<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)(1) 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
HOUSTON, TEXAS 77086
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1999
To the Stockholders of Hanover Compressor Company:
Notice is hereby given that the 1999 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 19, 1999, at the Hyatt Regency
Houston Airport, 15747 JFK Boulevard, Houston, Texas 77032, for the following
purposes:
(1) to elect eight 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 PricewaterhouseCoopers LLP as the
Company's independent auditors for fiscal year 1999; 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 26,
1999, 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,
MICHAEL A. O'CONNOR
Michael A. O'Connor,
Chairman of the Board
Houston, Texas
April 21, 1999
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 19, 1999
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 19, 1999, 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 21, 1999.
THE MEETING
VOTING AT THE MEETING
Stockholders of record at the close of business on March 26, 1999, are
entitled to notice of and to vote at the meeting. At the close of business on
such date, there were 28,639,399 shares of common stock of the Company, $.001
par value per share (the "Common Stock"), issued and outstanding held by
approximately 243 holders of record. Each share of Common Stock issued and
outstanding on March 26, 1999 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 PricewaterhouseCoopers LLP as the Company's
independent auditors for fiscal year 1999.
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
PricewaterhouseCoopers LLP as the Company's independent auditors for fiscal year
1999. 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 any matter submitted
for a vote of the stockholders. If a broker indicates on a proxy that he or she
does not
<PAGE> 4
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 26, 1999, 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 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>
APPROXIMATE
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED CLASS
- ---------------- ------------------ -----------
<S> <C> <C>
GKH Partners, L.P. ......................................... 11,563,960(1) 40.37%
200 West Madison
Chicago, Illinois 60606
Melvyn N. Klein............................................. 11,563,960(1)(2) 40.37
Mercantile Tower, Suite 1940
615 North Upper Broadway
Corpus Christi, Texas 78477
GKH Investments, L.P. ...................................... 11,143,085(1)(3) 38.90
200 West Madison
Chicago, Illinois 60606
Westar Capital, Inc......................................... 3,180,515 11.10
818 Kansas Street
Topeka, Kansas
Joint Energy Development
Investments Limited Partnership............................. 2,761,950(4) 9.64
1400 Smith Street
Houston, Texas 77002
Michael A. O'Connor......................................... 974,285(5) 3.40
Michael J. McGhan........................................... 417,000(6) 1.99
Curtis A. Bedrich........................................... 368,138(7) 1.28
William S. Goldberg......................................... 43,600(8) *
Ted Collins, Jr. ........................................... 170,268(9) *
Alvin Shoemaker............................................. 192,778(10) *
Robert R. Furgason.......................................... 4,550(11) *
Carl M. Koupal, Jr. ........................................ --(12) *
All Directors and Executive Officers as Group (9 persons
including the directors and executive officers named
above).................................................... 13,734,579(13) 47.95%
</TABLE>
- ---------------
* Less than one percent
2
<PAGE> 5
(1) Includes 8,532 shares of Common Stock issuable upon exercise of warrants
held by GKH Partners, L.P. ("GKH") which are or will first become
exercisable within 60 days of March 26, 1999. 228,310 shares of Common
Stock issuable upon exercise of warrants held by GKH Investments, L.P.
("GKH Investments," and together with GKH Partners ("GKH")) which are or
will first become exercisable within 60 days of March 26, 1999 and
10,914,775 shares of Common Stock owned by GKH Investments. GKH Partners is
the General Partner of GKH Investments.
(2) Includes all of the shares of Common Stock owned by GKH. 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 26, 1999. 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 941,019 shares subject to options held by Mr. O'Connor which are,
or will first become, exercisable within 60 days of March 26, 1999, and
2,672 shares of Common Stock held by Mr. O'Connor together with his wife as
tenants in common.
(6) Includes 396,696 shares subject to options held by Mr. McGhan which are, or
will first become, exercisable within 60 days of March 26, 1999, 2,450
shares of Common Stock held by Mr. McGhan together with his wife as joint
tenants and 600 shares of Common Stock held by Mr. McGhan's two minor
children.
(7) Includes 269,478 shares subject to options held by Mr. Bedrich which are,
or will first become, exercisable within 60 days of March 26, 1999.
(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) Excludes an aggregate of 2,000 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) Excludes 200 shares owned by Mr. Furgason's wife. Mr. Furgason disclaims
beneficial ownership of all such shares.
(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 1998, 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
January 1998, except for (i) Mr. Furgason whose Form 4 for August 1998 was filed
one day late due to delivery problems, and (ii) Mr. Goldberg who inadvertently
failed to timely report two separate acquisitions for the benefit of the Nancy
K. Goldberg Declaration of Trust and the William S. Goldberg Children's Trust.
ELECTION OF DIRECTORS
At the meeting, eight 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 eight 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 1990, as amended, are required to be listed below.
Michael A. O'Connor, 63, 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, 44, 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, 40, 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., 60, 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, 57, 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, 60, 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.
Robert R. Furgason, 63, 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., 45, 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),
Robert Furgason and Alvin Shoemaker. 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
(Chairman) 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 1998, the Board of Directors held two meetings and took action by
unanimous written consent two times; the Compensation Committee held one meeting
and took action by unanimous written consent one time; and the Audit Committee
took action by unanimous written consent one time. 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Alvin Shoemaker and
Robert 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 the past three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
AWARDS
-----------------------------
OTHER RESTRICTED SECURITIES
ANNUAL COMPENSATION ANNUAL STOCK AWARD UNDERLYING
------------------------------ COMPENSATION (s)(4) OPTIONS/SARS
NAME AND PRINCIPAL POSITION(2) YEAR SALARY ($) BONUS ($)3 ($)(1) (# OF SHARES) (# OF SHARES)
- ------------------------------ ---- ---------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael McGhan............................. 1998 $150,000 $325,000 $7,245 -- 38,250
President & Chief Executive Officer 1997 150,000 250,000 6,914 28,938 41,189
1996 150,000 190,000 6,510 -- --
Michael O'Connor........................... 1998 $130,000 $ 85,000 $9,383 -- --
Chairman of the Board 1997 130,000 185,000 9,352 -- --
1996 130,000 160,000 5,448 -- --
Curtis Bedrich............................. 1998 $120,000 $160,000 $8,066 -- 13,387
Chief Financial Officer & Treasurer 1997 120,000 130,000 8,114 10,128 14,416
1996 120,000 115,000 7,094 -- --
</TABLE>
- ---------------
(1) 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.
(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 cash 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
1998, 1997 and 1996 which were paid subsequent to the end of the year.
(4) 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
public 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. Under the original terms of the 1997 Stock Purchase Plan each
participant employed by the Company through June 30, 2001 could be entitled
to receive a one time cash payment equal to the purchase price paid for
shares, purchased under the 1997 Stock Purchase Plan, plus interest,
assuming the Company met certain performance thresholds. In 1998, such
participants agreed to waive their right to such payment in exchange for the
receipt of additional options under the Company's December 9, 1998 Stock
Option Plan. 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 1998 to the Named Executive Officers.
OPTION GRANTS IN 1998
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE PRICE GRANT DATE
OPTIONS IN FISCAL PER SHARE EXPIRATION PRESENT
NAME GRANTED(#) YEAR(%) $(/SHARE) DATE VALUE($)(1)
- ---- ---------- ---------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Michael A. O'Connor..................... -- -- -- --
Michael J. McGhan....................... 38,250(2) 3.65% $19.50 12/9/08 $303,001
Curtis A. Bedrich....................... 13,387(3) 1.28% $19.50 12/9/08 $106,046
</TABLE>
- ---------------
(1) Grant date present value is based on the Black-Scholes option valuation
model, which makes the following material assumptions for grants made in
December 1998: An expected stock-price volatility factor of 32.6%, based on
daily closing prices of the Company's Common Stock over the last eight
months, a risk-free rate of return of 4.6%, a dividend yield of 0% and a
weighted average exercise date of six (6) 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.
(2) The options were granted pursuant to the December 9, 1998 Stock Option Plan,
have an exercise price equal to the approximate fair market value of a share
of Common Stock on the grant date and vest on July 1, 2001.
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, 1998, by each of the Named Executive Officers. None of the Named
Executive Officers exercised any options during 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AS OF IN-THE-MONEY OPTIONS AS
DECEMBER 31, 1998 OF DECEMBER 31, 1998(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael A. O'Connor......................... 941,019 -- $19,686,039 $ 0
Michael J. McGhan........................... 396,696 75,320 8,205,714 466,231
Curtis A. Bedrich........................... 269,478 26,361 5,598,508 163,175
</TABLE>
- ---------------
(1) Based on the fair market value of the Company's Common Stock on December 31,
1998.
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 Securities and Exchange Commission Westar's Common
Stock. Other provisions of the agreements became inoperative upon consummation
of the Company's initial public offering on July 1, 1997.
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 board observation
7
<PAGE> 10
rights to JEDI 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, 1999, 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
As of December 31, 1998, 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 $5,793,000 to Houston Pipe Line Company
pursuant to this agreement for the year ended December 31, 1998.
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 as part of the services rendered by GKH Partners to the
Company. On December 18, 1998, Mr. Goldberg was granted options to purchase
130,000 shares of Common Stock at $19.50 per share pursuant to the Company's
1999 Stock Option Plan (which permits grants beginning in December 1998). The
options have an exercise price equal to the approximate fair market value of a
share of Common Stock on the grant date. Except for these options, Mr. Goldberg
does not 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
8
<PAGE> 11
Project or (ii) February 20, 2002. Approximately $8,714,780 was outstanding
thereunder as of December 31, 1998.
Pursuant to the CPF Loan Agreement which provides for the payment of
various fees, HEV paid CPF an aggregate of $2,902,478 during the year ended
December 31, 1998. 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 1998.
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 provides 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 $16,100 as of the date hereof)
throughout the four year term of the contract. PGN received $507,270 pursuant to
this contract in 1998.
As of December 31, 1998, 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 1998, approximately
$228,540 was billed under the lease.
As of December 31, 1998, the Company leased certain compression equipment
to affiliates of Westar. The leases vary in length of time and approximately
$120,950 was billed to affiliates of Western Resources for the year ended
December 31, 1998.
During 1998, the Company leased certain compression equipment to various
affiliates of Enron Capital and Trade Resources Corp., and billed approximately
$6,801,000 to such affiliates under the leases including amounts billed to
Houston Pipe Line Company.
On December 18, 1998, the Company granted options to purchase 10,000 shares
of the Company's Common Stock at a purchase price of $19.50 per share, to
Richard S. Meller, the Secretary of the Company, and a member of its outside
legal counsel pursuant to the 1999 Stock Option Plan. The options have an
exercise price equal to the approximate fair market value of a share of Common
Stock on the grant date.
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
AGGREGATE AMOUNT LARGEST AGGREGATE RATE OF INTEREST
OUTSTANDING AS OF AMOUNT OUTSTANDING AS OF
DECEMBER 31, 1998 DURING 1998 DECEMBER 31, 1998
----------------- ------------------ -----------------
<S> <C> <C> <C>
Michael J. McGhan.................. $1,040,845 1,040,845 8.36%
Curtis A. Bedrich.................. 565,446 565,446 8.36%
</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.
Notwithstanding anything to the contrary set forth in any of the Company
previous filings under the Securities Act of 1933 or the Securities Exchange Act
that might incorporate future filings, including this
9
<PAGE> 12
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 Shoemaker (Chairman) and Robert 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, 1998 Stock Option Plan,
December 9, 1998 Stock Option Plan, the 1999 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 6 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 1998 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.
Since the Company's initial public offering, the Board of Directors has
adopted the 1997 Stock Option Plan, the 1997 Stock Purchase Plan, the 1998 Stock
Option Plan, the December 9, 1998 Stock Option Plan and the 1999 Stock Option
Plan (collectively, the "Plans"). The Plans permit the Committee to issue
options and restricted stock ("Restricted Stock") to employees and are
administered by the Compensation Committee. Thus, pursuant to the Plans, Company
employees have been given the opportunity to purchase substantial stock in the
Company and to receive comparable option grants.
10
<PAGE> 13
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. Under the original terms of the 1997 Stock Purchase Plan
if 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 could receive a one time cash payment in an amount equal
to the principal and interest. In 1998, such participants agreed to waive their
rights to such payments in exchange for the receipt of additional options under
the Company's December 9, 1998 Stock Option Plan. The Company has also 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 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 RETURN
AMONG HANOVER COMPRESSOR COMPANY, THE S & P 500 INDEX
AND THE RUSSELL 2000 INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
HANOVER
MEASUREMENT PERIOD COMPRESSOR
(FISCAL YEAR COVERED) COMPANY S&P 500 RUSSELL 2000
<S> <C> <C> <C>
7/1/97 100 100 100
9/97 126 107 115
12/97 105 110 111
3/98 128 125 122
6/98 139 129 119
9/98 124 116 95
12/98 132 141 110
</TABLE>
RATIFICATION OF REAPPOINTMENT OF AUDITORS
The Company has engaged PricewaterhouseCoopers LLP to audit the Company's
financial statements for fiscal year 1999. PricewaterhouseCoopers LLP audited
the Company's financial statements for fiscal year 1998 and the decision to
retain PricewaterhouseCoopers LLP has been approved by the Audit Committee.
A representative of PricewaterhouseCoopers 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 PricewaterhouseCoopers 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 21, 1999. Stockholder proposals must be in writing and delivered
to the Company's principal executive offices at 12001 North Houston Rosslyn,
Houston, Texas 77086.
12
<PAGE> 15
ANNUAL REPORTS
The Company's 1998 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/A for the year ended December 31, 1998 (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 1999 Annual Meeting of Shareholders to be held at 10:00 a.m. local time on
Wednesday, May 19, 1999, 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. Robert R. Furgason
Michael J. McGhan Melvyn N. Klein Carl M. Koupal, Jr.
William S. Goldberg Alvin Shoemaker
(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)
<PAGE> 17
* FOLD AND DETACH HERE *
Directors nominees and FOR ratification of PricewaterhouseCoopers LLP as Hanover
Compressor Company ___________________________.
<TABLE>
<S> <C>
1. Election of Directors 3. In their discretion, the proxies
(see reverse) are authorized to vote upon such
other business as may properly
come before the meeting or at any
postponement(s) or adjournment(s)
thereof.
FOR ALL WITHHOLD
NOMINEES AUTHORITY
(except as indicated to vote for all
on reverse) nominees
[ ] [ ]
2. Ratification of Reappointment of MARK HERE FOR ADDRESS CHANGE
PricewaterhouseCoopers LLP
FOR AGAINST ABSTAIN MARK HERE IF YOU PLAN TO
[ ] [ ] [ ]
Dated:
---------------------------
---------------------------------
(Signature)
---------------------------------
(Signature)
Please sign exactly as name
appears on stock certificate(s).
Joint owners should each sign.
When signing as attorney,
executor, administrator, trustees
or guardian, please give full
title as such.
</TABLE>
