<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Hanover Compressor Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
HANOVER COMPRESSOR COMPANY
12001 NORTH HOUSTON ROSSLYN
HOUSTON, TEXAS 77086
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
To the Stockholders of Hanover Compressor Company:
Notice is hereby given that the 1998 Annual Meeting of Stockholders of
Hanover Compressor Company, a Delaware corporation (the "Company"), will be held
at 10:00 a.m. local time on Wednesday, May 20, 1998, at the Hyatt Regency
Houston Airport, 15747 JFK Boulevard, Houston, Texas 77032, for the following
purposes:
(1) to elect nine directors to serve until the next Annual Meeting of
Stockholders or until their successors are duly elected and qualified;
(2) to ratify the reappointment of Price Waterhouse LLP as the Company's
independent auditors for fiscal year 1998; and
(3) to transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on Friday, March 27,
1998 as the record date for determining the stockholders that are entitled to
notice of and to vote at the meeting and any postponements or adjournments
thereof. A complete list of the stockholders entitled to vote at the meeting
will be available for examination by any stockholder for any purpose germane to
the meeting (a) at the Hyatt Regency Houston Airport, 15747 JFK Boulevard,
Houston, Texas 77032, on the day of the Annual Meeting of Stockholders and (b)
for at least 10 days prior to the meeting at the offices of the Company, 12001
North Houston Rosslyn, Houston, Texas 77086.
By Order of the Board of Directors,
/s/ MICHAEL A. O'CONNOR
Michael A. O'Connor,
Chairman of the Board
Houston, Texas
April 17, 1998
YOUR VOTE IS IMPORTANT.
THE BOARD OF DIRECTORS EXTENDS A CORDIAL INVITATION TO ALL STOCKHOLDERS TO
ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE
IN THE ENCLOSED REPLY ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR
PROXY AND VOTE IN PERSON IF YOU DESIRE TO DO SO.
<PAGE> 3
HANOVER COMPRESSOR COMPANY
12001 NORTH HOUSTON ROSSLYN
HOUSTON, TEXAS 77086
---------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
ON MAY 20, 1998
---------------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors of Hanover Compressor
Company, a Delaware corporation ("Hanover" or the "Company"), for use at the
Annual Meeting of Stockholders of the Company to be held for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders, at 10:00
a.m. local time on Wednesday, May 20, 1998, at the Hyatt Regency Houston
Airport, 15747 JFK Boulevard, Houston, Texas 77032, and at any postponement(s)
or adjournment(s) thereof. The Company's principal executive offices are located
at 12001 North Houston Rosslyn, Houston, Texas 77086, and its telephone number
is (281) 447-8787. This Proxy Statement and the accompanying proxy are first
being mailed to stockholders on or about April 17, 1998.
THE MEETING
VOTING AT THE MEETING
Stockholders of record at the close of business on March 27, 1998, are
entitled to notice of and to vote at the meeting. At the close of business on
such date, there were 28,510,571 shares of common stock of the Company, $.001
par value per share (the "Common Stock"), issued and outstanding held by
approximately 235 holders of record. Each share of Common Stock issued and
outstanding on March 27, 1998 entitles the holder thereof to one vote on all
matters submitted to a vote of stockholders at the meeting.
The presence in person or by proxy of the holders of 50% of the outstanding
shares of Common Stock will constitute a quorum. The affirmative vote of the
holders of a plurality of the shares of Common Stock represented at the Meeting,
in person or by proxy, will be necessary for the election of directors. The
affirmative vote of the holders of a majority of the shares of Common Stock
represented at the meeting, in person or by proxy, will be necessary for the
ratification of the reappointment of Price Waterhouse LLP as the Company's
independent auditors for fiscal year 1998.
PROXIES AND PROXY SOLICITATION
All shares of Common Stock represented by properly executed proxies will be
voted at the meeting in accordance with the directions marked on the proxies,
unless such proxies previously have been revoked. If no directions are indicated
on such proxies, they will be voted FOR the election of each nominee named below
under "Election of Directors," and FOR the ratification of the reappointment of
Price Waterhouse LLP as the Company's independent auditors for fiscal year 1998.
If any other matters not described herein are properly presented at the meeting
for action, which is not presently anticipated, the persons named in the
enclosed proxy will vote all proxies (which confer discretionary authority upon
such holders to vote on such matters) in accordance with their best judgment.
Each stockholder who executes and returns a proxy may revoke the proxy at any
time before it is voted at the meeting by timely submission, to the Corporate
Secretary of the Company, of written notice of revocation or a duly executed
proxy bearing a later date. In addition, if a stockholder is present at the
meeting, he or she may elect to revoke his or her proxy and vote his or her
shares personally.
Proxies marked either "Abstain" or "Withhold Authority" will be treated as
shares that are present for purposes of determining the presence of a quorum but
as not voted for purposes of determining the approval of
<PAGE> 4
any matter submitted for a vote of the stockholders. If a broker indicates on a
proxy that he or she does not have discretionary authority to vote on a
particular matter as to certain shares, those shares will be counted for quorum
purposes but will not be considered as present and entitled to vote with respect
to that matter.
In addition to solicitation by mail, certain directors, officers and other
employees of the Company, not specially employed for this purpose, may solicit
proxies, without additional remuneration therefor, by personal interview, mail,
telephone or other means of communication. The Company will also request brokers
and other fiduciaries to forward proxy soliciting material to the beneficial
owners of shares of Common Stock that are held of record by such brokers and
fiduciaries and will reimburse such persons for their reasonable out-of-pocket
expenses. The Company will bear the entire cost of soliciting management
proxies, which is currently estimated to be less than $10,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 27, 1998, the beneficial
ownership of Common Stock by (i) each person who is known by the Company to
beneficially own more than 5% of the outstanding Common Stock, (ii) each
director and nominee for director of the Company, (iii) each executive officer
of the Company named in the Summary Compensation Table appearing elsewhere
herein, and (iv) all directors and executive officers of the Company as a group.
Unless otherwise noted, the persons named in the table have sole voting and
investment power with respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES APPROXIMATE
NAME AND ADDRESS BENEFICIALLY OWNED PERCENT OF CLASS
- ---------------- ------------------ ----------------
<S> <C> <C>
GKH Partners, L.P.......................................... 11,563,960(1) 40.2%
200 West Madison
Chicago, Illinois 60606
Melvyn N. Klein............................................ 11,563,960(1)(2) 40.2
Mercantile Tower, Suite 1940
615 North Upper Broadway
Corpus Christi, Texas 78477
GKH Investments, L.P. ..................................... 11,143,085(1)(3) 38.8
200 West Madison
Chicago, Illinois 60606
Westar Capital, Inc........................................ 3,170,515 11.1
818 Kansas Street
Topeka, Kansas
Joint Energy Development Investments Limited Partnership... 2,761,950(4) 9.7
1400 Smith Street
Houston, Texas 77002
Michael A. O'Connor........................................ 1,144,060(5) 3.9
Michael J. McGhan.......................................... 482,068(6) 1.7
Curtis A. Bedrich.......................................... 343,233(7) 1.2
William S. Goldberg........................................ 38,500(8) *
Ted Collins, Jr............................................ 165,426(9) *
Alvin Shoemaker............................................ 214,778(10) *
William E. Simon, Jr....................................... 413,098(11) 1.4
Robert R. Furgason......................................... 3,950 *
Carl M. Koupal, Jr......................................... --(12) *
All Directors and Executive Officers as Group (11 persons
including the directors and executive officers named
above)................................................... 14,374,225(13) 47.3%
</TABLE>
2
<PAGE> 5
- ---------------
* Less than one percent
(1) Includes 8,532 shares of Common Stock issuable upon exercise of warrants
held by GKH Partners, L.P. ("GKH Partners"), which are or will first become
exercisable within 60 days of March 27, 1998, 10,914,775 shares of Common
Stock owned by GKH Investments, L.P. (individually, "GKH Investments" and
together with GKH Partners, "GKH"), and 228,310 shares of Common Stock
issuable upon exercise of warrants held by GKH Investments which are or
will first become exercisable within 60 days of March 27, 1998. GKH
Partners is the general partner of GKH Investments.
(2) Mr. Klein, who is a director of the Company, is the sole stockholder of a
corporation which is a general partner of GKH Partners. By virtue of his
relationship to GKH Partners, Mr. Klein may be deemed to share beneficial
ownership of the shares of Common Stock owned by GKH. Mr. Klein disclaims
beneficial ownership of all shares owned by GKH.
(3) Excludes 420,875 shares of Common Stock owned by GKH Partners, as nominee
for GKH Private Limited, a Singapore corporation, and 8,532 shares of
Common Stock issuable upon exercise of warrants held by GKH Partners which
are or will first become exercisable within 60 days of March 27, 1998. GKH
Partners is the general partner of GKH Investments.
(4) The general partner of Joint Energy Development Investments Limited
Partnership ("JEDI") is Enron Capital Management Limited Partnership
("ECMLP"). The general partner of ECMLP is Enron Corp. Enron Corp.
disclaims beneficial ownership of the shares owned by JEDI.
(5) Includes 898,359 shares subject to options held by Mr. O'Connor which are,
or will first become, exercisable within 60 days of March 27, 1998, and
2,672 shares of Common Stock held by Mr. O'Connor together with his wife as
tenants in common.
(6) Includes 349,916 shares subject to options held by Mr. McGhan which are, or
will first become, exercisable within 60 days of March 27, 1998.
(7) Includes 244,573 shares subject to options held by Mr. Bedrich which are,
or will first become, exercisable within 60 days of March 27, 1998.
(8) Excludes 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 and
1,950 shares of Common Stock held in the William S. Goldberg Children's
Trust. Mr. Goldberg disclaims beneficial ownership of all of such shares.
(9) Includes 158 shares of Common Stock issuable upon the exercise of warrants
which are, or first become, exercisable within 60 days of March 27, 1998.
Excludes an aggregate of 1,000 shares of Common Stock held in two trusts
for the benefit of Mr. Collins' two minor children. Mr. Collins is not the
trustee of such trusts and disclaims beneficial ownership of such shares.
(10) Excludes shares beneficially owned directly or indirectly by members of Mr.
Shoemaker's family as to which Mr. Shoemaker disclaims beneficial
ownership. Includes 8,690 shares of Common Stock owned by Shoeinvest, L.P.
("Shoeinvest"), and 5,056 shares of Common Stock owned by Shoemaker Family
Partners, L.P. ("SFP"). Mr. Shoemaker is associated with Shoeinvest and SFP
and may be deemed to share beneficial ownership of such shares.
(11) Includes 9,322 shares of Common Stock issuable upon the exercise of
warrants held by IPP95, L.P. ("IPP95") which are, or first become,
exercisable within 60 days of March 27, 1998. Mr. Simon owns a minority
partnership interest and an indirect general partnership interest through
the corporate general partner in IPP95. By virtue of Mr. Simon's
relationship to IPP95, he may be deemed to share beneficial ownership of
the shares of Common Stock owned by IPP95. Mr. Simon disclaims beneficial
ownership except to the extent of his pecuniary interest in IPP95. Excludes
shares beneficially owned directly or indirectly by members of Mr. Simon's
family as to which Mr. Simon disclaims beneficial ownership.
(12) Mr. Koupal, who is a director of the Company, is an Executive Vice
President and Chief Administrative Officer of Western Resources, Inc.,
which is the parent company of Western Capital, Inc. ("Westar"). By virtue
of Mr. Koupal's relationship to Westar, he may be deemed to share
beneficial ownership of certain shares of Common Stock owned by Westar. Mr.
Koupal disclaims beneficial ownership of the shares of Common Stock owned
by Westar.
(13) See footnotes 2, and 5-12 above.
3
<PAGE> 6
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who beneficially own more than 10% of the Common Stock to file reports
with the Securities and Exchange Commission (the "Commission") and the Company
disclosing their initial beneficial ownership of Common Stock and changes in
such ownership. Based solely upon a review of such reports furnished to the
Company, the Company believes that during 1997, all of its directors, executive
officers and beneficial owners of more than 10% of the Common Stock complied
with all applicable Section 16(a) filing requirements applicable to them since
the Company's initial public offering in July 1997, except for Mr. Goldberg who
inadvertently failed to timely report two separate acquisitions of Common Stock
for the benefit of the William S. Goldberg Children's Trust.
ELECTION OF DIRECTORS
At the meeting, nine directors are to be elected to the Board of Directors,
to hold office until the next Annual Meeting of Stockholders of the Company and
until their respective successors are duly elected and qualified. The Board of
Directors has nominated and it is the intention of the persons named in the
enclosed proxy to vote FOR the election of each nominee named below, each of
whom currently serves as a director and has consented to serve as a director if
re-elected. In the event any of such nominees becomes unable or unwilling to
serve as a director, shares represented by valid proxies will be voted for the
election of such other person as the Board may nominate, or the number of
directors that constitutes the full Board may be reduced to eliminate the
vacancy.
NOMINEES FOR ELECTION AS DIRECTORS
Information concerning the position and background of the nine nominees for
election to the Board of Directors is set forth below. Only directorships of
issuers with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act
or directorships of issuers registered as investment companies under the
Investment Company Act of 1940, as amended, are required to be listed below.
Michael A. O'Connor, 62, 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, 43, 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. 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.
William S. Goldberg, 39, has served as Executive Vice President and
director of the Company since May 1991. Mr. Goldberg has been employed by GKH
Partners since 1988 and has served as Managing Director of GKH Partners, 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., 59, 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 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 serves
on the Board of Directors of Midcoast Energy Resources, Inc., Chapparal
Resources, Inc. and Queen Sand Resources, Inc.
4
<PAGE> 7
Melvyn N. Klein, 56, 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. 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, 59, 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.
Mr. Shoemaker is a director of Middle Bay Oil Co.
William E. Simon, Jr., 45, has served as a director of the Company since
December 1995. Mr. Simon is 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, 62, 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., 44, has served as a director of the Company since
April 1997. Mr. Koupal is currently an Executive Vice President and Chief
Administrative Officer of Western Resources, Inc. and has worked for Western
Resources, Inc. in various capacities since March 1992. Mr. Koupal is a director
of Protection One.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND COMMITTEES THEREOF
Directors are elected at each annual meeting of stockholders of the Company
to serve for one-year terms. The Board of Directors has designated an Audit
Committee and a Compensation Committee to assist it in the discharge of its
responsibilities. The Board of Directors has not designated a Nominating
Committee; rather, the Board of Directors as a whole performs the functions
which would otherwise be designated to such Committee. Members of each committee
are elected by the Board at its first meeting following the annual meeting of
stockholders and serve for one year terms.
The current members of the Audit Committee are Ted Collins, Jr. (Chairman)
and William E. Simon, Jr. The Audit Committee is authorized to: (a) select,
retain and dismiss the Company's independent accountants; (b) 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; (c) manage the
Company's policies and procedures with respect to internal accounting and
financial controls and (d) review any changes in accounting policy.
The current members of the Compensation Committee are Alvin V. Shoemaker
and Robert R. Furgason. The Compensation Committee is authorized and directed to
review and approve compensation and benefits of the Company's executive officers
and the Company's annual salary plans, and to review and advise the Company's
Board of Directors regarding the Company's benefit plans, bonus awards, and
other terms of employment.
During 1997, the Board of Directors held seven meetings and took action by
unanimous written consent two times. The Compensation Committee held two
meetings and the Audit Committee did not meet. Each director attended or
participated in at least 75% of the aggregate number of meetings held by the
Board of Directors and those committees thereof of which he is a member, with
the exception of Mr. Koupal.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Alvin V. Shoemaker
and Robert R. Furgason, neither of whom is either a current or former officer or
employee of the Company or any of its subsidiaries.
5
<PAGE> 8
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation. The following table sets
forth certain information with respect to compensation paid by the Company to
its Chief Executive Officer and President and the two other most highly
compensated executive officers (collectively, the "Named Executive Officers"),
during 1997 and 1996.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
AWARDS
------------------------
RESTRICTED SECURITIES
NAME ANNUAL COMPENSATION OTHER ANNUAL STOCK UNDERLYING
AND PRINCIPAL -------------------------------- COMPENSATION AWARD OPTIONS/
POSITION(2) YEAR SALARY($) BONUS($)(3) ($)(4) (S)(#)(5) SARS(#)
------------- ---- --------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael McGhan 1997 $150,000 $250,000 $6,914 28,938 41,189
President & Chief 1996 150,000 190,000 6,510 -- --
Executive Officer
Michael O'Connor 1997 130,000 185,000 9,352 -- --
Chairman of the Board 1996 130,000 160,000 5,448 -- --
Curtis Bedrich 1997 120,000 130,000 8,114 10,128 14,416
Chief Financial 1996 120,000 115,000 7,094 -- --
Officer & Treasurer
</TABLE>
- ---------------
(1) Pursuant to the rules of the Commission, the Company, which first became a
reporting company in 1997, is only required to furnish information for 1997
and 1996.
(2) Mr. Goldberg, a Managing Director of GKH Partners, is also an Executive Vice
President of the Company and spends substantially all of his time on the
Company's business. He does not currently receive separate remuneration from
the Company, which reimburses GKH Partners for certain travel and related
expenses incurred by Mr. Goldberg in connection with his efforts on the
Company's behalf. See "Certain Transactions -- Certain Relationships and
Related Transactions".
(3) Annual bonus amounts represent estimated amounts earned and accrued during
1996 and 1997 which were paid subsequent to the end of the year.
(4) 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.
(5) All such shares were purchased pursuant to the Company's 1997 Stock Purchase
Plan on June 30, 1997 at a price per share of $19.50, the Company's initial
offering price per share. Each such purchase was funded in its entirety by a
full recourse loan made by the Company to the relevant participant in an
amount equal to the aggregate purchase price for such shares. Each
participant who remains in the employ of the Company through June 30, 2001
may be entitled to receive a one time cash payment in an amount equal to the
purchase price paid for shares, purchased under the 1997 Stock Purchase
Plan, plus an interest component thereon calculated at the Applicable
Federal Rate, assuming the Company has met certain performance thresholds.
If any participant in the 1997 Stock Purchase Plan sells any or all of such
shares prior to the earlier of: (a) June 30, 2001 or (b) the sale or
distribution by GKH or its affiliate(s) of all of its or their equity
interests in the Company, then such participant will be obligated to
surrender any and all outstanding options issued to him pursuant to the
Company's 1997 Stock Option Plan.
6
<PAGE> 9
Option Grants. The following table sets forth information regarding grants
of stock options during 1997 to the Named Executive Officers.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------
PERCENTAGE
NUMBER OF OF TOTAL
SHARES OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE
OPTIONS EMPLOYEES PER GRANT DATE
GRANTED IN FISCAL SHARE EXPIRATION PERCENT VALUE
NAME (#) YEAR(%) ($/SHARE) DATE ($)(2)
---- ---------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Michael A. O'Connor.................... -- -- -- -- --
Michael J. McGhan...................... 41,189 4.06% $19.50 7/1/07 $529,691
Curtis A. Bedrich...................... 14,416 1.42 19.50 7/1/07 185,390
</TABLE>
- ---------------
(1) All of the options were granted pursuant to the 1997 Stock Option Plan,
have an exercise price equal to the fair market value of a share of Common
Stock on the grant date and vest over four (4) years. The options permit
payment of the associated exercise price by means of previously-owned
shares of Common Stock and withholding of shares of Common Stock otherwise
issuable upon such exercise. The options also have a tax withholding right.
(2) Grant date present value is based on the Black-Scholes option valuation
model, which makes the following material assumptions for June 30, 1997
grants: An expected stock-price volatility factor of 42.79%, based on daily
closing prices of the Company's Common Stock over the last eight months, a
risk-free rate of return of 6.66%, a dividend yield of 0% and a weighted
average exercise date of ten (10) years from date of grant. These
assumptions may or may not be fulfilled. The amounts shown cannot be
considered predictions of the future value. In addition, the options will
gain value only to the extent the stock price exceeds the option exercise
price during the life of the option.
Option Holdings. The following table sets forth information with respect to
the aggregate number and value of shares underlying unexercised options held as
of December 31, 1997, by each of the Named Executive Officers. None of the Named
Executive Officers exercised any options during 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AS OF OPTIONS AS OF
DECEMBER 31, 1997(#) DECEMBER 31, 1997(1)($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael A. O'Connor......................... 898,359 -- $14,745,689 --
Michael J. McGhan........................... 349,916 41,189 6,119,188 $38,717
Curtis A. Bedrich........................... 244,573 14,416 4,182,392 13,551
</TABLE>
- ---------------
(1) On December 31, 1997, the fair market value per share of Common Stock was
$20.44.
CERTAIN TRANSACTIONS
STOCKHOLDERS' AGREEMENTS
The Company and Westar are parties to a stockholders agreement which
provides, among other things, for 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. Other provisions of the
agreements became inoperative upon consummation of the Company's initial public
offering.
In addition, the Company, JEDI and GKH are parties to a stockholders
agreement which provides, among other things, for GKH's rights of visitation and
inspection and the Company's obligation to provide Rule 144A information to
prospective transferees of JEDI's and GKH's Common Stock, JEDI's board
7
<PAGE> 10
observation rights and provisions permitting GKH to require JEDI to sell its
shares in connection with a sale by GKH of its shares in the Company and
provisions regarding JEDI's rights to participate in a sale by GKH of its shares
in the Company.
REGISTRATION RIGHTS AGREEMENTS
The Company, GKH, JEDI, Westar and other stockholders (collectively, the
"Holders"), who together currently beneficially own approximately 62.69% of the
outstanding Common Stock are parties to a Registration Rights Agreement (the
"Registration 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 Securities Act of 1933, as
amended (the "Securities 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
underwriters 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
The Company purchased three gas compressor stations and a gas compressor
unit from Houston Pipe Line Company, an affiliate of JEDI, on September 29, 1997
for $26 million in cash. As of December 31, 1997, the Company supplied contract
gas compression services to Houston Pipe Line Company pursuant to a Compression
Management Agreement dated September 30, 1997. This agreement expires on October
15, 2007. The Company billed approximately $945,000 to Houston Pipe Line Company
pursuant to this agreement for the year ended December 31, 1997.
GKH Partners, the beneficial owner of approximately 40.23% 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 GKH Partners, the Company has agreed to pay 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 Partners
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.
Mr. Goldberg, a Managing Director of GKH Partners, is also an Executive
Vice President of the Company and spends substantially all of his time on the
Company's business. He does not currently receive separate remuneration from the
Company, which reimburses GKH Partners for certain travel and related expenses
incurred by Mr. Goldberg in connection with his efforts on the Company's behalf.
On August 29, 1997, Hanover/Enron Venezuela Ltd. ("HEV"), a corporation
owned 60% by Hanover Cayman Limited, a subsidiary of the Company, and 40% by EI
Venezuela Development Ltd., an affiliate of JEDI, entered into a Loan Agreement
(the "CPF Loan Agreement") with Compression Projects Finance Ltd. ("CPF"), an
affiliate of JEDI, pursuant to which HEV borrowed $10,400,000 for the purpose of
constructing and operating a gas compression project in Venezuela (the
"Project"). The loan, which is secured by all of the assets of HEV bears
interest either (i) at the "LIBOR" rate for each applicable interest period plus
7% or, at the option of HEV, (ii) the prime rate as announced from time to time
by Chase Manhattan Bank, N.A. plus 5%. The maturity date for the loan is the
earlier of the date which is 48 months after (i) the earlier of the commencement
of the provision of compression services in connection with the Project or
February 20, 1998 or (ii) February 20, 2002. HEV was not required to pay any
principal or interest under this facility in 1997 and approximately $10,260,000
was outstanding thereunder as of December 31, 1997.
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<PAGE> 11
Pursuant to the CPF Loan Agreement which provides for the payment of
various fees, HEV paid CPF an aggregate of $223,000 during the year ended
December 31, 1997. In connection with the CPF Loan Agreement, HEV entered into
additional agreements with CPF and other affiliates of JEDI, which agreements
provided for such JEDI affiliates to render certain services to HEV in
connection with the Project. Pursuant to these agreements, HEV (or other
affiliates of the Company) did not make any payments to CPF and the other
affiliates of JEDI during the year ended 1997.
Also in connection with the Project, HEV entered into an operation and
maintenance agreement with Hanover PGN Compressor, C.A. ("PGN"), a subsidiary of
the Company, pursuant to which PGN will provide operation and maintenance
services in connection with the Project and is entitled to a monthly management
fee of $101,454 plus 9,082,907 bolivars (approximately $19,000 as of the date
hereof) throughout the four year term of the contract. PGN did not receive any
payments pursuant to this contract in 1997.
As of December 31, 1997, the Company leased certain compression equipment
to an affiliate of Cockrell Oil and Gas, L.P., which is owned 50% by GKH. The
lease is on a month-to-month basis and, for the year ended 1997, approximately
$235,000 was billed under the lease.
As of December 31, 1997, the Company leased certain compression equipment
to affiliates of Westar. The leases vary in length of time and approximately
$513,000 was billed to affiliates of Western Resources for the year ended
December 31, 1997.
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 certain compression equipment and during 1997, approximately $561,000 was
billed to such joint ventures under the leases.
During 1997, the Company leased certain compression equipment to various
affiliates of Enron Capital and Trade Resources Corp., and billed approximately
$1,061,000 to such affiliates under the leases.
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.
Set forth below is certain information concerning the indebtedness of
executive officers and directors to the Company, all of which was incurred in
connection with various acquisitions of shares of Common Stock.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RATE OF INTEREST
AGGREGATE AMOUNT LARGEST AGGREGATE AS OF
OUTSTANDING AS OF AMOUNT OUTSTANDING DECEMBER 31,
DECEMBER 31, 1997 DURING 1997 1997
----------------- ------------------ -------------------
<S> <C> <C> <C>
Michael O'Connor................. $ 0 $1,155,775 0%
Michael J. McGhan................ 476,553 476,553 8.5
Curtis A. Bedrich................ 367,950 367,950 8.5
</TABLE>
Management believes that the terms of the foregoing transactions were no
less favorable to the Company than those that would otherwise be obtainable in
an arms' length transactions with unaffiliated third parties.
COMPENSATION OF DIRECTORS
Only those directors who are not, and whose affiliates are not, employees
of or consultants to the Company receive any compensation for serving on the
Board of Directors. Such directors are paid $2,500 per quarter and reimbursement
of expenses incurred in attending meetings. Mr. Koupal has elected not to
receive such fees under Westar's internal policies and returns such fees to the
Company.
9
<PAGE> 12
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act or the Exchange Act that might
incorporate future filings, including this Proxy Statement, in whole or in part,
the report presented below and the Performance Graph following the report shall
not be incorporated by reference into any such filings.
REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors, the current members, of which
are Alvin V. Shoemaker and Robert R. Furgason. The Compensation Committee's
responsibilities include the review and approval of base annual salaries and
annual bonuses for all executive officers, approval of awards under, and
administration of, the Company's 1997 Stock Option Plan and 1997 Stock Purchase
Plan and administration of such other employee benefit plans as may be adopted
from time to time by the Company. This report discusses the executive
compensation policies of the Company, and the Summary Compensation Table which
appears on page 9 of this proxy statement discloses the compensation paid by the
Company to certain executive officers during the past two years.
GENERAL COMPENSATION POLICIES
The Company's compensation program for executive officers currently
consists, in general, of four principal components: a base annual salary, an
annual cash bonus, periodic grants of stock options and opportunities to
purchase Company Common Stock from time to time which historically have been
significantly financed by loans by the Company. The Committee believes that
these components are designed to attract, motivate and retain highly-qualified
executive management by both rewarding individual achievement and providing an
opportunity for members of executive management to share in the risks and
rewards of the Company's financial performance. The Compensation Committee also
believes it is important for the Company's compensation policy to balance
short-term and long-term equity incentives.
The Compensation Committee annually establishes each executive officer's
base salary, including the Chief Executive Officer's salary, based on its
evaluation of the officer's performance and contribution in the previous year
and on competitive pay practices. The Compensation Committee also determines the
annual cash bonuses to be awarded to each executive officer, including the Chief
Executive Officer. The cash bonuses paid to executive officers during 1997 were
awarded in recognition of a variety of factors, including job responsibilities
undertaken and efforts expended on behalf of the Company, contributions to the
Company, leadership qualities, and compensation paid to executive officers of
competitors (based on the best available data from as many competitor companies
as practicable).
The Compensation Committee believes that it is important that the executive
officers of the Company hold equity positions in the Company in order to align
their financial incentives with the Company's performance. In addition, because
of the nature of the Company's operations, the Company's management believes,
and the Compensation Committee agrees, that it is important that stock options
be granted to a broad range of employees so that the long-term interests of its
executive officers and other employees are aligned with those of its
stockholders.
Prior to its initial public offering, which was consummated on July 1,
1997, the Company had adopted and maintained several stock option plans pursuant
to which options to purchase shares of the Company's Common Stock had been
granted to executive officers and other employees of the Company. All options
awarded and outstanding under such plans as of June 30, 1997 became fully vested
and exercisable, and such plans were terminated, upon consummation of the
Company's initial public offering.
In anticipation of the Company's initial public offering, the Board of
Directors adopted the 1997 Stock Option Plan and the 1997 Stock Purchase Plan
(collectively, the "1997 Plans"). The 1997 Plans, which are administered by the
Compensation Committee, permit the Committee to issue options and restricted
stock ("Restricted Stock") representing up to an aggregate of 5% of the fully
diluted shares of Common Stock outstanding immediately after the Company's
initial public offering. Thus, pursuant to the 1997 Plans,
10
<PAGE> 13
Company employees have been given the opportunity to purchase substantial stock
in the Company and to receive comparable option grants.
With respect to the 1997 Stock Purchase Plan, the Company agreed to lend
the participants the necessary amount to purchase shares of Restricted Stock, on
a full recourse basis. In the event the participant remains 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 an amount equal to the principal and interest. 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. The 1997 Plans support the commitment of both the Compensation Committee
and the Board of Directors to ownership by the Company's executive officers and
other employees of a significant equity interest in the Company as an important
incentive in building stockholder wealth and aligning the long-term interests of
management and stockholders.
As one of the factors in its review of compensation matters, the
Compensation Committee considers the anticipated tax treatment to the Company
and to the executive officers of various payments and benefits. Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"), generally
disallows a tax deduction to public corporations for compensation in excess of
$1,000,000 for any fiscal year paid to any of the Named Executive Officers.
However, Section 162(m) also provides that qualifying performance-based
compensation will not be subject to the deduction limit if certain requirements
are met. The Compensation Committee currently intends to structure the Company's
compensation programs and specific compensation awards in accordance with
Section 162(m)'s requirements for deductibility. However, interpretations of and
changes in the tax laws and other factors beyond the Compensation Committee's
control also affect the deductibility of compensation. Thus, the Compensation
Committee will not necessarily limit executive compensation to the deductible
under Section 162(m). The Compensation Committee will consider various
alternatives to preserving the deductibility of compensation payments and
benefits to the extent reasonably practicable and to the extent consistent with
its other compensation objectives.
SUBMITTED BY THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
Alvin V. Shoemaker
Robert R. Furgason
11
<PAGE> 14
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stock since July 1, 1997, the date trading in the Company's
Common Stock commenced, with the cumulative total return of the S&P 500 Index
and of the Russell 2000 Index over the same period, assuming the investment on
July 1, 1997 of $100 in each of the Company's Common Stock, the S&P 500 Index
and the Russell 2000 Index. The graph assumes the reinvestment of dividends and
adjusts all closing prices and dividends for stock splits. The Company does not
believe that the stock price performance shown on the graph below is necessarily
indicative of future price performance.
COMPARISON OF 6 MONTH CUMULATIVE TOTAL RETURN
AMONG HANOVER COMPRESSOR COMPANY, THE S & P 500 INDEX
AND THE RUSSELL 2000 INDEX
<TABLE>
<CAPTION>
HANOVER
MEASUREMENT PERIOD COMPRESSOR
(FISCAL YEAR COVERED) COMPANY S&P 500 RUSSELL 2000
<S> <C> <C> <C>
7/01/97 100.00 100.00 100.00
9/97 125.64 107.49 114.88
12/97 104.81 110.58 111.04
</TABLE>
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<PAGE> 15
RATIFICATION OF REAPPOINTMENT OF AUDITORS
The Company has engaged Price Waterhouse LLP to audit the Company's
financial statements for fiscal 1998. Price Waterhouse LLP audited the Company's
financial statements for fiscal 1997 and the decision to retain Price Waterhouse
LLP has been approved by the Audit Committee.
A representative of Price Waterhouse LLP is expected to attend the Annual
Meeting of Stockholders and will have the opportunity to make a statement, if he
or she so desires, and will be available to respond to appropriate questions of
stockholders.
The Board of Directors recommends that the stockholders vote FOR
ratification of the reappointment of Price Waterhouse LLP.
GENERAL INFORMATION
1999 ANNUAL MEETING OF STOCKHOLDERS
Any proposals of stockholders that are intended for inclusion in the
Company's Proxy Statement and form of proxy for its 1999 Annual Meeting of
Stockholders must be received by the Corporate Secretary of the Company no later
than December 18, 1998. Stockholder proposals must be in writing and delivered
to the Company's principal executive offices at 12001 North Houston Rosslyn,
Houston, Texas 77086.
ANNUAL REPORTS
The Company's 1997 Annual Report to Stockholders is being mailed to the
Company's stockholders together with this proxy statement; however, the report
is not part of the proxy solicitation materials. A copy of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 (excluding exhibits),
as filed with the Commission, may be obtained without charge upon request made
to Hanover Compressor Company 12001 North Houston Rosslyn, Houston, Texas 77086,
Attention: Corporate Secretary.
13
<PAGE> 16
HANOVER COMPRESSOR COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HANOVER COMPRESSOR COMPANY
The undersigned, having received the Notice of Annual Meeting and Proxy
Statement, hereby appoints Michael O'Connor, Michael McGhan, William S. Goldberg
and Richard S. Meller, and each of them, proxies with full power of
substitution, for and in the name of the undersigned, to vote all shares of
Common Stock of Hanover Compressor Company owned of record by the undersigned at
the 1998 Annual Meeting of Shareholders to be held at 10:00 a.m. local time on
Wednesday, May 20, 1998, at the Hyatt Regency-Houston Airport, 15747 JFK
Boulevard, Houston, Texas 77032, and any adjournments or postponements thereof,
in accordance with the discretion marked on the reverse side hereof.
ELECTION OF DIRECTORS
NOMINEES FOR ONE-YEAR TERM EXPIRING AT 1999 ANNUAL MEETING OF SHAREHOLDERS:
Michael A. O'Connor Ted Collins, Jr. William E. Simon, Jr.
Michael J. McGhan Melvyn N. Klein Robert R. Furgason
William S. Goldberg Alvin Shoemaker Carl M. Koupal, Jr.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME ABOVE.)
Your are encouraged to specify your choices by marking the appropriate boxes
(see reverse side), but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors recommendations. The proxies cannot vote
your shares unless you sign and return this card.
(SEE REVERSE SIDE)
* FOLD AND DETACH HERE *
<PAGE> 17
Directors nominees and FOR ratification of Price Waterhouse LLP as Hanover
Compressor Company _______________________________________________________.
<TABLE>
<S> <C>
1. Election of Directors (see reverse) 3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or at any
FOR ALL NOMINEES WITHHOLD postponement(s) or adjournment(s) thereof.
(except as indicated on AUTHORITY
reverse) to vote for all nominees
[ ] [ ]
2. Ratification of Reappointment of Price MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Waterhouse LLP
FOR AGAINST ABSTAIN MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
[ ] [ ] [ ]
Dated: , 1998
------------------------------------
------------------------------------------------
(Signature)
------------------------------------------------
(Signature)
Please sign exactly as name appears on stock
certificate(s). Joint owners should each sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
</TABLE>
- FOLD AND DETACH HERE -
