXAS 77086
(281) 447-8787
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

MICHAEL J. MCGHAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HANOVER COMPRESSOR COMPANY
12001 NORTH HOUSTON ROSSLYN
HOUSTON, TEXAS 77086
(281) 447-8787
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

With copies to:

<TABLE>
<S> <C>
CHARLES E. GERBER, ESQ. JOHN S. WATSON, ESQ.
MINDY C. SIRCUS, ESQ. VINSON & ELKINS L.L.P.
NEAL, GERBER & EISENBERG 1001 FANNIN
TWO NORTH LASALLE STREET 2300 FIRST CITY TOWER
CHICAGO, ILLINOIS 60602 HOUSTON, TEXAS 77002
(312) 269-8000 (713) 758-2222
</TABLE>

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

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If 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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

================================================================================
<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.

SUBJECT TO COMPLETION, DATED JUNE 26, 1997

6,613,494 SHARES

HANOVER COMPRESSOR COMPANY

COMMON STOCK
[HANOVER LOGO] (PAR VALUE $.001 PER SHARE)

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

Of the 6,613,494 shares of Common Stock offered hereby, 4,166,667 shares
are being sold by the Company and 2,446,827 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any proceeds from the sale of shares being sold by the Selling
Stockholders.

Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $17.00 and $19.00. For factors to be considered in
determining the initial public offering price, see "Underwriting".

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

The Common Stock has been approved for listing, subject to notice of
issuance, on the New York Stock Exchange under the symbol "HC".

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total(3)................ $ $ $ $
</TABLE>

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

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.

(2) Before deducting estimated expenses of $1,000,000 payable by the Company.
The Company has agreed to pay the expenses of the Selling Stockholders,
other than underwriting discounts and commissions.

(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 992,024 shares of Common Stock at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total initial
public offering price, underwriting discount, proceeds to Company and
proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriting".
---------------------

The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
, 1997, against payment therefor in immediately available funds.

GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC

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

The date of this Prospectus is , 1997
<PAGE> 3

The inside front cover contains a picture of a 2,225 horsepower compression
unit being fabricated for offshore application. The inside back cover contains a
map of its offices and facilities and a picture of a typical natural gas
gathering application utilizing 3,000 horsepower compression units.
2,225 HORSEPOWER COMPRESSION UNIT BEING FABRICATED FOR OFFSHORE APPLICATION

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES,
AND THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, (i) references to the Company include
Hanover Compressor Company and its subsidiaries and (ii) all references to the
number of shares of common stock, par value $.001 per share, of the Company
("Common Stock") and per share amounts assume that the Underwriters'
over-allotment option is not exercised and reflect a 158 for 1 stock split of
the Common Stock effected on June 24, 1997 prior to the offering of Common Stock
made hereby (the "Offering"). See "Description of Capital Stock".

THE COMPANY

Hanover Compressor Company ("Hanover" or the "Company") is a leading
provider of a broad array of natural gas compression rental, operations and
maintenance services in the United States and select international markets. As
of March 31, 1997, the Company had a fleet of 1,653 compression rental units
with an aggregate capacity of 604,639 horsepower. Hanover's compression services
are complemented by its compressor and oil and gas production equipment
fabrication operations, which broaden its customer relationships both
domestically and internationally.

Through internal growth and a series of strategic acquisitions, the Company
believes it is the largest operator of rental compression horsepower capacity in
the United States, controlling an estimated 20% of the domestic rental market
with 1,601 rental units having an aggregate capacity of approximately 535,000
horsepower at March 31, 1997. Internationally, the Company estimates it is one
of the largest providers of compression services in the rapidly growing South
American market, primarily in Argentina and Venezuela, operating 52 units with
approximately 70,000 horsepower at March 31, 1997. In order to continue its
international expansion, Hanover recently entered into a series of agreements
with Wartsila Diesel International Ltd., OY ("Wartsila"), a leading global
manufacturer of large horsepower engines, providing for, among other things, the
fabrication and the right to exclusively market in select regions worldwide,
Wartsila powered gas compression packages ranging from 1,400 to 7,850
horsepower.

The Company's products and services are essential to the production,
transportation, processing and storage of natural gas and are provided primarily
to energy producers and processors. The Company's decentralized operating
structure, technically experienced personnel and high quality compressor fleet,
allow Hanover to successfully provide superior, reliable and timely customer
service. As a result, Hanover has experienced substantial growth over the past
five years and has developed and maintained a number of long-term customer
relationships. This success has enabled Hanover to maintain an average
horsepower utilization rate of approximately 95% over the last five years in
comparison to an industry average estimated by the Company to be approximately
83%.

INDUSTRY CONDITIONS

Hanover currently competes primarily in the transportable natural gas
compression market for units of up to 4,450 horsepower. This market, which
includes rental and owner operated units, accounts for approximately 12 million
horsepower in the United States and is believed to have grown between 6-10% per
annum over the last five years. The Company estimates that the growth in the
domestic gas compression market will continue due to the increased consumption
of natural gas, the continued aging of the natural gas reserve base and the
attendant decline of wellhead pressures and the discovery of new reserves.

The rental portion of the domestic gas compression market is currently
estimated to comprise only 25% of the aggregate U.S. horsepower, having grown at
an estimated rate of 13% per annum since 1992. Growth of rental compression
capacity in the U.S. market is primarily driven by the
1
<PAGE> 5

increasing trend toward outsourcing by energy producers and processors.
Outsourcing provides the customer greater financial and operating flexibility by
minimizing the customer's investment in equipment and enabling the customer to
more efficiently resize compression units to meet the changing needs of the
well, pipeline or processing plant. In addition, outsourcing typically provides
the customer with more timely and technically proficient service and necessary
maintenance which often reduces operating costs. Internationally, the Company
estimates similar growth opportunities for compressor rental and sales due to
(i) increased worldwide energy consumption, (ii) implementation of international
environmental and conservation laws preventing the flaring of natural gas, and
(iii) increased outsourcing by energy producers and processors.

GROWTH STRATEGY

Since 1992, Hanover has aggressively expanded its operations. Revenues have
increased from $33.1 million in 1992 to $136.0 million in 1996, while earnings
before interest, taxes, depreciation and amortization ("EBITDA") have increased
from $7.3 million in 1992 to $44.5 million in 1996. During the same period, net
income has grown from $1.0 million to $10.4 million.

Key elements of the Company's growth strategy include:

DELIVERING A COMPREHENSIVE RANGE OF SERVICES AND PRODUCTS

Hanover's core business provides a broad array of compression services
designed to meet specific customer operating, technical and financial
requirements. The Company offers its customers a full range of compressor
rental, maintenance and contract compression services, together with the
engineering, installation and field support necessary for cost-effective
operation. As of March 31, 1997, Hanover owned and operated a diversified
fleet of 1,653 gas compression rental units ranging in size from 25 to
2,650 horsepower. In this regard, management has pursued strategies that
have significantly increased the average horsepower of Hanover's fleet
over the past five years, and expects to continue to increase the average
horsepower of its fleet. Larger horsepower applications generally require
greater technical expertise and capital resources than smaller horsepower
applications, which, the Company believes, enhance its competitive
advantage.

Hanover's compressor and oil and gas production equipment fabrication
divisions design, engineer and assemble a fleet of larger natural gas
compression units, and oil and gas production equipment, respectively, for
timely delivery into the rental or sales markets. The Company's
participation in the fabrication of compression units and oil and gas
production equipment has broadened its customer relationships both
domestically and internationally, enhancing its opportunities to increase
its compression services business.

PROMOTING INTERNAL GROWTH THROUGH A DECENTRALIZED STRUCTURE

Hanover utilizes a decentralized management and operational structure to
provide superior customer service in a relationship driven, service
intensive industry. The Company's regionally based network, including
maintenance and refurbishment facilities, enables it to maintain superior
maintenance levels and response times, critical performance criteria which
contribute to one of the highest fleet utilization rates in the industry.
Local presence, experience and an in-depth knowledge of customers'
operating needs and growth plans provide the Company with significant
competitive advantages and internally-driven market share growth. In order
to maintain this regional strength and to create incentives to attract and
motivate an entrepreneurial, highly experienced management team and sales
force, Hanover has implemented an equity ownership program pursuant to
which approximately 100 members of the management and sales force have
purchased over time approximately 14.7% of the Company's Common Stock (on
a fully diluted basis before the Offering). See "Stock Option and Purchase
Plans".
2
<PAGE> 6

PARTICIPATING IN INDUSTRY CONSOLIDATION

The compression services industry has undergone significant change and
consolidation over the past five years as energy producers and processors
increasingly seek out suppliers possessing the requisite resources to meet
their needs. Since mid-1993, the Company estimates that over 33% of the
domestic compression rental fleet capacity has changed ownership. Hanover
has been an active participant in this trend, having completed 10 major
acquisitions for an aggregate consideration of approximately $109 million,
adding 215,555 total horsepower and 623 compressor units to the Company's
fleet through March 31, 1997. Hanover's strategy has been to utilize its
decentralized structure and equity incentives to retain local management
teams in order to capitalize on existing experience and customer
relationships. Efficient integration of these acquisitions has permitted
Hanover to accelerate the growth of the acquired businesses and expand the
range of services offered. The Company plans to continue to pursue the
acquisition of other companies, assets and product lines that either
complement or expand its existing business.

CAPITALIZING ON SELECT INTERNATIONAL OPPORTUNITIES

The expanding international demand for energy is creating a growing market
for natural gas compression services. While Hanover's primary market has
historically been the natural gas producing basins in the United States,
it has entered select international markets that management believes offer
attractive long-term growth opportunities. The Company, through
acquisitions and internal growth, believes it is one of the largest
providers of compression services in the rapidly growing South American
market, primarily in Argentina and Venezuela, operating in the aggregate
over 70,000 horsepower at March 31, 1997. The Company's internationally
generated rental and maintenance revenues have increased from $3.1 million
in 1995 to $11.2 million in 1996 and, based on existing and recently
awarded contracts, are expected to increase substantially in 1997 and
1998.

Hanover estimates that only a small portion of the total gas compression
market in South America is served by rental units but believes that large
gas producers in the region will increasingly outsource their compression
needs. In order to expand its presence in the South American market, the
Company successfully utilizes local partners as well as its relationships
with international energy companies such as Enron Capital and Trade
Resources Corp. ("ECT"), the beneficial owner of approximately 12% of the
Company's Common Stock. Furthermore, the Company also actively markets its
compression fabrication services and production equipment worldwide,
currently selling its compressors into China and Egypt and its production
equipment into Canada, China, Mexico, the Middle East, South America and
Russia.

In order to access additional international growth opportunities and to
broaden its product offerings, the Company has executed a series of
agreements with Wartsila, providing for, among other things, the
fabrication of Wartsila powered gas compression packages in Europe and the
rental and sale of such units worldwide. Management believes that its
alliance with Wartsila, pursuant to which Hanover will become the
exclusive distributor in the Americas (excluding Canada) of engines
ranging from 1,400 to 7,850 horsepower, will permit the Company to expand
its product offerings and services.

EXPANDING ITS CUSTOMER BASE THROUGH THE ACQUISITION AND LEASEBACK OF
COMPRESSORS

operating costs. The Company offers these and other energy industry
participants the opportunity to outsource their operations and reallocate
capital to core activities through its acquisition and leaseback program,
whereby the Company purchases in-place compression equipment at market
value and leases the equipment back to the former owner under long-term
operating and maintenance contracts. Through March 31, 1997, the Company
has consummated 30 acquisition and leaseback transactions, pursuant to
which it has leased compression units totalling 53,193 horsepower. Hanover
believes that this strategy, together with its success in subsequently
expanding upon these relationships, will promote opportunities to provide
such services to other energy industry participants.

COMPRESSOR RENTAL FEET

The size and horsepower of the Company's compressor rental fleet on March
31, 1997 is summarized in the following table.

<TABLE>
<CAPTION>
RANGE OF
HORSEPOWER NUMBER OF AGGREGATE
PER UNIT UNITS HORSEPOWER
---------- --------- ----------
<S> <C> <C>
0-99 581 35,429
100-199 339 47,272
200-499 321 96,377
500-799 124 76,283
800-1199 153 150,186
1200-2699 135 199,092
----- -------
TOTAL 1,653 604,639
</TABLE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company......................... 4,166,667 shares
Common Stock offered by the Selling Stockholders............ 2,446,827 shares
Total............................................. 6,613,494 shares
Common Stock to be outstanding after the Offering........... 27,079,013 shares(1)(2)
Use of Proceeds............................................. To repay certain indebtedness.
Proposed New York Stock Exchange Symbol..................... "HC"
Dividend Policy............................................. The Company does not intend to
pay dividends on the Common
Stock.
</TABLE>

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

(1) Excludes (i) 2,400,174 shares of Common Stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of $5.11 per
share, all of which will be exercisable upon consummation of the Offering,
(ii) 568,950 shares of Common Stock issuable upon exercise of outstanding
warrants at an exercise price of $.01 per share, 65% of which will be
exercisable upon consummation of the Offering and (iii) 908,212 shares of
Common Stock issuable upon exercise of stock options which certain employees
have been offered the opportunity to be granted pursuant to the Company's
1997 Stock Option Plan in connection with and conditioned upon consummation
of the Offering. See "Capitalization" and "Stock Option and Purchase Plans".

(2) Excludes 264,780 shares of restricted Common Stock which certain employees
have been offered the opportunity to purchase pursuant to the Company's 1997
Stock Purchase Plan in connection with and conditioned upon consummation of
the Offering. See "Stock Option and Purchase Plans".
4
<PAGE> 8

SUMMARY HISTORICAL FINANCIAL AND OPERATING INFORMATION
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table presents certain historical financial data for the
Company for each of the five years in the period ended December 31, 1996 and for
the three months ended March 31, 1996 and 1997. The historical financial data
for each of the five years in the period ended December 31, 1996 have been
derived from the audited consolidated financial statements of the Company. The
historical financial data for the three months ended March 31, 1996 and 1997 are
unaudited. Interim results, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial information for such periods; however, such results
are not necessarily indicative of the results which may be expected for any
other interim period or for a full year. The following information should be
read together with "Selected Historical Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and those relating to Astra
Resources Compression, Inc. ("Astra"), which was acquired in December 1995,
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1992 1993 1994 1995(1) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................. $ 33,104 $ 43,346 $ 56,080 $ 95,964 $136,011 $ 25,469 $ 40,924
Operating expenses....................... 19,542 24,541 30,539 56,256 75,031 12,440 21,804
Selling, general and administrative...... 6,227 7,413 8,427 12,542 16,439 3,794 4,694
Depreciation and amortization............ 3,923 5,758 8,109 13,494 20,722(2) 4,515 6,245
Interest expense......................... 1,659 1,366 2,027 4,560 6,594 1,218 2,571
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
income taxes........................... 1,753 4,268 6,978 9,112 17,225 3,502 5,610
Provision for income taxes............... 650 1,597 2,590 3,498 6,844 1,310 2,216
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations........ 1,103 2,671 4,388 5,614 10,381 2,192 3,394
Discontinued operations.................. (115)
-------- -------- -------- -------- -------- -------- --------
Net income............................... $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
======== ======== ======== ======== ======== ======== ========
Net income available to common
stockholders(3)
Net income............................. $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
Dividends on Series A and Series B
preferred stock...................... (832) (1,773) (513)
Series A preferred stock exchange...... (3,794)
Series B preferred stock conversion.... (1,400)
-------- -------- -------- -------- -------- -------- --------
Net income available to common
stockholders......................... 988 2,671 4,388 4,782 3,414 1,679 3,394
Weighted average common and common
equivalent shares...................... 8,331 11,495 14,121 15,794 22,279 22,314 24,491
-------- -------- -------- -------- -------- -------- --------
Earnings per common share................ $ .12 $ .23 $ .31 $ .30 $ .15(3) $ .08 $ .14
======== ======== ======== ======== ======== ======== ========
Supplemental earnings per common
share(4)............................... $ .23 $ .14
======== ========

OTHER DATA:
EBITDA from continuing operations(5)..... $ 7,335 $ 11,392 $ 17,114 $ 27,166 $ 44,541 $ 9,235 $ 14,426
Aggregate capital expenditures........... $ 9,954 $ 19,469 $ 34,301 $123,200 $ 90,312 $ 20,232 $ 33,985
Total number of rental units............. 521 591 759 1,215 1,560 1,294 1,653
Aggregate horsepower..................... 116,898 144,567 228,627 418,480 569,557 458,290 604,639
Average horsepower per unit.............. 224 245 301 344 365 354 366
Horsepower utilization(6)................ 95.0% 94.1% 95.7% 94.2% 95.3% 95.0% 95.1%
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
AS OF --------------------------
DECEMBER 31, 1996 ACTUAL AS ADJUSTED(7)
----------------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 41,513 $ 36,036 $ 36,036
Total assets........................................ 341,387 375,290 375,290
Long-term debt...................................... 122,756 139,482 70,732
Stockholders' equity................................ 176,895 180,377 249,127
</TABLE>

5
<PAGE> 9

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

(1) The summary historical financial data include the results of operations of
the Company and its wholly-owned subsidiaries. During 1995, the Company
acquired Astra, a significant subsidiary. See Note 2 of the Notes to the
Company's Consolidated Financial Statements for further information.

(2) In order to more accurately reflect the estimated useful lives of natural
gas compressor units in the rental fleet, effective January 1, 1996 the
Company changed the lives over which these units are depreciated from 12 to
15 years. The effect of this change was a decrease in depreciation expense
of $2.6 million and an increase in net income of $1.5 million ($.07 per
common share) for the year ended December 31, 1996.

(3) Earnings per share in 1996 was $.47 per share before the effects of charging
retained earnings for $1.8 million relating to dividends on redeemable
preferred stock and one time charges to retained earnings for (i) $3.8
million related to the exchange of all Series A preferred stock for
subordinated notes and (ii) $1.4 million related to the conversion of all
Series B preferred stock to Common Stock. See Note 7 of the Notes to
Consolidated Financial Statements.

(4) Supplemental earnings per common share is based on (i) the number of common
and dilutive common equivalent shares outstanding plus the number of common
shares assumed to be sold in the Offering necessary to raise sufficient net
proceeds to pay the Offering expenses and to repay certain indebtedness of
the Company as described in "Use of Proceeds" and (ii) net income increased
by the effect of a decrease in interest expense ($4.5 million and $1.2
million for the year ended December 31, 1996 and the quarter ended March 31,
1997, respectively), less applicable income tax ($1.8 million and $0.5
million for the year ended December 31, 1996 and the quarter ended March 31,
1997, respectively), related to the indebtedness to be repaid.

(5) EBITDA consists of the sum of consolidated net income, interest expense,
income tax, and depreciation and amortization. The Company believes that
EBITDA is a meaningful measure of its operating performance and is also used
to measure the Company's ability to meet debt service requirements. EBITDA
should not be considered as an alternative performance measure prescribed by
generally accepted accounting principles.

(6) Reflects average horsepower utilization over each twelve month period
calculated on a monthly basis based upon horsepower available.

(7) Reflects the sale of shares of Common Stock being offered by the Company at
an assumed initial offering price of $18.00 per share (net of approximately
$1.0 million of estimated offering expenses and $5.3 million of underwriting
discounts and commissions) and the application of the estimated net proceeds
therefrom to repay certain indebtedness. See "Use of Proceeds" and
"Capitalization".
6
<PAGE> 10

RISK FACTORS

Prospective purchasers of the Common Stock should consider carefully the
factors set forth below as well as the other information contained in this
Prospectus.

INDUSTRY CONDITIONS

The Company's operations are materially dependent upon the levels of
activity in natural gas development, production, processing and transportation.
Such activity levels are affected both by short-term and long-term trends in
natural gas prices. In recent years, natural gas prices and, therefore, the
level of drilling and exploration activity, have been extremely volatile. Any
prolonged substantial reduction in natural gas prices would, in all likelihood,
depress the level of exploration and development activity and result in a
corresponding decline in the demand for the Company's compression and oil and
gas production equipment. This decline in demand would be partially offset by
the greater reliance on older, developed reserves which require additional
compression to deliver the remaining natural gas to market. A significant
prolonged decline in natural gas prices could have a material adverse effect on
the Company's business, results of operations and financial condition.

SHORT LEASE TERMS; POSSIBLE INABILITY TO RE-LEASE COMPRESSORS

The initial term of the Company's leases generally vary based on operating
conditions and customer needs, but in most events, the Company's initial lease
terms, unless extended by the lessee, are not generally sufficient for the
Company to recoup the average cost of acquiring or fabricating compressors under
currently prevailing lease rates. Accordingly, the Company assumes substantial
risk of not recovering its entire investment in the equipment it acquires or
fabricates. Although the Company has historically been successful in re-leasing
units in its inventory, there can be no assurance that the Company will continue
to be able to do so or that a substantial number of its lessees will not
terminate their leases at approximately the same time, thereby causing an
adverse accumulation of unleased compressors in the Company's inventory. The
inability of the Company to lease a substantial portion of its compressors would
have a material adverse effect upon the Company's business, results of
operations and financial condition. See "Business -- Operations".

SUBSTANTIAL CAPITAL REQUIREMENTS

The Company makes, and will continue to make, substantial capital
investments in additions to the compressor rental fleet. Historically, the
Company has financed these investments through internally generated funds and
debt and equity financings. The Company, in addition to the approximately $12
million which it expects to spend on maintenance and repairs, plans to incur
capital expenditures of approximately $101 million during 1997 for continued
expansion of the compressor rental fleet, although the ultimate level of such
expansion-oriented capital expenditures will depend on then existing market
conditions. The Company believes that it will have sufficient cash provided by
operations and borrowings under its existing $150 million credit facility with
The Chase Manhattan Bank, as agent (the "Bank Credit Agreement") to fund these
capital needs. However, there can be no assurance that the Company will generate
sufficient cash flow or have sufficient access to external funding to continue
to satisfy its capital requirements. Failure to generate sufficient cash flow,
together with the absence of alternative sources of capital, could have a
material adverse effect on the Company's growth, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

During 1996 approximately 14.1% of the Company's compression rental and
maintenance revenue was derived from international operations. In September
1995, the Company acquired

7
<PAGE> 11

100% of the issued and outstanding stock of Proyecto Gas Natural P.G.N., C.A.
(now known as Hanover P.G.N., C.A.), a company which provides compression
services in Venezuela ("PGN"). In December 1995, the Company commenced Argentine
operations through its acquisition of Astra. In May 1996, the Company entered
into a joint venture with COSACOL, Ltd. for the purpose of providing compression
services to Ecopetrol, S.A. in Colombia. In February 1997, the Company entered
into a series of agreements with Wartsila providing for, among other things,
fabrication and the right to exclusively market, in select regions worldwide,
Wartsila powered gas compression packages ranging from 1,400 to 7,850
horsepower. The Company intends to enter into a joint venture in June 1997 with
an affiliate of ECT for the purpose of providing compression services to
Lagoven, S.A. in Venezuela. The Company intends to continue to expand its
business in South America and Europe and, ultimately, other international
markets, directly and through joint ventures.

The Company's international operations are affected by global economic and
political conditions. In addition, changes in economic or political conditions
in any of the countries in which the Company operates could result in exchange
rate movement, new currency or exchange controls, other restrictions being
imposed on the operations of the Company or expropriation. The Company's
operations may also be adversely affected by significant fluctuations in the
value of the U.S. dollar and the failure of a partner in an international joint
venture to meet its obligations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business".

AVAILABILITY AND INTEGRATION OF ACQUISITIONS

As part of its growth strategy, the Company has in the past aggressively
pursued, and plans to continue in the future to pursue, the acquisition of other
companies, assets and product lines that either complement or expand its
existing business. Each such acquisition involves a number of potential risks,
such as the diversion of management's attention to the assimilation of the
operations and personnel of the acquired businesses and possible short-term
adverse effects on the Company's operating results during the integration
process.

By virtue of this strategy, the Company routinely conducts preliminary
discussions with numerous companies concerning possible acquisitions. The
Company is unable to predict whether or when any prospective candidate will
become available or the likelihood of a material acquisition being completed.
The Company may seek to finance any such acquisition through the issuance of new
debt and/or equity securities. If the Company proceeds with an acquisition, and
if such acquisition is relatively large and consideration is in the form of
cash, a substantial portion of the Company's financial resources could be used
in order to consummate any such acquisition. In addition, due to the relatively
large size of several potential acquisition opportunities, the general risks
inherent in acquisitions described above could be particularly acute.

COMPETITION

The natural gas compression industry and the oil and gas production
equipment business are highly competitive. The Company competes with several
large national and multinational companies, many of which have greater financial
and other resources than the Company. These companies, like Hanover, offer a
wide range of compressors for purchase or lease. There can be no assurance that
such competitors will not substantially increase the resources devoted to the
development and marketing of products and services competitive with those of the
Company or that new competitors will not enter the industry. See
"Business -- Competition".

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS AND CERTAIN ANTI-TAKEOVER
PROVISIONS

As of March 31, 1997, approximately 49.8% of the Company's outstanding
Common Stock was owned by GKH Investments, L.P., a Delaware limited partnership
(the "Fund") and GKH Private Limited (collectively with the Fund, "GKH"). The
Fund is the Company's largest stockholder. The

8
<PAGE> 12

general partners of GKH Partners, L.P. are three corporations controlled by each
of Melvyn N. Klein, Dan W. Lufkin and the Pritzker family of Chicago, Illinois,
respectively.

Subsequent to this Offering, GKH will continue to own 42.2% of the Common
Stock of the Company (41.0%, if the over-allotment option is exercised). As a
result, GKH will have sufficient voting power to significantly influence the
direction and policies of the Company and the outcome of any matter requiring
stockholder approval including mergers, consolidations and the sale of all or
substantially all of the assets of the Company and to prevent or cause a change
in control of the Company.

The Company's Certificate of Incorporation, as amended, and By-Laws contain
various provisions including, without limitation, certain notice provisions and
provisions authorizing the Company to issue preferred stock that may make it
more difficult for a third party to acquire, or may discourage acquisition bids
for, the Company and could limit the price that certain investors might be
willing to pay in the future for shares of Common Stock. After the Offering, the
ownership by GKH and the Company's officers, directors and their affiliates of a
substantial number of shares of Common Stock could also discourage such bids. In
addition, the rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of any holders of preferred stock which may
be issued in the future and that may be senior to the rights of the holders of
Common Stock. See "Description of Capital Stock". Furthermore, certain
provisions of Delaware law could delay or make difficult a merger, tender offer
or proxy contest involving the Company. See "Description of Capital Stock".

POTENTIAL LIABILITY AND INSURANCE

Natural gas operations are subject to inherent risks, such as equipment
defects, malfunction and failures and natural disasters with resultant
uncontrollable flows of gas or well fluids, fires and explosions. These risks
could expose the Company to substantial liability for personal injury, wrongful
death, property damage, pollution and other environmental damages.

Although the Company has obtained insurance against certain of these risks,
no assurance can be given that such insurance will be adequate to cover the
Company's liabilities or will be generally available in the future or, if
available, that premiums will be commercially justifiable. If the Company were
to incur substantial liability and such damages were not covered by insurance or
were in excess of policy limits, or if the Company were to incur such liability
at a time when it is not able to obtain liability insurance, its business,
results of operations and financial condition could be materially adversely
affected.

ENVIRONMENTAL LIABILITY RISKS

The Company routinely deals with natural gas, oil and other petroleum
products. Therefore, the Company has implemented, or is in the process of
implementing, Spill Prevention Control and Countermeasure Plans ("SPCC Plans")
at certain of its fabrication, maintenance and storage facilities; however, no
assurances can be given that these SPCC Plans will prevent environmental damage
from spills of materials handled by the Company or that such damage has not
already occurred. As a result of its fabrication and refurbishing operations,
the Company also generates or manages hazardous wastes, such as solvents,
thinner, waste paint, waste oil, washdown wastes, and sandblast material.
Although the Company attempts to identify and address contamination before
acquiring properties, and although the Company attempts to utilize generally
accepted operating and disposal practices, hydrocarbons or other wastes may have
been disposed of or released on or under properties owned, leased, or operated
by the Company or on or under other locations where such wastes have been taken
for disposal. These properties and the wastes disposed thereon may be subject to
federal or state environmental laws that could require the Company to remove the
wastes or remediate sites where they have been released. See also "Government
Regulation".

9
<PAGE> 13

Various Preliminary Phase I Environmental Site Assessments have been
conducted with respect to certain properties owned or operated by the Company.
Some of these assessments have revealed that soils at some of the Company's
facilities are contaminated with hydrocarbons and various other regulated
substances. Although some remediation efforts have been undertaken by previous
owners of these properties, no assurances can be given that such remediation
efforts have been or will be successful or that the Company will not incur
substantial costs in remediating such contamination. The Company has not
established reserves for such matters and can give no assurances that prior
remediation efforts will prove to be adequate.

As a result of the acquisition of Astra, the Company, through a wholly
owned subsidiary, indirectly owns a 17 acre parcel of land which includes a
lagoon at Astra's East Bernard, Texas facility. The area covered by the lagoon
was formerly the site of a solid waste landfill. The Company has been
indemnified by Astra's former parent Westar Capital, Inc. ("Westar"), for any
environmental liability associated with the landfill in excess of $250,000.
Under the indemnity agreement, the Company has the right to "put" the property
to Westar and Westar would be forced to purchase the property for $150,000 under
certain circumstances. No assurances can be given that Westar will have the
resources to indemnify the Company or repurchase the property. Should the
property be put to Westar, the Company's subsidiary and the Company may
nevertheless remain liable under applicable environmental laws. At the present
time, the Company does not believe that it is subject to any remedial
obligations with respect to the former solid waste landfill.

GOVERNMENTAL REGULATION

The Company is subject to various federal, state and local laws and
regulatory standards in the areas of safety, health and the environment,
including regulations regarding emission controls. The Company believes that it
is in substantial compliance with such laws and regulations and that the phasing
in of emission controls and other known standards at the rate currently
contemplated by existing laws and regulations will not have a material adverse
effect on the Company's business, results of operations or financial condition.
However, various state and federal agencies from time to time consider adopting
new laws and regulations or amending existing laws and regulations regarding
environmental protection. While the Company may be able to pass on to its
customers the additional costs of complying with such laws, there can be no
assurances that attempts to do so will be successful. Accordingly, new laws or
regulations or amendments to existing laws or regulations could require the
Company to undertake significant capital expenditures and could otherwise have a
material adverse effect on the Company's business, results of operations and
financial condition.

NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE

Prior to the Offering, there has been no public market for the Common
Stock. The Common Stock has been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange. However, there can be no
assurance that an active trading market will develop subsequent to the Offering
or, if developed, that it will be sustained. The initial public offering price
of the Common Stock will be determined through negotiations between the Company
and the representatives of the Underwriters and may bear no relationship to the
price at which the Common Stock will trade after the Offering. For information
relating to the factors to be considered in determining the initial public
offering price, see "Underwriting". Prices for the Common Stock after the
Offering may be influenced by a number of factors, including the liquidity of
the market for the Common Stock, investor perceptions of the Company and the
energy services industry and general economic and other conditions.

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK

Sales of substantial amounts of Common Stock in the public market
subsequent to the Offering could adversely affect the market price of the Common
Stock. Upon consummation of the Offering, the Company will have 27,079,013
shares of Common Stock outstanding (28,071,037 shares if the

10
<PAGE> 14

Underwriters' overallotment option is exercised in full). Of these shares, the
6,613,494 shares of Common Stock offered hereby (7,605,518 shares if the
Underwriters' overallotment option is exercised in full) will be freely tradable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Act"), except for shares held by persons deemed to be "affiliates"
of the Company or acting as "underwriters" as those terms are defined in the
Act. The remaining 20,465,519 shares of Common Stock outstanding will be
"restricted securities" within the meaning of Rule 144 under the Act and will be
eligible for resale subject to the volume, manner of sale, holding period and
other limitations of Rule 144. In addition, options and warrants to purchase
2,769,992 shares of Common Stock will be exercisable upon consummation of the
Offering. The Company, the executive officers and directors of the Company,
certain other stockholders and the Selling Stockholders have agreed not to sell
any shares of Common Stock for a period of 180 days from the date of this
Prospectus without the consent of the representatives of the Underwriters. See
"Shares Eligible for Future Sale" and "Underwriting".

DIVIDENDS

The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any such cash dividends in the foreseeable future. In
addition, the ability of the Company to pay dividends following the Offering
will be limited by the terms of the Bank Credit Agreement and the Company's 7%
Subordinated Notes due 2000 (the "Subordinated Notes"). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".

DILUTION

Investors participating in the Offering will incur immediate substantial
dilution. To the extent outstanding options and warrants to purchase the
Company's Common Stock are exercised, there may be further dilution. See
"Dilution".

11
<PAGE> 15

THE COMPANY

The Company was incorporated in Delaware in October 1990 and commenced
operations primarily in West Texas with 47 compressor units with an aggregate of
12,668 horsepower contributed by a then affiliated company. In November and
December 1990, the Company acquired all of the capital stock of three
corporations and substantially all of the assets of a fourth corporation. As a
result of these acquisitions, the Company increased its compression fleet to 286
units with an aggregate of 76,000 horsepower and expanded its operations to East
Texas and the Arkoma Basin. In May 1991, GKH acquired a controlling interest in
the Company and in July 1991, the Company acquired a compressor fabrication
business and a 50% interest in a compressor leasing joint venture. The remaining
50% interest in the joint venture was acquired by the Company effective March
31, 1993.

In March 1993, the Company commenced production equipment fabrication
operations, utilizing selected assets purchased from, and employees formerly
employed by, a small production equipment fabrication business.

In February 1995, the Company purchased certain compression assets and
related equipment from Gale Force Compression Services, Inc., adding 106 units
with an aggregate of 14,190 horsepower to its fleet and concurrently entered
into a four year alliance agreement with Ward Petroleum, an affiliate of the
seller, for gas compression services to be provided by the Company. Also in
February 1995, the Company significantly expanded its production equipment
capacity by acquiring a substantial portion of the operating assets of the oil
and gas production equipment division of Smith Industries, Incorporated, which
had been in the fabrication of oil and gas production equipment industry since
1927.

In August 1995, Joint Energy Development Investments Limited Partnership
("JEDI"), an affiliate of ECT, purchased 10,000 shares of the Company's 6.5%
Cumulative Redeemable Convertible Series B Preferred Stock (the "Series B
Preferred Stock") (which were converted into 759,786 shares of Common Stock in
December 1996) and purchased Common Stock of the Company and, as a result,
currently owns approximately 12% of the Company's outstanding Common Stock. See
"Principal and Selling Stockholders".

In September 1995, the Company acquired PGN, thereby gaining a presence in
Venezuela as well as adding 11 compressor units with an aggregate of 13,408
horsepower. In December 1995, the Company acquired Astra from Westar, a
subsidiary of Western Resources, Inc. ("Western Resources") in exchange for $6.4
million and approximately 22.9% of the Company's outstanding Common Stock. This
acquisition added 145 compressor units and 103,699 horsepower to the Company's
rental fleet including an Argentine operation with 16 compressor units
aggregating 21,252 horsepower. Through internal growth and the strategic
acquisitions described above, the Company has increased its fleet to a total of
1,653 compressor units with an aggregate of 604,639 horsepower at March 31,
1997.

The executive offices of the Company are located at 12001 North Houston
Rosslyn, Houston, Texas 77086 and its telephone number is (281) 447-8787.

12
<PAGE> 16

USE OF PROCEEDS

The net proceeds to the Company from the Offering (at an assumed offering
price of $18.00 per share) are expected to be approximately $68.8 million
(approximately $85.4 million if the Underwriter's over-allotment option is
exercised in full). The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholders.

The Company will use such net proceeds to repay all of its indebtedness
under its credit facility with JEDI, as agent (the "JEDI Loan Agreement") which
will then be terminated, and the balance of the proceeds will be applied to the
indebtedness outstanding under the Bank Credit Agreement. As of March 31, 1997,
the Company had an aggregate of $30 million and $84.1 million ($102.6 million as
of May 31, 1997) outstanding under the JEDI Loan Agreement and the Bank Credit
Agreement, respectively. Such obligations bear interest at weighted average
rates of 7.67% and 6.7%, respectively, and mature in 2002 and 1999,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources".

DIVIDEND POLICY

The Company has not paid any cash dividends on its Common Stock since its
formation and does not anticipate paying such dividends in the foreseeable
future. The Board of Directors anticipates that all cash flow generated from
operations in the foreseeable future will be retained and used to develop and
expand the Company's business. In addition, the Bank Credit Agreement and the
Subordinated Notes prohibit the payment of cash dividends on the Company's
capital stock without the lenders' prior written consent. Any future
determinations to pay cash dividends on the Common Stock will be at the
discretion of the Company's Board of Directors and will be dependent upon the
Company's results of operations and financial condition, credit and loan
agreements in effect at that time and other factors deemed relevant by the Board
of Directors. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Description
of Capital Stock".

For dividends paid on Preferred Stock, all of which have been redeemed, see
Note 7 of the Notes to Consolidated Financial Statements.

13
<PAGE> 17

CAPITALIZATION

The following table sets forth the total capitalization of the Company at
March 31, 1997 and as adjusted to give pro forma effect to the Offering and the
anticipated application of the estimated net proceeds therefrom as described
under "Use of Proceeds". This table should be read in conjunction with the
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Bank Credit Agreement..................................... $ 84,100 $ 45,350
JEDI Loan Agreement....................................... 30,000 --
7% Subordinated Notes..................................... 21,899 21,899
Other..................................................... 3,483 3,483
-------- --------
Total long-term debt........................................ 139,482 70,732
-------- --------
Stockholders' equity:
Preferred Stock, $.01 par value, 3,000,000 shares
authorized and issuable in series; no shares issued and
outstanding............................................
Common Stock, $.001 par value, 100,000,000 shares
authorized; 22,943,693 issued and outstanding,
27,110,360 issued and outstanding after the
Offering(1)............................................ 23 27
Additional paid-in capital.................................. 171,405 240,151
Retained earnings........................................... 15,912 15,912
Less:
Notes receivable from officers and employees for purchase
of Common Stock........................................ (6,745) (6,745)
Treasury stock -- 31,347 common shares, at cost........... (218) (218)
-------- --------
Stockholders' equity........................................ 180,377 249,127
-------- --------
Total capitalization........................................ $319,859 $319,859
======== ========
</TABLE>

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

(1) Includes 31,347 treasury shares, but excludes (i) 2,400,174 shares of Common
Stock subject to options previously granted to Company employees pursuant to
various stock option plans maintained by the Company, (ii) warrants to
purchase 568,950 shares of Common Stock granted to the former holders of the
Series A Preferred Stock (which preferred stock is no longer outstanding),
(iii) 908,212 shares of Common Stock issuable upon exercise of stock options
which certain employees have been offered the opportunity to be granted
pursuant to the Company's 1997 Stock Option Plan in connection with and
conditioned upon consummation of the Offering, and (iv) 264,780 shares of
restricted stock which certain employees have been offered the opportunity
to purchase pursuant to the Company's 1997 Stock Purchase Plan in connection
with and conditioned upon consummation of the Offering. See "Stock Option
and Purchase Plans".

14
<PAGE> 18

DILUTION

The net tangible book value of the Company as of March 31, 1997 was
$175,198,000, or $7.65 per share of Common Stock. "Net tangible book value" per
share is equal to the aggregate tangible assets of the Company less its
aggregate liabilities, divided by the total number of shares of Common Stock
outstanding on March 31, 1997. After giving effect to the estimated net proceeds
to the Company of the Offering, the pro forma net tangible book value of the
Company as of March 31, 1997 would have been approximately $243,948,000, or
$9.01 per share of Common Stock. This represents an immediate increase in net
tangible book value per share of $1.36 to existing stockholders and an immediate
dilution in net tangible book value per share of $8.99 to new investors, as
illustrated in the following table:

<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share..................... $18.00
Net tangible book value per share at March 31, 1997......... $ 7.65
Increase in net tangible book value per share attributable
to new investors.......................................... $ 1.36
Pro forma net tangible book value per share after the Offering...... $ 9.01
------
Dilution per share to new investors................................. $ 8.99
======
</TABLE>

As of March 31, 1997, the Company has reserved an aggregate of 2,969,124
shares of Common Stock for issuance upon exercise of warrants and options. On
that date, there were outstanding options to purchase an aggregate of 2,400,174
shares of Common Stock at a weighted average price of $5.11 per share, all of
which are, or will become, fully exercisable immediately upon consummation of
the Offering. Also on that date, there were outstanding warrants to purchase an
aggregate of 568,950 shares of Common Stock at a price of $0.01 per share,
327,146 of which are exercisable as of March 31, 1997 and the remaining warrants
vest in equal monthly installments through August, 1998. As of the date hereof,
the Company has reserved 1,365,062 shares of Common Stock for issuance as
restricted stock or upon exercise of options granted pursuant to the Company's
1997 Stock Option Plan and its 1997 Stock Purchase Plan. See "Stock Option and
Purchase Plans" and "Certain Transactions -- Certain Relationships and Related
Transactions".

The following table sets forth as of March 31, 1997 the relative
investments of the existing Company stockholders and of the new investors,
giving pro forma effect to the sale by the Company of 4,166,667 shares of the
Common Stock being offered hereby (and excluding any sale upon consummation of
the Offering of up to 264,780 shares of Common Stock to officers and employees
under the Company's 1997 Stock Purchase Plan), at an assumed offering price of
$18.00 per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 22,912,346 85% $175,115 70% $7.64
New investors............... 4,166,667 15% 75,000 30% 18.00
---------- --- -------- --- -----
Total............. 27,079,013 100% $250,115 100% $9.24
========== === ======== === =====
</TABLE>

The foregoing tables assume no exercise of the Underwriters' over-allotment
option and no exercise of other options or warrants outstanding upon
consummation of the Offering. To the extent that all of such other options
(including the Underwriters' over-allotment option) or warrants are exercised as
of March 31, 1997, there would be further dilution in net tangible book value
per share of $.22 to new investors.

15
<PAGE> 19

SELECTED HISTORICAL FINANCIAL INFORMATION
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected financial data, insofar as it relates to each of the
years 1992 to 1996, has been derived from the audited consolidated financial
statements of the Company, including the consolidated balance sheets at December
31, 1995 and 1996 and the related consolidated statements of income and of cash
flows for the three years ended December 31, 1996 and notes thereto appearing
elsewhere herein. The data for the three months ended March 31, 1996 and 1997
has been derived from unaudited financial statements also appearing herein
which, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
information for such periods. The following information should be read together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and those
relating to Astra, which was acquired in December 1995, included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1992 1993 1994 1995(1) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Rentals and maintenance............... $ 21,680 $ 25,723 $ 32,025 $ 48,354 $ 79,355 $ 17,840 $ 24,320
Compressor fabrication................ 10,838 14,034 16,202 29,593 28,764 1,766 7,527
Production equipment fabrication...... -- 3,178 7,272 16,960 26,903 5,673 8,671
Other................................. 586 411 581 1,057 989 190 406
-------- -------- -------- -------- -------- -------- --------
Total revenues.................. 33,104 43,346 56,080 95,964 136,011 25,469 40,924
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Rentals and maintenance............... 10,206 9,739 11,008 17,813 30,800 6,755 9,455
Compressor fabrication................ 9,336 12,131 13,733 25,265 24,657 1,515 6,359
Production equipment fabrication...... -- 2,671 5,798 13,178 19,574 4,170 5,990
Selling, general and administrative... 6,227 7,413 8,427 12,542 16,439 3,794 4,694
Depreciation and amortization......... 3,923 5,758 8,109 13,494 20,722(2) 4,515 6,245
Interest expense...................... 1,659 1,366 2,027 4,560 6,594 1,218 2,571
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses........ 31,351 39,078 49,102 86,852 118,786 21,967 35,314
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
Provision for income taxes.............. 650 1,597 2,590 3,498 6,844 1,310 2,216
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations....... 1,103 2,671 4,388 5,614 10,381 2,192 3,394
Discontinued operations................. (115)
-------- -------- -------- -------- -------- -------- --------
Net income.............................. $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
======== ======== ======== ======== ======== ======== ========
Net income available to common
stockholders(3)
Net income............................ $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
Dividends on Series A and Series B
preferred stock..................... (832) (1,773) (513)
Series A preferred stock exchange..... (3,794)
Series B preferred stock conversion... (1,400)
-------- -------- -------- -------- -------- -------- --------
Net income available to common
stockholders........................ 988 2,671 4,388 4,782 3,414 1,679 3,394
Weighted average common and common
equivalent shares..................... 8,331 11,495 14,121 15,794 22,279 22,314 24,491
-------- -------- -------- -------- -------- -------- --------
Earnings per common share............... $ .12 $ .23 $ .31 $ .30 $ .15(4) $ .08 $ .14
======== ======== ======== ======== ======== ======== ========
Supplemental earnings per common
share(5).............................. $ .23 $ .14
======== ========
OTHER DATA:
EBITDA from continuing operations(6).... $ 7,335 $ 11,392 $ 17,114 $ 27,166 $ 44,541 $ 9,235 $ 14,426
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA(end of period):
Working capital......................... $ (445) $ 962 $ 995 $ 23,270 $ 41,513 $ 26,757 $ 36,036
Net property, plant and equipment....... 42,863 61,722 88,391 198,074 266,406 212,331 292,868
Total assets............................ 56,176 76,779 114,614 252,313 341,387 270,979 375,290
Long-term debt.......................... 15,985 14,279 36,878 50,451 122,756 64,453 139,482
Preferred stockholders' equity.......... 26,894 27,407
Common stockholders' equity............. 26,470 46,945 51,333 139,302 176,895 141,093 180,377
</TABLE>

16
<PAGE> 20

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

(1) The selected historical financial information includes the results of
operations of the Company and its wholly-owned subsidiaries. During 1995,
the Company acquired Astra, a significant subsidiary. See Note 2 of the
Notes to the Company's Consolidated Financial Statements for further
information.

(3) Earnings per common share is calculated using the weighted average number of
common and dilutive common equivalent shares outstanding during each period.
In conformity with SEC requirements, common and common equivalent shares
issued during the twelve months prior to the filing of the registration
statement for the Company's proposed initial public offering have been
included in the calculation as if they were outstanding for all periods
presented, using the treasury stock method and the assumed initial public
offering price.

(4) Earnings per share in 1996 was $.47 per share before the effects of charging
retained earnings for $1.8 million relating to dividends on redeemable
preferred stock and one time charges to retained earnings for (i) $3.8
million related to the exchange of all Series A preferred stock for
subordinated notes and (ii) $1.4 million related to the conversion of all
Series B preferred stock to Common Stock. See Note 7 of the Notes to
Consolidated Financial Statements.

(5) Supplemental earnings per common share is based on (i) the number of common
and dilutive common equivalent shares outstanding plus the number of common
shares assumed to be sold in the Offering necessary to raise sufficient net
proceeds to pay the Offering expenses and to repay certain indebtedness of
the Company as described in "Use of Proceeds" and (ii) net income increased
by the effect of a decrease in interest expense ($4.5 million and $1.2
million for the year ended December 31, 1996 and the quarter ended March 31,
1997, respectively), less applicable income tax ($1.8 million and $0.5
million for the year ended December 31, 1996 and the quarter ended March 31,
1997, respectively), related to the indebtedness to be repaid.

(6) EBITDA consists of the sum of consolidated net income, interest expense,
income tax, and depreciation and amortization. The Company believes that
EBITDA is a meaningful measure of its operating performance and is also used
to measure the Company's ability to meet debt service requirements. EBITDA
should not be considered as an alternative performance measure prescribed by
generally accepted accounting principles.

17
<PAGE> 21

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

GENERAL

The Company's operations consist of providing gas compression services
through renting, maintaining and operating natural gas compressors and
engineering, fabricating and selling gas compression and oil and gas production
equipment. See "Business".

The Company commenced operations during the latter part of 1990 with the
acquisition of three regional compression leasing companies and substantially
all of the assets of a fourth company. The compression rental fleet has been
expanded significantly through internal growth and acquisitions and consists of
1,653 units with an aggregate of 604,639 horsepower as of March 31, 1997. The
Company's growth has been funded by a combination of internally generated cash
flow, debt financing, the issuance of Common Stock in connection with certain
acquisitions and the sale of additional equity securities to existing
stockholders and other investors.

RESULTS OF OPERATIONS

The following table summarizes the revenues, expenses and gross profit
percentages of each of the Company's business segments:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------------- -------------
1994 1995 1996 1996 1997
----- ----- ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rentals and maintenance..................... $32.0 $48.4 $ 79.4 $17.8 $24.3
Compressor fabrication...................... 16.2 29.6 28.8 1.8 7.5
Production equipment fabrication............ 7.3 17.0 26.9 5.7 8.7
----- ----- ------ ----- -----
Total.................................. $55.5 $95.0 $135.1 $25.3 $40.5
===== ===== ====== ===== =====
Expenses:
Rentals and maintenance..................... $11.0 $17.8 $ 30.8 $ 6.8 $ 9.5
Compressor fabrication...................... 13.7 25.3 24.7 1.5 6.4
Production equipment fabrication............ 5.8 13.2 19.6 4.2 6.0
----- ----- ------ ----- -----
Total.................................. $30.5 $56.3 $ 75.1 $12.5 $21.9
===== ===== ====== ===== =====
Gross profit percentage:
Rentals and maintenance..................... 65.6% 63.2% 61.2% 62.1% 61.1%
Compressor fabrication...................... 15.2 14.6 14.3 14.2 15.5
Production equipment fabrication............ 20.3 22.3 27.2 26.5 30.9
</TABLE>

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996

REVENUES

Revenues from rentals and maintenance increased by $6.5 million, or 37%, to
$24.3 million during the three month period ended March 31, 1997 from $17.8
million during the three month period ended March 31, 1996. Domestic revenues
from rentals and maintenance increased by $4.6 million or 30% to $20.0 million
during the three months ended March 31, 1997 from $15.4 million during the three
months ended March 31, 1996. International revenues from rentals and maintenance
increased by $1.9 million, or 81% to $4.3 million during the three months ended
March 31, 1997 from $2.4 million during the three months ended March 31, 1996.
The increase in both domestic and international rental and maintenance revenues
resulted primarily from continued expansion of the Company's rental fleet.
Domestic horsepower in the rental fleet increased by 29% from 414,162 horsepower
at March 31, 1996 to 535,218 horsepower at March 31, 1997. In addition,

18
<PAGE> 22

international horsepower increased by 57% from 44,128 horsepower at March 31,
1996 to 69,421 horsepower at March 31, 1997.

Revenues from the fabrication and sale of compressor equipment to third
parties increased by $5.7 million, or 317%, to $7.5 million during the three
months ended March 31, 1997 from $1.8 million during the three months ended
March 31, 1996. During the three months ended March 31, 1997, an aggregate of
37,727 horsepower of compression equipment was fabricated, 22,294 horsepower of
which was placed in the rental fleet and 15,433 horsepower of which was sold to
third party customers. During the three months ended March 31, 1996, 21,225
horsepower was fabricated for the rental fleet and 3,571 horsepower was sold to
third party customers. The increase in third party sales reflects the
strengthening demand in the overall natural gas compression market.

Revenues from the fabrication and sale of production equipment increased by
$3.0 million, or 53%, to $8.7 million during the three months ended March 31,
1997 from $5.7 million during the three months ended March 31, 1996. The
increase in revenues reflects the strengthening of the oil and gas production
equipment market, especially demand for such equipment in the Gulf of Mexico.

EXPENSES

Rentals and maintenance operating expenses increased by $2.7 million, or
40%, to $9.5 million during the three months ended March 31, 1997 from $6.8
million during the three months ended March 31, 1996. The increase results
primarily from the corresponding 37% increase in revenues from rentals and
maintenance during the three months ended March 31, 1997 over the corresponding
period in 1996. The gross profit percentage amounted to 61.1% during the three
months ended March 31, 1997 as compared to 62.1% during the three months ended
March 31, 1996. The decrease resulted primarily from the increased contribution
of international operations which generates slightly lower gross profit margins.

Operating expenses of compressor fabrication increased by $4.9 million, or
327%, to $6.4 million, during the three months ended March 31, 1997 from $1.5
million during the three months ended March 31, 1996 as a result of the
corresponding increase in compressor fabrication revenue. In addition, the
operating expenses attributable to production equipment fabrication increased by
$1.8 million, or 43%, to $6.0 million during the three months ended March 31,
1997 from $4.2 million during the three months ended March 31, 1996 as a result
of the corresponding 53% increase in production equipment sales.

Selling, general and administrative expenses increased by $.9 million, or
24%, to $4.7 million during the three months ended March 31, 1997 from $3.8
million for the three months ended March 31, 1996. The increase resulted from
the continued increase in the level of activity in each of the Company's three
business segments.

Depreciation and amortization increased by $1.7 million, or 38%, to $6.2
million during the three months ended March 31, 1997 from $4.5 million during
the three months ended March 31, 1996. The increase resulted from continued
expansion of the rental fleet and other capital expenditures which increased the
amount invested in property, plant and equipment from approximately $247 million
at March 31, 1996 to approximately $350 million at March 31, 1997.

INTEREST EXPENSE

Interest expense increased by $1.4 million, or 117%, to $2.6 million during
the three months ended March 31, 1997 from $1.2 million during the three months
ended March 31, 1996 as a result of borrowings under the Bank Credit Agreement
which were used to finance additions to the compression rental fleet and the
exchange, in December 1996, of the 6.5% Series A Cumulative Redeemable Preferred
Stock for approximately $23.5 million of Subordinated Notes.

19
<PAGE> 23

INCOME TAXES

The provision for income taxes increased by $.9 million, or 69%, to $2.2
million during the three months ended March 31, 1997 from $1.3 million during
the three months ended March 31, 1996. The increase resulted from the
corresponding increase in income before income taxes.

NET INCOME

Net income increased $1.2 million, or 55%, to $3.4 million during the three
months ended March 31, 1997 from $2.2 million during the three months ended
March 31, 1996 for the reasons discussed above.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

REVENUES

Revenues from rentals and maintenance increased by $31.0 million, or 64%,
to $79.4 million in 1996 from $48.4 million in 1995. Domestically, revenues from
rentals and maintenance increased by $22.9 million, or 51%, to $68.2 million in
1996 from $45.3 million in 1995 and, internationally, by $8.1 million or 261%,
to $11.2 million in 1996 from $3.1 million in 1995. The increase in such
revenues resulted from two factors: (i) the acquisition of Astra in December
1995, which resulted in 82,447 domestic horsepower and 21,252 international
horsepower being added to the rental fleet (a 33% increase compared to the
Company's fleet before the acquisition), and (ii) a 36% increase in the size of
the total compressor rental fleet during 1996, represented by the addition of
124,984 horsepower and 26,093 horsepower, domestically and internationally,
respectively.

During 1996, Hanover fabricated an aggregate of 129,461 horsepower of
compression units, 44% of which was sold to third parties and 56% of which was
placed in the rental fleet. Revenues from the fabrication and sale of
compression equipment to third parties were $28.8 million in 1996 as compared to
$29.6 million in 1995. By comparison, compression units fabricated and placed in
the rental fleet increased by $23.5 million, or 175%, to $36.9 million in 1996
from $13.4 million in 1995, which amounts were eliminated from revenue in
consolidation and the cost of which was included in compression equipment. See
Note 14 of Notes to the Consolidated Financial Statements included elsewhere
herein.

Revenues from the fabrication and sale of production equipment increased by
$9.9 million, or 58%, to $26.9 million during 1996 from $17.0 million during
1995. The increase in revenue reflects the full year of operation and successful
integration of a production equipment business acquired in 1995 which
substantially expanded the Company's production capacity and customer base.

EXPENSES

Operating expenses attributable to rentals and maintenance increased by
$13.0 million, or 73%, to $30.8 million during 1996 from $17.8 million during
1995. The increase results primarily from the growth in the compression rental
fleet as reflected by the corresponding 64% growth in rental and maintenance
revenues during 1996. The rental and maintenance gross profit percentage
decreased to 61.2% during 1996 as compared to 63.2% in 1995. The decrease
results primarily from certain expenses associated with the December 1995
acquisition of rental units from Astra and international operations which
generate lower gross profit margins.

Operating expenses attributable to compressor fabrication decreased by $0.6
million, or 2%, to $24.7 million during 1996 from $25.3 million during 1995, as
a result of the corresponding decrease in revenue. Operating expenses from
production equipment fabrication increased by $6.4 million, or 48%, to $19.6
million during 1996 from $13.2 million during 1995 as a result of the increase
in production equipment fabrication activity. The gross profit percentage from
production equipment fabrication increased to 27.2% in 1996 from 22.3% in 1995,
largely resulting from improved margins in the production equipment market.

20
<PAGE> 24

Selling, general and administrative expenses increased by $3.9 million, or
31%, to $16.4 million in 1996 from $12.5 million in 1995. This increase resulted
from the expansion of the Company's overall level of activity.

Depreciation and amortization increased $7.2 million or 53%, to $20.7
million in 1996 from $13.5 million in 1995. This increase resulted from
expansion of the rental fleet and other capital expenditures. In addition, in
order to more accurately reflect the estimated useful lives of natural gas
compression units in the rental fleet, the Company changed the lives over which
these units are depreciated from 12 to 15 years effective January 1, 1996. The
effect of this change was a decrease in depreciation expense of $2.6 million.

INTEREST EXPENSE

Interest expense increased $2.0 million, or 43%, to $6.6 million in 1996
from $4.6 million in 1995 as a result of borrowings under the Bank Credit
Agreement which was used primarily to finance additions to the compression
rental fleet.

INCOME TAXES

The Company's effective income tax rate was approximately 40% during 1996
and 38% during 1995. Accordingly, the $3.3 million increase to $6.8 million in
1996 from $3.5 million in 1995 resulted from a comparable increase in income
before income taxes from 1995 to 1996.

NET INCOME

Net income increased $4.8 million, or 86%, to $10.4 million in 1996 from
$5.6 million in 1995 for the reasons discussed above. Earnings per share in 1996
were $.47 per share before the effect of charging retained earnings for $1.8
million relating to dividends on redeemable preferred stock and one time charges
to retained earnings for (i) $3.8 million related to the exchange of all Series
A preferred stock for subordinated notes and (ii) $1.4 million related to the
conversion of all Series B preferred stock to common stock.

EARNINGS PER COMMON SHARE

Details of earnings per common share for 1996 are as follows:

<TABLE>
<S> <C>
Net income before adjustment................................ $.47
Dividends on preferred stock................................ (.08)
Series A preferred stock exchange........................... (.17)
Series B preferred stock conversion......................... (.07)
----
Earnings per common share................................... $.15
====
</TABLE>

As explained in Note 7 of the Notes to Consolidated Financial Statements,
the Company exchanged all outstanding Series A preferred stock for subordinated
notes and converted all outstanding Series B preferred stock into Common Stock.
Accordingly, future earnings per common share will not be reduced by items
related to the preferred stock which had been outstanding prior to December 31,
1996.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

REVENUES

Revenues increased by $39.9 million, or 71%, to $96.0 million in 1995 from
$56.1 million in 1994. Revenues from rentals and maintenance increased by $16.4
million, or 51%, to $48.4 million in 1995 from $32.0 million in 1994. This
increase resulted primarily from an 83% increase in the size of the

21
<PAGE> 25

compression rental fleet, representing the addition of an aggregate of 189,853
horsepower during 1995, including 103,699 horsepower added in connection with
the December 1995 Astra acquisition.

Revenues from the fabrication and sale of compression equipment increased
by $13.4 million, or 83%, from $16.2 million in 1994 to $29.6 million in 1995.
The increase in compression equipment fabrication revenue is attributable to the
growing demand for gas compression as gas well development and exploration
activity increased from 1994 to 1995.

Revenues from the fabrication and sale of production equipment increased by
$9.7 million, or 133%, to $17.0 million in 1995 from $7.3 million in 1994. The
increase in production equipment fabrication revenue reflects the acquisition of
a production equipment business in 1995 which substantially expanded the
Company's production capacity and customer base.

EXPENSES

Operating expenses increased by $25.8 million, or 85%, to $56.3 million
during 1995 from $30.5 million during 1994. Operating expenses attributable to
rentals and maintenance increased by $6.8 million, or 62%, to $17.8 million
during 1995 from $11.0 million during 1994. The increase resulted from growth in
the compression rental fleet as reflected by the corresponding 51% growth in
rental and maintenance revenues during 1995. Operating expenses from compression
fabrication increased by $11.6 million, or 85%, to $25.3 million during 1995
from $13.7 million during 1994. This increase reflects the increase in
fabrication of units sold during 1995. Operating expenses from production
equipment fabrication increased by $7.4 million, or 128%, to $13.2 million
during 1995 from $5.8 million during 1994 as a result of the increase in
production equipment fabrication activity.

Selling, general and administrative expenses increased by $4.1 million, or
49% to $12.5 million in 1995 from $8.4 million in 1994. This increase resulted
from the expanded level of activity in the Company's business discussed above.

Depreciation and amortization increased $5.4 million, or 67%, to $13.5
million in 1995 from $8.1 million in 1994. This increase resulted from expansion
of the rental fleet and other capital expenditures.

INTEREST EXPENSE

Interest expense increased $2.6 million, or 130%, to $4.6 million in 1995
from $2.0 million in 1994 as a result of borrowings under the Bank Credit
Agreement and the JEDI Loan Agreement which were used to finance additions to
the compressor rental fleet and to provide working capital to support the
Company's growth.

INCOME TAXES

The Company's effective income tax rate was approximately 38% during 1995
and 37% during 1994. Accordingly, the $0.9 million increase, or 35%, to $3.5
million in 1995 from $2.6 million in 1994 resulted largely from a comparable
increase in income before income taxes from 1994 to 1995.

NET INCOME

Net income increased $1.2 million or 27%, to $5.6 million in 1995 from $4.4
million in 1994 for the reasons discussed above.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically utilized internally generated funds and equity
and debt financing in order to (i) finance the growth of its compressor rental
fleet, (ii) enter into acquisition-leaseback transactions with its customers and
(iii) maintain sufficient production equipment inventory. Cash flows from
operating activities, before changes in working capital items, were $33.6
million for the

22
<PAGE> 26

year ended December 31, 1996 as compared to $19.7 million for the year ended
December 31, 1995 and $11.7 million for the three months ended March 31, 1997 as
compared to $8.0 million for the three months ended March 31, 1996. Capital
expenditures for property, plant and equipment totaled $90.1 million for the
year ended December 31, 1996 as compared to $69.8 million for the year ended
December 31, 1995. The Company, in addition to the approximately $12 million
which it expects to spend on maintenance and repairs, plans to incur capital
expenditures of approximately $101 million during 1997 (of which $34.0 million
has been expended through March 31, 1997), although the ultimate level of such
expansion-oriented capital expenditures will depend on existing market
conditions.

The equity and debt financing necessary to support the Company's growth has
principally been provided by sales of Preferred Stock (all of which have been
converted into, or exchanged for, shares of Common Stock or Subordinated Notes)
and Common Stock and borrowings under various credit and loan agreements.

The Bank Credit Agreement permits borrowings up to $150 million. Funds
borrowed bear interest based on either the bank's base rate or the LIBOR rate
plus an applicable margin and mature in December 1999. As of March 31, 1997,
$84.1 million of principal was outstanding under the Bank Credit Agreement.

The Bank Credit Agreement is secured by all of the assets of the Company
and contains certain restrictive covenants that impose limitations on the
Company such as restrictions on cash dividends, indebtedness and fundamental
changes. The Bank Credit Agreement requires the Company to comply with certain
financial covenants relating to maintenance of a current ratio, fixed charge
coverage, and leverage ratio. Furthermore, failure of GKH to own directly or
indirectly 30% of the issued and outstanding Common Stock constitutes an event
of default under the Bank Credit Agreement.

The JEDI Loan Agreement, which permits borrowings of up to $100 million
will be paid off and terminated concurrently with the consummation of the
Offering. As of March 31, 1997, $30 million of principal was outstanding under
the JEDI Loan Agreement.

In addition to the foregoing, on December 23, 1996, the Company issued its
Subordinated Notes in the aggregate principal amount of $23.5 million, bearing
interest at 7%, payable semi-annually, with principal payable in one payment on
December 31, 2000 in exchange for all of its outstanding 6.5% Series A
Cumulative Redeemable Preferred Stock. The Subordinated Notes contain default
provisions similar to the Bank Credit Agreement and are subordinated to loans
under the Bank Credit Agreement and the JEDI Loan Agreement.

The proceeds of the Offering will be used to partially prepay indebtedness
under the Bank Credit Agreement and to fully prepay indebtedness under the JEDI
Loan Agreement. See "Use of Proceeds". The Company believes that after the
Offering and the application of the net proceeds therefrom, the Company's
available credit facilities, available cash and internally generated funds will
be sufficient to meet liquidity and capital requirements assuming no material
acquisitions.

23
<PAGE> 27

BUSINESS
GENERAL

Hanover is a leading provider of a broad array of natural gas compression
rental, operations and maintenance services in the United States and select
international markets. As of March 31, 1997, the Company had a fleet of 1,653
compression rental units with an aggregate capacity of 604,639 horsepower.
Hanover's compression services are complemented by its compressor and oil and
gas production equipment fabrication operations, which broaden its customer
relationships both domestically and internationally.

Through internal growth and a series of strategic acquisitions, the Company
believes it is the largest operator of rental compression horsepower capacity in
the United States controlling an estimated 20% of the domestic rental market
with 1,601 rental units having an aggregate capacity of approximately 535,000
horsepower at March 31, 1997. Internationally, the Company estimates it is one
of the largest providers of compression services in the rapidly growing South
American market, primarily in Argentina and Venezuela, operating 52 units with
approximately 70,000 horsepower at March 31, 1997. In order to continue its
international expansion, Hanover recently entered into a series of agreements
with Wartsila, a leading global manufacturer of large horsepower engines,
providing for, among other things, the fabrication and the right to exclusively
market in select regions worldwide, Wartsila powered gas compression packages
ranging from 1,400 to 7,850 horsepower.

The rental portion of the domestic gas compression market is currently
estimated to comprise only 25% of the aggregate U.S. horsepower, having grown at
an estimated 13% per annum since 1992. Growth of rental compression capacity in
the U.S. market is primarily driven by the increasing trend toward outsourcing
by energy producers and processors. Outsourcing provides the customer greater
financial and operating flexibility by minimizing the customer's investment in
equipment and enabling the customer to more efficiently resize compression units
to meet the changing needs of the well, pipeline or processing plant. In
addition, outsourcing typically provides the customer with more timely and
technically proficient service and necessary maintenance which often reduces
operating costs. Internationally, the Company estimates similar growth
opportunities for compressor rental and sales due to (i) increased worldwide
energy consumption, (ii) implementation of international environmental and
conservation laws preventing the flaring of natural gas, and (iii) increased
outsourcing by energy producers and processors.

GROWTH STRATEGY

Since 1992, Hanover has aggressively expanded its operations. Revenues have
increased from $33.1 million in 1992 to $136.0 million in 1996, while EBITDA has
increased from $7.3 million in 1992

24
<PAGE> 28

to $44.5 million in 1996. During the same period, net income has grown from $1.0
million to $10.4 million.

Key elements of the Company's growth strategy include:

DELIVERING A COMPREHENSIVE RANGE OF SERVICES AND PRODUCTS

PROMOTING INTERNAL GROWTH THROUGH A DECENTRALIZED STRUCTURE

PARTICIPATING IN INDUSTRY CONSOLIDATION

25
<PAGE> 29

CAPITALIZING ON SELECT INTERNATIONAL OPPORTUNITIES

Hanover estimates that only a small portion of the total gas compression
market in South America is currently served by rental units but believes
that large gas producers in the region will increasingly outsource their
compression needs. In order to expand its presence in the South American
market, the Company successfully utilizes local partners as well as its
relationships with international energy companies such as ECT, the
beneficial owner of approximately 12% of the Company's Common Stock.
Furthermore, the Company also actively markets its compression fabrication
services and production equipment worldwide, currently selling its
compressors into China and Egypt and its production equipment into Canada,
China, Mexico, the Middle East, South America and Russia.

EXPANDING ITS CUSTOMER BASE THROUGH THE ACQUISITION AND LEASEBACK OF
COMPRESSORS

The Company estimates that United States energy producers, transporters
and processors directly own and operate approximately nine million
horsepower of transportable compression units of the type fabricated and
leased by Hanover. This amount represents approximately 75% of the total
U.S. transportable compression market. Recently, many major oil and gas
companies have been divesting domestic energy reserves to independent
energy producers who more frequently outsource their compressor needs in
order to reduce operating costs. The Company offers these and other energy
industry participants the opportunity to outsource their operations and
reallocate capital to core activities through its acquisition and
leaseback program, whereby the Company purchases in-place compression
equipment at market values and leases the equipment back to the former
owner under long-term operating and maintenance contracts. Through March
31, 1997, the Company has consummated 30 acquisition and leaseback
transactions, pursuant to which it has leased compression units totalling
53,193 horsepower. Hanover believes that this strategy, together with its
success in subsequently expanding upon these relationships, will promote
opportunities to provide such services to other energy industry
participants.

INDUSTRY OVERVIEW

GAS COMPRESSION

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

26
<PAGE> 30

the pipeline. It is at this time that compression equipment is applied to
economically boost the well's production levels and allow gas to be brought to
market.

In addition to such gas field gathering activities, natural gas compressors
are utilized in a number of other applications, all of which are intended to
enhance the productivity of oil and gas wells, gas transportation lines and
processing plants. 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 in the pipeline to its
destination. Additionally, compressors are utilized to re-inject associated gas
to artificially lift liquid hydrocarbons which increases the rate of crude oil
production from oil and gas wells. Furthermore, compression enables gas to be
stored in underground storage reservoirs for subsequent extraction during
periods of peak demand. Finally, in combination with oil and gas production
equipment, compressors are often utilized to process and refine oil and gas into
higher value added and more marketable energy sources.

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 the
equipment, a highly trained staff of field service personnel, parts inventory
and a diversified fleet of natural gas compressors are often necessary to
perform such functions in the most economic manner. These requirements, however,
have typically proven to be an extremely inefficient use of capital for
independent natural gas producers and have caused such firms as well as natural
gas processors and transporters to increasingly outsource their non-core
compression activities to specialists such as Hanover.

The advent of rental and contract compression roughly 40 years ago made it
possible for natural gas producers, transporters and processors to improve the
efficiency and financial performance of their operations. Compressors leased
from specialists generally have a higher rate of mechanical reliability and
typically generate greater productivity than those owned by oil and gas
operators. Furthermore, because compression needs of a well change over time,
outsourcing of compression equipment enables an oil and gas operator to better
match compression to the production needs throughout the life of the well. Also,
certain major domestic oil companies are seeking to streamline their operations
and reduce their capital expenditures and other costs. To this end, they have
sold certain domestic energy reserves to independent energy producers and are
outsourcing facets of their operations. Such initiatives, in the opinion of the
Company, are likely to contribute to increased rental of compressor equipment.

Natural gas compressor fabrication involves the design, fabrication and
sale of compressors to meet the unique specifications dictated by the well
pressure, production characteristics and the particular applications for which
compression is sought. Compressor fabrication is essentially an assembly
operation in which an engine, compressor, control panel, cooler and necessary
piping are attached to a frame called a "skid". A fabricator typically purchases
the various compressor components from third party manufacturers but employs its
own engineers and design and labor force.

In order to meet customers' needs, gas compressor fabricators typically
offer a variety of services to their customers including: (i) engineering,
fabrication and assembly of the compressor unit; (ii) installation and testing
of the units; (iii) ongoing performance review to assess the need for a change
in compression; and (iv) periodic maintenance and replacement parts supply.

PRODUCTION EQUIPMENT

Oil and gas reserves are generally not marketable as produced at the
wellhead. Typically, such reserves must be refined before they can be
transported to market. Oil and gas production equipment is utilized to separate
and treat such oil and gas immediately after it is produced in order to
facilitate further processing, transportation and sale of such fuels and
derivative energy sources.

27
<PAGE> 31

Oil and gas production equipment is typically installed at the wellhead
immediately prior to commencing the large scale production phase of a well and
remains at the site through the life of the well.

MARKET CONDITIONS

The Company believes that the most fundamental force driving the demand for
gas compression and production equipment is the growing consumption of natural
gas. As more gas is consumed, the demand for compression and production
equipment increases. In 1996, natural gas consumption in the United States was
approximately 22.7 quadrillion BTUs up from 19.3 quadrillion BTUs in 1990,
representing a compound annual growth rate of 2.7% per year.

Additionally, although natural gas has historically been a more significant
source of energy in the United States than in the rest of the world, foreign
natural gas consumption (excluding the former Soviet Union) has grown from 27.4
quadrillion BTUs in 1990 to 34.2 quadrillion BTUs in 1995, representing a
compound annual growth rate of 4.5% per year. Despite significant growth in
energy demand, until recently, most non-U.S. energy markets have typically
lacked the infrastructure to transport natural gas to local markets, and natural
gas historically has been flared at the wellhead. Given recent environmental
legislation and the construction of numerous natural gas-fueled power plants
built to meet international energy demand, international compression markets are
experiencing substantial growth. For example, the Institute of Gas Technology
estimates that Argentine and Venezuelan gas compressor equipment rental markets
will grow at approximately 15% and 10% per year, respectively, over the next 5
years. Similarly, industry analysts estimate that the energy reserve rich
countries comprising the former Soviet Union and certain Asian-Pacific markets
such as Indonesia and Thailand hold substantial long-term potential for the gas
compression market.

Demand for natural gas compression is expected to continue to rise as a
result of: (i) the increasing demand for energy, both domestically and abroad,
(ii) environmental considerations which provide strong incentives to use natural
gas in place of other carbon fuels, (iii) implementation of international
environmental and conservation laws preventing the flaring of natural gas, (iv)
the aging of producing natural gas reserves worldwide, and (v) the extensive
supply of natural gas.

While gas compression and production equipment typically must be highly
engineered to meet demanding and unique customer specifications, the fundamental
technology of such equipment has been stable and not subject to rapid
technological change.

OPERATIONS

The Company's revenues and income are derived from its three operating
divisions -- compression services and rental, compressor fabrication and
production equipment fabrication. For financial data relating to the Company's
divisions, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 14 to the Notes to the Consolidated Financial
Statements.

COMPRESSION SERVICES AND FABRICATION

The Company provides its customers with a full range of compressor rental,
maintenance and contract compression services. As of March 31, 1997, the
Company's gas compressor fleet consisted of 1,653 units, ranging from 25 to
2,650 horsepower. The Company experienced 94% aggregate compression fleet
utilization and 95% aggregate horsepower utilization during 1996. These
utilization rates compare favorably to estimated industry averages of 85% of
available horsepower and 82% of available units, respectively, during 1996. The
size, type and geographic diversity of this rental fleet enables the Company to
provide its customers with a range of

28
<PAGE> 32

compression units that can serve a wide variety of applications, and to select
the correct equipment for the job, rather than trying to "fit" the job to its
fleet of equipment.

The Company bases its gas compressor rental rates on several factors,
including the cost and size of the equipment, the type and complexity of service
desired by the customer, the length of the contract, and the inclusion of any
other services desired, such as installation, transportation and daily
operation. Over 95% of the Company's units are operated pursuant to "contract
compression" or "rental with full maintenance" contracts pursuant to which
Hanover performs all maintenance and repairs on such units while under contract.
In the United States onshore market, compression rental fleet units are
generally leased on minimum terms of 6 to 12 months, which convert to month-to-
month at the end of the stipulated minimum period. Historically, the vast
majority of Hanover's customers have extended the length of their contracts, on
a month-to-month basis, well beyond the initial term. In the aggregate, over the
last five years, the length of domestic onshore rental contracts, including
extensions, averaged 24 months in duration. Typically, the Company's compression
rental units utilized in offshore and international applications carry
substantially longer lease terms than those for onshore domestic applications.
Over the last five years, Hanover has experienced 92% aggregate compression
rental fleet utilization and a 95% aggregate horsepower utilization compared to
82% and 83% estimated industry utilizations, respectively.

An essential element to the Company's success is its ability to provide its
compression services to customers with contractually committed compressor
run-times of at least 97%. Historically, run time credits have been
insignificant, due largely to the Company's rigorous preventive maintenance
program and extensive field service network which permits the Company to
promptly address maintenance requirements. The Company's rental compressor
maintenance activities are conducted at eight Hanover facilities staffed by
approximately 325 experienced and factory trained maintenance personnel. Such
maintenance facilities are situated in close proximity to actual rental fleet
deployment to permit superior service response times.

All rental fleet units are serviced at manufacturers' recommended
maintenance intervals, modified as required by the peculiar characteristics of
each individual job, and the actual operating experience of each compressor
unit. Prior to the conclusion of any rental job, Hanover field management
evaluates the condition of the equipment and, where practical, corrects any
problems before the equipment is shipped out from the job site. Although natural
gas compressors generally do not suffer significant technological obsolescence,
they do require routine maintenance and periodic refurbishing to prolong their
useful life. Routine maintenance includes alignment, compression checks, and
other parametric checks which indicate a change in the condition of the
equipment. In addition, oil and wear-particle analysis is performed on all units
prior to their redeployment at specific compression rental jobs. Overhauls are
done on a condition-based interval instead of a time-based schedule. In the
Company's experience, these rigorous procedures maximize component life and unit
availability and minimize avoidable downtime. Typically, the Company overhauls
each rental compressor unit for general refurbishment every 36-48 months and
anticipates performing a comprehensive overhaul of each rental compressor unit
every 60 to 72 months. This maintenance program has provided the Company with a
highly reliable fleet of compressors in excellent condition.

Hanover's field service mechanics provide all operating and maintenance
services for each of the Company's compression units leased on a contract
compression or full maintenance basis and are on-call 24 hours a day. Such field
personnel receive regular mechanical and safety training both from the Company
and its vendors. Each Hanover field mechanic is responsible for specific
compressor unit installations and has at his disposal a dedicated, local parts
inventory. Additionally, each Hanover field mechanic operates from a
fully-equipped service vehicle. Each mechanic's field service vehicle is radio
or cellular equipped which allows that individual to be Hanover's primary
contact with the customer's field operations staff and to be contacted at either
his residence or mobile phone 24 hours per day. Accordingly, Hanover's field
service mechanics are given the

29
<PAGE> 33

responsibility to promptly respond to customer service needs as they arise based
on the mechanic's considerable judgment and field expertise.

The Company considers itself to be unique in its industry in that its sales
and field service organizations enjoy managerial parity within the Company,
enabling these two vital organizations to work together in a highly coordinated
fashion in order to deliver maximum customer service, responsiveness and
reliability. The foundation for Hanover's successful field operations effort is
the experience and responsiveness of its approximately 325 member compressor
rental field service and shop staff of factory-trained and field-tested
compressor mechanics. The Company's field service mechanics are coordinated and
supported by regional operations managers who have supervisory responsibility
for specific geographic areas.

The Company's compressor fabrication business, through its wholly-owned
subsidiary doing business as Hanover Maintech, designs, engineers and assembles
compression units for sale to third parties as well as for placement in its
compressor fleet. As of March 31, 1997, the Company had a compressor unit
fabrication backlog of $12.1 million as compared to $4.9 million as of March 31,
1996. All backlog is expected to be produced within a 90-120 day period. In
general, units to be sold to third parties are assembled according to each
customer's specifications and sold on a turnkey basis. Components for such
compressor units are acquired from third party suppliers.

OIL AND GAS PRODUCTION EQUIPMENT

The Company, through its wholly-owned subsidiary doing business as Hanover
Smith, designs, engineers, fabricates and either sells or occasionally rents a
broad range of oil and gas production equipment designed to heat, separate,
dehydrate and measure crude oil and natural gas. The product line includes line
heaters, oil and gas separators, glycol dehydration units and skid mounted
production packages designed for both onshore and offshore production
facilities. The Company maintains standard product inventories in excess of $3
million and is therefore able to meet most rush orders and minimize customer
downtime. As of March 31, 1997, the Company had a production equipment
fabrication backlog of $10.1 million as compared to $5.9 million as of March 31,
1996. All backlog is expected to be produced within a 90-120 day period. The
Company also purchases and reconditions used production equipment which is then
sold or rented.

MARKETS AND CUSTOMERS

Hanover's customer base consists of over 500 U.S. and international
companies engaged in all aspects of the oil and gas industry, including major
integrated oil and gas companies, large and small independent producers, natural
gas processors, gatherers and pipelines. Additionally, Hanover has negotiated
more than 15 strategic alliances or preferred vendor relationships with key
customers pursuant to which Hanover receives preferential consideration in
customer compressor and oil and gas production equipment procurement decisions
in exchange for enhanced product availability, product support, automated
procurement practices and limited pricing concessions. No individual customer
accounted for more than 10% of the Company's consolidated revenues during 1995
or 1996.

The Company's compressor leasing activities are currently located in Texas,
Oklahoma, Arkansas, Louisiana, New Mexico, Mississippi, Alabama, Kansas,
Colorado, Montana and offshore Gulf of Mexico, Trinidad, Colombia, Venezuela and
Argentina. As of March 31, 1997, approximately 13.8% and 11.4% of the Company's
compressor horsepower was being used in offshore and international applications,
respectively.

SALES AND MARKETING

The Company's 30 salespeople are organized into eight sales regions
reporting to the Company's Vice President of Sales. Hanover's sales
representatives aggressively pursue the rental and sale market in their
respective territories for compressors and production equipment. Each

30
<PAGE> 34

Hanover salesperson is assigned a customer list on the basis of the experience
and personal relationships of the salesperson and the individual service
requirements of the customer. This customer and relationship-focused strategy is
communicated through frequent direct contact, technical presentations, print
literature, print advertising and direct mail. Hanover's advertising and
promotion strategy is a "concentrated" approach, tailoring specific messages
into a very focused presentation methodology.

Additionally, Hanover's salespeople coordinate with each other to
effectively pursue customers who operate in multiple regions. The salespeople
maintain intensive contact with the Company's operations personnel in order to
promptly respond to and satisfy customer needs. The Company's sales efforts
concentrate on demonstrating Hanover's commitment to enhancing the customer's
cash flow through superior product design, fabrication, installation, customer
service and after-market support.

Upon its receipt of a request for proposal or bid by a customer, Hanover
assigns a team of sales, operations and engineering personnel to analyze the
application and prepare a quotation, including selection of the equipment,
pricing and delivery date. The quotation is then delivered to the customer, and
if Hanover is selected as the vendor, final terms are agreed upon and a contract
or purchase order is executed. The Company's engineering and operations
personnel also often provide assistance on complex compressor applications,
field operations issues or equipment modifications.

COMPETITION

The natural gas compression services and fabrication business is highly
competitive. Overall, the Company experiences considerable competition from
companies with significantly greater financial resources and, on a regional
basis, from several smaller companies which compete directly with the Company.
The Company believes it is currently the largest natural gas compression company
in the United States on the basis of aggregate rental horsepower.

Compressor industry participants can achieve significant advantages through
increased size and geographic breadth. As the number of rental units increases
in a rental fleet, the number of sales, engineering, administrative and
maintenance personnel required does not increase proportionately. As a result,
companies such as Hanover with larger rental fleets have relatively lower
operating costs and higher margins due to economies of scale than smaller
companies.

One of the significant cost items in the compressor rental business is the
amount of inventory required to service rental units. Each rental company must
maintain a minimum amount of inventory to stay competitive. As the size of the
rental fleet increases, the required amount of inventory does not increase in
the same proportion. The larger rental fleet companies can generate cost of
capital savings through reduced percentage of inventory.

The Company believes that it competes effectively on the basis of price,
customer service, including the availability of personnel in remote locations,
flexibility in meeting customer needs and quality and reliability of its
compressors and related services.

The Company's compressor fabrication business competes with other
fabricators of compressor units. The compressor fabrication business is
dominated by a few major competitors, several of which also compete with the
Company in the compressor rental business. Although sufficient information is
not available to definitively estimate the Company's relative position in the
compressor fabrication market, management believes that the Company is among the
largest compressor fabrication companies in the U.S.

The production equipment business is a highly fragmented business with
approximately eight substantial U.S. competitors. Although sufficient
information is not available to definitively estimate the Company's relative
position in this market, the Company believes that it is among the top three oil
and gas production equipment fabricators in the United States.

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<PAGE> 35

PROPERTIES

The Company owns its corporate offices in Houston, Texas, which are housed
in a combination corporate office and compressor fabrication complex, including
a 192,000 square foot plant located on approximately 28 acres. This facility is
anticipated to provide the Company with sufficient space and capacity for at
least the next three years after expansion of the corporate offices, which is
currently underway. The Company also owns (i) an 11,700 square foot combination
office and maintenance facility located on 6.5 acres in Oklahoma City, Oklahoma,
(ii) an 8,000 square foot combination office and maintenance facility situated
on six acres in Pocola, Oklahoma, (iii) 12,000 square feet of maintenance
facilities situated on 3.5 acres in Midland, Texas, (iv) a 5,000 square foot
sales and service facility situated on one acre located in Corpus Christi,
Texas, (v) a 13,000 square foot facility on 17 acres in East Bernard, Texas
which is being converted to an engine remanufacturing and training facility,
and, (vi) a 210,000 square foot production equipment manufacturing facility
located on 82 acres in Columbus, Texas. The Company also leases maintenance
facilities aggregating 23,000 square feet in Victoria, Texas and Lafayette,
Louisiana under five and ten-year leases, respectively.

GOVERNMENT REGULATION

The Company is subject to various federal and state laws and regulations
relating to environmental protection, including regulations regarding emission
controls. These laws and regulations may affect the costs of the Company's
operations. As with any owner of property, the Company is also subject to
clean-up costs and liability for hazardous materials, asbestos, or any other
toxic or hazardous substance that may exist on or under any of its properties.

The Company believes that it is in substantial compliance with
environmental laws and regulations and that the phasing in of emission controls
and other known regulatory requirements at the rate currently contemplated by
such laws and regulations will not have a material adverse effect on the
Company's financial condition or results of operations. Notwithstanding, in part
because of the Company's rapid growth through several recent acquisitions, the
Company may not be in compliance with certain environmental requirements. For
example, some of the Company's facilities may not possess proper waste
generation identification numbers, may not be in compliance with underground
storage tank ("UST") registration requirements, and may require the installation
of secondary containment around various material storage areas. In addition, the
Company has not yet determined whether it needs certain permits (such as
stormwater discharge permits, air emission permits, and National Pollutant
Discharge Elimination System ("NPDES") permits) or certain plans (such as SPCC
Plans) at several of its facilities. The Company is investigating these issues
and is planning to take action where appropriate.

The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
who are considered to be responsible for the release of a "hazardous substance"
into the environment. These persons include the owner or operator of the
disposal site or sites where the release occurred and companies that disposed or
arranged for the disposal of the hazardous substances. Under CERCLA, such
persons may be subject to joint and several liability for the costs of cleaning
up the hazardous substances that have been released into the environment, for
damages to natural resources, and for the costs of certain health studies.
Furthermore, it is not uncommon for neighboring landowners and other third
parties to file claims for personal injury and property damage allegedly caused
by hazardous substances or other pollutants released into the environment.

The Resource Conservation and Recovery Act ("RCRA") and regulations
promulgated thereunder govern the generation, storage, transfer and disposal of
hazardous wastes. The Company must comply with RCRA regulations for any of its
operations that involve the generation, management, or disposal of hazardous
wastes (such as painting activities or the use of solvents).

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<PAGE> 36

Stricter standards in environmental legislation that may affect the Company
may be imposed in the future, such as proposals to make hazardous wastes subject
to more stringent and costly handling, disposal and clean-up requirements. While
the Company may be able to pass on the additional costs of complying with such
laws to its customers, there can be no assurance that attempts to do so will be
successful. Accordingly, new laws or regulations or amendments to existing laws
or regulations could require the Company to undertake significant capital
expenditures and could otherwise have a material adverse effect on the Company's
business, results of operations and financial condition.

From time to time since President Clinton took office, his administration
has proposed various taxes with respect to the energy industry, none of which
have been enacted and all of which have received significant scrutiny from
various industry lobbyists. At the present time, given the uncertainties
regarding the proposed taxes, including the uncertainties regarding the terms
which the proposed taxes might ultimately contain and the industries and persons
who may ultimately be the subject of such taxes, it is not possible to determine
whether any such tax will have a material adverse affect on the Company. See
also "Risk Factors -- Environmental Liability Risks".

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.

EMPLOYEES

As of March 31, 1997, the Company had approximately 850 employees. No
employees are represented by labor unions and the Company believes that its
relations with its employees are satisfactory.

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<PAGE> 37

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The executive officers, directors and key employees of the Company are
identified below.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael A. O'Connor........... 62 Chairman of the Board; Director
Michael J. McGhan............. 42 President and Chief Executive Officer; Director
Curtis Bedrich................ 54 Chief Financial Officer and Treasurer
William S. Goldberg........... 39 Executive Vice President; Director
Ted Collins, Jr............... 59 Director
Melvyn N. Klein............... 55 Director
Alvin V. Shoemaker............ 58 Director
William E. Simon, Jr.......... 45 Director
Robert R. Furgason............ 61 Director
Carl M. Koupal, Jr............ 43 Director
Charles D. Erwin.............. 36 Vice President, Sales*
Joe C. Bradford............... 39 Vice President, Operations -- International*
William C. Bryant............. 45 Vice President, Operations -- Mid Continent*
Maxwell C. McDonald........... 49 Vice President, Operations -- Southeast*
Jerry Bob McCollum............ 45 Vice President, Operations -- Western Division*
Donald M. DeVille............. 41 Vice President, Operations -- Support*
Teddy J. Head................. 44 Vice President, Operations -- South Texas*
Robert "Bo" Pierce............ 38 Vice President, Operations -- Fabrication*
Richard S. Meller............. 40 Corporate Secretary
</TABLE>

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

* Key employee.

The principal occupations and positions for the past five years, and in
certain cases prior years, of the executive officers, directors and key
employees named above are set forth below. References to service with the
Company includes service with its predecessors.

MICHAEL A. O'CONNOR has served as Chairman of the Board and a director of
the Company since January 1992. Prior thereto, Mr. O'Connor served as president
of Gas Compressors Inc. from 1965 through 1986 and was a private investor from
January 1987 through December 1991. Mr. O'Connor also serves as an officer and a
director of certain subsidiaries of the Company.

MICHAEL J. MCGHAN has served as President and Chief Executive Officer of
the Company since October 1991 and served as Chief Operating Officer of the
Company from December 1990 through October 1991. Mr. McGhan has served as a
director of the Company since March 1992. Prior to December 1990, Mr. McGhan was
sales manager of Energy Industries, Inc. ("EII"). Mr. McGhan has been involved
in the gas compression industry for 18 years. Mr. McGhan also serves as an
officer and as a director of certain subsidiaries of the Company.

CURTIS BEDRICH has served as Chief Financial Officer and Treasurer of the
Company since November 1991. Mr. Bedrich served as Vice President of Adobe
Resources Corporation from June 1980 until January 1991. Mr. Bedrich has been
involved in the oil and gas industry for 19 years. Mr. Bedrich also serves as an
officer of certain subsidiaries of the Company.

WILLIAM S. GOLDBERG has served as Executive Vice President and director of
the Company since May 1991. Mr. Goldberg has been employed by GKH since 1988 and
has served as Managing Director of GKH since June 1990. Mr. Goldberg also serves
as an officer and a director of certain affiliates of the Company. Mr. Goldberg
is also a director of DVI, Inc.

TED COLLINS, JR. has served as a director of the Company since April 1992.
Mr. Collins has served as President of Collins & Ware, Inc., an independent oil
and gas exploration and production

34
<PAGE> 38

company located in Midland, Texas, since January 1988. From July 1982 through
December 1987, Mr. Collins served as President of Enron Oil & Gas Company.
Additionally, Mr. Collins is the Chairman of the Board of Mid Louisiana Gas
Company, an interstate pipeline which serves municipal, industrial and
residential customers in Louisiana and Mississippi. Mr. Collins has 36 years of
experience in the oil and gas industry.

MELVYN N. KLEIN has served as a director of the Company since May 1991. Mr.
Klein is the sole stockholder of a corporation which is a general partner of GKH
Partners, L.P. Mr. Klein has been an attorney and counselor-at-law since 1968.
Mr. Klein is a director of Bayou Steel Corporation, Anixter International
Corporation, Santa Fe Energy Resources, Inc. and certain privately held
companies. Mr. Klein is also a founder and principal of Questor Partners Fund,
L.P.

ALVIN V. SHOEMAKER has served as a director of the Company since May 1991
and has been a private investor since his retirement as Chairman of the Board of
the First Boston Corporation and First Boston, Inc. in January 1989.

WILLIAM E. SIMON, JR. has served as a director of the Company since
December 1995. Mr. Simon is also the Executive Director of William E. Simon &
Sons, L.L.C., a private investment company and is a former Assistant United
States Attorney for the Southern District of New York.

ROBERT R. FURGASON has served as a director of the Company since May 1995.
Mr. Furgason is the President of Texas A&M University Corpus Christi, and has
held a series of faculty and administrative positions at various universities.
Mr. Furgason is the former President of the Accreditation Board for Engineering
and Technology Board of Directors, and also serves on a number of other
accreditation and policy boards.

CARL M. KOUPAL, JR. has served as a director of the Company since April
1997. Mr. Koupal is also an Executive Vice President and Chief Administrative
Officer of Western Resources. Mr. Koupal has worked for Western Resources in
various capacities since March 1992.

CHARLES D. ERWIN has served as a Vice President of the Company since
October 1990 and served as a sales representative of EII from 1985 until October
1990. Mr. Erwin has been involved in the gas compression industry for 11 years.

JOE C. BRADFORD has served as a Vice President of the Company since March
1993 and served as Operations Manager from January 1991 until March 1993. Mr.
Bradford has been involved in the oil and gas industry for 22 years.

WILLIAM C. BRYANT has served as a Vice President of the Company since
October 1990 and served as a sales representative of EII from 1988 until October
1990. Mr. Bryant has been involved in the gas compression industry for 20 years.

MAXWELL C. MCDONALD has served as a Vice President of the Company since
December 1990 and served as President of C&B Sales and Service, Inc. from 1985
until its acquisition by the Company in 1990. Mr. McDonald has been involved in
the gas compression industry for 22 years.

JERRY BOB MCCOLLUM has served as a Vice President of the Company since
November 1996 and served as Operations Manager from April 1995 to November 1996.
Mr. McCollum was President of McCollum Industrial Corporation from April 1985
until its acquisition by the Company in April 1995. Mr. McCollum has been
involved in the gas compression industry for 25 years.

DONALD M. DEVILLE has served as a Vice President of the Company since
February 1996 and served as Rental Fleet Manager since January 1992. Mr. DeVille
has been involved in the gas compression industry for 17 years.

TEDDY J. HEAD has served as a Vice President of the Company since February
1996 and served as Operations Manager of Astra since 1990. Mr. Head has been
involved in the gas compression industry for 23 years.

35
<PAGE> 39

ROBERT "BO" PIERCE has served as Vice President of the Company since April
1995 and previously served as Vice President of Maintech Enterprises since July
1990. Mr. Pierce has been involved in the gas compression industry for 7 years
and has a total of 13 years experience in compressor fabrication and
construction.

RICHARD S. MELLER has served as Secretary of the Company since 1991 and has
been a partner in the law firm of Neal, Gerber & Eisenberg, the Company's legal
counsel, since 1989.

All directors hold office until the annual meeting of the stockholders
following their election or until their successors are duly elected and
qualified. For agreements respecting the nomination of directors, see "Certain
Transactions -- Stockholders' Agreements". Executive officers are appointed by
and serve at the discretion of the Board.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established an Executive Committee, Audit
Committee, Compensation Committee and Finance Committee.

The Executive Committee, to the extent permitted by Delaware law, has all
powers and rights of the Board of Directors. The members of the Executive
Committee are Messrs. O'Connor (Chairman), Goldberg, Klein and McGhan.

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

The Compensation Committee is authorized and directed to review and approve
compensation and benefits of the executive officers, to review and approve the
annual salary plans, to review and advise the Board of Directors regarding the
benefits, including bonuses, and other terms and conditions of employment of
other employees. Members of the Compensation Committee are Messrs. Shoemaker
(Chairman) and Furgason.

The Finance Committee is authorized and directed to exercise authority
pertaining to the financial structure and capitalization of the Company and
recommend to the Board of Directors for sale and/or purchase debt and equity
securities and the sale of net assets comprising all or substantially all of the
assets of the Company. The members of the Finance Committee are Messrs. Goldberg
(Chairman), O'Connor, Shoemaker and Collins.

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<PAGE> 40

EXECUTIVE COMPENSATION

The following table provides certain summary information concerning the
compensation paid by the Company to its Chairman of the Board, Chief Executive
Officer and Chief Financial Officer in 1996 (collectively, the "Named Executive
Officers"):

SUMMARY COMPENSATION TABLE (1)

<TABLE>
<CAPTION>
ANNUAL COMPENSATION(2)
NAME AND ----------------------
PRINCIPAL POSITION SALARY BONUS(3)
------------------ --------- ---------
<S> <C> <C>
Michael A. O'Connor......................................... $130,000 $160,000
Chairman of the Board
Michael J. McGhan........................................... 150,000 190,000
President and Chief
Executive Officer
Curtis A. Bedrich........................................... 120,000 115,000
Chief Financial Officer
and Treasurer
</TABLE>

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

(1) Mr. Goldberg, a Managing Director of GKH, is also the Executive Vice
President of the Company and spends substantial time on the Company's
business. He does not currently receive separate remuneration from the
Company, which reimburses GKH for certain expenses incurred by Mr. Goldberg
in connection with his efforts on the Company's behalf. See "Certain
Transactions -- Certain Relationships and Related Transactions".

(2) Amounts exclude perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus reported for each executive officer.

(3) Annual bonus amounts represent estimated amounts earned and accrued during
1996 which were paid subsequent to the end of such year.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
UNEXERCISED OPTIONS AS OF VALUE OF OPTIONS
DECEMBER 31, 1996(1) AS OF DECEMBER 31, 1996(2)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael O'Connor..................... 311,550 629,471 $4,129,718 $8,321,518
Michael J. McGhan.................... 148,957 243,619 1,979,793 3,182,251
Curtis A. Bedrich.................... 79,806 188,231 1,069,364 2,459,486
</TABLE>

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

(1) No options were granted to or exercised by any Named Executive Officer in
1996.

(2) Calculated using an assumed initial public offering price of $18.00 per
share as the assumed fair market value per share of Common Stock on December
31, 1996.

DIRECTORS' COMPENSATION

The only director to receive compensation for his service on the Board
during 1996 was Robert Furgason. The Company paid Mr. Furgason a director's fee
of $15,000, plus $2,500 for each Board meeting he attended in person, subject to
an annual cap of $20,000.

Following consummation of the Offering, all outside directors will be paid
an annual fee of $10,000.

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<PAGE> 41

STOCK OPTION AND PURCHASE PLANS

The Company previously adopted the Stock Compensation Plan, the 1993
Management Stock Option Plan, the Senior Executive Stock Option Plan, the 1995
Management Stock Option Plan, the 1995 Employee Option Plan, the Incentive
Option Plan, and the 1996 Employee Stock Option Plan (collectively, the
"Plans"), all of which will be terminated upon consummation of the Offering.
Pursuant to the Plans, the Company has from time to time granted options to
purchase an aggregate of 2,400,174 shares of Common Stock at exercise prices
ranging from $.01 per share to $13.93 per share and a weighted average exercise
price of $5.11 per share. To the extent any such options have not previously
vested, the options will become fully vested and exercisable, upon consummation
of the Offering. Termination of these Plans will have no effect on options
previously granted thereunder.

On April 8, 1997, the Board adopted the 1997 Stock Option Plan (the "1997
Option Plan") and the 1997 Stock Purchase Plan (the "1997 Purchase Plan," and
together with the 1997 Option Plan, the "1997 Plans"). The 1997 Plans, which are
administered by the Compensation Committee, permit the Board to issue, subject
to consummation of the Offering, options and restricted stock ("Restricted
Stock") with respect to 5% of the fully diluted shares of Common Stock
outstanding immediately after the Offering. All options issuable under the 1997
Option Plan will be nonstatutory options and are not classified as "incentive
stock options" within the meaning of section 422 of the Code. Employees,
directors and officers of the Company and its subsidiaries are eligible to
participate in the 1997 Plans and to receive grants of awards thereunder. The
selection of persons who will receive grants under the 1997 Plans (the
"Participants") is in the sole discretion of the Compensation Committee. The
number of shares of Common Stock that may be issued under options or as
Restricted Stock to any Participant may not exceed 60,000. To date, pursuant to
the 1997 Plans, each of Messrs. McGhan and Bedrich have been offered the
opportunity to receive options to purchase 41,189 and 14,416 shares of Common
Stock, respectively, and the opportunity to purchase 28,938 and 10,128 shares of
Restricted Stock, respectively. Future awards to be made to the Named Executive
Officers pursuant to the 1997 Plans, if any, cannot be determined at this time.
The exercise price of any option granted under the 1997 Option Plan may be
greater than, less than or equal to the fair market value of the Common Stock on
the date of grant, as determined by the Compensation Committee.

Options granted under the 1997 Option Plan expire upon the earliest to
occur of (i) a period not to exceed ten years from the date of grant; (ii) the
date on which it is forfeited under the terms of the 1997 Option Plan due to
termination of employment; (iii) with respect to vested options, three months
after the Participant's termination of employment by the Company for any reason
other than Cause (as defined in the 1997 Option Plan), death or disability; or
(v) twelve months after the Participant's death or disability.

Unless the Compensation Committee establishes a different vesting schedule,
options to be granted pursuant to the 1997 Option Plan shall become 10% vested
upon the first anniversary of the grant date, 30% vested upon the second
anniversary of the grant date, 60% vested upon the third anniversary of the
grant date and 100% vested upon the fourth anniversary of the grant date.
Notwithstanding the foregoing, if a Participant's employment is terminated for
Cause, then such Participant will forfeit all options, whether or not previously
vested. All unvested options are forfeited upon a Participant's termination of
employment.

Upon a Change of Control (as defined in the 1997 Option Plan), the Company
has the right to acquire from Participants their vested options for a cash
payment equal to the difference between the price per share established in the
Change of Control and the exercise price. Additionally, upon a Change of
Control, all unvested options granted under the 1997 Option Plan would be
converted into either options to purchase the securities of the acquirer in the
Change of Control on the same terms and conditions as apply to such options
under the 1997 Option Plan or such consideration as the

38
<PAGE> 42

Participant would have received had the options been fully vested or be treated
as otherwise determined by the Compensation Committee.

The Compensation Committee has granted certain executive officers and other
employees of the Company the right to receive options to purchase an aggregate
of 908,212 shares of Common Stock pursuant to the 1997 Option Plan at the
initial public offering price. As a condition of such grants, the Participant
must agree not to sell more than a certain percentage, as determined by the
Compensation Committee, of the shares of Common Stock held by such Participant
or issuable to such Participant upon the exercise of options at the time of the
Offering, for a period ending on the earlier of (a) the fourth anniversary of
the Offering, or (b) the date upon which GKH sells or otherwise distributes all
of its equity holdings in the Company. In exchange, the maturity of certain
loans made by the Company to the Participants in connection with the
Participants' prior purchases of Common Stock will be extended to the fourth
anniversary of the Offering.

The Compensation Committee has awarded certain executive officers and other
employees the right to purchase 264,780 shares of Restricted Stock pursuant to
the 1997 Purchase Plan at the initial public offering price. As a condition of
such awards the Participant must agree not to sell more than a certain
percentage, as determined by the Compensation Committee, of the shares of Common
Stock held by such Participant or issuable to such participant upon the exercise
of options at the time of the Offering, for a period ending on the earlier of
(a) the fourth anniversary of the Offering, or (b) the date upon which GKH and
its affiliates sells or otherwise distributes all of its equity holdings in the
Company. The Company has agreed to lend, on a full recourse basis, the
Participants the necessary amount to purchase such shares of Restricted Stock.
In the event the Participant has remained in the employ of the Company and the
Company has met certain performance thresholds, upon the fourth anniversary of
the date of grant, the Participant may receive a one time cash payment. In
addition, the Company has agreed to extend the maturity of certain loans made by
the Company to the Participants in connection with the Participants' prior
purchases of Common Stock to the fourth anniversary of the date of grant of such
Restricted Stock.

CERTAIN TRANSACTIONS
STOCKHOLDERS' AGREEMENTS

The Company and most of its existing stockholders are parties to various
stockholder agreements which provide for, among other things, (i) a right of
first refusal of the Company and a right of second refusal of GKH or its
designee with respect to any proposed transfer of Common Stock (except transfers
to affiliates of such transferring stockholders), (ii) the right of GKH to
compel the other parties thereto to sell their Common Stock upon the sale by GKH
of all of its Common Stock, (iii) the right of the parties thereto to
participate in the sale by GKH of more than fifty percent of the Common Stock
then owned by GKH, and (iv) the right (but not the obligation) of the Company to
require certain employee stockholders to sell such employees' Common Stock to
the Company upon the respective dates of termination of employment with the
Company or any of its affiliates at prices which vary based upon the reason for
such termination. Upon consummation of the Offering, the provisions of these
agreements will no longer be operative, except (a) the rights described in
clauses (ii), (iii) and (iv) will survive, (b) JEDI's right to receive notice of
and designate observers to attend board meetings and the Company's obligation to
provide Rule 144A information to certain prospective transferees of JEDI's stock
in the Company will survive and (c) Westar's rights of visitation and inspection
and the Company's obligation to provide Rule 144A information to certain
prospective transferees of Westar's Common Stock will also survive.

REGISTRATION RIGHTS AGREEMENTS

The Company, GKH, JEDI, Westar and other stockholders, together holding
approximately 90% of the Company's Common Stock prior to the Offering (GKH,
JEDI, Westar and such other stockholders, hereinafter "Holders") are parties to
a Registration Rights Agreement (the "Regis-

39
<PAGE> 43

tration Rights Agreement"). The Registration Rights Agreement generally provides
that in the event the Company proposes to register shares of its capital stock
or any other securities under the Act, then upon the request of those Holders
owning in the aggregate at least 2.5% of the Common Stock or derivatives thereof
(the "Registrable Securities") then held by all of the Holders, the Company will
use its reasonable best efforts to cause the Registrable Securities so requested
by the Holders to be included in the applicable registration statement, subject
to underwriter cutbacks. The Company agrees to pay all registration expenses in
connection with registrations of Registrable Securities effected pursuant to the
Registration Rights Agreement; however, all fees and expenses relating to the
distribution of such Registrable Securities are to be borne by the Company and
each Holder pro rata based on the number of Registrable Securities included in
the registration for the account of the Company and each Holder. In addition,
after December 5, 1998, any single Holder of Common Stock which owns 18% or more
of the Common Stock has the right to demand, on one occasion, the registration
of its Common Stock.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

GKH Partners, L.P. ("Partners"), the beneficial owner of 11,511,488 shares
(approximately 49.8% prior to the Offering) of the outstanding Common Stock, and
the Company have entered into an agreement whereby in exchange for investment
banking and financial advisory services rendered and to be rendered by Partners,
the Company has agreed to pay Partners a fee equal to .75% of the equity value
of the Company determined and payable at such time as (i) a disposition of
shares of the Company resulting in GKH owning less than 25% of the outstanding
Common Stock or (ii) any other transaction occurs resulting in the effective
sale of the Company or its business by the current owners.

As of December 31, 1996, the Company leased one compressor to an affiliate
of Cockrell Oil and Gas, L.P., which is owned 50% by the Fund. The lease is on a
month-to-month basis and, for the year ended 1996, $228,540 was billed under the
lease.

As of December 31, 1996, the Company leased seven compressors to affiliates
of ECT. For the year ended December 31, 1996, the Company billed $701,000 to
affiliates of ECT, on leases with terms ranging from 6-12 months. In addition,
another affiliate of ECT is currently the lender under the JEDI Loan Agreement.

As of December 31, 1996, the Company leased ten compressors to affiliates
of Westar. The leases vary in length from 36-60 months, and $2,237,746 was
billed to affiliates of Western Resources for the year ended December 31, 1996.

On December 23, 1996, the Company's outstanding 6 1/2% Cumulative
Redeemable Series A Preferred Stock, approximately 86% of which was owned by GKH
and affiliates of members of the Company's Board of Directors, was exchanged for
Subordinated Notes in the aggregate principal amount of approximately $23.5
million, bearing interest at 7.0% per annum and maturing December 31, 2000. The
principal amount of the Subordinated Notes represented the redemption amount of
the Series A Preferred Stock and accrued dividends thereon.

On December 23, 1996, JEDI, with the agreement of the Company, converted
the Company's Series B Preferred Stock into 800,308 shares of Common Stock and
received a payment of $1,400,000 in connection therewith.

Mr. Collins, a director and stockholder of the Company, controls a
corporation which owns a 50% interest in a joint venture to which the Company
leases compressors pursuant to a long-term lease which provides for monthly
payments of $56,450. For the year 1996, the Company leased three compressors to
affiliates of Mr. Collins. The leases vary from 12-36 months, and during 1996,
$535,800 was billed to affiliates of Mr. Collins under the leases.

40
<PAGE> 44

During February 1997, Hanover issued 5,152 shares of Common Stock to a
trust for the benefit of Mr. Meller, an executive officer of the Company, and a
member of its outside legal counsel, for $75,000.

Management believes that the terms of the foregoing transactions were no
less favorable to the Company than those that would otherwise be obtainable in
arms' length transactions with unaffiliated third parties.

Set forth below is certain information concerning the indebtedness of
executive officers and directors to the Company. All of such indebtedness was
incurred in connection with the acquisition of shares of Common Stock.

<TABLE>
<CAPTION>
AGGREGATE WEIGHTED
AMOUNT LARGEST AVERAGE
OUTSTANDING AGGREGATE RATE OF
AS OF AMOUNT INTEREST AS OF
DECEMBER 31, OUTSTANDING DECEMBER 31,
1996 DURING 1996 1996
------------ ----------- --------------
<S> <C> <C> <C>
Michael O'Connor.......................... $1,155,775 $1,155,775 8.25%
Michael J. McGhan......................... 476,553 476,553 8.25
Curtis Bedrich............................ 367,950 367,950 8.25
</TABLE>

At the request of the Company, certain of the Underwriters have reserved,
pursuant to a reserved share program, up to 5% of the shares of Common Stock
offered hereby for sale at the initial public offering price to certain persons
associated with, or designated by, the Company. In connection with the reserved
share program, the Company may lend up to $1 million in the aggregate to Company
employees for the purpose of participating in such program. The number of shares
available for sale to the general public will be reduced to the extent such
individuals purchase such reserved shares. Any reserved shares not so purchased
will be released for sale by the Underwriters to the general public no later
than the closing date of the Offering (which is expected to be four business
days after the date of this Prospectus) on the same terms as the other shares
offered hereby.

41
<PAGE> 45

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 6, 1997, and as
adjusted to reflect the sale of shares of Common Stock offered by the Company
and the Selling Stockholders hereby, for (i) each stockholder who is known by
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each of the Company's directors, (iii) each Named Executive Officer,
(iv) all directors and executive officers of the Company as a group and (v) each
Selling Stockholder.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING SHARES OFFERING(1)
----------------------- BEING -----------------------
NAME AND ADDRESS NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
---------------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
GKH Partners, L.P.(3).......................... 11,511,488 49.8% -- 11,511,488 42.2%
200 West Madison Street
Chicago, Illinois 60606
Melvyn N. Klein(3)(4).......................... 11,511,488 49.8 -- 11,511,488 42.2
Mercantile Tower, Suite 1940
615 North Upper Broadway
Corpus Christi, Texas 78477
GKH Investments, L.P.(3)(5).................... 11,092,432 48.0 -- 11,092,432 40.7
200 West Madison Street
Chicago, Illinois 60606
Westar Capital, Inc............................ 5,244,494 22.9 2,073,978 3,170,516 11.7
818 Kansas Street
Topeka, Kansas 66601
Joint Energy Development Investments Limited
Partnership.................................. 2,761,950 12.1 -- 2,761,950 10.2
1400 Smith Street
Houston, Texas 77002
New Prospect Drilling Company.................. 17,639 * 17,639 -- --
John Oxley..................................... 2,095 * 2,095 -- --
Etore Barbatelli............................... 29,021 * 29,021 -- --
Aimee Simon Bloom.............................. 28,269 * 11,060 17,209 *
Julie Simon Munro.............................. 28,269 * 11,060 17,209 *
Carol Leigh Porges............................. 28,269 * 11,060 17,209 *
Trust f/b/o Christopher Shoemaker.............. 44,795 * 8,959 35,836 *
Trust f/b/o John Shoemaker..................... 44,795 * 8,959 35,836 *
Trust f/b/o Julie Shoemaker.................... 44,795 * 8,959 35,836 *
Trust f/b/o Peter Shoemaker.................... 44,795 * 8,959 35,836 *
The Simon Children's Trust..................... 31,600 * 6,320 25,280 *
J. Peter Simon................................. 286,438 * 118,500 167,938 *
Johanna Katrina Simon.......................... 28,269 * 11,060 17,209 *
Mary Beth Streep............................... 28,269 * 11,060 17,209 *
Michael A. O'Connor(6)......................... 1,186,721 5.0 -- 1,186,721 4.4
Michael J. McGhan(6)........................... 495,039 2.1 -- 495,039 1.8
Ted Collins, Jr................................ 171,959 * -- 171,959 *
William S. Goldberg(7)......................... -- -- -- -- --
Alvin V. Shoemaker(8).......................... 256,290 1.1 51,258 205,032 *
Curtis Bedrich(6).............................. 356,568 1.5 -- 356,568 1.3
William E. Simon, Jr.(9)....................... 289,496 1.3 56,880 232,616 *
Robert A. Furgason............................. 3,950 * -- 3,950 *
Carl M. Koupal, Jr............................. -- -- -- -- --
All directors and executive officers as a group
(11 persons including the directors and
executive officers named above).............. 14,276,663 57.8 108,138 14,168,525 49.1
</TABLE>

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

* Less than 1%.

(1) Assumes that the Underwriters' over-allotment option is not exercised.

42
<PAGE> 46

(2) There are presently 31,347 treasury shares issued which are not counted as
outstanding in calculating the beneficial ownership percentages.

(3) Includes 184,370 shares of Common Stock issuable upon exercise of warrants
which are or first become exercisable within 60 days from the date hereof,
and 10,914,775 shares of Common Stock owned by GKH Investments, L.P. GKH
Partners, L.P. is the general partner of GKH Investments, L.P.

(4) Mr. Klein, who is a director of the Company, is the sole stockholder of a
corporation which is a general partner of GKH Partners, L.P. By virtue of
his relationship to GKH Partners, L.P., Mr. Klein may be deemed to share
beneficial ownership of the shares of Common Stock owned by GKH Partners,
L.P. and GKH Investments, L.P. Mr. Klein disclaims beneficial ownership of
all shares owned by GKH Partners, L.P. and GKH Investments, L.P.

(5) Does not include 412,343 shares of Common Stock owned by GKH Partners, L.P.,
a Delaware limited partnership, as nominee for GKH Private Limited, a
Singapore corporation. GKH Partners, L.P. is the general partner of GKH
Investments, L.P.

(6) Includes 392,576, 941,020 and 268,035 shares subject to options held by
Messrs. McGhan, O'Connor and Bedrich, respectively, which are, or will
become, exercisable within 60 days. Mr. O'Connor's address is c/o the
Company's principal executive offices.

(7) Does not include 81,654 shares of Common Stock (less than 1% of the
outstanding shares) owned by Mr. Goldberg's wife, Nancy K. Goldberg, not
individually, but solely as trustee of the Nancy K. Goldberg Declaration of
Trust. Mr. Goldberg disclaims beneficial ownership of such shares.

(8) Excludes shares beneficially owned directly or indirectly by members of Mr.
Shoemaker's family as to which Mr. Shoemaker disclaims beneficial ownership.

(9) Excludes shares beneficially owned directly or indirectly by members of Mr.
Simon's family as to which Mr. Simon disclaims beneficial ownership.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company currently consists of
100,000,000 shares of Common Stock and 3,000,000 shares of Preferred Stock, $.01
par value per share, ("Preferred Stock"). The following summary description
relating to the capital stock does not purport to be complete. For a detailed
description, reference is made to the Amended and Restated Certificate of
Incorporation of the Company (the "Certificate"), which is filed as an exhibit
to the Registration Statement of which this Prospectus forms a part.

COMMON STOCK

As of March 31, 1997, 22,943,693 shares of Common Stock were issued and
held of record by approximately 137 stockholders (including 31,347 treasury
shares held by the Company). The holders of shares of Common Stock are entitled
to one vote for each share held of record on all matters submitted to a vote of
the stockholders. Subject to preferential rights with respect to the Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board out of legally available funds. In the event of a
liquidation, dissolution, sale or winding up of the Company, holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and satisfaction of preferential rights. Holders of Common Stock
will have no preemptive or subscription rights upon consummation of the
Offering. The outstanding shares of Common Stock are, and the shares of Common
Stock to be issued pursuant to this Offering will be, fully paid and
nonassessable. Additionally, the Bank Credit Agreement prohibits the payment of
dividends on the Company's Common Stock without the lenders' prior written
consent and such dividends will also be subject to, and may be limited by the
terms of Preferred Stock hereafter issued.

43
<PAGE> 47

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services.

PREFERRED STOCK

As of March 31, 1997, no shares of Preferred Stock were outstanding.

The Board has the authority to cause the Company to issue, without any
further vote or action by the stockholders, shares of Preferred Stock in one or
more series, to designate the number of shares constituting any series, and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, rights and terms of
redemption, redemption price or prices and liquidation preferences of such
series.

SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND DELAWARE LAW

LIMITATION OF DIRECTOR LIABILITY

Section 102(b)(7) of the Delaware General Corporation Law ("Section
102(b)") authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for breach
of directors' fiduciary duty of care. Although Section 102(b) does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Company's Certificate
of Incorporation limits the liability of directors to the Company or its
stockholders (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by Section 102(b). Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit.

INDEMNIFICATION

To the maximum extent permitted by law, the Company's Certificate of
Incorporation and Bylaws provide for mandatory indemnification of directors and
officers and permit indemnification of officers, employees and agents of the
Company against all expense, liability and loss to which they may become subject
or which they may incur as a result of being or having been a director, officer,
employee or agent of the Company. In addition, the Company must advance or
reimburse directors, and may advance or reimburse officers, employees and agents
for expenses incurred by them in connection with indemnifiable claims.

CERTAIN PROVISIONS OF DELAWARE LAW

The Company will be governed by the provisions of Section 203 of the
Delaware General Corporation Law. In general, Section 203 prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of
transaction which the person became an interested stockholder, unless (a) before
that person became an interested stockholder, the Company's Board of Directors
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (b) upon completion
of the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers of the Company and by employee stock
plans that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a

44
<PAGE> 48

tender or exchange offer); or (c) following the transaction in which that person
became an interested stockholder, the business combination is approved by the
Company's Board of Directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock not owned by the interested stockholder. Under Section 203, these
restrictions also do not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification of one of
certain extraordinary transactions involving the Company and a person who was
not an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the Company's
directors, if that extraordinary transaction is approved or not opposed by a
majority of the directors who were directors before any person became an
interested stockholder in the previous three years or who were recommended for
election or elected to succeed such directors by a majority of such directors
then in office. "Business combination" includes mergers, assets sales and other
transactions resulting in a financial benefit to the stockholder. "Interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 27,079,013 shares of
Common Stock outstanding (28,071,037 shares if the Underwriters' over-allotment
option is exercised in full). Of these outstanding shares of Common Stock, the
6,613,494 shares to be sold in this Offering will be freely tradeable without
restriction or further registration under the Act, unless purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Act described below. The remaining 20,465,519 shares of Common Stock
outstanding after the Offering will be "restricted securities" within the
meaning of Rule 144 under the Act and may not be sold in a public distribution
except in compliance with the registration requirements of the Act or an
applicable exemption under the Act, including an exemption pursuant to Rule 144
thereunder. Restricted securities are eligible for sale in the public market
pursuant to Rule 144 no sooner than one year from the date of acquisition.

LOCKUP AGREEMENTS

GKH, Western Resources and JEDI and all officers, directors and certain
other employees of the Company owning Common Stock, and each of the Selling
Stockholders have entered into contractual "lock-up" agreements pursuant to
which they have agreed that during the period beginning from the date of this
Prospectus and continuing and including the date 180 days after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or any securities of the Company that are
substantially similar to the shares of Common Stock, including but not limited
to any securities that are convertible into or exchangeable for, or that
represent the right to receive, Common Stock or any substantially similar
securities, (other than pursuant to employee stock option or stock purchase
plans existing on or on the conversion or exchange of convertible or
exchangeable securities outstanding on the date of this Prospectus) without the
prior written consent of the representatives of the Underwriters, except for the
shares of Common Stock offered in connection with the Offering and issuances of
capital stock by the Company in connection with potential future acquisitions
provided that the shares issuable pursuant to any such acquisitions shall not be
transferable prior to the end of the 180 day period. As a result of these
contractual restrictions, notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144 and 701, shares subject to lock-up agreements
will not be saleable until the agreements expire without the prior written
consent of the representatives of the Underwriters.

RULE 144

In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year (including
the holding period of any prior owner

45
<PAGE> 49

except an affiliate) is entitled to sell in "broker's transactions" or to market
makers, within any three-month period commencing 90 days after the date of this
Prospectus, a number of shares that does not exceed the greater of: (i) one
percent of the number of shares of Common Stock then outstanding (approximately
270,800 shares immediately after the Offering); or (ii) generally, the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the required filing of a Form 144 with respect to such sale. The
holding period for Company employees who have borrowed money to purchase their
Common Stock does not begin until such loans have been paid in full unless such
employees are entitled to rely on Rule 701. See "-- Other Exemptions". Sales
under Rule 144 are also subject to certain "manner of sale" provisions and
notice requirements and to the availability of current public information about
the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.

OTHER EXEMPTIONS

In addition, any employee, officer or director of or consultant to the
Company who purchased his or her shares pursuant to a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701
promulgated under the Securities Act. Rule 701 provides that 90 days after an
issuer becomes "publicly-held," affiliates may sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144.

REGISTRATION RIGHTS

The Company has granted to certain stockholders owning an aggregate of
20,950,800 shares of Common Stock (or approximately 90% of the shares of Common
Stock outstanding prior to consummation of the Offering), certain demand and
piggy-back registration rights. See "-- Certain Transactions -- Registration
Rights Agreement".

OPTIONS, WARRANTS AND RESTRICTED STOCK

As of March 31, 1997, the Company has reserved an aggregate of 2,969,124
shares of Common Stock for issuance upon exercise of warrants and options. On
that date, there were outstanding options to purchase an aggregate of 2,400,174
shares of Common Stock at a weighted average price of $5.11 per share, all of
which are, or will become, fully exercisable immediately upon consummation of
the Offering. Also on that date, there were outstanding warrants to purchase an
aggregate of 568,950 shares of Common Stock at a price of $0.01 per share,
327,146 of which are exercisable at March 31, 1997 and the remaining warrants
vest in equal monthly installments through August, 1998. In addition, in
connection with and conditioned upon the Offering the Company will reserve 5% of
the Common Stock outstanding immediately after the Offering (on a fully diluted
basis) for issuance as Restricted Stock or upon exercise of options granted
pursuant to the 1997 Plans. Under the 1997 Plans, upon consummation of the
Offering options to purchase up to 908,212 shares of Common Stock at the initial
public offering price will be outstanding, none of which will be immediately
exercisable and up to 264,780 shares of Restricted Stock will be issued. See
"Stock Option and Purchase Plans".

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<PAGE> 50

VALIDITY OF COMMON STOCK

The validity of the shares of Common Stock offered hereby is being passed
upon for the Company and the Selling Stockholders by Neal, Gerber & Eisenberg,
Chicago, Illinois, and for the Underwriters by Vinson & Elkins L.L.P, Houston,
Texas. Richard S. Meller, the Secretary of the Company, is a partner of Neal,
Gerber & Eisenberg, the Company's legal counsel. In addition, certain partners
of Neal, Gerber & Eisenberg beneficially own shares of the Common Stock.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.

The financial statements of Astra Resources Compression, Inc. included in
this Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.

ADDITIONAL INFORMATION

The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed with
the Securities and Exchange Commission (the "Commission"), a Registration
Statement on Form S-1 (including all amendments thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information contained in the Registration Statement.
For further information with respect to the Company and the Common Stock offered
hereby, reference is hereby made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
regarding the contents of any agreement or other document filed as an exhibit to
the Registration Statement are not necessarily complete, and in each instance,
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and the Commission's regional offices located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such materials also may be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov.

47
<PAGE> 51

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Hanover Compressor Company:
Report of Independent Accountants......................... F-2
Consolidated Balance Sheet as of December 31, 1995 and
1996 and March 31, 1997 (unaudited).................... F-3
Consolidated Statement of Income for the years ended
December 31, 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997 (unaudited)....... F-4
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997 (unaudited)....... F-5
Consolidated Statement of Common Stockholders' Equity for
the years ended December 31, 1994, 1995 and 1996 and
for the three months ended March 31, 1997
(unaudited)............................................ F-6
Notes to Consolidated Financial Statements................ F-7

Astra Resources Compression, Inc.:
Report of Independent Public Accountants.................. F-21
Consolidated Balance Sheets as of November 30, 1995 and
December 31, 1994...................................... F-22
Consolidated Statements of Operations for the eleven
months ended November 30, 1995 and the year ended
December 31, 1994...................................... F-23
Consolidated Statements of Stockholder's Equity for the
eleven months ended November 30, 1995 and the year
ended December 31, 1994................................ F-24
Consolidated Statements of Cash Flows for the eleven
months ended November 30, 1995 and the year ended
December 31, 1994...................................... F-25
Notes to Consolidated Financial Statements................ F-26
</TABLE>

F-1
<PAGE> 52

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Hanover Compressor Company

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of common stockholders'
equity present fairly, in all material respects, the financial position of
Hanover Compressor Company and its subsidiaries at December 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Houston, Texas

April 8, 1997, except as to Note 1

which is as of June 24, 1997

F-2
<PAGE> 53

HANOVER COMPRESSOR COMPANY

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,989 $ 7,322 $ 4,507
Accounts receivable, net.................................. 19,490 28,012 29,879
Inventory................................................. 13,582 18,134 25,879
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 6,331 7,774 4,396
Prepaid taxes............................................. 2,180 4,372 6,487
Other current assets...................................... 425 1,025 1,859
-------- -------- --------
Total current assets............................... 44,997 66,639 73,007
-------- -------- --------
Property, plant and equipment:
Compression equipment..................................... 214,149 296,060 327,128
Land and buildings........................................ 3,825 5,236 5,505
Transportation and shop equipment......................... 7,498 10,788 11,532
Other..................................................... 3,028 3,892 4,226
-------- -------- --------
228,500 315,976 348,391
Accumulated depreciation.................................. 30,426 49,570 55,523
-------- -------- --------
Net property, plant and equipment.................. 198,074 266,406 292,868
-------- -------- --------
Intangible and other assets, net of accumulated amortization
of $4,741, $5,994, and $6,274 (unaudited), respectively... 9,242 8,342 9,415
-------- -------- --------
$252,313 $341,387 $375,290
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 571 $ 492 $ 326
Accounts payable, trade................................... 9,871 9,051 18,824
Accrued liabilities....................................... 4,493 8,214 8,736
Advance billings.......................................... 6,266 6,701 5,820
Billings on uncompleted contracts in excess of costs and
estimated earnings...................................... 526 668 3,265
-------- -------- --------
Total current liabilities.......................... 21,727 25,126 36,971
Long-term debt.............................................. 50,451 122,756 139,482
Other liabilities........................................... 753 1,161 1,184
Deferred income taxes....................................... 13,186 15,449 17,276
-------- -------- --------
Total liabilities.................................. 86,117 164,492 194,913
-------- -------- --------
Commitments and contingencies (Note 13)
Redeemable preferred stock; 3 million shares authorized:
Series A preferred stock, $.01 par value; 21,602 and 0
shares issued and outstanding........................... 16,630
-------- -------- --------
Series B convertible preferred stock, $.01 par value;
10,000 and 0 shares issued and outstanding.............. 10,264
-------- -------- --------
Common stockholders' equity:
Common stock, $.001 par value; 100 million shares
authorized; 20,296,368, 22,938,541 and 22,943,693
(unaudited) shares issued, respectively................. 20 23 23
Additional paid-in capital................................ 135,065 171,342 171,405
Notes receivable -- employee stockholders................. (4,669) (6,770) (6,745)
Retained earnings......................................... 9,104 12,518 15,912
Treasury stock -- 31,347 common shares, at cost........... (218) (218) (218)
-------- -------- --------
Total common stockholders' equity.................. 139,302 176,895 180,377
-------- -------- --------
$252,313 $341,387 $375,290
======== ======== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-3
<PAGE> 54

HANOVER COMPRESSOR COMPANY

CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rentals and maintenance....... $ 32,025 $ 48,354 $ 79,355 $ 17,840 $ 24,320
Compressor fabrication........ 16,202 29,593 28,764 1,766 7,527
Production equipment
fabrication................ 7,272 16,960 26,903 5,673 8,671
Other......................... 581 1,057 989 190 406
-------- -------- -------- -------- --------
56,080 95,964 136,011 25,469 40,924
-------- -------- -------- -------- --------
Expenses:
Rentals and maintenance....... 11,008 17,813 30,800 6,755 9,455
Compressor fabrication........ 13,733 25,265 24,657 1,515 6,359
Production equipment
fabrication................ 5,798 13,178 19,574 4,170 5,990
Selling, general and
administrative............. 8,427 12,542 16,439 3,794 4,694
Depreciation and
amortization............... 8,109 13,494 20,722 4,515 6,245
Interest expense.............. 2,027 4,560 6,594 1,218 2,571
-------- -------- -------- -------- --------
49,102 86,852 118,786 21,967 35,314
-------- -------- -------- -------- --------
Income before income taxes...... 6,978 9,112 17,225 3,502 5,610
Provision for income taxes...... 2,590 3,498 6,844 1,310 2,216
-------- -------- -------- -------- --------
Net income...................... $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
======== ======== ======== ======== ========
Net income available to common
stockholders:
Net income.................... $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
Dividends on Series A and
Series B preferred stock... (832) (1,773) (513)
Fair value of subordinated
notes in excess of carrying
amount of Series A
preferred stock............ (3,794)
Cash paid as an incentive to
convert Series B preferred
stock into common stock.... (1,400)
-------- -------- -------- -------- --------
Net income available to common
stockholders............... 4,388 4,782 3,414 1,679 3,394
Weighted average common and
common equivalent shares
outstanding................... 14,121 15,794 22,279 22,314 24,491
-------- -------- -------- -------- --------
Earnings per common share....... $ .31 $ .30 $ .15 $ .08 $ .14
======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-4
<PAGE> 55

HANOVER COMPRESSOR COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
Adjustments:
Depreciation and amortization........................... 8,109 13,494 20,722 4,515 6,244
Amortization of debt issuance costs and debt discount... 359 405 547 210 251
Gain on sale of assets.................................. (195) (412) (352) (94) (52)
Deferred income taxes................................... 878 638 2,263 1,201 1,827
Change in assets and liabilities, net of effects of
business combinations:
Accounts receivable................................... (4,153) (8,307) (8,522) 1,173 (1,867)
Inventory............................................. (5,417) (5,230) (4,552) (7,831) (7,745)
Costs and estimated earnings versus billings on
uncompleted contracts............................... 1,534 671 (1,301) 4,062 5,975
Accounts payable and other liabilities................ 4,594 424 3,309 509 10,295
Advance billings...................................... 511 1,376 435 (1,252) (881)
Other................................................. (862) 415 (2,654) (1,270) (3,208)
-------- -------- -------- -------- --------
Net cash provided by operating activities................... 9,746 9,088 20,276 3,415 14,233
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (31,791) (42,447) (83,598) (15,732) (33,985)
Proceeds from sale of fixed assets........................ 417 1,322 2,404 1,077 416
Cash used for business acquisitions....................... (27,349) (6,489) (4,500)
-------- -------- -------- -------- --------
Net cash used in investing activities....................... (31,374) (68,474) (87,683) (19,155) (33,569)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 53,650 82,262 57,621 13,500 17,506
Issuance of common stock.................................. 21,585 23,317 63
Debt issuance costs....................................... (444) (796) (498)
Repayment of long-term debt............................... (31,704) (72,204) (7,300) (90) (1,073)
Purchase of treasury stock................................ (218)
Issuance of preferred stock and warrants.................. 19,577
Issuance of notes payable to stockholders................. 12,000
Conversion of Series B preferred stock.................... (1,400)
Other..................................................... 25
-------- -------- -------- -------- --------
Net cash provided by financing activities................... 21,502 62,206 71,740 13,410 16,521
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (126) 2,820 4,333 (2,330) (2,815)
Cash and cash equivalents at beginning of period............ 295 169 2,989 2,989 7,322
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.................. $ 169 $ 2,989 $ 7,322 $ 659 $ 4,507
======== ======== ======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 1,433 $ 4,161 $ 5,831 $ 195 $ 1,168
======== ======== ======== ======== ========
Income taxes paid......................................... $ 666 $ 4,790 $ 2,541 $ 61 $ 250
======== ======== ======== ======== ========
Supplemental disclosure of noncash transactions:
Debt issued for property, plant and equipment............. $ 2,510 $ 428
======== ========
Conversion of notes payable to Series A preferred stock... $ 12,000
========
Common stock issued in exchange for notes receivable...... $ 2,574 $ 2,101 $ 33
======== ======== ========
Acquisitions of businesses:
Property, plant and equipment acquired.................. $ 80,325 $ 6,714 $ 4,500
======== ======== ========
Other non-cash assets acquired.......................... $ 14,152
========
Liabilities assumed..................................... $(10,246)
========
Common stock issued..................................... $(56,882) $ (225) $ (225)
======== ======== ========
Exchange of Series A preferred stock for subordinated
notes:
Amount assigned to subordinated notes................... $ 21,792
========
Amount charged to retained earnings..................... $ (3,794)
========
Conversion of Series B preferred stock into common
stock................................................... $ 10,637
========
Preferred stock dividend.................................. $ 832 $ 1,741 $ (513)
======== ======== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-5
<PAGE> 56

HANOVER COMPRESSOR COMPANY

CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE-
------------------- PAID-IN TREASURY EMPLOYEE RETAINED
SHARES AMOUNT CAPITAL STOCK STOCKHOLDERS EARNINGS
---------- ------ ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994........... 13,068,500 $13 $ 49,093 $(2,095) $ (66)
Net income for 1994.................. 4,388
---------- --- -------- ----- ------- -------
Balance at December 31, 1994......... 13,068,500 13 49,093 (2,095) 4,322
Acquisition of Gale Force............ 181,700 1,725
Exercise of stock options............ 6,636 46
Purchase of 31,347 common shares as
treasury stock..................... $(218)
Issuance of common stock............. 2,195,094 2 23,509 (2,574)
Issuance of warrants to purchase
common stock....................... 5,540
Acquisition of PGN................... 16,590 157
Acquisition of Astra................. 4,827,848 5 54,995
Net income for 1995.................. 5,614
Accrual of dividends on redeemable
preferred stock.................... (832)
---------- --- -------- ----- ------- -------
Balance at December 31, 1995......... 20,296,368 20 135,065 (218) (4,669) 9,104
Issuance of common stock to
employees.......................... 251,220 2,885 (2,101)
Acquisition of New Prospect and
Oxley.............................. 19,734 225
Accrual of dividends on redeemable
preferred stock.................... (1,773)
Fair value of subordinated notes in
excess of carrying amount of Series
A preferred stock.................. (3,794)
Stock issuance for conversion of
Series B preferred stock........... 800,308 1 10,636 (1,400)
Issuance of common stock............. 1,570,911 2 22,531
Net income for 1996.................. 10,381
---------- --- -------- ----- ------- -------
Balance at December 31, 1996......... 22,938,541 23 171,342 (218) (6,770) 12,518
Three months ended March 31, 1997
(unaudited):
Issuance of common stock............. 5,152 63
Repayment of stockholder notes....... 25
Net Income........................... 3,394
---------- --- -------- ----- ------- -------
Balance at March 31, 1997
(unaudited)........................ 22,943,693 $23 $171,405 $(218) $(6,745) $15,912
========== === ======== ===== ======= =======
</TABLE>

The accompanying notes are an integral part of this statement.

F-6
<PAGE> 57

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Hanover Compressor Company is a leading provider of a broad array of
natural gas compression rental, operations and maintenance services in the
United States and select international markets. Hanover's compression services
are complemented by its compressor and oil and gas production equipment
fabrication operations.

The accompanying consolidated financial statements include the accounts of
Hanover Compressor Company and its subsidiaries ("Hanover" or the "Company").
Hanover is a Delaware corporation formed on October 17, 1990.

On June 6, 1997, the Board of Directors approved an increase of authorized
shares of preferred stock and common stock to 3,000,000 shares and 100,000,000
shares, respectively. In addition, the Board of Directors approved a 158 for 1
stock split of the Company's common stock. The stock split has been effected in
the form of a stock dividend. All share and per share information included
herein reflects the stock split. The Board also adopted the 1997 Stock Option
Plan and the 1997 Stock Purchase Plan. This plan permits the Board to issue
options and restricted stock, subject to consummation of the Company's proposed
initial public offering of its common stock, for up to 5% of the fully diluted
common shares to be outstanding after the offering.

On June 24, 1997, the Company's Certificate of Incorporation was amended to
reflect the 158 for 1 stock split, which was previously approved by the Board of
Directors and the stockholders of the Company.

INTERIM FINANCIAL INFORMATION

The unaudited consolidated balance sheet as of March 31, 1997 and related
statements of income and of cash flows for the three months ended March 31, 1996
and 1997, and of stockholders' equity for the three months ended March 31, 1997
include, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of these interim
financial statements. All information as of March 31, 1997 and for the three
months ended March 31, 1996 and 1997 included in the consolidated financial
statements is unaudited.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include Hanover and its
wholly-owned subsidiaries. Operating results of businesses acquired (Note 2) are
included after the acquisition dates. All significant intercompany accounts and
transactions have been eliminated in consolidation.

USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues and
expenses, as well as the disclosures of contingent assets and liabilities.
Because of the inherent uncertainties in this process, actual future results
could differ from those expected at the reporting date. Management believes that
the estimates are reasonable.

CASH AND CASH EQUIVALENTS

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

REVENUE RECOGNITION

The Company rents equipment primarily to gas well and gas pipeline
operators with lease terms generally ranging from one month to five years.
Revenue from equipment rentals and maintenance is recorded when earned.

F-7
<PAGE> 58

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Compressor and production equipment fabrication revenue is recognized using
the percentage-of-completion method. The Company estimates
percentage-of-completion for compressor fabrication on a direct labor
hour-to-direct labor hour basis. Production equipment fabrication
percentage-of-completion is estimated using the cost-to-cost basis.

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, Venezuela and
Argentina. 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. Trade accounts receivable are recorded net of estimated doubtful
accounts of $428,000, $494,000 and $510,000 at December 31, 1995, December 31,
1996 and March 31, 1997, respectively.

INVENTORY

Inventory consists of parts used for fabrication or maintenance of natural
gas compression units and production equipment and also includes compression
units and production equipment, under construction, which are held for sale.
Inventory is stated at the lower of cost or market using the average-cost
method.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method over their estimated useful lives as follows:

<TABLE>
<S> <C>
Compression equipment............................... 4 to 15 years
Buildings........................................... 30 years
Transportation, shop equipment and other............ 3 to 15 years
</TABLE>

Prior to 1996, natural gas compression units in the rental fleet were
depreciated using the straight-line method over an estimated useful life of 12
years. Effective January 1, 1996, the Company changed its estimate of the useful
life of compression units from 12 years to 15 years. The effect of this change
in estimate was a decrease in 1996 depreciation expense of $2,565,000 and an
increase in net income of $1,546,000 ($.07 per common share).

Major improvements are capitalized and depreciated. Repairs and maintenance
are expensed as incurred. Depreciation expense was $7,418,000, $12,615,000,
$19,887,000, $4,285,000 and $6,090,000 in 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997, respectively.

LONG-LIVED ASSETS

In 1996, the Company adopted Statement of Financial Accounting Standards
No. 121 (FAS 121), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. In accordance with FAS 121, the Company
reviews for the impairment of long-lived assets and identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Under FAS 121, an impairment loss is recognized
when estimated cash flows expected to result from the use of the asset and its
eventual disposition is less than its carrying amount. The adoption of FAS 121
did not have a material effect on the Company's consolidated financial position
or operating results.

F-8
<PAGE> 59

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTANGIBLE ASSETS

Goodwill of $5,819,000, $5,316,000 and $5,179,000 is included in intangible
and other assets and is net of accumulated amortization of $188,000, $691,000
and $827,000 at December 31, 1995 and 1996 and March 31, 1997, respectively.
Prior to 1996, goodwill was amortized on a straight-line basis over an estimated
useful life of 12 years. Effective January 1, 1996, the Company changed its
estimate of the useful life of goodwill to 15 years. The effect of this change
was minimal in 1996. At each balance sheet date, the Company evaluates the
realizability of goodwill based upon expectations of undiscounted cash flows
from operations and operating income for subsidiaries having material goodwill
balances. The Company believes that no impairment of goodwill exists at December
31, 1995 and 1996 and March 31, 1997. The cost of other intangible assets,
comprised primarily of organizational costs and noncompete agreements with
former owners of acquired companies, is amortized on a straight-line basis over
five years. Total amortization expense was $691,000, $879,000, $835,000,
$230,000 and $155,000 in 1994, 1995, 1996, and for the three months ended March
31, 1996 and 1997, respectively.

ENVIRONMENTAL REMEDIATION COSTS

The Company accrues environmental remediation costs based on estimates of
known environmental remediation exposure. Such accruals are recorded even if
significant uncertainties exist over the ultimate cost of the remediation.
Ongoing environmental compliance costs, including maintenance and monitoring
costs, are expensed as incurred.

STOCK-BASED COMPENSATION

In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 (FAS 123), Accounting for Stock-Based Compensation. Upon adoption of FAS
123, the Company continued to measure compensation expense for its stock-based
employee compensation plans using the intrinsic value method prescribed in APB
Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and has
provided in Note 9, pro forma disclosures of the effect on net income and
earnings per share as if the fair value-based method prescribed by FAS 123 had
been applied in measuring compensation expense.

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

During 1995, the Company began operating in South America. For such foreign
operations, the U.S. dollar is the functional currency and transaction gains and
losses are included in determining net income. Transaction gains and losses for
the year ended December 31, 1995 and 1996 and the three-month period ended March
31, 1996 and 1997 were not significant.

EARNINGS PER COMMON SHARE

Earnings per common share is calculated using the weighted average number
of common and dilutive common equivalent shares outstanding during each period.
In conformity with Securities and

F-9
<PAGE> 60

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Exchange Commission requirements, common and common equivalent shares issued
during the twelve months prior to the filing of the registration statement for
the Company's proposed initial public offering have been included in the
calculation as if they were outstanding for all periods presented, using the
treasury stock method and the assumed initial public offering price of $18.00
per share.

Earnings per share in 1996 was $.47 per share before the effects of
charging retained earnings for (i) $1,773,000 relating to dividends on
redeemable preferred stock, (ii) $3,794,000 related to the exchange of all
Series A preferred stock for subordinated notes and (iii) $1,400,000 related to
the conversion of all Series B preferred stock to common stock.

RECENT PRONOUNCEMENT

In 1997, Statement of Financial Accounting Standards No. 128, (FAS 128),
Earnings Per Share, was issued. FAS 128 is effective for earnings per share
calculations for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. The following table presents pro
forma earnings per common share amounts computed using FAS 128:

<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ --------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pro forma earnings per common share:
Basic............................... $.32 $.32 $.16 $.08 $.15
Diluted............................. $.31 $.30 $.15 $.08 $.14
</TABLE>

NOTE 2 -- BUSINESS ACQUISITIONS

Effective January 12, 1995, Hanover acquired certain compressor rental
assets of CBC Compression for $2,775,000 in cash. The acquisition was accounted
for as a purchase, and therefore, Hanover recorded the acquired assets at their
estimated fair market value.

Effective February 1, 1995, Hanover acquired the compressor rental assets
of Gale Force Compression Services, Inc. for $9,655,000 in cash and 181,700
shares of Hanover common stock valued at $1,725,000. The acquisition was
accounted for as a purchase and, therefore, Hanover recorded the acquired assets
at their estimated fair market value.

Effective February 24, 1995, Hanover acquired the production equipment
fabrication assets of Smith Industries, Inc. for $2,683,000 in cash. The
acquisition was accounted for as a purchase and, therefore, Hanover recorded the
acquired assets at their estimated fair market value.

Effective September 8, 1995, Hanover purchased Proyecto Gas Natural, C.A.
("PGN") for $6,333,000 in cash and 16,590 shares of Hanover common stock valued
at $157,000. The acquisition was accounted for as a purchase and, therefore,
Hanover recorded the acquired assets at their estimated fair market value.

Effective December 5, 1995, Hanover purchased Astra Resources Compression,
Inc. and subsidiaries ("Astra") in exchange for cash of $6,432,000 and 4,827,848
shares of Hanover common stock valued at $55,000,000. The acquisition was
accounted for as a purchase and, therefore, Hanover recorded the acquired assets
at their estimated fair market value.

F-10
<PAGE> 61

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net cash paid for the 1995 acquisitions is as follows (in thousands):

<TABLE>
<S> <C>
Fair value of noncash assets acquired....................... $ 94,477
Liabilities assumed......................................... (10,246)
Common stock issued......................................... (56,882)
--------
Net cash paid for acquisitions.............................. $ 27,349
========
</TABLE>

The following unaudited pro forma information assumes that the 1995
acquisitions described above were consummated at the beginning of the periods
presented. The pro forma information is for illustrative information only and is
not necessarily indicative of results which would have been achieved or results
which may be achieved in the future:

<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995
----------- -----------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C>
Revenue..................................................... $ 86,269 $112,894
Net income.................................................. 6,224 6,867
Earnings per common share................................... $ .32 $ .30
</TABLE>

Effective February 1, 1996, Hanover acquired certain compressor rental
assets of New Prospect Drilling Company and Oxley Petroleum for approximately
$4,500,000 in cash and 19,734 shares of Hanover common stock valued at $225,000.
The acquisition was accounted for as a purchase and therefore, Hanover recorded
the acquired assets at their estimated fair market value.

Effective May 1, 1996, Hanover acquired certain compressor rental assets of
Cactus Compression for $1,989,000 in cash. The acquisition was accounted for as
a purchase and, therefore, Hanover recorded the acquired assets at their
estimated fair market value.

Net cash paid for the 1996 business acquisitions is as follows (in
thousands):

<TABLE>
<S> <C>
Fair value of noncash assets acquired....................... $6,714
Common stock issued......................................... (225)
------
Net cash paid for acquisitions.............................. $6,489
======
</TABLE>

Hanover's results of operations for 1996 were not materially impacted by
the 1996 business acquisitions.

NOTE 3 -- INVENTORY

Inventory consisted of the following amounts (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Parts and supplies.............................. $ 10,171 $ 11,582 $ 13,806
Work in progress................................ 3,218 6,219 7,531
Finished goods.................................. 193 333 4,542
-------- -------- --------
$ 13,582 $ 18,134 $ 25,879
======== ======== ========
</TABLE>

F-11
<PAGE> 62

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- COMPRESSOR AND PRODUCTION EQUIPMENT FABRICATION CONTRACTS

Costs, estimated earnings and billings on uncompleted contracts are as
follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Costs incurred on uncompleted contracts......... $ 10,560 $ 9,009 $ 6,491
Estimated earnings.............................. 1,888 2,598 1,580
-------- -------- --------
12,448 11,607 8,071
Less -- billings to date........................ 6,643 4,501 6,940
-------- -------- --------
$ 5,805 $ 7,106 $ 1,131
======== ======== ========
</TABLE>

Presented in the accompanying financial statements as follows (in
thousands):

<TABLE>
<S> <C> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts............. $ 6,331 $ 7,774 $ 4,396
Billings on uncompleted contracts in excess of
costs and estimated earnings.................. (526) (668) (3,265)
-------- -------- --------
$ 5,805 $ 7,106 $ 1,131
======== ======== ========
</TABLE>

NOTE 5 -- LONG-TERM DEBT

Long-term debt is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revolving credit facility........................ $ 16,737 $ 67,519 $ 84,100
Term loan facility............................... 30,000 30,000 30,000
Subordinated notes, net of unamortized discount
of $1,711,000.................................. -- 21,792 21,899
Mortgage, interest at 6.73%, secured by the
Company's headquarters and manufacturing
facility, payable through 1998................. 1,475 1,362 1,353
Other, interest at various rates, secured by
equipment and other assets..................... 2,810 2,575 2,456
-------- -------- --------
51,022 123,248 139,808
Less -- current maturities....................... 571 492 326
-------- -------- --------
$ 50,451 $122,756 $139,482
======== ======== ========
</TABLE>

The Company has two primary credit agreements. The Company's credit
agreement with The Chase Manhattan Bank provides for a $90,000,000 (increased to
$150,000,000 on April 14, 1997) revolving credit facility which matures on
December 18, 1999. Advances bear interest at the bank's prime or a negotiated
rate (6.7% at December 31, 1995 and 1996 and March 31, 1997) and a commitment
fee of 0.35% per annum on the average available commitment is payable quarterly.
Unamortized discount related to the credit agreement aggregated $163,000 and
$81,000 at December 31, 1995 and 1996 and $61,000 at March 31, 1997.

F-12
<PAGE> 63

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's credit agreement with Joint Energy Development Investments
Limited Partnership, a common stockholder, provides for a $100,000,000 term loan
facility which matures on December 19, 2007. Loans outstanding bear interest at
prime or a negotiated rate (7.7%, 7.625% and 7.67% at December 31, 1995 and 1996
and March 31, 1997, respectively) and a commitment fee, calculated in accordance
with the terms of the agreement which varies based upon the level of amounts
outstanding, is payable quarterly. The loan outstanding at December 31, 1996 is
due December 18, 2002.

The credit agreements are secured by the Company's assets and contain
certain financial covenants, working capital requirements and restrictions on,
among other things, indebtedness, liens, sales of assets and leases. The credit
agreements also prohibit the payment of cash dividends on the Company's common
stock without the lenders' prior written consent. At December 31, 1996 and March
31, 1997, all equipment, land, buildings and improvements were pledged as
collateral to secure the Company's long-term debt obligations.

The Company's subordinated notes issued in exchange for Series A preferred
stock provides for a $23,503,000 term loan facility which matures on December
31, 2000. Amounts outstanding bear interest at 7%, and are payable each June 30
and December 31. Unamortized discount related to the credit agreement aggregated
$1,711,000 at December 31, 1996 and $1,604,000 at March 31, 1997.

Maturities of long-term debt at December 31, 1996 are (in thousands): 1997
- -- $492; 1998 -- $2,937; 1999 -- $67,623; 2000 -- $23,528; 2001 -- $27 and
$28,641 thereafter.

NOTE 6 -- INCOME TAXES

The components of income before income taxes were as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Domestic............................................ $ 6,978 $ 9,267 $15,780
Foreign............................................. (155) 1,445
------- ------- -------
$ 6,978 $ 9,112 $17,225
======= ======= =======
</TABLE>

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current tax expense:
Federal........................................... $ 1,632 $ 2,640 $ 3,625
State............................................. 80 220 720
Foreign........................................... 236
------- ------- -------
Total current............................. 1,712 2,860 4,581
------- ------- -------
Deferred tax expense:
Federal........................................... 741 369 1,822
State............................................. 137 269 441
------- ------- -------
Total deferred............................ 878 638 2,263
------- ------- -------
Total provision..................................... $ 2,590 $ 3,498 $ 6,844
======= ======= =======
</TABLE>

F-13
<PAGE> 64

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The income tax expense for 1994, 1995 and 1996 resulted in effective tax
rates of 37.1%, 38.4% and 39.7%, respectively. The reasons for the differences
between these effective tax rates and the U.S. statutory rate of 35% are as
follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Federal income tax at statutory rates............... $ 2,442 $ 3,189 $ 6,028
State income taxes, net of federal income tax
benefit........................................... 141 318 755
Foreign income taxes................................ (222)
Other, net.......................................... 7 (9) 283
------- ------- -------
$ 2,590 $ 3,498 $ 6,844
======= ======= =======
</TABLE>

Deferred tax assets (liabilities) at December 31, 1996 and 1995 are
comprised of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating losses...................................... $ 2,124 $ 1,308
Alternative minimum tax carryforward...................... 4,513 7,109
Other..................................................... 1,655 2,210
-------- --------
Gross deferred tax assets................................... 8,292 10,627
-------- --------
Deferred tax liabilities:
Property, plant and equipment............................. (21,341) (24,146)
Other..................................................... (137) (1,930)
-------- --------
Gross deferred tax liabilities.............................. (21,478) (26,076)
-------- --------
$(13,186) $(15,449)
======== ========
</TABLE>

The Company has a net operating loss carryforward at December 31, 1996 of
$3,535,000 expiring in 2005 to 2009. Utilization of the net operating loss
carryforward is limited to the taxable income generated by the parent company in
each year. In addition, the Company has an alternative minimum tax credit
carryforward of $7,109,000 which does not expire.

In the event of a greater than 50% change in ownership of the Company, the
net operating loss and alternative minimum tax credit carryforwards would be
subject to annual utilization limitations under the change in ownership rules of
the Internal Revenue Code. Based on the projected value of the Company, if such
a change does occur, the annual limitation would not significantly limit the
utilization of the net operating loss and alternative minimum tax carryforwards.

The Company has not recorded a deferred income tax liability for additional
U.S. federal income taxes that would result from the distribution of earnings of
its foreign subsidiaries, if they were actually repatriated. The Company intends
to indefinitely reinvest the undistributed earnings of its foreign subsidiaries.
Any federal income taxes on such earnings, if remitted, would generally be
offset by available foreign tax credits.

NOTE 7 -- REDEEMABLE PREFERRED STOCK

On August 7, 1995, Hanover issued, primarily to a major common stockholder,
21,602 shares of Series A preferred stock and warrants to purchase the Company's
common stock for $21,602,000

F-14
<PAGE> 65

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of which $12,000,000 was a conversion of notes payable to stockholders. On the
same date, Hanover issued 10,000 shares of Series B preferred stock for
$10,000.000. Based upon an independent valuation, proceeds allocated to Series A
preferred stock and warrants were $16,062,000 and $5,540,000, respectively.

The Series A and Series B preferred stock had cumulative 6.5% dividend
rates and certain liquidation and redemption preferences. Each share of Series A
preferred stock was issued with a detachable warrant to purchase 26 shares of
common stock at $.01 per common share. The Series B preferred stock was
convertible into common stock at specified rates. The shares were convertible at
the earlier of three years after the issuance of the shares, the sale or merger
of the Company where Hanover was not the surviving corporation or a person or
group (as defined) controlled at least 50% of the total voting power. The
Company has reserved 568,950 common shares for issuance upon exercise of the
warrant.

Accrued dividends on Series A and Series B preferred stock in 1995 of
$568,000 and $264,000 were paid in shares of Series A and Series B preferred
stock. Accrued dividends in 1996 were $1,368,000 on Series A and $373,000 on
Series B preferred stock.

In December 1996, the Company exchanged all of the issued and outstanding
shares of the Series A preferred stock for subordinated notes. At the exchange
date, the fair market value of the subordinated notes was $21,792,000 and a debt
issuance discount of $1,711,000 was recorded by the Company. The $3,794,000
excess of the fair value of the subordinated notes over the $17,998,000 recorded
for the Series A preferred stock has been charged to retained earnings.

In December 1996, the Company converted all of the issued and outstanding
shares of the Series B preferred stock into 800,308 shares of the Company's
common stock and paid a conversion premium of $1,400,000.

Redeemable preferred stock activity is as follows (in thousands):

<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED PREFERRED
STOCK STOCK
--------- ---------
<S> <C> <C>
Issuance of preferred stock................................. 16,062 10,000
Accrued dividends........................................... 568 264
------- -------
Balance at December 31, 1995................................ 16,630 10,264
Accrued dividends........................................... 1,368 373
Exchange of Series A preferred stock for subordinated
notes..................................................... (17,998)
Conversion of Series B preferred stock to common stock...... (10,637)
------- -------
Balance at December 31, 1996................................ -- --
======= =======
</TABLE>

NOTE 8 -- COMMON STOCK

On July 7, 1995, Hanover issued 39,500 shares of common stock to various
members of management for cash of $85,000 and notes of $190,000. The majority of
the notes are due in four years and the remainder are due upon demand by the
Company.

On August 7, 1995, Hanover issued 1,755,538 shares of common stock for
$20,000,000.

On August 31, 1995, Hanover issued 272,866 shares of common stock to
various members of management for cash of $707,000 and notes of $1,884,000. The
majority of the notes are due in four years and the remainder are due upon
demand by the Company.

F-15
<PAGE> 66

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On September 8, 1995, pursuant to the PGN purchase agreement, Hanover
issued 73,786 shares of common stock to an owner of PGN for $200,000 cash and a
note of $500,000. The note is due in four years, bears interest at prime and has
been recorded as a reduction of common stockholders' equity.

On November 2, 1995, Combustion Control Corporation ("CCC"), an entity
under common control, was merged into Hanover. In connection with this merger,
53,404 shares of Hanover common stock were issued for cash held by CCC of
approximately $593,000. Results of operations of CCC for 1995 and 1994 were not
significant.

During 1996, Hanover issued 1,570,911 shares of common stock for cash of
$22,533,000 to existing shareholders and issued 251,220 shares of common stock
to various members of management for cash of $784,000 and notes of $2,101,000.

In February, 1997, Hanover issued 5,152 shares of common stock to a trust
for the benefit of a member of the Company's outside legal counsel for $75,000,
which is reported net of $12,000 of stock issuance costs paid during the three
months ended March 31, 1997.

The notes from various members of management for purchased stock bear
interest at prime and have been recorded as a reduction of common stockholders'
equity.

See Notes 2 and 7 for a description of other common stock transactions.

NOTE 9 -- STOCK OPTIONS AND WARRANTS

The Company has several employee stock option plans which provide for the
granting of 2,278,650 shares which vest over a five or seven-year period from
date of grant. Options are generally exercisable over a ten or fifteen-year
period from the date of grant. The Company recorded compensation expense of
$31,000 in 1994, $47,000 in 1995 and $109,000 in 1996 related to the options
granted under the plans.

The following is a summary of stock option activity for the years ended
December 31, 1994, 1995 and 1996:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE PER
SHARES SHARE
--------- ---------
<S> <C> <C>
Options outstanding, December 31, 1993...................... 2,133,154 $4.65
Options granted........................................... -- --
Options canceled.......................................... -- --
Options exercised......................................... -- --
---------
Options outstanding, December 31, 1994...................... 2,133,154 4.65
Options granted........................................... 168,270 8.57
Options canceled.......................................... -- --
Options exercised......................................... (6,636) .01
---------
Options outstanding, December 31, 1995...................... 2,294,788 4.93
Options granted........................................... 105,386 9.03
Options canceled.......................................... -- --
Options exercised......................................... -- --
---------
Options outstanding, December 31, 1996...................... 2,400,174 5.11
=========
</TABLE>

F-16
<PAGE> 67

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

There were 0, 147,414 and 161,792 exercisable options under the 1992 plans
and 97,012, 183,280 and 289,298 exercisable options under the 1993 plans at
December 31, 1994, 1995 and 1996, respectively. There were 297,040 exercisable
options under the 1995 plans at December 31, 1996. No exercisable options under
the 1996 plans were outstanding at December 31, 1996.

The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES SHARES LIFE IN YEARS PRICE SHARES PRICE
--------------- --------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 0.01 - $ 4.59................... 1,776,074 6.4 $ 4.46 575,436 $ 4.38
$ 4.60 - $ 6.96................... 421,386 6.6 5.33 148,520 5.31
$ 6.97 - $10.13................... 130,982 8.6 9.54 24,174 9.49
$10.14 - $13.93................... 71,732 9.5 11.86 -- --
</TABLE>

The weighted average fair value at date of grant for options where exercise
price equals the market price of the stock on the grant date was $4.03 and $5.54
per option during 1995 and 1996, respectively. The weighted average fair values
at date of grant for options where the exercise price does not equal the market
price of the stock on the grant date were $3.98 and $10.54 per option during
1995 and 1996, respectively. As no option activity occurred during 1994, no fair
values of granted options are disclosed. The fair value of options at date of
grant was estimated using the Black-Scholes model with the following weighted
average assumptions:

<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C> <C>
Expected life.......................................... 10 years 10 years
Interest rate.......................................... 5.7% 6.3%
Volatility............................................. 0% 0%
Dividend yield......................................... 0% 0%
</TABLE>

Stock based compensation costs would have reduced pretax income by $52,000
and $237,000 in 1995 and 1996, respectively. The after tax impact for 1995 and
1996, respectively, was $34,000 and $156,000 if the fair value of the options
granted in that year had been recognized as compensation expense on a
straight-line basis over the vesting period of the grant. The pro forma impact
on net income would have reduced earnings per share by less than $.01 per share
during 1995 and 1996. The pro forma effect on net income for 1995 and 1996 is
not representative of the pro forma effect on net income in future years because
it does not take into consideration pro forma compensation expense related to
grants made prior to 1995.

As of December 31, 1996, warrants to purchase 568,950 shares of common
stock at $.01 per share were outstanding. The warrants were issued in connection
with the Series A preferred stock during August 1995 and provide for vesting 20%
at the time of issuance and, thereafter, increasing incrementally on a monthly
basis over the subsequent three years.

NOTE 10 -- BENEFIT PLANS

The Company's 401(k) retirement plan provides for optional employee
contributions up to the IRS limitation and discretionary employer matching
contributions. The Company did not make a matching contribution for 1994, 1995
or 1996.

F-17
<PAGE> 68

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- OTHER FINANCIAL INFORMATION

Accrued liabilities comprised the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued salaries and wages........................ $ 964 $ 1,196 $1,234
Accrued bonuses................................... 628 873 645
Accrued taxes..................................... 808 1,010 919
Accrued other..................................... 2,093 5,135 5,938
------- ------- ------
$ 4,493 $ 8,214 $8,736
======= ======= ======
</TABLE>

NOTE 12 -- RELATED PARTY TRANSACTIONS

Hanover and GKH Partners, L.P., a major stockholder of the Company, have
entered into an agreement whereby in exchange for investment banking and
financial advisory services rendered and to be rendered by the major
stockholder, the Company has agreed to pay a fee to GKH Partners, L.P., equal to
.75% of the equity value of the Company determined and payable at such time as
(1) a disposition of shares of the Company's common stock resulting in GKH
Partners, L.P. owning less than 25% of the outstanding common stock or (2) any
other transaction occurs resulting in the effective sale of the Company or its
business by the current owners.

In June 1995, several common stockholders of the Company loaned the Company
$12,000,000 at an interest rate of prime plus 5% per annum with a maturity of
March 31, 2002. These loans were repaid in August 1995 through the issuance of
Series A preferred stock. This Series A preferred stock was exchanged in
December 1996 for subordinated promissory notes.

In connection with stock offerings to management, the Company has received
notes from employees for shares purchased. The total amounts owed to the Company
at December 31, 1995 and 1996 are $4,669,000 and $6,770,000. Total interest
accrued on the loans is $198,000 and $399,000 as of December 31, 1995 and 1996.

The Company has a credit agreement with Joint Energy Development
Investments Limited Partnership, a common stockholder. Interest expense in 1995
and 1996 was $81,900 and $2,548,000. The Company also leases compressors to
affiliates of Enron Capital and Trade Resources Corp., an affiliate of Joint
Energy Development Investments Limited Partnership. Rentals of $375,000 and
$701,000 were paid by affiliates of Enron in 1995 and 1996.

The Company leases compressors to other companies owned or controlled by or
affiliated with related parties. Rental and maintenance revenues billed to these
related parties were minimal in 1994 and totaled $1,071,000 and $3,429,000
during 1995 and 1996, respectively.

See Note 7 for a description of redeemable preferred stock transactions
with related parties and Note 8 for a description of a common stock transaction
with a related party.

NOTE 13 -- COMMITMENTS AND CONTINGENCIES

Rent expense for 1994, 1995 and 1996 was approximately $201,000, $332,000
and $440,000. Commitments for future minimum lease payments are not significant
at December 31, 1996.

As a result of the acquisition of Astra, the Company, owns a 17 acre parcel
of land which includes a lagoon. The area covered by the lagoon was formerly the
site of a solid waste landfill. The Company has been indemnified by Astra's
former parent Westar Capital, Inc. for any environmental

F-18
<PAGE> 69

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

liability associated with the landfill in excess of $250,000. At the present
time, the Company does not believe that it is subject to any remedial
obligations with respect to the former solid waste landfill.

In the ordinary course of business, the Company is involved in various
pending or threatened legal actions. While management is unable to predict the
ultimate outcome of these actions, it believes that any ultimate liability
arising from these actions will not have a material adverse effect on the
Company's consolidated financial position or operating results.

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

NOTE 14 -- INDUSTRY SEGMENTS

The Company has three principal industry segments: Rentals and Maintenance,
Compressor Fabrication and Production Equipment Fabrication. The Rentals and
Maintenance Segment provides natural gas compression rental and maintenance
services to meet specific customer requirements. The Compressor Fabrication
Segment involves the design, fabrication and sale of natural gas compression
units to meet unique customer specifications. The Production Equipment
Fabrication Segment designs, fabricates and sells equipment utilized in the
production of crude oil and natural gas.

F-19
<PAGE> 70

HANOVER COMPRESSOR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INFORMATION ON INDUSTRY SEGMENTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
RENTALS PRODUCTION
AND COMPRESSOR EQUIPMENT
MAINTENANCE FABRICATION FABRICATION CORPORATE ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1994:
Sales to unaffiliated
customers............ $ 32,025 $16,202 $ 7,272 $ 581 $ 56,080
Intersegment sales...... 6,730 $ (6,730)
-------- ------- ------- ------- -------- --------
Total
revenues...... 32,025 22,932 7,272 581 (6,730) 56,080
Operating income
(loss)............... 9,531 778 183 (1,487) 9,005
Identifiable assets..... 101,962 8,089 4,394 169 114,614
Capital expenditures.... 33,367 855 79 34,301
Depreciation and
amortization......... 7,850 225 34 8,109
1995:
Sales to unaffiliated
customers............ $ 48,354 $29,593 $16,960 $ 1,057 $ 95,964
Intersegment sales...... 3,500 13,384 269 $(17,153)
-------- ------- ------- ------- -------- --------
Total
revenues...... 51,854 42,977 17,229 1,057 (17,153) 95,964
Operating income
(loss)............... 12,318 2,449 773 (1,868) 13,672
Identifiable assets..... 224,934 8,927 15,463 2,989 252,313
Capital expenditures.... 120,176 499 2,525 123,200
Depreciation and
amortization......... 13,056 291 147 13,494
1996:
Sales to unaffiliated
customers............ $ 79,355 $28,764 $26,903 $ 989 $136,011
Intersegment sales...... 3,071 36,851 526 $(40,448)
-------- ------- ------- ------- -------- --------
Total
revenues...... 82,426 65,615 27,429 989 (40,448) 136,011
Operating income (loss)... 21,192 2,300 3,342 (3,015) 23,819
Identifiable assets....... 299,760 14,550 19,755 7,322 341,387
Capital expenditures...... 88,870 578 864 90,312
Depreciation and
amortization............ 19,654 490 578 20,722
</TABLE>

Revenues by segment include sales to unaffiliated customers and
intersegment sales. Intersegment sales are accounted for at cost and are
eliminated in consolidation. Segment operating income represents revenues less
operating expenses and does not include the effect of interest expense and
income taxes. Identifiable assets are those tangible and intangible assets that
are identified with the operations of a particular industry segment. Corporate
assets consist of cash and cash equivalents. Capital expenditures include fixed
asset purchases and assets acquired in business acquisitions.

Foreign operations of the Company which comprise 6.4% and 14.1% of rentals
and maintenance revenue in 1995 and 1996, respectively, consist primarily of
operations in Venezuela and Argentina.

No single customer accounts for 10% or more of the Company's revenues.

F-20
<PAGE> 71

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO HANOVER COMPRESSOR COMPANY:

We have audited the accompanying consolidated balance sheets of Astra
Resources Compression, Inc. (a Texas corporation), and subsidiaries as of
November 30, 1995, and December 31, 1994, and the related consolidated
statements of operations, stockholder's equity and cash flows for the eleven
months ended November 30, 1995, and for the year ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Astra
Resources Compression, Inc., and subsidiaries as of November 30, 1995, and
December 31, 1994, and the results of their operations and their cash flows for
the eleven months ended November 30, 1995, and for the year ended December 31,
1994, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
August 16, 1996

F-21
<PAGE> 72

ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 331 $ 123
Accounts receivable, net.................................. 1,112 599
Prepaid assets............................................ 2,371 358
Short-term note receivable................................ 261 240
Spare parts inventory..................................... 1,322 1,372
-------- --------
Total current assets.............................. 5,397 2,692
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment............................. 49,430 43,837
Work-in-progress.......................................... 6,954 1,630
Land and buildings........................................ 565 539
Components................................................ 348 650
-------- --------
57,297 46,656
Less -- Accumulated depreciation and amortization......... (10,550) (7,342)
-------- --------
Property, plant and equipment, net................ 46,747 39,314
NOTE RECEIVABLE............................................. -- 240
DEFERRED TAX ASSET.......................................... 197 526
-------- --------
Total assets...................................... $ 52,341 $ 42,772
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 675 $ 813
Advances from Astra....................................... 190 86
Accrued liabilities....................................... 945 507
Accrued interest.......................................... 58 473
-------- --------
Total current liabilities......................... 1,868 1,879
NOTE PAYABLE TO ASTRA....................................... 5,578 21,195
OTHER LIABILITIES........................................... 492 423
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value, 1,000 shares authorized,
issued and outstanding................................. 1 1
Additional paid-in capital................................ 46,336 20,150
Retained deficit.......................................... (1,934) (876)
-------- --------
Total stockholder's equity........................ 44,403 19,275
-------- --------
Total liabilities and stockholder's equity........ $ 52,341 $ 42,772
======== ========
</TABLE>

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

F-22
<PAGE> 73

ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
REVENUES:
Compression services...................................... $10,043 $ 9,899
Sales to affiliates....................................... 2,382 2,209
Compression equipment sales............................... -- 1,334
Other revenue............................................. 238 115
------- -------
Total revenues.................................... 12,663 13,557
EXPENSES:
Compression services expense.............................. 5,941 5,495
Cost of compression equipment sold........................ -- 1,263
Selling, general and administrative....................... 2,043 1,839
Severance expense......................................... 941 --
Depreciation and amortization............................. 3,472 3,377
------- -------
Total expenses.................................... 12,397 11,974
------- -------
INCOME FROM OPERATIONS...................................... 266 1,583
OTHER INCOME (EXPENSE):
Interest income........................................... 34 55
Interest expense.......................................... (1,258) (1,694)
Other expense, net........................................ (547) (527)
------- -------
Total other expense............................... (1,771) (2,166)
------- -------
LOSS BEFORE TAX............................................. (1,505) (583)
INCOME TAX BENEFIT.......................................... 447 197
------- -------
NET LOSS.................................................... $(1,058) $ (386)
======= =======
</TABLE>

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

F-23
<PAGE> 74

ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1995, AND
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- -------- -------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993....................... $ 1 $20,150 $ (490) $19,661
NET LOSS......................................... -- -- (386) (386)
--- ------- ------- -------
BALANCE, December 31, 1994....................... 1 20,150 (876) 19,275
CONVERSION OF INTERCOMPANY BALANCES TO ADDITIONAL
PAID-IN CAPITAL:
Note payable to Astra.......................... -- 25,452 -- 25,452
Accrued interest on note payable to Astra...... -- 623 -- 623
Amounts due from Astra for tax operating losses
provided by Astra Resources Compression,
Inc. ....................................... -- (501) -- (501)
SEVERANCE EXPENSE PAID BY ASTRA, net of tax...... -- 612 -- 612
NET LOSS......................................... -- -- (1,058) (1,058)
--- ------- ------- -------
BALANCE, November 30, 1995....................... $ 1 $46,336 $(1,934) $44,403
=== ======= ======= =======
</TABLE>

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

F-24
<PAGE> 75

ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (1,058) $ (386)
Adjustments to arrive at net cash provided by operating
activities- Depreciation and amortization.............. 3,472 3,377
Deferred taxes......................................... (312) 58
Gain on sale of equipment.............................. -- (71)
Severance expense paid by Astra........................ 941 --
Accounts receivable.................................... (513) 122
Prepaid assets......................................... (2,013) (270)
Accounts payable....................................... (138) 606
Accrued interest....................................... 208 (422)
Accrued liabilities.................................... 438 241
Other.................................................. (36) 312
-------- -------
Net cash provided by operating activities......... 989 3,567
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment........................... -- 1,404
Additions to property, plant and equipment................ (10,857) (6,379)
-------- -------
Net cash used in investing activities............. (10,857) (4,975)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in note payable to Astra......................... 9,836 1,025
(Increase) decrease in note receivable.................... 240 240
-------- -------
Net cash provided by financing activities......... 10,076 1,265
-------- -------
NET INCREASE (DECREASE) IN CASH............................. 208 (143)
CASH AT BEGINNING OF PERIOD................................. 123 266
-------- -------
CASH AT END OF PERIOD....................................... $ 331 $ 123
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................. $ 1,050 $ 2,088
Cash paid during the period for taxes..................... -- --
Conversion of note payable to Parent to equity............ 25,452 --
</TABLE>

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

F-25
<PAGE> 76

ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION:

Astra Resources Compression, Inc. (formerly Contract Compression, Inc.),
and subsidiaries (the Company) are wholly owned by Astra Resources, Inc.
(Astra), which is a wholly owned subsidiary of Western Resources, Inc.
(Western), of Topeka, Kansas. The Company conducts operations in Argentina
through its wholly owned domestic subsidiary, Astra Resources International,
Inc. (formerly Contract Compression International, Inc.), and its wholly owned
Argentine subsidiary, Contract Compression International Argentina, S.A.
Effective January 11, 1995, Contract Compression, Inc., changed its name to
Astra Resources Compression, Inc.

2. BASIS OF PRESENTATION:

The accompanying financial statements are presented in accordance with Rule
3-05 of the Securities and Exchange Commission's Regulation S-X and represent
the assets, liabilities, stockholder's equity and results of operations of the
Company, which was merged into Hanover Compressor Company (Hanover) on December
5, 1995.

3. DESCRIPTION OF THE MERGER TRANSACTION:

Effective December 5, 1995, pursuant to an October 13, 1995, Agreement and
Plan of Merger (the Agreement), Hanover issued to Astra 30,556 shares of stock
valued at $55 million. In exchange for receipt of Hanover's shares, Astra's
shares of the Company were canceled and retired. The Company immediately issued
100 new shares to Hanover.

The terms of the Agreement required that certain of the Company's federal
income tax attributes and a note payable to Astra be contributed to paid-in
capital as of June 30, 1995. Additionally, Hanover paid Astra approximately $6.5
million as a final settlement of the purchase price in December 1995. The final
settlement included amounts due Astra for borrowings by the Company from Astra
between July 1, 1995, and December 5, 1995, accrued interest on those borrowings
and amounts required to buy out the Company's leased equipment.

The Agreement grants Hanover the right to sell a certain facility included
in the transaction back to Astra for $150,000 in the event that Hanover is
unable to find a buyer for the facility within five years and certain other
conditions of the Agreement are met. Astra has granted Hanover certain
indemnities, including indemnity against environmental claims arising from
actions prior to Hanover's acquisition of the Company.

As an inducement for continuing employment through the closing of the
transaction, certain employees of the Company were given severance payments
totaling approximately $941,000. Astra paid payments on behalf of the Company.
Accordingly, the costs associated with the payments have been recorded in the
financial statements, net of tax. Over half of the total severance payments went
to three key employees of the Company who signed noncompete agreements with
terms of 180 days subsequent to any termination of employment.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CONSOLIDATION

The Company includes the assets, liabilities, income and expense of its
subsidiaries in its consolidated financial statements. All significant
intercompany accounts and transactions have been eliminated in consolidation.

F-26
<PAGE> 77

ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues and
expenses, as well as the disclosures of contingent assets and liabilities, if
any. Because of the inherent uncertainties in this process, actual future
results could differ from those expected at the reporting date.

CASH AND CASH EQUIVALENTS

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

SPARE PARTS INVENTORY AND COMPONENTS

Inventory held for construction or repair of equipment is valued at the
lower cost or market and accounted for using the average cost method.

DEPRECIATION

Property, plant and equipment are recorded at cost and depreciation is
provided on the straight-line method based on estimated useful lives. Normal
maintenance and repair costs are expensed as incurred. Major overhauls of
equipment are capitalized and depreciated over the estimated period for which
benefit is derived from the overhaul. Estimated useful lives for the Company's
major assets by category are as follows:

<TABLE>
<S> <C>
Compression units and components............................ 15 years
Gas treatment plants........................................ 5 years
Office equipment............................................ 3-7 years
Buildings................................................... 40 years
Leasehold improvements...................................... Term of lease
</TABLE>

WORK-IN-PROGRESS

The Company's overhaul activities on compression units typically cover a
period of several weeks or months. Costs related to these activities are
recorded as work-in-progress until such time as the overhaul is completed and
the related cost transferred to fixed assets. In addition, costs of new
compression units being prepared and packaged for service are recorded as
work-in-progress until such time as they are placed in service.

INCOME TAXES

Income tax expense includes provisions for income taxes currently payable
and deferred income taxes calculated in conformity with Statement of Financial
Accounting Standards (SFAS) No. 109. SFAS No. 109 requires the Company to
establish deferred tax assets and liabilities, as appropriate, for all temporary
differences, based on tax rates expected to be in effect during the periods the
temporary differences reverse.

REVENUES

The Company leases compressors primarily to gas well and gas pipeline
operators. Sales and service revenues are recognized at the time products are
delivered and services are performed.

F-27
<PAGE> 78

ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. FEDERAL INCOME TAXES:

For federal income tax purposes, the Company was included as part of the
Western consolidated tax group. For financial statement purposes, tax benefits
or provisions and assets or liabilities are calculated by the Company as if it
were a separate taxpayer.

The provision for income taxes consists of current and deferred federal and
state taxes. The provision (benefit) for the eleven months ended November 30,
1995 and the year ended December 31, 1994 is as follows:

<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Current provision (benefit) --
Federal............................................... $(134,137) $(240,774)
State................................................. (841) (13,927)
--------- ---------
(134,978) (254,701)
--------- ---------
Deferred provision (benefit) --
Federal............................................... (313,944) 54,572
State................................................. 2,083 2,929
--------- ---------
(311,861) 57,501
--------- ---------
Total benefit................................. $(446,839) $(197,200)
========= =========
</TABLE>

The effective tax rates for the eleven months ended November 30, 1995 and
the year ended December 31, 1994 were different from the applicable statutory
tax rates. The components of these differences are presented below:

<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Statutory tax rate...................................... 35.0% 35.0%
State taxes, net of federal benefit..................... -- 4.0
Foreign tax rate differential........................... 2.1 1.2
Expenses not deductible for tax......................... (4.5) (6.7)
Other items, net........................................ (2.9) 2.3
---- ----
Effective tax rate...................................... 29.7% 35.8%
==== ====
</TABLE>

F-28
<PAGE> 79

ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes result from temporary differences between the
financial statement and tax bases of the Company's assets and liabilities. The
source of these differences and their cumulative tax effects at November 30,
1995, and December 31, 1994, are presented below:

<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Property, plant and equipment.......................... $(1,168,802) $(1,210,849)
Net operating loss carryforwards....................... 367,452 743,771
Alternative minimum tax carryforwards.................. 895,408 895,408
Deferred compensation and benefits..................... 102,801 92,008
Other.................................................. (34) 5,440
----------- -----------
Net deferred income tax asset................ $ 196,825 $ 525,778
=========== ===========
</TABLE>

No valuation allowance was necessary for deferred tax assets at November 30,
1995, or December 31, 1994.

6. NOTE PAYABLE TO ASTRA:

At December 31, 1994, the Company had a note payable to Astra, with an
outstanding principal balance of $21,195,000. This note bears interest at prime
plus 1 percent, payable quarterly. On June 30, 1995, the note payable to Astra
plus accrued interest ($26,075,000 in total) was contributed to additional
paid-in capital. Funds borrowed from Astra from July 1, 1995, to the effective
date of the merger plus accrued interest are due and payable to Astra at closing
of the merger. These funds bear interest at LIBOR plus 1 percent.

7. LEASES:

At November 30, 1995, and December 31, 1994, the Company had leases
covering various items of property, plant and equipment, primarily vehicles.
Certain of these lease agreements meet the criteria, as set forth in SFAS No.
13, for classification as capital leases.

The original costs of property, plant and equipment leased under a capital
lease and related accumulated amortization are as follows:

<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Acquisition cost of leased property, plant and
equipment.............................................. $ 974,509 $1,016,306
Less -- Accumulated amortization....................... (906,831) (734,100)
--------- ----------
Net book value........................................... $ 67,678 $ 282,206
========= ==========
</TABLE>

Commitments for rental payments under capital and operating leases are as
follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996................................................... $49,426 $32,161
1997................................................... 15,686 5,093
1998................................................... 2,566 3,430
------- -------
Total........................................ $67,678 $40,684
======= =======
</TABLE>

For the eleven months ended November 30, 1995 and the year ended December
31, 1994 total rental payments for operating leases charged to expense were
approximately $113,532 and

F-29
<PAGE> 80

ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$20,398, respectively. Amortization on vehicles under capital lease is included
in depreciation expense.

8. COMMITMENTS AND CONTINGENCIES:

The Company is party to certain claims arising out of its ongoing
operations. Management believes that the outcome of these claims will not have a
material impact on the business, financial position or results of operations of
the Company.

9. EMPLOYEE BENEFIT PLANS:

PENSION

The Company, through Western, maintains noncontributory defined benefit
pension plans covering substantially all employees. Pension benefits are based
on years of service and the employee's compensation during the five highest paid
consecutive years out of the 10 years before retirement. Western's policy is to
fund pension costs accrued, subject to limitations set by the Employee
Retirement Income Security Act of 1974 and the Internal Revenue Code, and
allocate a pro rata share of such costs, based on employee participation, to its
subsidiaries. During 1995 and 1994, the Company expensed $28,591 and $27,494,
respectively, and at November 30, 1995, and December 31, 1994, had accrued
$7,865 and $--, respectively, related to this plan.

POSTRETIREMENT

The Company, through Western, adopted the provisions of SFAS No. 106 in
1993. This statement requires the accrual of postretirement benefits other than
pensions, primarily medical benefit costs, during the years an employee provides
service. Costs of the plan are allocated to the Company from Western on a pro
rata basis, based on employee participation. During 1995 and 1994, the Company
expensed $137,998 and $152,852, respectively, and at November 30, 1995, and
December 31, 1994, had accrued $402,930 and $264,932, respectively, related to
this plan.

SAVINGS

The Company, through Western, maintains savings plans in which
substantially all employees participate. Employees' contributions, up to
specified maximum limits, are matched by Western. Costs of the plan, and
matching contributions, are allocated to the Company from Western on a pro rata
basis, based on employee participation. During 1995 and 1994, the Company
expensed $14,993 and $10,052, respectively, and at November 30, 1995, and
December 31, 1994, had accrued $14,120 and $1,575, respectively, related to this
plan.

10. RELATED-PARTY TRANSACTION:

The Company entered into several operating leases for compression equipment
with Hanover during the eleven months ended November 30, 1995, that terminated
effective December 31, 1995. The Company made lease payments of $87,857 to Astra
during the eleven months ended November 30, 1995.

Compression services are rendered to affiliates of Western. Sales during
the eleven months ended November 30, 1995 and the year ended December 31, 1994
totaled $2,382,178 and $2,208,899, respectively. Terms and pricing for these
transactions are similar to those offered to unrelated customers.

F-30
<PAGE> 81

ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company was charged a service fee of $543,000 and $533,000 by Western
during 1995 and 1994, respectively.

11. MAJOR CUSTOMERS:

Approximately 38 percent of the Company's revenue from service contracts
during the eleven months ended November 30, 1995 and 34 percent for the year
ended December 31, 1994 were from two customers. Both customers individually
accounted for more than 10 percent of total revenues. The Company does not
believe that the loss of either or both of these two customers, or the loss of
any other individual customer, would have a material adverse impact on its
operations.

F-31
<PAGE> 82

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs
& Co., Credit Suisse First Boston Corporation and Salomon Brothers Inc are
acting as representatives, has severally agreed to purchase from the Company and
the Selling Stockholders, the respective number of shares of Common Stock set
forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co.........................................
Credit Suisse First Boston Corporation......................
Salomon Brothers Inc........................................

---------
Total............................................. 6,613,494
=========
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.

In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include overallotment
and stabilizing transactions and purchases to cover syndicate short positions
created by the Underwriters in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock and syndicate
short positions involve the sale by the Underwriters of a greater number of
shares of Common Stock than they are required to purchase from the Company in
the Offering. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the securities sold in the Offering for their account may be reclaimed by the
syndicate if such securities are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock, which may be higher than the price
that might otherwise prevail in the open market; and these activities, if

U-1
<PAGE> 83

commenced, may be discontinued at any time. These transactions may be effected
on the New York Stock Exchange, in the over-the-counter market or otherwise.

The Company has granted to the Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 992,024
additional shares of Common Stock solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 6,613,494 shares of Common
Stock offered.

The Company, the Company's officers, directors and certain other employees
and certain of the Company's other stockholders (including GKH, Westar and JEDI)
have agreed that, during the period beginning from the date of this Prospectus
and continuing and including the date 180 days after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or any securities of the Company that are
substantially similar to the shares of Common Stock, including but not limited
to any securities that are convertible into or exchangeable for, or that
represent the right to receive, Common Stock or any substantially similar
securities (other than pursuant to employee stock option or stock purchase plans
existing on or on the conversion or exchange of convertible or exchangeable
securities outstanding on the date of this Prospectus), without the prior
written consent of the representatives of the Underwriters, except for the
shares of Common Stock offered in connection with the Offering and issuances of
capital stock by the Company in connection with potential future acquisitions
provided that the shares issuable pursuant to any such acquisitions shall not be
transferrable prior to the end of the 180 day period. See "Shares Eligible for
Future Sale".

Prior to this Offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company, the Selling
Stockholders and the representatives of the Underwriters. Among the factors to
be considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, will be the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.

The Common Stock has been approved for listing, subject to notice of
issuance, on the New York Stock Exchange under the symbol "HC". In order to meet
one of the requirements for listing the Common Stock on the New York Stock
Exchange, the Underwriters have undertaken to sell lots of 100 or more shares to
a minimum of 2,000 beneficial holders.

The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Act.

U-2
<PAGE> 84

======================================================

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 7
The Company........................... 12
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Historical Financial
Information......................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 24
Management............................ 34
Executive Compensation................ 37
Stock Option and Purchase Plans....... 38
Certain Transactions.................. 39
Principal and Selling Stockholders.... 42
Description of Capital Stock.......... 43
Shares Eligible for Future Sale....... 45
Validity of Common Stock.............. 47
Experts............................... 47
Additional Information................ 47
Index to Financial Statements......... F-1
Underwriting.......................... U-1
</TABLE>

THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

======================================================

6,613,494 SHARES

HANOVER COMPRESSOR
COMPANY

COMMON STOCK
(PAR VALUE $.001 PER SHARE)
---------------------------------

[HANOVER LOGO]

---------------------------------
GOLDMAN, SACHS & CO.

CREDIT SUISSE FIRST BOSTON

SALOMON BROTHERS INC

REPRESENTATIVES OF THE UNDERWRITERS
======================================================
<PAGE> 85

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses (other than the SEC registration
fee, the NASD filing fee and the New York Stock Exchange application fee) of the
issuance and distribution of the securities being registered, all of which will
be paid by the Company.

<TABLE>
<CAPTION>
<S> <C>
SEC registration fee........................................ $ 30,303
NASD Fee.................................................... 10,500
New York Stock Exchange fees................................ 154,600
Printing expenses........................................... 250,000
Fees and expenses of counsel................................ 250,000
Fees and expenses of accountants............................ 225,000
Transfer agent and registrar fees........................... 10,000
Blue sky fees and expenses.................................. 10,000
Miscellaneous............................................... 59,597
----------
Total............................................. $1,000,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Delaware law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director of
officer of the corporation, or his service, at the corporation's request, as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees) that are actually and reasonably
incurred by him ("Expenses"), and judgments, fines and amounts paid in
settlement that are actually and reasonably incurred by him, in connection with
the defense or settlement of such action; provided that he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Delaware law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the adjudicating court (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board of
directors, or (2) by independent legal counsel in a written opinion, if such a
quorum does not exist or if the disinterested directors so direct, or (3) by the
stockholders. The General Corporation Law of Delaware also provides for
mandatory indemnification of any director, officer, employee or agent against
Expenses to the extent such person has been successful in any proceeding covered
by the statute. In addition, the General Corporation Law of Delaware provides
for the general authorization of advancement of a director's or officer's
litigation expenses in lieu of requiring the authorization of such advancement
by the board of directors in specific cases, and that indemnification and
advancement of expenses provided by the statute shall not be deemed exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement or otherwise.

The Company's Restated Certificate of Incorporation provides that the
Company shall indemnify its directors and officers and advance expenses incurred
by its directors and officers in

II-1
<PAGE> 86

defending any civil, commercial, administrative or investigative action, suit or
proceeding, in accordance with and to the fullest extent permitted by Delaware
law.

The Company has also entered into agreements to indemnify its directors and
certain of its officers, in addition to the indemnification provided for in the
Company's Restated Certificate of Incorporation and By-laws. These agreements,
among other things, will indemnify the Company's directors and officers for all
direct and indirect expenses and costs (including, without limitation, all
reasonable attorneys' fees and related disbursements, other out-of-pocket costs
and reasonable compensation for time spent by such persons for which they are
not otherwise compensated by the Company or any third person) and liabilities of
any type whatsoever (including, but not limited to, judgements, fines and
settlement fees) actually and reasonably incurred by such person in connection
with either the investigation, defense, settlement or appeal of any threatened,
pending or completed action, suit or other proceeding, including any action by
or in the right of the corporation, arising out of such person's services as a
director, officer, employee or other agent of the Company, any subsidiary of the
Company or any other company or enterprise to which the person provides services
at the request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain talented and experienced
directors and officers.

The Company maintains liability insurance for the benefit of its directors
and officers.

The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement contains certain provisions for indemnification of
directors and officers of the Company and the Underwriters against civil
liabilities under the Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Set forth below is certain information with respect to all securities of
the Company sold by the Company within the past three years which were not
registered under the Act.

<TABLE>
<CAPTION>
TITLE AND AMOUNT EXEMPTION
DATE OF SALE OF SECURITIES PURCHASERS CONSIDERATION CLAIMED
------------ ---------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
2/1/95............... 181,700 shares of Gale Force Issued in connection Sec. 4(2)
Common Stock Compression with an acquisition.
Services, Inc. The Company also
paid $9.8 million in
cash at closing.
7/7/95............... 39,500 shares of 9 employees $7.33 per share. Rule 701
Common Stock (66% of which was
paid by four year
secured promissory
notes and the
balance in cash).
8/7/95............... 1,755,538 shares of JEDI $11.39 per share Sec. 4(2)
Common Stock
8/7/95............... 21,602 shares of 7 purchasers, $1,000 per share Sec. 4(2)
Series A Preferred including the Fund
Stock and GKH
8/7/95............... 10,000 shares of JEDI $1,000 per share Sec. 4(2)
Series B Preferred
Stock
8/31/95.............. 272,866 shares of 55 employees $9.49 per share Rule 701
Common Stock
</TABLE>

II-2
<PAGE> 87

<TABLE>
<CAPTION>
TITLE AND AMOUNT EXEMPTION
DATE OF SALE OF SECURITIES PURCHASERS CONSIDERATION CLAIMED
------------ ---------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
9/8/95............... 90,376 shares of Former stockholder $9.49 per share. Sec. 4(2)
Common Stock of PGN Issued in connection
with acquisition of
PGN (52,667 of which
were purchased by
delivery of 4 year
secured promissory
note and 16,590 of
which were issued in
exchange for PGN
stock.)
9/29/95.............. 102 shares of 1 individual $1,000 per share. Sec. 4(2)
Series A Preferred
Stock
11/20/95 53,472 shares of 1 individual $11.39 per share. Sec. 4(2)
Common Stock Issued in connection
with acquisition.
12/5/95.............. 4,827,848 shares of Astra $11.39 per share. In Sec. 4(2)
Common Stock addition, the
Company paid
approximately $6.5
million in cash.
1/24/96.............. 4,740 shares of 2 employees $6.96 per share. Sec. 4(2)
Common Stock (All of which was
paid by delivery of
two secured
promissory notes.)
2/22/96.............. 19,734 shares of New Prospect $12.66 per share. In Sec. 4(2)
Common Stock Drilling Company and addition, the
its principal Company paid $4.5
stockholder million in cash.
4/25/96.............. 175,538 shares of 35 employees $11.39 per share. Of Rule 701
Common Stock this consideration,
$435,600 was paid in
cash and the balance
was paid by delivery
of notes.
5/29/96.............. 39,500 shares of 1 individual $13.92 per share in Sec. 4(2)
Common Stock connection with an
acquisition. (Of
this consideration,
67% was paid by
delivery of a
secured promissory
note.)
</TABLE>

II-3
<PAGE> 88

<TABLE>
<CAPTION>
TITLE AND AMOUNT EXEMPTION
DATE OF SALE OF SECURITIES PURCHASERS CONSIDERATION CLAIMED
------------ ---------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
6/17/96.............. 31,442 shares of 1 employee $10.12 per share. Sec. 4(2)
Common Stock (Of this
consideration, two-
thirds was paid by
delivery of a
secured promissory
note.)
12/23/96............. 800,308 shares of JEDI $13.29 per share. Sec. 4(2)
Common Stock Issued in exchange and/or
for 10,367 shares of 3(a)(9)
Series B Preferred
Stock and cash
payment to JEDI of
$1.4 million.
12/13/96............. 1,570,911 shares of Accredited investors $14.55 per share. Rule 506
Common Stock Issued pursuant to and/or
exercise of Sec. 4(2)
preemptive rights.
12/13/96............. $23.5 million of Series A preferred $23.5 million. Secs. 4(2)
Subordinated stockholders Issued upon and/or
Promissory Notes conversion of all 3(a)(9)
outstanding Series A
Preferred Stock.
2/19/97.............. 5,152 shares of Accredited investor $14.55 per share. Sec. 4(2)
Common Stock and/or
Rule 506
6/27/97*............. 264,780 shares of 21 employees The initial public Rule 701
Common Stock offering price per
share. (A portion of
which may be paid by
full recourse
promissory notes and
the balance in
cash).
</TABLE>

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

* As of the date hereof, the Company has offered the group of persons indicated
the opportunity to purchase an aggregate of 264,780 shares at the initial
public offering price per share to the public. Such sales are currently
expected to be consummated on or about June 27, 1997, and are subject to and
conditioned upon consummation of the Offering.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<S> <S>
1.1** Form of Underwriting Agreement
2.1** Agreement and Plan of Merger, dated as of October 13, 1995
among Hanover, Hanover Acquisition Corporation, Astra
Resources Compression, Inc. and Astra Resources, Inc.
3.1** Amended and Restated Certificate of Incorporation of Hanover
3.2** Amended and Restated By-laws of Hanover
3.3** Certificate of Amendment of Certificate of Incorporation of
Hanover filed March 8, 1996
</TABLE>

II-4
<PAGE> 89

<TABLE>
<S> <C>
3.4 Second Certificate of Amendment of Certificate of
Incorporation of Hanover filed June 24, 1997
4.1** Third Amended and Restated Registration Rights Agreement,
dated as of December 5, 1995, among Hanover, GKH Partners,
L.P., GKH Investments, L.P., Astra Resources, Inc. and other
stockholders of Hanover party thereto
4.3** Stockholders Agreement, dated as of January 27, 1995, among
Hanover, GKH Partners, L.P. GKH Investments, L.P. and other
stockholders of Hanover party thereto; Amendment No. 1 dated
October 31, 1996
4.4** Amended and Restated Stockholders Agreement, dated as of
August 7, 1995, among Hanover, GKH Partners, L.P., GKH
Investments, L.P. and other stockholders of Hanover party
thereto; Amendment No. 1 dated October 31, 1996
4.5** Form of Letter Agreement relating to the Amended and
Restated Stockholders Agreement
4.6** Stockholders Agreement, dated as of August 7, 1995, among
Hanover, GKH Partners, L.P., GKH Investments, L.P. and Joint
Energy Development Investments Limited Partnership;
Amendment No. 1 dated December 23, 1996
4.7** Stockholders Agreement, dated as of December 5, 1995, among
Hanover, GKH Partners, L.P., GKH Investments, L.P. and Astra
Resources, Inc.
4.8** Pledge Agreement, dated as of December 19, 1995, made by
Hanover Acquisition Corporation in favor of The Chase
Manhattan Bank (formerly known as Chemical Bank) as
Collateral Trustee
4.9** Second Amended and Restated Pledge Agreement, dated as of
December 19, 1995, made by Hanover Compressor Company in
favor of The Chase Manhattan Bank (formerly known as
Chemical Bank) as Collateral Trustee
4.10** Form of Warrant Agreement
4.11** Specimen Stock Certificate
4.12** Form of Second Amended and Restated Stockholders Agreement
of Hanover Compressor Company dated as of June, 1997
4.13** Form of Amended and Restated Stockholders Agreement (JEDI)
dated as of May, 1997
4.14** Form of Amended and Restated Stockholders Agreement (Westar
Capital, Inc.) dated as of May, 1997
4.15** Form of Amended and Restated Stockholders Agreement (HEHC)
dated as of May, 1997
5.1** Form of Opinion of Neal, Gerber & Eisenberg, counsel to
Hanover
10.1** Second Amended and Restated Credit Agreement, dated as of
December 19, 1995, by and between Hanover, The Chase
Manhattan Bank (formerly known as Chemical Bank), a New York
banking corporation as Agent and several banks that are
parties thereto
10.2** Loan Agreement, dated as of December 19, 1995, by and
between Hanover, Joint Energy Development Investment
Partnership as Agent and several banks that are parties
thereto
10.3** Management Fee Letter, dated November 14, 1995 between GKH
Partners, L.P. and Hanover
10.4** Hanover Compressor Company Senior Executive Stock Option
Plan
10.5** 1993 Hanover Compressor Company Management Stock Option Plan
10.6** Hanover Compressor Company Incentive Option Plan
</TABLE>

II-5
<PAGE> 90

<TABLE>
<S> <C>
10.7** Amendment and Restatement of the Hanover Compressor Company
Incentive Option Plan
10.8** Hanover Compressor Company 1995 Employee Stock Option Plan
10.9** Hanover Compressor Company 1995 Management Stock Option Plan
10.10** Hanover Compressor Company 1996 Employee Stock Option Plan
10.11** OEM Sales and Purchase Agreement, between Hanover Compressor
Company and the Waukesha Engine Division of Dresser
Industries, Inc.
10.12** Distribution Agreement, dated February 23, 1995, between
Ariel Corporation and Maintech Enterprises, Inc.
10.13** Exclusive Distribution Agreement, dated as of February 23,
1995 by and between Hanover/Smith, Inc. and Uniglam
Resources, Ltd.
10.14** Lease Agreement with Option to Purchase dated as of February
24, 1995 between Smith Industries, Incorporated and
Hanover/Smith, Inc.
10.15** Lease Agreement, dated December 4, 1990, between Hanover
Compressor Company and Ricardo J. Guerra and Luis J. Guerra,
as amended
10.16** Lease Agreement, dated as of March 31, 1995 between Hanover
Compressor Company and Smith Industries, Incorporated
10.17** Lease Agreement with Option to Purchase, dated June 8, 1993,
between C&M Land Account and Hanover Compressor Company
10.18** Indemnification Agreement, dated as of December 5, 1995,
between Hanover Compressor Company and Western Resources
(formerly Astra Resources, Inc.)
10.19** Put Agreement, dated December 5th, 1995, by and between
Western Resources, Inc. (formerly Astra Resources, Inc.) and
Hanover Compressor Company and Hanover Acquisition
Corporation (formerly Astra Resources Compression, Inc.)
10.20** Exchange and Subordinated Loan Agreement dated as of
December 23, 1996, among Hanover and GKH Partners, L.P., GKH
Investments, L.P., IPP95, L.P., Hanna Investment Group, Otto
Candies, Inc., Phyllis S. Hojel, Ted Collins, Jr. and L.O.
Ward
10.21** Cooperation Agreement dated January 16, 1997 among Hanover,
Wartsila and Wartsila Compression Services, GMBH
10.22** Distributorship Agreement dated January 16, 1997 between
Hanover and Wartsila Compression Services
10.23 1997 Stock Option Plan, as amended
10.24 1997 Stock Purchase Plan
10.25** Amendment, Waiver and Consent dated as of April 14, 1997 to
Second Amended and Restated Credit Agreement among Hanover
Compressor Company, the several banks and other financial
institutions from time to time parties thereto and The Chase
Manhattan Bank, as agent
10.26** Amendment, Waiver and Consent dated as of December 23, 1996
to the Second Amended and Restated Credit Agreement, dated
as of December 19, 1995
10.27** Exchange Agreement by and between Hanover Compressor Company
and JEDI, dated December 23, 1996
10.28** Amendment, Waiver and Consent dated as of April 14, 1997 by
and among Hanover Compressor Company, JEDI and the Lenders
named therein
10.29** Amendment, Waiver and Consent dated as of December 23, 1996
by and among Hanover Compressor Company, JEDI and the
Lenders named therein
</TABLE>

II-6
<PAGE> 91

<TABLE>
<S> <C>
11.1 Statement re computation of per share earnings, as amended
21.1** List of Subsidiaries
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Arthur Andersen LLP
23.3** Consent of Neal, Gerber & Eisenberg (included in
Exhibit 5.1)
24.1** Powers of Attorney (included on the signature pages
to the Registration Statement)
27.1 Financial Data Schedule, as amended

</TABLE>

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

** Previously Filed.

All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.

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

The undersigned Registrant hereby undertakes that:

(i) For purposes of determining any liability under the Act, (i) 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 Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and

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

II-7
<PAGE> 92

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Houston, Texas on
June 25, 1997.

HANOVER COMPRESSOR COMPANY,
a Delaware corporation

By: *MICHAEL J. MCGHAN
----------------------------------
Michael J. McGhan,
President and Chief Executive
Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael A. O'Connor, Michael J. McGhan and
William S. Goldberg, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities to sign this Registration
Statement, and any all amendments (including post-effective amendments) to this
Registration Statement and any additional registration statement pursuant to
Rule 462(b), and to file the same with all exhibits thereto, and other documents
in connection therewith, and generally to do all such things in his name and
behalf in any and all capacities to enable Hanover Compressor Company to comply
with the applicable provisions of the Securities Act of 1933, as amended, and
all requirements of the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT AND POWER OF ATTORNEY HAS BEEN SIGNED ON JUNE
25, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:

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

*MICHAEL J. MCGHAN President and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer) and Director
Michael J. McGhan

*CURTIS BEDRICH Chief Financial Officer and Treasurer
- ----------------------------------------------------- (Principal Financial and Accounting Officer)
Curtis Bedrich

*TED COLLINS, JR. Director
- -----------------------------------------------------
Ted Collins, Jr.

*ROBERT R. FURGASON Director
- -----------------------------------------------------
Robert R. Furgason

/s/ WILLIAM S. GOLDBERG Director
- -----------------------------------------------------
William S. Goldberg

*CARL M. KOUPAL, JR. Director
- -----------------------------------------------------
Carl M. Koupal, Jr.

*MELVYN N. KLEIN Director
- -----------------------------------------------------
Melvyn N. Klein

*MICHAEL A. O'CONNOR Director
- -----------------------------------------------------
Michael A. O'Connor
</TABLE>

II-8
<PAGE> 93
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>

*ALVIN V. SHOEMAKER Director
- -----------------------------------------------------
Alvin V. Shoemaker

*WILLIAM E. SIMON, JR. Director
- -----------------------------------------------------
William E. Simon, Jr.

*By: WILLIAM S. GOLDBERG,
- -----------------------------------------------------
under power of attorney
</TABLE>

II-9
<PAGE> 94

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1** Form of Underwriting Agreement
2.1** Agreement and Plan of Merger, dated as of October 13, 1995
among Hanover, Hanover Acquisition Corporation, Astra
Resources Compression, Inc. and Astra Resources, Inc.
3.1** Amended and Restated Certificate of Incorporation of Hanover
3.2** Amended and Restated By-laws of Hanover
3.3** Certificate of Amendment of Certificate of Incorporation of
Hanover filed March 8, 1996
3.4 Second Certificate of Amendment of Certificate of
Incorporation of Hanover filed June 24, 1997
4.1** Third Amended and Restated Registration Rights Agreement,
dated as of December 5, 1995, among Hanover, GKH Partners,
L.P., GKH Investments, L.P., Astra Resources, Inc. and other
stockholders of Hanover party thereto
4.3** Stockholders Agreement, dated as of January 27, 1995, among
Hanover, GKH Partners, L.P. GKH Investments, L.P. and other
stockholders of Hanover party thereto; Amendment No. 1 dated
October 31, 1996
4.4** Amended and Restated Stockholders Agreement, dated as of
August 7, 1995, among Hanover, GKH Partners, L.P., GKH
Investments, L.P. and other stockholders of Hanover party
thereto; Amendment No. 1 dated October 31, 1996
4.5** Form of Letter Agreement relating to the Amended and
Restated Stockholders Agreement
4.6** Stockholders Agreement, dated as of August 7, 1995, among
Hanover, GKH Partners, L.P., GKH Investments, L.P. and Joint
Energy Development Investments Limited Partnership;
Amendment No. 1 dated December 23, 1996
4.7** Stockholders Agreement, dated as of December 5, 1995, among
Hanover, GKH Partners, L.P., GKH Investments, L.P. and Astra
Resources, Inc.
4.8** Pledge Agreement, dated as of December 19, 1995, made by
Hanover Acquisition Corporation in favor of The Chase
Manhattan Bank (formerly known as Chemical Bank) as
Collateral Trustee
4.9** Second Amended and Restated Pledge Agreement, dated as of
December 19, 1995, made by Hanover Compressor Company in
favor of The Chase Manhattan Bank (formerly known as
Chemical Bank) as Collateral Trustee
4.10** Form of Warrant Agreement
4.11** Specimen Stock Certificate
4.12** Form of Second Amended and Restated Stockholders Agreement
of Hanover Compressor Company dated as of June, 1997
4.13** Form of Amended and Restated Stockholders Agreement (JEDI)
dated as of May, 1997
4.14** Form of Amended and Restated Stockholders Agreement (Westar
Capital, Inc.) dated as of May, 1997
4.15** Form of Amended and Restated Stockholders Agreement (HEHC)
dated as of May, 1997
5.1** Form of Opinion of Neal, Gerber & Eisenberg, counsel to
Hanover
10.1** Second Amended and Restated Credit Agreement, dated as of
December 19, 1995, by and between Hanover, The Chase
Manhattan Bank (formerly known as Chemical Bank), a New York
banking corporation as Agent and several banks that are
parties thereto
</TABLE>

<PAGE> 95

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.2** Loan Agreement, dated as of December 19, 1995, by and
between Hanover, Joint Energy Development Investment
Partnership as Agent and several banks that are parties
thereto
10.3** Management Fee Letter, dated November 14, 1995 between GKH
Partners, L.P. and Hanover
10.4** Hanover Compressor Company Senior Executive Stock Option
Plan
10.5** 1993 Hanover Compressor Company Management Stock Option Plan
10.6** Hanover Compressor Company Incentive Option Plan
10.7** Amendment and Restatement of the Hanover Compressor Company
Incentive Option Plan
10.8** Hanover Compressor Company 1995 Employee Stock Option Plan
10.9** Hanover Compressor Company 1995 Management Stock Option Plan
10.10** Hanover Compressor Company 1996 Employee Stock Option Plan
10.11** OEM Sales and Purchase Agreement, between Hanover Compressor
Company and the Waukesha Engine Division of Dresser
Industries, Inc.
10.12** Distribution Agreement, dated February 23, 1995, between
Ariel Corporation and Maintech Enterprises, Inc.
10.13** Exclusive Distribution Agreement, dated as of February 23,
1995 by and between Hanover/Smith, Inc. and Uniglam
Resources, Ltd.
10.14** Lease Agreement with Option to Purchase dated as of February
24, 1995 between Smith Industries, Incorporated and
Hanover/Smith, Inc.
10.15** Lease Agreement, dated December 4, 1990, between Hanover
Compressor Company and Ricardo J. Guerra and Luis J. Guerra,
as amended
10.16** Lease Agreement, dated as of March 31, 1995 between Hanover
Compressor Company and Smith Industries, Incorporated
10.17** Lease Agreement with Option to Purchase, dated June 8, 1993,
between C&M Land Account and Hanover Compressor Company
10.18** Indemnification Agreement, dated as of December 5, 1995,
between Hanover Compressor Company and Western Resources
(formerly Astra Resources, Inc.)
10.19** Put Agreement, dated December 5th, 1995, by and between
Western Resources, Inc. (formerly Astra Resources, Inc.) and
Hanover Compressor Company and Hanover Acquisition
Corporation (formerly Astra Resources Compression, Inc.)
10.20** Exchange and Subordinated Loan Agreement dated as of
December 23, 1996, among Hanover and GKH Partners, L.P., GKH
Investments, L.P., IPP95, L.P., Hanna Investment Group, Otto
Candies, Inc., Phyllis S. Hojel, Ted Collins, Jr. and L.O.
Ward
10.21** Cooperation Agreement dated January 16, 1997 among Hanover,
Wartsila and Wartsila Compression Services, GMBH.
10.22** Distributorship Agreement dated January 16, 1997 between
Hanover and Wartsila Compression Services.
10.23 1997 Stock Option Plan, as amended
10.24 1997 Stock Purchase Plan
10.25** Amendment, Waiver and Consent dated as of April 14, 1997 to
Second Amended and Restated Credit Agreement among Hanover
Compressor Company, the several banks and other financial
institutions from time to time parties thereto and The Chase
Manhattan Bank, as agent
</TABLE>

<PAGE> 96

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.26** Amendment, Waiver and Consent dated as of December 23, 1996
to the Second Amended and Restated Credit Agreement, dated
as of December 19, 1995
10.27** Exchange Agreement by and between Hanover Compressor Company
and JEDI, dated December 23, 1996
10.28** Amendment, Waiver and Consent dated as of April 14, 1997 by
and among Hanover Compressor Company, JEDI and the Lenders
named therein
10.29** Amendment, Waiver and Consent dated as of December 23, 1996
by and among Hanover Compressor Company, JEDI and the
Lenders named therein
11.1 Statement re computation of per share earnings, as amended
21.1** List of Subsidiaries
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Arthur Andersen LLP
23.3** Consent of Neal, Gerber & Eisenberg (included in Exhibit
5.1)
24.1** Powers of Attorney (included on the signature pages to the
Registration Statement)
27.1 Financial Data Schedule, as amended
</TABLE>

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

** Previously filed.

<PAGE> 1
EXHIBIT 3.4

CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF HANOVER COMPRESSOR COMPANY

It is hereby certified that:

1. The name of the corporation is Hanover Compressor Company (the
"Corporation").

2. The amendment to the Amended and Restated Certificate of Incorporation
effected by this Certificate is as follows:

The Fourth Article of the Amended and Restated Certificate of Incorporation
of the Corporation is hereby deleted in its entirety with the following
substituted therefor:

"FOURTH: The total number of shares of stock which the corporation
shall have authority to issue, itemized by class, series and par value, is:

<TABLE>
<CAPTION>
PAR VALUE NUMBER OF SHARES
CLASS SERIES PER SHARE AUTHORIZED
----- ------ --------- ----------------
<S> <C> <C> <C>
Common.................................... Undesignated $.001 100,000,000
Preferred................................. Undesignated $ .01 3,000,000
</TABLE>

3. The aforesaid amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

IN WITNESS WHEREOF, this certificate has been duly executed on behalf of
Hanover Compressor Company by its duly authorized Executive Vice president,
William S. Goldberg, and its duly authorized Secretary, Richard S. Meller, this
23rd day of June, 1997.

HANOVER COMPRESSOR COMPANY,
a Delaware corporation

By: /s/ WILLIAM S. GOLDBERG
----------------------------------
William S. Goldberg
Executive Vice President

By: /s/ RICHARD S. MELLER
----------------------------------
Richard S. Meller

<PAGE> 1
EXHIBIT 10.23

HANOVER COMPRESSOR COMPANY
1997 STOCK OPTION PLAN

1. Preamble.

Hanover Compressor Company, a Delaware corporation (the "Company"), hereby
establishes the Hanover Compressor Company 1997 Stock Option (the "Plan") as a
means whereby the Company may, through awards of non-qualified stock options:

(a) provide Company officers, employees, directors and consultants
who have substantial responsibilities for the direction and management of
the Company and its Subsidiaries with additional incentive to promote the
success of the Company's and its subsidiaries' businesses;

(b) enable such employees to acquire proprietary interests in the
Company; and

(d) provide Officers and Directors of, and consultants to, the
Company and its Subsidiaries and Affiliates (who are not otherwise
employees) with additional incentive to promote the success of the
businesses of the Company and its Subsidiaries.

Except as specifically provided herein, the provisions of this Plan do not
apply to or affect any option, stock appreciation right, or stock heretofore or
hereafter granted under any other stock plan of the Company or any subsidiary,
and all such options, stock appreciation right or stock continue to be governed
by and subject to the applicable provisions of the plan or agreement under
which they were granted.

2. Definitions.

2.01 "Board" or "Board of Directors" means the board of directors of
the Company.

2.02 "Cause" means (i) the commission by such Participant of an act
of fraud, embezzlement or willful breach of a fiduciary duty to the Company
(including the unauthorized disclosure of confidential or proprietary material
information of the Company), (ii) a conviction of such Participant (or a plea
of nolo contendere in lieu thereof) for a felony or a crime involving fraud,
dishonesty or moral turpitude, (iii) willful failure of a Participant to follow
the written directions of the chief executive officer of the Company or the
Board in the case of executive officers of the Company; (iv) willful misconduct
as an employee of the Company, (v) the willful failure of such Participant to
render services to the Company in accordance with his employment or consulting
arrangement, which failure amounts to a material neglect of his duties to the
Company or (vi) substantial dependence, as determined by the Board, on alcohol
or any drug, immediate precursor or other substance listed in Schedule I-V of
the Federal Comprehensive Drug Abuse Prevention and Control Act of 1970, as
amended, as determined in the sole discretion of the Committee.

2.03 "Change in Control" means the occurrence of any one of the
following events:

(a) any (A) consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or which
contemplates that all or substantially all of the business and/ or assets
of the Company shall be controlled by another corporation or (B) a
recapitalization (including an exchange of Company equity securities by
the holders thereof), in either case, in which any "Person" (as such term
is used in Sections 13(d) and (14(d)(2) of the Exchange Act), other than
the Controlling Shareholders, becomes the beneficial owner (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of securities of
the Company representing more than 50% of the combined voting power of the
Company's then outstanding securities ordinarily having the right to vote
in the election of directors;
<PAGE> 2
(b) any sale, lease, exchange or transfer (in one transaction or
series of related transactions) of all or substantially all of the assets
of the Company and its Subsidiaries or Affiliates;

(c) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, unless such
plan or proposal is abandoned within 60 days following such approval; or

(d) any "Person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Controlling Shareholders,
shall become the beneficial owner of securities of the Company
representing more than 50% of the combined voting power of the Company's
then outstanding securities ordinarily having the right to vote in the
election of directors.

2.04 "Code" means the Internal Revenue Code of 1986, as it exists now
and as it may be amended from time to time.

2.05 "Committee" means the Compensation Committee of the Board or any
other committee comprised of two or more outside Directors appointed by the
Board to administer the Plan, as the case may be. Each member of the Committee
shall (a) be a member of the Board of Directors who has not at any time within
one year prior thereto, or at any time during such member's term of service on
the Committee, received any stock options, stock appreciation rights or
allocations of any equity securities under the Plan or any other plan
maintained by the Company or any of its affiliates, except as permitted
pursuant to the provisions of Rule 16b-3(c)(2)(i) of the Exchange Act or any
successor rule thereof; and (b) be an outside Director as determined under
Treasury Regulation 26 CFR Section 1.162-27(e)(3) or any successor regulation
thereto. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board of Directors.

2.06 "Common Stock" means the common stock of the Company, $.001 par
value.

2.07 "Company" means Hanover Compressor Company, a Delaware
corporation, and any successor thereto.

2.08 "Controlling Shareholders" means GKH Investments, L.P., GKH
Partners, L.P., and the partners therein.

2.09 "Director" means a member of the Board.

2.10 "Disability" means being entitled to disability benefits under
the terms of the Company's long term disability plan.

2.11 "Exchange Act" means the Securities Exchange Act of 1934, as it
exists now or from time to time may hereafter be amended.

2.12 "Fair Market Value" means for the relevant day:

(a) If shares of Common Stock are listed or admitted to unlisted
trading privileges on any national or regional securities exchange, the
last reported sale price, regular way, on the composite tape of that
exchange on the day Fair Market Value is to be determined;

(b) If the Common Stock is not listed or admitted to unlisted
trading privileges as provided in paragraph (a), and if sales prices for
shares of Common Stock are reported by the National Association of
Securities Dealers, Inc. Automated Quotations, Inc. National Market System
("NASDAQ System"), then the last sale price for Common Stock reported as
of the close of business on the day Fair Market Value is to be determined,
or if no such sale takes place on that day, the average of the high bid
and low asked prices so

-2-
<PAGE> 3
reported; if Common Stock is not traded on that day, the next preceding
day on which such stock was traded; or

(c) If trading of the Common Stock is not reported by the NASDAQ
System or on a stock exchange, Fair Market Value will be determined by the
Committee in its discretion based upon the best available data.

2.13 "Officer" means a corporate or equivalent officer of the Company
or any Subsidiary or Affiliate of the Company.

2.14 "Option" means the right of a Participant to purchase a
specified number of shares of Common Stock, subject to the terms and conditions
of the Plan.

2.15 "Option Date" means the date upon which an Option is awarded to
a Participant under the Plan.

2.16 "Option Price" means the price per share at which an Option may
be exercised.

2.17 "Participant" means an individual to whom an Option has been
granted under the Plan.

2.18 "Plan" means the Hanover Compressor Company 1997 Stock Option,
as set forth herein and as from time to time amended.

2.19 "Securities Act" means the Securities Act of 1933, as it exists
now or from time to time may hereinafter be amended.

2.20 "Subsidiary" means any corporation or other entity of which the
majority voting power or equity interest is owned directly or indirectly by the
Company.

2.21 "Termination of Employment" means,

(a) with respect to an employee when the employee's employment
relationship with the Company and all of its Subsidiaries is
terminated, regardless of any severance arrangements. A transfer from
the Company to a Subsidiary or affiliate, or vice versa is not a
termination of employment for purposes of this Plan;

(b) with respect to a consultant when the consultant's consulting
relationship with the Company is terminated either due to the
termination of any consulting agreement, or otherwise, regardless of
the fact that no employment relationship exists;

(c) with respect to an Officer or Director when such individual is no
longer serving as an Officer or Director of the Company, as a
consultant to or employee of the Company and any of its Subsidiaries.

2.22 Rules of Construction.

(a) Governing Law. The construction and operation of this Plan are
governed by the laws of the State of Delaware.

(b) Undefined Terms. Unless the context requires another meaning,
any term not specifically defined in this Plan has the meaning given to it
by the Code.

-3-
<PAGE> 4
EXHIBIT 10.23

1997 STOCK OPTION PLAN

(d) Gender. Unless clearly appropriate, all nouns of whatever
gender refer indifferently to persons of any gender.

(e) Singular and Plural. Unless clearly inappropriate, singular
terms refer also to the plural and vice versa.

(f) Severability. If any provision of this Plan is determined to be
illegal or invalid for any reason, the remaining provisions shall continue
in full force and effect and shall be construed and enforced as if the
illegal or invalid provision did not exist, unless the continuance of the
Plan in such circumstances is not consistent with its purposes.

3. Stock Subject to the Plan.

Except as otherwise provided in Section 10, the aggregate number of shares
of Common Stock that may be issued under Options under this Plan and available
for purchase under the Hanover 1997 Stock Purchase Plan (the "Stock Purchase
Plan") may not exceed 1,365,062 shares of Common Stock. Reserved shares may be
either authorized but unissued shares or treasury shares, in the Board's
discretion. If any grants hereunder shall terminate or expire, or shares be
repurchased or redeemed by the Company under the Stock Purchase Plan, such
shares shall be eligible to be granted as new Options under this Plan or for
purchase under the Stock Purchase Plan. Except as otherwise provided in Section
12, the aggregate number of shares of Common Stock that may be issued under
Options to any one individual Participant may not exceed 60,000 shares.

4. Administration.

The Plan shall be administered by the Committee. In addition to any other
powers set forth in this Plan, the Committee has the exclusive authority:

(a) to construe and interpret the Plan, and to remedy any
ambiguities or inconsistencies therein;

(b) to establish, amend and rescind appropriate rules and
regulations relating to the Plan;

(c) subject to the express provisions of the Plan, to determine the
individuals who will receive grants of Options, the times when they will
receive them, the number of shares to be subject to each award and the
Option Price, payment terms, payment method, and expiration date
applicable to each award;

(d) to contest on behalf of the Company or Participants, at the
expense of the Company, any ruling or decision on any matter relating to
the Plan or to any grants of Options;

(e) generally, to administer the Plan, and to take all such steps
and make all such determinations in connection with the Plan and the
grants of Options as it may deem necessary or advisable;

(f) to determine the form in which tax withholding under Section 13
of this Plan will be made; and

(g) to amend the Plan or any Option granted hereunder as may be
necessary in order for any business combination involving the Company to
qualify for pooling-of-interest treatment under APB No. 16.

5. Eligible Participants

Subject to the provisions of the Plan, the Committee shall determine from
time to time those individuals who shall be designated as Participants and the
number, if any, of Options to be granted to each such Participant;

-4-
<PAGE> 5
6. Terms and Conditions of Options.

All Options granted under this Plan shall be nonstatutory options, which
are not intended to be classified as "incentive stock options" under Section
422 of the Code. The Committee may, in its discretion, grant Options to any
Participant under the Plan. Each Option shall be evidenced by an agreement
between the Company and the Participant. Each Option agreement, in such form
as is approved by the Committee, shall be subject to the following express
terms and conditions and to such other terms and conditions, not inconsistent
with the Plan as the Committee may deem appropriate:

(a) Option Period. Each Option will expire as of the earliest of:

(i) ten years from the Grant Date;

(ii) the date on which it is forfeited under the
provisions of Section 18;

(iii) the date three months after the Participant's
Termination of Employment for any reason other than death or
Disability; or

(iv) the date twelve months after the Participant's death
or Disability.

(b) Option Price. At the time when the Option is granted, the
Committee will fix the Option Price. The Option Price may be greater than,
less than, or equal to Fair Market Value on the Option Date, as determined
in the sole discretion of the Committee.

(c) Other Option Provisions. The form of Option authorized by the
Plan may contain such other provisions as the Committee may from time to
time determine.

7. Manner of Exercise of Options.

To exercise an Option in whole or in part, a Participant (or, after his
death, his executor or administrator) must give written notice to the
Committee, stating the number of shares to which he intends to exercise the
Option. The Company will issue the shares with respect to which the Option is
exercised upon payment in full of the Option Price. The Option Price may be
paid (i) in cash, (ii) in shares of Common Stock having an aggregate Fair
Market Value, as determined on the date of delivery, equal to the Option Price,
(iii) if permitted by the Committee, by cash or certified or cashier's check
for the par value of the Plan Shares plus a promissory note for the balance of
the purchase price, which note shall provide for full personal liability of the
maker and shall contain such other terms and provisions as the Committee may
determine, including without limitation the right to repay the note partially
or wholly with Common Stock, or (iv) by delivery of irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay for all Common Stock acquired through such exercise and any
tax withholding obligations resulting from such exercise. The Option Price may
be paid in shares of Common Stock which were received by the Participant upon
the exercise of one or more Options.

8. Vesting.

A Participant may not exercise an Option until it has become vested. The
portion of an Option award that is vested depends upon the period that has
elapsed since the Option Date. Unless the Committee establishes a different
vesting schedule at the time when an Option is granted, all Options granted
under this Plan shall vest according to the following schedule:

-5-
<PAGE> 6
<TABLE>
<CAPTION>
Period Elapsed Vested Percentage
-------------- -----------------
<S> <C>

First Anniversary of Option Date 10%
Second Anniversary of Option Date 30%
Third Anniversary of Option Date 60%
Fourth Anniversary of Option Date 100%
</TABLE>

Except as provided below, upon a Termination of Employment, a Participant
forfeits any Options that are not yet vested. Unless the Committee in its sole
discretion specifically waives the application of this sentence, then
notwithstanding the vesting schedule contained herein or in the Participant's
agreement, if the Participant's Termination of Employment is terminated for
Cause all Options granted to the Participant will be immediately cancelled and
forfeited by the Participant upon delivery to him of notice of such termination
for Cause.

9. Change of Control.

Notwithstanding the provisions of Section 8 or anything contained in a
Participant's agreement to the contrary, upon a Change in Control all Options
shall be subject to the following:

(a) The Company shall have the right to acquire from Participants
their vested Options by payment of the difference between the price per
share of Common Stock established in the Change of Control and the Option
Price; and

(b) All unvested Options shall either (i) convert into options to
purchase securities of the acquirer in the Change of Control on the same
terms and conditions as apply to the Options under the Plan, (ii) convert
into such consideration as the Participant would have received had the
Options been fully vested, or (iii) be treated as otherwise determined by
the Committee.

10. Adjustments to Reflect Changes in Capital Structure.

If there is any change in the corporate structure or shares of the
Company, the Committee may, in its discretion, make any adjustments necessary
to prevent accretion, or to protect against dilution, in the number and kind of
shares authorized by the Plan and, with respect to outstanding Options, in the
number and kind of shares covered thereby and in the applicable Option Price.
For the purpose of this Section 10, a change in the corporate structure or
shares of the Company includes, without limitation, any change resulting from a
recapitalization, stock split, stock dividend, consolidation, rights offering,
spin-off, reorganization, or liquidation and any transaction in which shares of
Common Stock are changed into or exchanged for a different number or kind of
shares of stock or other securities of the Company or another entity.

11. Non-Transferability of Options.

The Options granted under the Plan are not transferable, voluntarily or
involuntarily, other than by will or the laws of descent and distribution, or
to the extent permissible under Section 422 of the Code pursuant to a qualified
domestic relations order as defined in Section 414(p) of the Code. During a
Participant's lifetime his Options may be exercised only by him.

12. Rights as Stockholder.

No Common Stock may be delivered upon the exercise of any Option until
full payment has been made and all income tax withholding requirements thereon
have been satisfied. A Participant has no rights whatsoever as a stockholder
with respect to any shares covered by an Option until the date of the issuance
of a stock certificate for the shares.

-6-
<PAGE> 7
13. Withholding Tax.

The Company shall have the right to withhold in cash or shares of Common
Stock with respect to any payments made to Participants under the Plan any
taxes required by law to be withheld because of such payments.

14. Non-Competition and Confidential Information.

Each Participant receiving Options shall be subject to the restriction
that, during the term of his Option Agreement and for a period of two years
thereafter, he or she (i) will not compete with any business of the Company or
its Subsidiaries and (ii) will not disclose to persons outside the Company
confidential information concerning the Company or its Subsidiaries without the
Company's express written consent.

15. No Right To Employment.

Participation in the Plan will not give any Participant a right to be
retained as an employee of the Company or any Subsidiary, or any right or claim
to any benefit under the Plan, unless the right or claim has specifically
accrued under the Plan.

16. Amendment of the Plan.

The Committee may from time to time amend or revise the terms of this
Plan in whole or in part and may, without limitation, adopt any amendment
deemed necessary; provided, however, that, except as provided in Section 4(g),
no change in any Options previously granted to a Participant may be made that
would impair the rights of the Participant without the Participant's consent.

17. Stockholder Approval.

Continuance of the Plan shall be subject to approval by the shareholders
of the Company within 12 months before or after the date the Plan is adopted by
the Committee.

18. Conditions Upon Issuance of Shares.

An Option shall not be exercisable and a share of Common Stock shall not
be issued pursuant to the exercise of an Option until such time as the Plan has
been approved by the Stockholders of the Company and unless the exercise of
such Option and the issuance and delivery of such share pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares of
Common Stock may then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance. As a condition to
the exercise of an Option, the Company may require the person exercising such
Option to represent and warrant at the time of any such exercise that the
Common Stock is being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.

19. Effective Date and Termination of Plan.

19.1 Effective Date. This Plan is effective as of the later of the
date of its adoption by the Committee, or the date it is approved by the
stockholders of the Company pursuant to Section 17.

19.2 Termination of the Plan. The Board may terminate the Plan at
any time with respect to any shares that are not then subject to Options.
Termination of the Plan will not affect the rights and obligations of any
Participant with respect to Options granted before termination.

-7-
<PAGE> 8
* * * * *

I hereby certify that the foregoing Plan was adopted by the Board of
Directors of Hanover Compressor Company on April 8, 1997.

Executed as of April 8, 1997

-----------------------------------
Michael A. O'Conner
Chairman - Director

I hereby certify that the foregoing Plan was approved by the
shareholders of Hanover Compressor Company on ________________, 1997.

Executed
-----------------

-----------------------------------
Alvin V. Shoemaker - Director

-8-

<PAGE> 1
EXHIBIT 10.24

1997 STOCK PURCHASE PLAN

1. PURPOSE

The Hanover 1997 Stock Purchase Plan (the "Plan") is intended to
promote the long-term growth and financial success of Hanover Compressor
Company (the "Company") in the interests of the Company and its stockholders
and to strengthen the link between management and stockholders by:

* providing officers, directors, consultants and employees of the
Company and its Subsidiaries (as hereinafter defined) with an
opportunity to significantly increase their ownership of Common Stock
(as hereinafter defined) coupled with incentive awards based in part
on the performance of the Common Stock relative to the Index Stocks
(as hereinafter defined) and the increase in the earnings of the
Company, and

* providing this opportunity in a manner that places these individuals
at risk in the event of poor Company performance.

2. DEFINITIONS

Except where the content otherwise indicates, the following
definitions apply:

"Agreement" means the written agreement entered into between the
Company and a Participant to carry out the Plan with respect to the Participant
concerning a particular Purchase Award in accordance with the Plan's terms and
conditions. The Agreements need not be identical and shall be in the form
approved by the Committee.

"Average Market Price" of a Security means, for a given period, the
sum of the Market Prices of such Security for each Trading Day in the relevant
period divided by the number of Trading Days in such period.

"Board" means Board of Directors of the Company.

"Cause" means (i) the commission by such Participant of an act of
fraud, embezzlement or willful breach of a fiduciary duty to the Company
(including the unauthorized disclosure of confidential or proprietary material
information of the Company), (ii) a conviction of such Participant (or a plea
of nolo contendere in lieu thereof) for a felony or a crime involving fraud,
dishonesty or moral turpitude, (iii) willful failure of a Participant to follow
the written directive of the chief executive officer of the Company or the
Board in the case of executive officers of the Company, (iv) willful misconduct
as an employee of the Company, (v) the willful failure of such Participant to
render services to the Company in accordance with his employment or consulting
arrangement, which failure amounts to a material neglect of his duties to the
Company or (vi) substantial dependence, as determined by the Board, on alcohol
or any drug, immediate precursor or other substance listed in Schedule I-V of
the Federal Comprehensive Drug Abuse Prevention and Control Act of 1970, as
amended, as determined in the sole discretion of the Committee.

"Change of Control" means the occurrence of any one of the following
events:

(a) any (A) consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or
which contemplates that all or substantially all of the business and/
or assets of the Company shall be controlled by another corporation or
(B) a recapitalization (including an exchange of Company equity
securities by the holders thereof), in either case, in which any
"Person" (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act), other than the Controlling Shareholders, becomes the
beneficial owner (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of securities of the Company representing more than
50% of the combined voting power of the Company's then outstanding
securities ordinarily having the right to vote in the election of
directors;

(b) any sale, lease, exchange or transfer (in one
transaction or series of related transactions) of all or substantially
all of the assets of the Company and its Subsidiaries;
<PAGE> 2
(c) approval by the shareholders of the Company of any
plan or proposal for the liquidation or dissolution of the Company,
unless such plan or proposal is abandoned within 60 days following
such approval; or

(d) any "Person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act), other than the Controlling
Shareholders, shall become the beneficial owner of securities of the
Company representing more than 50% of the combined voting power of the
Company's then outstanding securities ordinarily having the right to
vote in the election of directors.

"Code" means the Internal Revenue Code of 1986, as amended.

"Commission" means the Securities and Exchange Commission.

"Committee" means the Compensation Committee of the Board or such
other committee of the Board, composed of not less than two persons who qualify
as disinterested persons" as defined in Rule 16b-3(c)(2), as promulgated by the
Commission under the 1934 Act, or any successor definition adopted by the
Commission, and as outside directors" within the meaning of Section 162(m) of
the Code.

"Committee Certification" means with respect to the Earnings Incentive
Award, the certificate of the Committee that the Earnings Return Percentage is
at least 15% or higher, and with respect to the Shareholder Return Incentive
Award, the certification of the Committee as to the Comparative Performance
Percentile and that the Company is in the 75th Comparative Performance
Percentile or higher. The Committee shall meet to determine such certification
not later than the 60th day following the end of the Final Plan Year with
respect to such Participant or, in the case of a Change of Control, not later
than the later of (i) the 60th day following the Final Plan Year or (ii) the
30th day following the Change of Control.

"Common Stock" means the Common Stock, $.001 par value per share, of
the Company.

"Comparative Performance Percentile" shall be calculated by (i)
calculating the Total Shareholder Return of each Index Stock; (ii) ranking the
Index Stocks according to Total Shareholder Return, (iii) ranking the Company
amongst such Index Stocks according to the Total Shareholder Return of the
Company, (iv) dividing (x) that number of Index Stocks with lower Total
Shareholder Returns than the Total Shareholder Return of the Company by (y) the
number of Index Stocks plus 1, and (v) multiplying such quotient by 100.

"Controlling Stockholders" means GKH Investments, L.P., GKH Partners,
L.P., and the partners therein.

"Designated Award Amount" means, on any date, the original Purchase
Price plus the Interest Spread.

"Designated Payment Date" means the date designated by the Company for
payment of a Shareholder Performance Award, which date shall be not more than
thirty (30) days following the Committee Certification with respect to such
Performance Award and in any event no later than the September 1 following the
Final Plan Year or, in the case of a Change of Control, no later than sixty
(60) days following the Change of Control.

"Disability" means being entitled to disability benefits under the
terms of the Company's long term disability plan.

"Earnings Incentive Award" means the amount of cash, if any, payable
to the Participant calculated pursuant to Section 8(b).

"Earnings Return Percentage" is the increase in the compounded annual
growth of EBITDA expressed as a percentage from the Initial Measurement Period
through the Final Measurement Period calculated on a monthly basis.

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<PAGE> 3
"EBITDA" means earnings of the Company determined before interest,
taxes, depreciation and amortization.

"Effective Date" means the date the Plan is approved by the
stockholders of the Company.

"Final Plan Year" means the earliest of (i) the Plan Year containing
the fourth anniversary of the Participant's Purchase Date, (ii) the Plan Year
in which such Participant's Termination of Service occurs, or (iii) the last
completed Plan Year prior to a Change of Control.

"Final Measurement Period" means the Plan Quarter containing the
fourth anniversary of the Participant's Purchase Date; provided, however, that
(i) for purposes of Section 8(e)(ii), the Final Measurement Period shall mean
the last completed Plan Quarter prior to the date of such Participant's
Termination of Service and (ii) for purposes of Section 8(f), the Final
Measurement Period shall mean the average of the ten (10) Trading Days ending
on the 10th Trading Day prior to the date of the Change of Control.

"Index Stock" means the common stock of any corporation (other than
the Company) included in the Market Index on each Trading Day during the
Initial Measurement Period and the Final Measurement Period.

"Initial Measurement Period" means, with respect to each Participant,
the last completed Plan Quarter prior to such Participant's Purchase Date,
except that for those Participants whose Purchase Date occurs prior to
September 1, 1997, the Initial Measurement Period shall mean July 1, 1997.

"Interest Rate" means the "applicable federal rate" in effect on the
Purchase Date for loans with a maturity of four years, with interest compounded
annually, as determined by Section 1274(d) of the Code, compounded annually.

"Interest Spread" means, at the time of determination, interest
accrued at the Interest Rate on the Purchase Price.

"Market Index" shall mean those companies set forth on Exhibit A.

"Market Price" with respect to a given Security shall mean, for any
given date (or in the event such date is not a Trading Day with respect to such
Security, the last Trading Day prior to such date), the closing sale price of
such Security on such date, as reported as the New York Stock
Exchange-Composite Transactions for such day in The Wall Street Journal,
mid-west edition, or, if such Security is not listed on such exchange, as
reported on the principal national securities exchange or national automated
stock quotation system on which such Security is traded or quoted. In the
event an Index Stock ceases to exist by merger or otherwise, or ceases to be
traded on a securities exchange or national automated stock quotation system,
the Market Price for such Index Stock shall be calculated through the date such
Index Stock ceased to exist or be so traded and then adjusted by the mean
increase or decrease in price for the Index Stocks on the Market Index which
remain traded on a securities exchange or national automated stock quotation
system.

"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.

"Participant" means each eligible employee of the Company or any of
its Subsidiaries who is designated by the Committee to receive a Purchase
Award.

"Performance Award" means the opportunity to receive cash incentive
payments pursuant to Section 8.

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<PAGE> 4
"Performance Period" means, with respect to each Purchase Award, the
period of time beginning on the date set forth in the Agreement with respect to
such Purchase Award and ending on the last day of the Plan Quarter containing
the fourth anniversary of the Purchase Date.

"Plan Quarter" means any of the three month periods beginning on
January 1, April 1, July 1, or October 1 of any year.

"Plan Year" means the twelve month period commencing each July 1 and
ending the following June 30.

"Purchase Award" means an award to a Participant permitting such
Participant to purchase shares of Common Stock pursuant to Section 6 at the
Purchase Price, together with related Purchase Loan and Performance Award
rights upon exercise of the Purchase Award.

"Purchase Date" means the date a Participant purchases shares of
Common Stock pursuant to a Purchase Award.

"Purchase Loan" means an extension of credit to the Participant by the
Company evidenced by the Purchase Note and secured by a pledge of the shares of
Common Stock purchased by the Participant under the Plan or subsequently
acquired by the Participant through exercise of options granted to the
Participant pursuant to the Stock Option Plan.

"Purchase Note" means a full recourse promissory note including the
terms set forth in Section 7(a).

"Purchase Price" of the Common Stock.

(a) If shares of Common Stock are listed or admitted to
unlisted trading privileges on any national or regional securities
exchange, the last reported sale price, regular way, on the composite
tape of that exchange on the day the Purchase Price is to be
determined;

(b) If the Common Stock is not listed or admitted to
unlisted trading privileges as provided in paragraph (a), and if sales
prices for shares of Common Stock are reported by the National
Association of Securities Dealers, Inc. Automated Quotations, Inc.
National Market System ("NASDAQ System"), then the last sale price for
Common Stock reported as of the close of business on the day the
Purchase Price is to be determined, or if no such sale takes place on
that day, the average of the high bid and low asked prices so
reported; if Common Stock is not traded on that day, the next
preceding day on which such stock was traded; or

(c) If trading of the Common Stock is not reported by the
NASDAQ System or on a stock exchange, the Purchase Price will be
determined by the Committee in its discretion based upon the best
available data.

"Retirement" means the date the Participant retires from the Company
on or after attaining age [___].

"Security" shall mean the Common Stock or an Index Stock.

"Shareholder Return Incentive Award" means the amount of cash, if any,
payable to the Participant calculated pursuant to Section 8(c).

"Stock Option Plan" means the Hanover Compressor Company 1997 Stock
Option Plan.

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<PAGE> 5
EXHIBIT 10.24
1997 STOCK PURCHASE PLAN

"Subsidiary" means a corporation (or partnership, joint venture or
other enterprise) of which the Company owns or controls, directly or
indirectly, 50% or more of the outstanding shares of stock normally entitled to
vote for the election of directors (or comparable equity participation and
voting power).

"Tax Rate" means, at the time of determination, the maximum marginal
effective combined federal and state tax rates on ordinary income or capital
gains, as the ease may be, to which such individual is subject.

"Termination of Service" means,

(b) with respect to a consultant when the consultant's
consulting relationship with the Company is terminated either due to
the termination of any consulting agreement, or otherwise, regardless
of the fact that no employment relationship exists;

(c) with respect to an officer or director when such
individual is no longer serving as an officer or director of the
Company, as a consultant to or employee of the Company and any of its
Subsidiaries.

"Total Purchase Price" means, with respect to each Participant, the
Purchase Price multiplied by the number of shares of Common Stock purchased
pursuant to the Purchase Award.

"Total Shareholder Return" on a Security shall be calculated by (i)
assuming that one share of such Security is purchased on the Purchase Date at
the Average Market Price of such Security during the Initial Measurement
Period, (ii) assuming that additional shares (or fractions of shares) of such
Security are purchased upon the payment of dividends or other distributions to
holders of such Security on the initial share of such Security and on shares
accumulated through the assumed reinvestment of dividends and other
distributions at a price equal to the Market Price of such Security on the date
such dividends or distributions are paid, (iii) calculating the number of
shares (including fractions of shares) of such Security that would be
accumulated over the Performance Period (or such shorter period as provided in
the Plan), adjusting, as necessary, for any stock split or similar events, (iv)
multiplying the number of shares of such Security (including fractions of
shares) determined in clause (iii) by the Average Market Price during the Final
Measurement Period, and (v) determining the annual compound rate of growth
during the Performance Period (or such shorter period) based upon the value
determined in clause (i) and the value determined in clause (iv) for such
Security calculated in each case on a monthly basis. To the extent any
noncash dividend or distribution is made to holders of a Security, the
Committee shall, in its sole discretion, determine the fair market value of
such dividend or distribution, which amount shall be assumed to be reinvested
in the manner provided in clause (ii) above.

"Trading Day" means, with respect to a Security, a day on which such
Security is publicly traded.

3. SHARES SUBJECT TO THE PLAN

The aggregate number of shares of Common Stock that may be issued
under the Plan and granted as options under the Stock Option Plan shall not
exceed 1,365,062 shares and no Participant shall be awarded a Purchase Award
with respect to more than 60,000 shares; provided, however, that in the event
that at any time after the Effective Date a stock dividend, stock split,
recapitalization, merger, consolidation, or other change in capitalization, or
a sale by the Company of all or part of its assets, or any separation from the
Company, including any spin-off or other distribution to stockholders other
than an ordinary cash dividend, results in (a) the outstanding shares of Common
Stock, or any securities exchanged therefor or received in their place, being
exchanged for a different number or class of shares of stock or other
securities of the Company, or for shares of stock or other

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<PAGE> 6
securities of any other corporation; or (b) new, different or additional shares
or other securities of the Company or of any other corporation being received
by the holders of outstanding shares of Common Stock, then the total number of
shares of Common Stock authorized under this Plan, and the maximum number of
shares with respect to which a Purchase Award may be awarded to a participant,
shall be appropriately adjusted by the Committee in its discretion. Shares of
Common Stock that have been included in a Purchase Award but not purchased by a
Participant on the Purchase Date may again be available for award under the
Plan or as options under the Stock Option Plan.

4. TERM OF THE PLAN

The Plan shall become effective upon the approval by the stockholders
of the Company. Prior to the Effective Date, the Committee may, in its
discretion, grant or authorize the making of Purchase Awards under the Plan as
if the Effective Date had occurred, provided that the exercise of Purchase
Awards so granted or made shall be expressly subject to the occurrence of the
Effective Date. The Plan shall be terminated on June 30, 2001; provided, that
Performance Awards and Purchase Loans outstanding as of such date shall not be
affected or impaired by the termination of the Plan.

5. ELIGIBLE PARTICIPANTS

All officers, directors and consultants of the Company and other key
employees of the Company and its Subsidiaries who, in the opinion of the
Committee, can materially influence the long-term performance of the Company
and/or its Subsidiaries are eligible to receive a Purchase Award. The
Committee shall have the power and complete discretion to select those eligible
employees who are to receive Purchase Awards.

6. STOCK PURCHASE

(a) Grant of Purchase Award. The number of shares of
Common Stock purchasable under a Purchase Award for any Participant
and the Purchase Date shall be determined by the Committee. The
Committee shall, with respect to each Purchase Award, give written
notice prior to the Purchase Date to each Participant receiving such
Purchase Award stating (i) the maximum and minimum number (which
numbers may be identical) of shares of Common Stock that may be
purchased under the Purchase Award, (ii) the Purchase Date and (iii)
the Interest Rate and other terms pertaining to the Purchase Loan.

(b) Exercise of Purchase Award. A Participant shall
exercise a Purchase Award by delivering to the Company on or prior to
the Purchase Date (i) a notice stating the number of shares (not less
than the minimum number and not more than the maximum number specified
in the Purchase Award) such Participant elects to purchase on the
Purchase Date, and (ii) an executed Agreement, Purchase Note and any
other documents required pursuant to the Plan, or in lieu of a
Purchase Note, a Participant may deliver cash in the amount of the
Total Purchase Price for the shares of Common Stock purchased pursuant
to the Purchase Award. Any Participant who does not elect to purchase
at least the minimum number of shares under the Purchase Award on or
prior to the Purchase Date shall forfeit any rights under the Plan
with respect to such Purchase Award, including, without limitation,
any right to receive a Purchase Loan or Performance Award related to
such Purchase Award.

(c) Closing Time. The exercise of the Purchase Award,
the delivery of the Total Purchase Price and the issuance by the
Company of the Common Stock purchased pursuant to the Purchase Award
shall be effective at 1:00 p.m., central time, on the Purchase Date
(the Closing Time"). After the Closing Time, such Participant shall
be deemed a stockholder of the Company and shall be entitled (i) to
dividends and distributions on such Common Stock owned or pledged,
(ii) to exercise all voting rights with respect to the Common Stock,
and (iii) subject to the terms of the Plan, the Agreement, the
Purchase Loan and related documents, to transfer the Common Stock.
Notwithstanding anything herein to the contrary, the Committee shall
have the absolute right, in its sole discretion, to revoke any
Purchase Award, including,

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<PAGE> 7
without limitation, any right to receive a Purchase Loan or
Performance Award related to such Purchase Award, prior to the Closing
Time.

7. LOAN PROVISIONS

(a) General. At the election of the Participant, the
Company shall extend a Purchase Loan to a Participant upon exercise of
a Purchase Award subject to the terms and conditions set forth in this
Section 7. The original principal amount of the Purchase Loan shall
be equal to the Total Purchase Price. Such Purchase Loan shall be
evidenced by the Purchase Note with full recourse against the maker.
The obligations of each Participant under a Purchase Note shall be
unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by
any change in the existence, structure or ownership of the Company, or
any insolvency, bankruptcy, reorganization or other similar proceeding
affecting the Company or its assets or the market value of the Common
Stock or any resulting release or discharge of any obligation of the
Company or the existence of any claim, set-off or other rights which
any Participant may have at any time against the Company or any other
person, whether in connection with the Plan or with any unrelated
transactions, provided that nothing herein shall prevent the assertion
of any such claim by separate suit or counterclaim.

Notwithstanding anything to the contrary in this Section 7,
the Company shall not be required to make any Purchase Loan to a
Participant if the making of such Purchase Loan will (i) cause the
Company to violate any covenant or similar provision in any indenture,
loan agreement or other agreement, or (ii) violate any applicable
federal, state or local law, provided, that the failure to make such
Purchase Loan shall be deemed to revoke the exercise of the related
Purchase Award unless the Participant pays the Total Purchase Price in
cash.

(b) Security. Payment of the Purchase Note shall be
secured by a pledge of all of the shares of Common Stock acquired by
the Participant upon the exercise of the Purchase Award to which the
Purchase Loan relates or subsequently acquired by the Participant
through exercise of options granted to the Participant pursuant to the
Stock Option Plan. The Participant shall effect such pledge by
delivering to the Company (i) the certificate or certificates for the
shares of Common Stock, accompanied by a duly executed stock power in
blank, (ii) a properly executed stock pledge agreement, and (iii) such
other documents as may be required by the Committee. Prior to payment
in full of the outstanding balance on the Purchase Note (including
accrued and unpaid interest), no shares of Common Stock or other
collateral pledged to the Company under the stock pledge agreement
shall be transferrable by the Participant. A transfer of a
Participant's shares of Common Stock to a revocable trust as to which
the Participant retains voting and investment power (which powers of
revocation, voting and investment may be shared with the Participant's
spouse) or a transfer to joint ownership with such Participant's
spouse shall not be deemed a transfer for purposes of this Section
7(b) or Section 8(c), although such shares shall remain pledged to
secure the Purchase Loan pursuant to Section 7(b) and, solely for the
purposes of this Plan, shall be deemed to be owned by the Participant.

(c) Interest. Interest on the principal balance of the
Purchase Loan will accrue annually, in arrears, at the Interest Rate.
Except as provided in subsections (e), (f), (g) and (h) of this
Section 7, (i) accrued interest shall not be payable during the
Performance Period but shall be added to the principal balance of the
Purchase Loan and (ii) interest that accrues after the end of the
Performance Period shall be paid annually in arrears.

(d) Term. The term of the Purchase Loan for any
Participant shall begin on such Participant's Purchase Date and,
subject to prepayment as provided in subsections (e), (f), (g) and (h)
of this Section 7, have a final maturity date on the last day of the
Plan Quarter containing the fourth anniversary of the Purchase Date at
which time the principal balance of the Purchase Loan (including

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<PAGE> 8
accrued but unpaid interest) outstanding after the prepayment pursuant
to Section 7(e)(ii) following the end of the Performance Period, if
any (the "Remaining Balance"), shall be immediately due and payable.

(e) Prepayment Obligations Other than Termination of
Service or Change of Control.

(i) Dividends and Distributions. To the extent
the Participant receives cash dividends or other distributions
paid in cash on Common Stock purchased under the Plan, the
Participant shall prepay the Purchase Loan by the full pre-tax
amount, net of any required tax withholding on such dividends
or other distribution, of such dividend or distribution
received within ten (10) days of receipt.

(ii) Performance Award. To the extent the
Participant receives any Earnings Incentive Award or
Shareholder Return Incentive Award prior to the earliest of
(i) Termination of Service due to death or Disability, (ii) a
Change of Control or (iii) the end of the Performance Period,
the Participant shall immediately prepay the Purchase Loan by
the full pre-tax amount of such award upon receipt thereof.
In the event the Participant receives any Earnings Incentive
Award or Shareholder Return Incentive Award after the earliest
of (i) Termination of Service due to death or Disability, (ii)
a Change of Control or (iii) the end of the Performance
Period, the Participant shall immediately prepay the Purchase
Loan by the full after-tax amount of such award upon receipt
thereof, based upon the Tax Rate.

(iii) Optional Prepayments. The Participant may
prepay all or any portion of the Purchase Loan at any time
without penalty.

(iv) Application of Prepayments. All prepayments
made to the Company pursuant to this Section 7(e) shall first
be applied to pay accrued interest on the Purchase Loan and
then to reduce the principal balance due on the Purchase Loan.

(f) Prepayment Obligations for Termination of Service
During the Performance Period.

(i) Other Termination of Service. Except as
provided in Section 7(h), in the event of a Participant's
Termination of Service for any reason, except death or
Disability, prior to the end of the Performance Period except
following a Change of Control, any outstanding balance
(including accrued and unpaid interest) of the Purchase Loan
shall be due and payable immediately upon such Termination of
Service.

(ii) Death or Disability. Except as provided in
Section 7(h), in the event a Participant's Termination of
Service during the Performance Period due to death or
Disability, any outstanding balance (including accrued and
unpaid interest) of the Purchase Loan shall be due and payable
upon the Designated Payment Date.

(g) Prepayment Upon a Change of Control During the
Performance Period. Upon a Change of Control prior to the earlier of
the Participant's Termination of Service or the end of the Performance
Period, any outstanding balance (including accrued and unpaid
interest) of the Participant's Purchase Loan (subject to any
prepayments pursuant to Section 7(e)) shall become due and payable
upon of the date of such Change of Control. Interest on the unpaid
principal balance of such Purchase Loan during such three-year period
shall accrue at the Interest Rate and shall be payable annually, in
arrears, on each such anniversary.

(h) Prepayment Obligations for Termination of Service for
Cause. Upon a Termination of Service for Cause following the end of
the Performance Period, any outstanding balance on the Purchase Loan
(including any accrued and unpaid interest) shall become immediately
due and payable.

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<PAGE> 9
8. PERFORMANCE AWARD, PAYMENT OF EARNINGS INCENTIVE AWARD AND SHAREHOLDER
RETURN INCENTIVE AWARD

(a) Performance Award. The Company shall extend a
Performance Award to a Participant upon exercise of a Purchase Award,
subject to the terms and conditions set forth in this Section 8. The
maximum amount payable to any Participant pursuant to a Performance
Award consisting of an Earnings Incentive Award and a Shareholder
Return Incentive Award shall equal the Designated Award Amount at the
time such cash award payments are made. Notwithstanding any provision
of the Plan to the contrary, no Performance Award is payable under
this Section 8 unless there has been a Committee Certification with
respect to such Earnings Incentive Award or Shareholder Return
Incentive Award.

(b) Earnings Incentive Award. The Earnings Incentive
Award with respect to any Purchase Award shall equal 50% of the
Designated Award Amount on the Designated Payment Date, multiplied by
the Earnings Incentive Award Percentage, subject to the Committee
Certification. Except as set forth in Section 8(e) the portion of the
Earnings Incentive Award earned as a percentage of the Designated
Award Amount at the time such Earnings Incentive Award is made
pursuant to Section 8(e) will vary in accordance with Table A that
follows:

TABLE A
EARNINGS INCENTIVE AWARD SCHEDULE

<TABLE>
<CAPTION>
Earnings Incentive
Earnings Return Percentage Award Percentage
- -------------------------- ------------------
<S> <C>
Below 15% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%

30% or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
</TABLE>

Payments for performance between the listed percentages will be interpolated on
a straight-line basis.

(c) Shareholder Return Incentive Award. The Shareholder
Return Incentive Award with respect to a particular Purchase Award
shall equal 50% of the Designated Award Amount on the Designated
Payment Date, multiplied by the Shareholder Incentive Percentage,
subject to the Committee Certification. Except as set forth in
Section 8(e), the portion of the Shareholder Return Incentive Award
earned as a percentage of the Designated Loan Amount at the time such
Shareholder Return Incentive Award is made pursuant to Section 8(e)
will vary in accordance with Table B that follows:

TABLE B
SHAREHOLDER RETURN INCENTIVE AWARD SCHEDULE

<TABLE>
<CAPTION>
Shareholder
Incentive
Comparative Performance Percentile Percentage
- ---------------------------------- ----------
<S> <C>
Below 75th . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%

100th . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
</TABLE>

Payments for performance between the listed percentiles will be interpolated on
a straight-line basis.

(d) Timing of Payment. Payment of any Earnings Incentive
Award and/or Shareholder Return Incentive Award shall be made on the
Designated Payment Date following the earliest of the end

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<PAGE> 10
of the Performance Period, a Termination of Service due to death or
Disability or a Change of Control; provided, however, that any payment
of a Earnings Incentive Award and/or Shareholder Return Incentive
Award shall be applied to prepay the Purchase Loan in accordance with
Section 7(e)(ii).

(e) Treatment of a Termination of Service.

(i) Upon a Termination of Service prior to the
end of the Performance Period for any reason except death,
Disability, or Retirement a Participant shall not be entitled
to receive any Earnings Incentive Award nor any Shareholder
Return Incentive Award.

(ii) In the event of a Termination of Service
prior to the end of the Performance Period due to death,
Disability, or Retirement the Participant will be entitled to
a potential payment under the Participant's Earnings Incentive
Award based on the Earnings Return Percentage and Shareholder
Return Incentive Award based on the Comparative Performance
Percentile both as measured from the Initial Measurement
Period through and including the Final Measurement Period.

(f) Change of Control. Upon a Change of Control of the
Company prior to the Termination of Service of a Participant, the
Participant shall be entitled to the right to receive a potential
Earnings Incentive Award and/or Shareholder Return Incentive Award
based upon the Earnings Return and Comparative Performance Percentile
as measured from the Initial Measurement Period through and including
the Final Measurement Period.

9. PLAN ADMINISTRATION

The Plan shall be administered by the Committee. If at any time no
Committee shall be in office, the functions of the Committee specified in the
Plan shall be exercised by the "disinterested directors" on the Board (as
defined in Rule 16b-3(c)(2) under the 1934 Act) who are also "outside
directors" within the meaning of Section 162(m) of the Code. Subject to the
provisions of the Plan, the Committee shall interpret the Plan and make such
rules as it deems necessary for the proper administration of the Plan, shall
make all other determinations necessary or advisable for the administration of
the Plan and shall correct any defect or supply any omission or reconcile any
inconsistency in the Plan in the manner and to the extent that the Committee
deems desirable to carry the Plan into effect. Performance Awards under
Section 8 are intended to qualify as performance-based compensation within the
meaning of Section 162(m) of the Code, and these provisions shall be
interpreted accordingly. Among other things, the Committee shall have the
authority, subject to the terms of the Plan, to determine (i) the individuals
to whom the Purchase Awards are granted, (ii) the time or times the Purchase
Awards are granted, (iii) the Purchase Dates for such Purchase Awards, (iv) the
basis for any Termination of Service, including whether or not it was for
Cause, Disability or otherwise (which determination shall be reasonable), (v)
the calculation of Total Shareholder Return, (vi) the Comparative Performance
Percentile, (vii) the calculation of Earnings Return, (viii) the Committee
Certification, and (ix) the forms, terms and provisions of the Agreement and
any other documents under the Plan. Any action taken or determination made by
the Committee pursuant to this paragraph and the other paragraphs of the Plan
in which the Committee is given discretion shall be final and conclusive on all
parties. The act or determination of a majority of the Committee shall be
deemed to be the act or determination of the entire Committee. The Committee
may consult with counsel, who may be counsel to the Company, and such other
advisors as the Committee may deem necessary and/or desirable, and the members
of the Committee shall not incur any liability for any action taken in good
faith in reliance upon the advice of counsel or any other advisor.

10. AMENDMENT AND DISCONTINUANCE OF THE PLAN

The Board, upon the recommendation of the Committee, may amend,
suspend or terminate the Plan at any time, subject to the provisions of this
Section 10. No amendment, suspension or termination of the Plan may cause the
Plan to fail to meet the requirements of Rule 16b-3 promulgated under the 1934
Act, or such successor rule as

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<PAGE> 11
may hereinafter be in effect, or Section 162(m) of the Code or may, without the
consent of the Participant, adversely affect such Participant's rights under
the Plan in any material respect. In addition, no such amendment shall be made
without the approval of the Company's stockholders to the extent such approval
is required by Rule 16b-3, law or agreement.

11. MISCELLANEOUS PROVISIONS

(a) Unsecured Status of Claim. Participants and their
beneficiaries, heirs, successors and assigns shall have no legal or
equitable rights, interests or claims in any specific property or
assets of the Company. No assets of the Company shall be held under
any trust for the benefit of Participants, their beneficiaries, heirs,
successors or assigns, or held in any way as collateral security for
the fulfillment of the Company's obligations under the Plan.

Any and all of the Company's assets shall be, and shall
remain, the general unpledged and unrestricted assets of the Company
as they relate to this Plan. The Company's obligations under the Plan
shall be merely that of an unfunded and unsecured promise of the
Company to pay employee compensation benefits in the future.

(b) Employment Not Guaranteed. Nothing contained in the
Plan nor any related Agreement nor any action taken in the
administration of the Plan shall be construed as a contract of
employment or as giving a Participant any right to be retained in the
Service of the Company.

(c) Nonassignability. Except as specifically provided
herein, no person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage or otherwise encumber,
hypothecate or convey in advance of actual receipt any Performance
Award, if any, payable under the Plan, or any part thereof, or any
interest therein, which are, and all rights to which are, expressly
declared to be unassignable and nontransferable. No portion of the
amounts payable shall, prior to actual payment, be subject to seizure,
attachment, lien or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or
any other person, nor be transferable by operation of law in the event
of the Participant's or any other person's bankruptcy or insolvency.
Any such transfer or attempted transfer in violation of the preceding
provisions shall be considered null and void. In addition, no
derivative security (as defined in Rule 16a-1(c), as promulgated by
the Commission under the 1934 Act, or any successor definition adopted
by the Commission) issued under the Plan shall be transferable by a
Participant (to the extent transferable under the Plan) other than by
will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code, or Title I
of the Employee Retirement Income Securities Act of 1974 or the rules
promulgated thereunder.

(d) Separability, Validity. This Plan is intended to
qualify under Rule 16b-3 of the 1934 Act. If any of the terms or
provisions of this Plan conflict with the requirements of Rule 16b-3,
then such terms and provisions shall be deemed inoperative to the
extent they so conflict with such requirements. In the event that any
provision of the Plan or any related Agreement is held to be invalid,
void or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of the Plan or any
related Agreement.

(e) Withholding Tax. The Company shall withhold from all
benefits due under the Plan an amount sufficient to satisfy any
federal, state and local tax withholding requirements.

(f) Applicable Law. The Plan and any related Agreements
shall be governed in accordance with the laws of the State of Delaware
without regard to the application of the conflicts of law provisions
thereof. The obligation of the Company with respect to the grant and
exercise of Purchase Awards shall be subject to all applicable laws,
rules and regulations and such approvals by any governmental agencies
as may be required, including, without limitation, the effectiveness
of any registration statement required

-11-
<PAGE> 12
under the Securities Act of 1933, as amended, and the rules and
regulations of any securities exchange on which the Common Stock may
be listed.

(g) Inurement of Rights and Obligations. The rights and
obligations under the Plan and any related Agreements shall inure to
the benefit of, and shall be binding upon, the Company, its successors
and assigns, and the Participants and their beneficiaries.

(h) Notice. All notices and other communications
required or permitted to be given under this Plan shall be in writing
and shall be deemed to have been duly given if delivered personally or
mailed first class, postage prepaid, as follows: (A) if to the
Company--at its principal business address to the attention of the
Secretary; (B) if to any Participant--at the last address of the
Participant known to the sender at the time the notice or other
communication is sent.

(i) Exclusion from Pension and Other Benefit Plan
Computation. By exercise of a Purchase Award, each Participant shall
be deemed to have agreed that such Purchase Award and any Service
Incentive Award and Shareholder Return Incentive Award payable under
Section 8 hereof, as applicable, is special incentive compensation
that will not be taken into account, in any manner, as salary,
compensation or bonus in determining the amount of any payment under
any pension, retirement or other employee benefit plan of the Company
or any of its Subsidiaries. In addition, each beneficiary of a
deceased Participant shall be deemed to have agreed that such Purchase
Award and any Service Incentive Award and Shareholder Return Incentive
Award, as applicable, will not affect the amount of any life insurance
coverage, if any, provided by the Company or any of its Subsidiaries
on the life of the Participant which is payable to such beneficiary
under any life insurance plan covering employees of the Company or any
of its Subsidiaries.

-12-

<PAGE> 1
EXHIBIT 11.1

HANOVER COMPRESSOR COMPANY
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)

<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1992 1993 1994 1995 1996

-------------------------------------------
<S> <C> <C> <C> <C> <C>
Primary Earnings Per Common Share:
- ----------------------------------
Net income, as reported $ 988 $ 2,671 $ 4,388 $ 5,614 $10,381
Dividends on preferred stock (832) (1,773)
Series A Preferred stock exchange(1) (3,794)
Series B Preferred stock conversion(1) (1,400)
-------------------------------------------
Net income available for common shareholders $ 988 $ 2,671 $ 4,388 $ 4,782 $ 3,414
===========================================
Weighted average common shares outstanding 7,782 10,877 13,069 14,374 20,498
Common equivalent shares(2) 34 103 537 905 1,327
Cheap stock(3) 515 515 515 515 454
-------------------------------------------
Total common and common equivalent shares 8,331 11,495 14,121 15,794 22,279
===========================================
Earnings per common share $ 0.12 $ 0.23 $ 0.31 $ 0.30 $ 0.15
===========================================

Quarter ended
March 31,
----------------
1996 1997
----------------
<S> <C> <C>
Primary Earnings Per Common Share:
- ----------------------------------
Net income, as reported $ 2,192 $ 3,394
Dividends on preferred stock (513)
Series A Preferred stock exchange(1)
Series B Preferred stock conversion(1)
----------------
Net income available for common shareholders $ 1,679 $ 3,394
================
Weighted average common shares outstanding 20,277 22,909
Common equivalent shares(2) 1,411 1,581
Cheap stock(3) 626 1
----------------
Total common and common equivalent shares 22,314 24,491
================
Earnings per common share $ 0.08 $ 0.14
================

Year Quarter
ended ended
December March
31, 31,
1996 1997
------- -------
<S> <C> <C>
Supplemental Earnings Per Common Share:
- ---------------------------------------
Net income available for common
shareholders $ 3,414 $ 3,394
Add interest on debt to be repaid from
proceeds 4,519 1,191
Less income tax effect (1,794) (473)
------- -------
Net income used in supplemental EPS $ 6,139 $ 4,112
======= =======
Shares used in primary EPS computation 22,278 24,491
Plus shares assumed to be issued to retire
debt 4,097 4,158
------- -------
Shares used in supplemental EPS computation 26,375 28,649
======= =======
Supplemental earnings per common share $ 0.23 $ 0.14
======= =======
</TABLE>
- ----------

(1) See "Note 7 -- Redeemable Preferred Stock" in the Notes to Consolidated
Financial Statements.

(2) Net effect of dilutive stock options and warrants, calculated using the
treasury stock method using average market price. Fully diluted earnings per
share is not presented since it is the same as primary earnings per share.
The effect of convertible redeemable preferred stock is antidilutive for
1995 and 1996.

(3) See "Note 1 -- Description of Business and Significant Accounting Policies"
in the Notes to Consolidated Financial Statements.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to the Registration Statement on Form S-1 (No. 333-24953) of our
report dated April 8, 1997, except as to Note 1 which is as of June 24, 1997,
relating to the financial statements of Hanover Compressor Company, which
appears in such Prospectus. We also consent to the reference to us under the
headings "Experts."

PRICE WATERHOUSE LLP

Houston, Texas

June 26, 1997

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Houston, Texas

June 26, 1997

<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 7,322 4,507
<SECURITIES> 0 0
<RECEIVABLES> 28,506 30,389
<ALLOWANCES> 494 510
<INVENTORY> 18,134 25,879
<CURRENT-ASSETS> 66,639 73,007
<PP&E> 315,976 348,391
<DEPRECIATION> 49,570 55,523
<TOTAL-ASSETS> 341,387 375,290
<CURRENT-LIABILITIES> 25,126 36,971
<BONDS> 122,756 139,482
0 0
0 0
<COMMON> 171,365 171,428
<OTHER-SE> 5,530 8,949
<TOTAL-LIABILITY-AND-EQUITY> 341,387 375,290
<SALES> 55,667 16,198
<TOTAL-REVENUES> 136,011 40,924
<CGS> 44,231 12,349
<TOTAL-COSTS> 109,177 32,743
<OTHER-EXPENSES> 3,015 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,594 2,571
<INCOME-PRETAX> 17,225 5,610
<INCOME-TAX> 6,844 2,216
<INCOME-CONTINUING> 10,381 3,394
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,381 3,394
<EPS-PRIMARY> .15 .14
<EPS-DILUTED> .15 .14

</TABLE>