<PAGE>
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:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material under Rule 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
HANOVER COMPRESSOR COMPANY
HOUSTON, TEXAS 77086
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 2000
To the Stockholders of Hanover Compressor Company:
Notice is hereby given that the 2000 Annual Meeting of Stockholders of
Hanover Compressor Company, a Delaware corporation (the "Company"), will be
held at 10:00 a.m. local time on Thursday, May 18, 2000, at the Hyatt Regency
Houston Airport, 15747 JFK Boulevard, Houston, Texas 77032, for the following
purposes:
(1) to elect seven directors to serve until the next Annual Meeting of
Stockholders or until their successors are duly elected and qualified;
(2) to amend the Amended and Restated Certificate of Incorporation of
Hanover Compression Inc., to eliminate the provision relating to
Section 251(g) of the Delaware General Corporation Law;
(3) to ratify the reappointment of PricewaterhouseCoopers LLP as the
Company's independent auditors for fiscal year 2000; and
(4) to transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on March 30, 2000, 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,
Chairman of the Board
Houston, Texas
April 18, 2000
<PAGE>
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>
HANOVER COMPRESSOR COMPANY
12001 NORTH HOUSTON ROSSLYN
HOUSTON, TEXAS 77086
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
ON MAY 18, 2000
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 Thursday, May 18, 2000, 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 18, 2000.
THE MEETING
VOTING AT THE MEETING
Stockholders of record at the close of business on March 30, 2000, are
entitled to notice of and to vote at the meeting. At the close of business on
such date, there were 28,825,966 shares of common stock of the Company, $.001
par value per share (the "Common Stock"), issued and outstanding held by
approximately 230 holders of record. Each share of Common Stock issued and
outstanding on March 30, 2000 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 outstanding
shares of Common Stock will be necessary for the amendment of the Amended and
Restated Certificate of Incorporation of Hanover Compression Inc. 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 2000.
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," FOR the amendment to the Amended and
Restated Certificate of Incorporation, of Hanover Compression Inc. and FOR the
ratification of the reappointment of PricewaterhouseCoopers LLP as the
Company's independent auditors for fiscal year 2000. 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.
1
<PAGE>
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 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
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 30, 2000, 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
Name and Addresses Beneficially Owned of Class
------------------ ------------------ -----------
<S> <C> <C>
Melvyn N. Klein................................ 11,590,502(1)(2) 40.2%
Mercantile Tower, Suite 1940
615 North Upper Broadway
Corpus Christi, Texas 78477
GKH Investments, L.P........................... 11,168,570(3) 39.0
200 West Madison
Chicago, Illinois 60606
Joint Energy Development....................... 2,761,950(4) 9.6
Investments Limited Partnership
1400 Smith Street
Houston, TX 77002
Westar Capital, Inc............................ 1,485,515 5.2
818 Kansas Street
Topeka, Kansas
GKH Partners, L.P.............................. 421,932(5) 1.5
200 West Madison
Chicago, IL 60606
Michael A. O'Connor............................ 1,186,820(6) 4.0
Michael J. McGhan.............................. 527,804(7) 1.8
Curtis A. Bedrich.............................. 371,021(8) 1.3
William S. Goldberg............................ 109,848(9) *
Ted Collins, Jr................................ 173,268(10) *
Alvin Shoemaker................................ 173,000(11) *
Robert R. Furgason............................. 4,550(12) *
</TABLE>
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* Less than one percent
(1) Includes (i) 9,590 shares of Common Stock issuable upon exercise of
warrants held by GKH Partners, L.P. ("GKH Partners") which are, or will
first become, presently exercisable within 60 days of March 30, 2000, (ii)
253,795 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,
2
<PAGE>
exercisable within 60 days of March 30, 2000, (iii) 10,914,775 shares of
Common Stock owned by GKH Investments and (iv) 412,342 shares of Common
Stock owned by GKH Partners. GKH Partners is the general partner of GKH
Investments. As the general partner of GKH Investments, GKH Partners may be
deemed to be the beneficial owner of stock held by GKH Investments,
however, GKH Partners expressly disclaims any such beneficial ownership.
(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) Includes 253,795 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 30, 2000 and 10,914,775 shares of Common Stock
owned by GKH Investments. Excludes 412,342 shares of Common Stock owned by
GKH Partners and 9,590 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 30, 2000. GKH Partners is the general partner of
GKH Investments. As the general partner of GKH Investments, GKH Partners
may be deemed to be the beneficial owner of stock held by GKH Investments,
however, GKH Partners expressly disclaims any such beneficial ownership.
(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 9,590 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 30, 2000 and 412,342 shares of Common Stock owned by GKH
Partners. Excludes 253,795 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 30, 2000 and 10,914,775 shares of
Common Stock owned by GKH Investments. GKH Partners is the general partner
of GKH Investments. As the general partner of GKH Investments, GKH
Partners may be deemed to be the beneficial owner of stock held by GKH
Investments, however, GKH Partners disclaims any such beneficial
ownership.
(6) Includes 941,019 shares subject to options held by Mr. O'Connor which are,
or will first become, exercisable within 60 days of March 30, 2000, and
2,672 shares of Common Stock held by Mr. O'Connor together with his wife
as tenants in common. Mr. O'Connor disclaims beneficial ownership to
169,775 shares held by Goldman Sachs Exchange Place Fund, L.P., in which
Mr. O'Connor has an interest
(7) Includes 396,402 shares subject to options held by Mr. McGhan which are,
or will first become, exercisable within 60 days of March 30, 2000, 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.
(8) Includes 272,361 shares subject to options held by Mr. Bedrich which are,
or will first become, exercisable within 60 days of March 30, 2000.
(9) 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.
Includes 15,000 shares subject to options held by Mr. Goldberg which are,
or will first become, exercisable within 60 days of March 30, 2000.
(10) 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.
(11) 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.
(12) Excludes 200 shares owned by Mr. Furgason's wife. Mr. Furgason disclaims
beneficial ownership of all such shares.
3
<PAGE>
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 1999, 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.
ELECTION OF DIRECTORS
Proposal 1 on Proxy Card
At the meeting, seven 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 seven 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, 64, 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, 45, 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, 41, 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., 61, 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>
Melvyn N. Klein, 58, 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., ACTV, Inc. and certain privately
held companies. Mr. Klein is also a founder and principal of Questor Partners
Fund. L.P.
Alvin V. Shoemaker, 61, 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, 64, 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.
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 1999, the Board of Directors held four meetings and took action by
unanimous written consent one time; the Compensation Committee held one meeting
and did not take action by unanimous written consent; 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>
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
Annual Compensation Awards
-------------------------- --------------------------
Securities
Restricted Underlying
Stock Options/SARs
Name and Principal Other Annual Award($)(4) (# of
Position(2) Year Salary($) Bonus($)(3) Compensation($)(1) (# of Shares) Shares)
------------------ ---- --------- ----------- ------------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael McGhan.......... 1999 $150,000 $375,000 $ 7,938 -- --
President and Chief
Executive Officer 1998 150,000 325,000 7,245 -- 38,250
1997 150,000 250,000 6,914 28,938 41,189
Michael O'Connor........ 1999 $130,000 $ 42,500 $10,150 -- --
Chairman of the Board 1998 130,000 85,000 9,383 -- --
1997 130,000 185,000 9,352 -- --
Curtis Bedrich.......... 1999 $120,000 $182,500 $ 8,788 -- --
Chief Financial Officer
& Treasurer 1998 120,000 160,000 8,066 -- 13,287
1997 120,000 130,000 8,114 10,128 14,416
</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) William S. 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
1999, 1998 and 1997 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.
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, 1999, by each of the Named Executive Officers.
6
<PAGE>
AGGREGATED OPTION EXERCISES AND 1999 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised In-
Options as of the-Money Options as of
December 31, 1999 December 31, 1999(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael A. O'Connor......... 941,019 -- $31,034,728 $ 0
Michael J. McGhan........... 396,402 67,082 12,857,284 1,224,252
Curtis A. Bedrich........... 272,361 23,478 8,901,024 428,477
</TABLE>
- --------
(1) Based on the fair market value of the Company's Common Stock on December
31, 1999.
CERTAIN TRANSACTIONS
STOCKHOLDERS' AGREEMENTS
The Company and Westar Capital, Inc. ("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, Joint Energy Development Investments, LP ("JEDI")
and GKH Investments are parties to a stockholders agreement which provides,
among other things, for GKH Investments' rights of visitation and inspection
and the Company's obligation to provide Rule 144A information to prospective
transferees of JEDI's and GKH Investments' Common Stock, board observation
rights to JEDI, provisions permitting GKH Investments to require JEDI to sell
its shares in connection with a sale by GKH Investments of its shares in the
Company, and provisions regarding JEDI's rights to participate in a sale by GKH
Investments of its shares in the Company.
REGISTRATION RIGHTS AGREEMENTS
The Company, GKH, JEDI, and other stockholders (collectively, the
"Holders"), who together currently beneficially own approximately 62% 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 September 30, 1999, the Company and Houston Pipe Line Company ("HPL")
entered into various agreements in order to form Hanover Measurement Services,
LP, LLP ("HMS"), a new operating company to provide gas metering and related
services to natural gas pipelines. In exchange for their ownership interests in
HMS, the Company contributed approximately $2.9 million in cash to HMS and HPL
contributed certain assets and approximately $2.8 million in cash. In
connection with the formation of HMS, the Company and HPL also
7
<PAGE>
formed Meter Acquisition Company LP, LLP ("MAC"). The Company contributed to
MAC approximately $2.2 million in cash and assumed approximately $9 million of
indebtedness, and HPL contributed its pipeline metering assets. Enron
Corporation, indirectly owns a general partnership interest in JEDI, which owns
9.8% of the Company's common stock.
As of September 30, 1999, MAC entered into an agreement to provide pipeline
metering and related services to HPL pursuant to which HPL pays MAC a service
fee of approximately $1.4 million per month. MAC entered into a sub-agreement
with HMS to provide pipeline and metering services to HPL, and MAC pays HMS a
service fee of approximately $690,000 per month.
As of December 31, 1999, the Company supplied contract gas compression
services to HPL pursuant to a Compression Management Agreement dated September
30, 1997. This agreement expires on October 15, 2007. The Company billed
approximately $8,119,800 to HPL pursuant to this agreement for the year ended
December 31, 1999.
GKH Partners, the beneficial owner of approximately 40.2% 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.
William S. 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 150,000 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 based on two swap agreements that were entered into contemporaneously
with with the initial disbursement. The first was executed on October 25, 1997
and bears interest at 13.5%. The second was exeuted on April 29, 1998, and
earns interest at 12.95%. The amounts of the initial loans are $6,203,569 and
$4,196,431 respectively. 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 (ii)
February 20, 2002. Approximately $6,181,786.73 was outstanding thereunder as of
December 31, 1999.
Pursuant to the CPF Loan Agreement which provides for the payment of various
fees, HEV paid CPF an aggregate of $3,809,814 during the year ended December
31, 1999. 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 1999.
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
8
<PAGE>
of $101,454 plus 9,082,907 bolivars (approximately $14,139.68 as of the date
hereof) throughout the four year term of the contract. PGN received $2,450,689
pursuant to this contract in 1999.
As of December 31, 1999, 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 1999, approximately
$228,540 was billed under the lease.
During 1999, the Company leased certain compression equipment to various
affiliates of Enron Capital and Trade Resources Corp., and billed approximately
$10,959,890 to such affiliates under the leases including amounts billed to
Houston Pipe Line Company.
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>
Aggregate Weighted
Amount Largest Average Rate
Outstanding Aggregate of Interest
as of Amount as of
December 31, Outstanding December 31,
1999 During 1999 1999
------------ ----------- ------------
<S> <C> <C> <C>
Michael J. McGhan......................... $ 0 $1,040,845 --
Curtis A. Bedrich......................... $ 0 $ 565,446 --
</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.
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 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 three 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
9
<PAGE>
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
1999 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.
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
10
<PAGE>
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>
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 CUMULATIVE RETURN*
AMONG HANOVER COMPRESSOR COMPANY, THE S & P 500 INDEX
AND THE RUSSELL 2000 INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------------------------------------------
7/1/97 9/97 12/97 3/98 6/98 9/98 12/98 3/99 6/99 9/99 12/99
------ ---- ----- ---- ---- ---- ----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hanover Compressor
Company................ 100 126 105 128 139 124 132 136 165 163 194
S & P 500............... 100 107 110 125 129 116 141 148 159 149 171
Russell 2000............ 100 115 111 122 119 95 110 102 119 109 111
</TABLE>
- -------
* $100 invested on 7/1/97 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31.
12
<PAGE>
AMENDMENT OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HANOVER
COMPRESSION, INC.
Proposal 2 on Proxy Card
Effective December 8, 1999 the Company completed a holding company
reorganization in which Hanover Compression, Inc. ("HCI") became a wholly owned
subsidiary of the Company. This reorganization was conducted in accordance with
Section 251(g) of the Delaware General Corporation Law and did not require a
vote of Hanover Compressor Company's stockholders. In connection with the
reorganization and pursuant to the requirements of 251(g), HCI's Certificate of
Incorporation was amended to add the following language:
"ELEVENTH. Any act or transaction by or involving the Corporation (other
than the election or removal of directors of the Corporation) that requires for
its adoption under the General Corporation Law of the State of Delaware or this
Certificate of Incorporation the approval of the stockholders of the
Corporation shall, pursuant to Section 251(g) of the General Corporation Law of
the State of Delaware, require, in addition, the approval of the stockholders
of Hanover Compressor Company, a Delaware corporation, or any successor thereto
by merger, by the same vote that is required by the General Corporation Law of
the State of Delaware and/or this Amended and Restated Certificate of
Incorporation, as the case may be."
This provision requires HCI, in addition to obtaining the vote of its sole
stockholder, the Company, to obtain a vote of the stockholders of the Company
in connection with certain actions taken by HCI requiring stockholder approval,
such as mergers, sale of all or substantially all of its assets, charter
amendments and corporate dissolutions. Absent such a provision, there is no
general requirement under Delaware law that stockholders of a parent entity,
such as the Company, be entitled to vote on these types of transactions
involving its wholly owned subsidiaries, such as HCI. This provision would have
no effect on the rights of stockholders of the Company to vote on transactions
at the Company level. In order to provide maximum flexibility and efficiency
under the holding company structure that has been established, the Company
proposes to eliminate this Article 11 from HCI's Amended and Restated
Certificate of Incorporation. If the proposed Amendment is adopted by the
Company's stockholders, following such approval only a vote of HCI's sole
stockholder, the Company, would be required in connection with a merger
involving HCI, a sale of all or substantially all of its assets, amendments to
its certificate of incorporation and its dissolution.
The Board of Directors believes that the deletion of Article 11 of HCI's
Amended and Restated Certificate of Incorporation will allow the Company to
manage its entire organization more effectively and broaden the alternatives
for future financing.
The affirmative votes of a majority of the outstanding shares of Common
Stock are required for approval of this amendment to HCI's Amended and Restated
Certificate of Incorporation. If this proposed amendment is approved by the
stockholders, the Company intends to promptly effect such change by filing or
causing to be filed an appropriate amendment to HCI's Amended and Restated
Certificate of Incorporation with the State of Delaware.
RATIFICATION OF REAPPOINTMENT OF AUDITORS
Proposal 3 on Proxy Card
The Company has engaged PricewaterhouseCoopers LLP to audit the Company's
financial statements for fiscal year 2000. PricewaterhouseCoopers LLP audited
the Company's financial statements for fiscal year 1999 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.
13
<PAGE>
GENERAL INFORMATION
2001 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 2001 Annual Meeting of
Stockholders must be received by the Corporate Secretary of the Company no
later than December 20, 2000. 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 1999 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, 1999 (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.
14
<PAGE>
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 2000 Annual Meeting of Shareholders to be held at 10:00 a.m. local time on
Thursday, May 18, 2000, 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 2001 ANNUAL MEETING OF STOCKHOLDERS:
Michael A. O'Connor Ted Collins, Jr. Robert R. Furgason
Michael J. McGhan Melvyn N. Klein
William S. Goldberg Alvin V. Shoemaker
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME ABOVE.)
You 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>
- --------------------------------------------------------------------------------
This Proxy, when properly executed, will be voted Please mark
in the manner directed herein. If no direction is your vote as [X]
made, this Proxy will be voted FOR all of the indicated in
Board of Directors nominees, FOR the amendment to the example
the Amended and Restated Certificate of Incorporation
of Hanover Compression, Inc., FOR ratification of
PricewaterhouseCoopers LLP as Hanover Compressor
Company's independent auditors for 2000.
WITHHOLD
FOR ALL NOMINEES AUTHORITY
(except as indicated to vote for
on reverse) all nominees
1. Election of Directors (see reverse) [ ] [ ]
FOR AGAINST ABSTAIN
2. Amendment to Amended and Restated [ ] [ ] [ ]
Certificate of Incorporation of
Hanover Compression Inc.
FOR AGAINST ABSTAIN
3. Ratification of Reappointment of [ ] [ ] [ ]
PricewaterhouseCoopers LLP
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or at any postponement(s) or
adjournment(s) thereof.
MARK HERE FOR ADDRESS CHANGE [ ]
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
Dated:_________________________, 2000
_____________________________________
(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.
- --------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
