UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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Universal Compression Holdings, Inc.

(Name of Registrant as Specified In Its Charter)

 

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MERGERS PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

Dear Hanover and Universal Stockholders:

 

As we previously announced, the boards of directors of Hanover Compressor Company and Universal Compression Holdings, Inc. have each unanimously approved mergers combining Hanover and Universal in what we intend to be a “merger of equals.” Exterran Holdings, Inc., or Holdings, a new company incorporated in Delaware, will hold what today are Hanover’s and Universal’s independent businesses. Upon consummation of the mergers, Holdings’ common stock is expected to be listed on the New York Stock Exchange under the symbol “EXH.”

 

If the mergers are consummated, Hanover stockholders will receive 0.325 shares of the common stock of Holdings for each share of Hanover common stock held, and Universal stockholders will receive one share of common stock of Holdings for each share of Universal common stock held.

 

Based on the number of shares of common stock of Hanover and Universal outstanding on February 2, 2007, the last trading day prior to the public announcement of the merger, former Hanover stockholders will own approximately 53% of the common stock of Holdings and former Universal stockholders will own approximately 47% of the common stock of Holdings.

 

Each of Hanover and Universal is holding its annual meeting of stockholders on August 16, 2007 to adopt the merger agreement and approve certain equity incentive plans to be used by Holdings if the mergers are completed. Each company’s stockholders will also elect directors and act on other matters normally considered at each company’s annual meeting. Information about these meetings and the mergers is contained in this joint proxy statement/prospectus. We encourage you to read this entire joint proxy statement/prospectus, as well as the annexes and information incorporated by reference, carefully.

 

The boards of directors of Hanover and Universal each unanimously recommend that their respective stockholders vote FOR the proposal to adopt the merger agreement.

 

In considering the recommendation of your company’s board of directors, you should be aware that directors and officers of Hanover and Universal have interests in the mergers that are different from, or are in addition to, the interests of Hanover and Universal stockholders generally, and that these directors and officers will directly benefit if the mergers are consummated. These interests and benefits are described in this joint proxy statement/prospectus.

 

This joint proxy statement/prospectus describes the annual meetings, the proposals to be considered and voted upon at the annual meetings and related matters. Every vote is important. Whether or not you plan to attend your company’s annual meeting, please take the time to vote by following the instructions on your proxy card.

 

We enthusiastically support this combination of our companies and join with our boards in recommending that you vote FOR the adoption of the merger agreement. Thank you for your continued interest in and support for our companies.

 

 

For a discussion of risk factors you should consider in evaluating the mergers, see “Risk Factors” beginning on page 22.

 

Based on the number of Hanover and Universal shares outstanding on June 28, 2007, there would be 65,785,525 shares of Holdings’ common stock, par value $0.01 per share, issued in connection with the mergers.

 

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved the mergers and other transactions described in this joint proxy statement/prospectus nor have they approved or disapproved the issuance of Holdings’ common stock in connection with the mergers, or determined if this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

 

This joint proxy statement/prospectus is dated July 6, 2007, and, together with the accompanying proxy card, is first being mailed to stockholders of Hanover and Universal on or about July 13, 2007.

UNIVERSAL COMPRESSION HOLDINGS, INC.

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD

AUGUST 16, 2007

 

To the Stockholders of Universal Compression Holdings, Inc.:

 

We cordially invite you to our 2007 Annual Meeting of Stockholders. The meeting will be held on Thursday, August 16, 2007, at 9:00 a.m., local time, at the Hilton Houston Westchase, 9999 Westheimer Road, Houston, Texas 77042. At this year’s meeting, you will be asked to:

 

 

If the Agreement and Plan of Merger is adopted and the mergers are consummated, the Universal directors elected pursuant to the proposal in the fourth bullet above will serve only until the mergers are consummated. Also, the proposals described in the second and third bullets will be implemented only if the Agreement and Plan of Merger is adopted. For more information about the proposals and the annual meeting, please review the accompanying joint proxy statement/prospectus.

 

Universal will transact no other business at its annual meeting, except for business properly brought before the annual meeting or any adjournment or postponement thereof.

 

Only holders of record of shares of Universal common stock at the close of business on June 28, 2007, the record date for the annual meeting, are entitled to notice of, and a vote at, the annual meeting and any adjournments or postponements of the annual meeting.

 

Your vote is important. We encourage you to sign and return your proxy card, or use the telephone or Internet voting procedures, before the annual meeting, so that your shares will be represented and voted at the annual meeting even if you cannot attend in person.

 

Please do not send any share certificates at this time. If the mergers are consummated, we will notify you of the procedures for exchanging Universal share certificates for shares of Holdings.

 

STEPHEN A. SNIDER

President and Chief Executive Officer

Houston, Texas

July 6, 2007

 

HOW TO OBTAIN ADDITIONAL INFORMATION

 

This joint proxy statement/prospectus incorporates important business and financial information about Hanover and Universal from other documents that are not included in or delivered with this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 219 for a listing of documents incorporated by reference. This information is available for you to review at the public reference room of the Securities and Exchange Commission, or SEC, located at 100 F Street, N.E., Room 1580, Washington, DC 20549, and through the SEC’s website, www.sec.gov. You can also obtain those documents incorporated by reference in this joint proxy statement/prospectus by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

 

You may also obtain documents incorporated by reference in this joint proxy statement/prospectus by requesting them in writing or by telephone from D.F. King & Co., Inc., Hanover’s proxy solicitor, or Georgeson Inc., Universal’s proxy solicitor, at the following addresses and telephone numbers:

 

 

If you would like to request documents, please do so by August 9, 2007 in order to receive them before the annual meetings.

 

VOTING BY INTERNET, TELEPHONE OR MAIL

 

If you hold your shares through a bank, broker, custodian or other recordholder, please refer to your proxy card or voting instruction form or the information forwarded by your bank, broker, custodian or other recordholder to see which options are available to you.

 

Hanover stockholders of record may submit their proxies by:

 

Internet.  You can vote over the Internet by accessing the website listed on your proxy card and following the instructions on the website prior to 11:59 EST on Wednesday, August 15, 2007. Internet voting is available 24 hours a day. If you vote over the Internet, do not return your proxy card(s).

 

Telephone.  You can vote by telephone by calling the toll-free number listed on your proxy card in the United States, Canada or Puerto Rico on a touch-tone phone prior to 11:59 EST on Wednesday, August 15, 2007. You will then be prompted to enter the control number printed on your proxy card and to follow the subsequent instructions. Telephone voting is available 24 hours a day. If you vote by telephone, do not return your proxy card(s).

 

Mail.  You can vote by mail by completing, signing, dating and mailing your proxy card(s) in the postage-paid envelope included with this joint proxy statement/prospectus.

 

Universal stockholders of record may submit their proxies by:

 

Internet.  You can vote over the Internet by accessing the website listed on your proxy card and following the instructions on the website prior to 11:59 EST on Wednesday, August 15, 2007. Internet voting is available 24 hours a day. If you vote over the Internet, do not return your proxy card(s).

 

Telephone.  You can vote by telephone by calling the toll-free number listed on your proxy card in the United States, Canada or Puerto Rico on a touch-tone phone prior to 11:59 EST on Wednesday, August 15, 2007. You will then be prompted to enter the control number printed on your proxy card and to follow subsequent instructions. Telephone voting is available 24 hours a day. If you vote by telephone, do not return your proxy card(s).

 

Mail.  You can vote by mail by completing, signing, dating and mailing your proxy card(s) in the postage-paid envelope included with this joint proxy statement/prospectus.

 

TABLE OF CONTENTS

 

 

 

SUMMARY

 

Questions and Answers About the Meetings

Q:		Why am I receiving this document?
A:		This is a joint proxy statement being used by both the Hanover and Universal boards of directors to solicit proxies of Hanover and Universal stockholders in connection with the proposed mergers involving Hanover and Universal and the annual meetings of Hanover and Universal. In addition, this document is a prospectus being delivered to Hanover and Universal stockholders because Holdings is offering shares of its common stock to be issued in exchange for shares of Hanover common stock and Universal common stock if the mergers are completed.
Q:		When and where are the meetings of the stockholders?

A:		The annual meeting of Hanover stockholders will take place at 9:00 a.m., local time, on Thursday, August 16, 2007, at the InterContinental Hotel Houston, 2222 West Loop South, Houston, Texas 77027. The annual meeting of Universal stockholders will take place at 9:00 a.m., local time, on Thursday, August 16, 2007, at the Hilton Houston Westchase, 9999 Westheimer Road, Houston, Texas 77042. Additional information relating to the Hanover and Universal annual meetings is set forth beginning on pages 108 and 156, respectively.

Q:		Who can answer any questions I may have about the annual meetings or the mergers?
A:		Hanover has retained D.F. King & Co., Inc. to serve as an information agent and proxy solicitor in connection with its annual meeting and the mergers. Hanover stockholders may call D.F. King & Co. toll-free at (800) 859-8508 with any questions they may have. Banks and brokers may call collect at (212) 659-5550.
		Universal has retained Georgeson Inc. to serve as an information agent and proxy solicitor in connection with its annual meeting and the mergers. Universal stockholders may call Georgeson Inc. toll-free at (877) 278-9673 with any questions they may have. Banks and brokers may call at (212) 440-9800.

Q:		What will happen in the proposed mergers?

A:		Prior to entering into the merger agreement, Universal formed a new Delaware corporation, Iliad Holdings, Inc., which has since been renamed Exterran Holdings, Inc., and which we refer to in this joint proxy statement/prospectus as “Holdings.” When the transactions are consummated, Holdings’ two newly created, wholly owned subsidiaries, Hector Sub, Inc. and Ulysses Sub, Inc., will merge with and into Hanover and Universal, respectively. As a result of these mergers, which we call the “Hanover merger” and the “Universal merger,” respectively, each of Hanover and Universal will become wholly owned subsidiaries of Holdings. We refer to the Hanover merger and the Universal merger collectively in this joint proxy statement/prospectus as the “mergers.” After the mergers, the current stockholders of Hanover and Universal will be the stockholders of Holdings.

		Additional information on the mergers is set forth beginning on page 34.

Q:		Why are Hanover and Universal proposing the mergers?
A:		Hanover and Universal believe the mergers will provide substantial strategic and financial benefits to Hanover and Universal and their respective stockholders, employees and customers, including:
		• the combination of complementary strengths,
		• improved operating efficiencies and reliability as well as a broader and deeper array of experienced and skilled technicians and service specialists,

		• a larger pool of U.S. contract compression contracts and assets that can be offered for sale over time to Universal Compression Partners, L.P., a publicly traded master limited partnership that is a subsidiary of Universal and that we refer to as the “Universal Partnership.” The Universal Partnership will be renamed Exterran Partners, L.P. upon the consummation of the mergers.

		• stronger and more stable earnings and cash flow as a result of business line diversification,
		• an expanded international platform, and
		• significant cost savings and synergies.

		Additional information on the strategic and financial rationale for the mergers, as well as each of Hanover’s and Universal’s reasons for the mergers, is set forth beginning on pages 43, 44 and 48, respectively.

Q:		What will I receive for my shares?
A:		As a result of the mergers, each holder of shares of Hanover common stock will have the right to receive 0.325 shares of Holdings common stock in exchange for each share of Hanover common stock the holder owns. Holders of Hanover common stock will have the right to receive cash for any fractional shares of Holdings common stock that they would otherwise be entitled to receive in the Hanover merger. The amount of cash payable for any fractional shares of Holdings common stock will be determined based on the average closing price of a share of Universal common stock during the 15 trading days ending on the third trading day immediately preceding the effective time of the Hanover merger. Each holder of shares of Universal common stock will have the right to receive one share of Holdings common stock in exchange for each share of Universal common stock the holder owns. Based on the number of shares of Hanover and Universal common stock outstanding on February 2, 2007, the last trading day prior to the announcement of the execution of the merger agreement by the parties, former Hanover stockholders will own approximately 53% of Holdings and former Universal stockholders will own approximately 47% of Holdings.

		Additional information on the consideration to be received in the mergers is set forth beginning on page 82.

Q:		What are my U.S. federal income tax consequences as a result of the mergers?
A:		We expect that holders of Hanover or Universal common stock will not recognize gain or loss for U.S. federal income tax purposes in the mergers (except with respect to any cash received in lieu of

		fractional shares of Holdings common stock). You are strongly urged to consult with a tax advisor to determine the particular U.S. federal, state or local or foreign tax consequences of the mergers to you.

		Additional information regarding tax matters is set forth in “Material U.S. Federal Income Tax Consequences of the Mergers” beginning on page 79.
Q:		What vote is required to approve the mergers?

A:		For both Hanover and Universal, the affirmative vote of a majority of their respective shares of common stock outstanding and entitled to vote as of the respective record dates is required to adopt the merger agreement and thereby approve the mergers. At the close of business on June 28, 2007, the record date for the Hanover annual meeting, directors and executive officers of Hanover and their respective affiliates had the right to vote 24.9% of the then outstanding shares of Hanover common stock. At the close of business on June 28, 2007, the record date for the Universal annual meeting, directors and executive officers of Universal and their respective affiliates had the right to vote 1.0% of the then outstanding shares of Universal common stock. Each of Hanover’s and Universal’s directors and executive officers has indicated his or her present intention to vote, or cause to be voted, the shares of Hanover or Universal common stock owned by him or her for the adoption of the merger agreement.

		Additional information on the votes required to approve the mergers is located on page 108 for Hanover and on page 157 for Universal.

Q:		How do the boards of directors of Hanover and Universal recommend that I vote with respect to the proposed mergers?
A:		Hanover’s board of directors unanimously recommends that the stockholders of Hanover vote “FOR” the proposal to adopt the merger agreement and consummate the mergers.
		Universal’s board of directors unanimously recommends that the stockholders of Universal vote “FOR” the proposal to adopt the merger agreement and consummate the mergers.

		Additional information on the recommendation of Hanover’s board of directors and the recommendation of Universal’s board of directors is set forth in “The Mergers — Hanover’s Reasons for the Mergers and Recommendation of Hanover’s Board of Directors” beginning on page 44 and “The Mergers — Universal’s Reasons for the Mergers and Recommendation of Universal’s Board of Directors” beginning on page 48, respectively.

		You should note that some Hanover directors and executive officers and some Universal directors and executive officers have interests in the mergers as directors or officers that are different from, or in addition to, the interests of other Hanover stockholders or Universal stockholders, respectively. Information relating to the interests of Hanover’s and Universal’s directors and executive officers in the mergers is set forth in “The Mergers — Interests of Hanover and Universal Directors and Executive Officers in the Mergers” beginning on page 66.
Q:		Who else must approve the mergers?

A:		Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act, Hanover and Universal may not complete the mergers until they have furnished certain information and materials to the Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade Commission and the applicable waiting period has expired or been early terminated. Completion of the mergers is also subject to approval of certain non-U.S. antitrust regulatory authorities if the failure to obtain those approvals would have a material adverse effect on Holdings after completion of the mergers. On July 3, 2007, Hanover and Universal each received notice that the waiting period required by the HSR Act with respect to the Mergers had been early terminated. In addition, Hanover and Universal have determined the jurisdictions in which foreign competition filings are required and have made the necessary filings.

		Additional information regarding regulatory approvals required for completion of the mergers is set forth in “The Mergers — Regulatory Matters” beginning on page 75.
Q:		Will Holdings’ shares be traded on an exchange?

A:		It is a condition to the completion of the mergers that the shares of common stock of Holdings that will be issuable pursuant to the mergers be approved for listing on the New York Stock Exchange. We intend to apply to list the shares of Holdings common stock to be issued or reserved for issuance in connection with the mergers on the New York Stock Exchange prior to the consummation of the mergers. We expect that the shares of Holdings common stock will trade under the symbol “EXH.”

Q:		When do you expect to complete the mergers?

A:		We are working to complete the mergers in the third quarter of 2007, although we cannot assure completion by any particular date. If Hanover and Universal stockholders adopt the merger agreement at their respective companies’ annual meetings, we expect that the other conditions to completion of the mergers will be satisfied and the mergers will be consummated within three business days following the annual meetings.

Q:		Who will serve as the directors and executive officers of Holdings after the consummation of the mergers?
A:		Upon the consummation of the mergers, the Holdings board of directors will consist of 10 members, half of whom will be current members of Universal’s board of directors designated by Universal and half of whom will be current members of Hanover’s board of directors designated by Hanover. Gordon T. Hall, the current Chairman of the board of directors of Hanover, will serve as Chairman of Holdings’ board of directors. Stephen A. Snider, the current President and Chief Executive Officer and Chairman of Universal, will serve as President and Chief Executive Officer and a director of Holdings. Additional information about the directors and executive officers of Holdings after consummation of the mergers is set forth in “The Mergers — Continuing Board and Management Positions” beginning on page 74.
Q:		Are there risks associated with the mergers?

A:		Yes, there are important risks associated with the mergers. We encourage you to read carefully and in their entirety the sections of this joint proxy statement/prospectus entitled “Risk Factors” and “Cautionary Information Regarding Forward-Looking Statements” beginning on pages 22 and 33, respectively.

Q:		In addition to the proposed mergers, what other proposals are to be considered and voted upon at the Hanover annual meeting and the Universal annual meeting?
A:		Hanover stockholders are being asked to consider and vote on the following four proposals, which we refer to collectively as the “Hanover annual business matter proposals,” in addition to the proposed mergers:
		• the “Holdings incentive plan proposal,” which is a proposal to approve a new long-term equity incentive plan to be used by Holdings following the consummation of the mergers to make awards of equity incentive compensation to directors, officers and employees of Holdings;
		• the “Holdings stock purchase plan proposal,” which is a proposal to approve a new employee stock purchase plan to be used by Holdings following the consummation of the mergers;
		• the “Hanover election of directors proposal,” which is a proposal to elect eleven directors to serve as members of Hanover’s board of directors until the 2008 annual meeting of Hanover stockholders or until their successors are duly elected and qualified; and
		• the “Hanover auditors ratification proposal,” which is a proposal to ratify the reappointment of PricewaterhouseCoopers LLP as Hanover’s independent registered public accounting firm for fiscal year 2007.

		Universal stockholders are being asked to consider and vote on the following four proposals, which we refer to collectively as the “Universal annual business matter proposals,” in addition to the proposed mergers:
		• the Holdings incentive plan proposal;
		• the Holdings stock purchase plan proposal;
		• the “Universal election of directors proposal,” which is a proposal to re-elect Thomas C. Case, Janet F. Clark and Uriel E. Dutton to serve as Class A members of Universal’s board of directors until the 2010 annual meeting of Universal stockholders or until their successors are duly elected and qualified; and
		• the “Universal auditors ratification proposal,” which is a proposal to ratify the reappointment of Deloitte & Touche LLP as Universal’s independent registered public accounting firm for fiscal year 2007.
		Additional information relating to the Hanover annual business matter proposals and the Universal annual business matter proposals is set forth beginning on pages 108 and 156, respectively.
Q:		What stockholder approvals are required to approve the Hanover election of directors proposal and the Hanover auditors ratification proposal and the Universal election of directors proposal and the Universal auditors ratification proposal?
A:		For Hanover, the affirmative vote of a plurality of the votes of the shares present in person or represented by proxy and entitled to vote at the Hanover meeting is required to elect each director nominee in connection with the Hanover election of directors proposal. However, Hanover’s Governance Principles require that any nominee who receives a greater number of “withheld” votes than “for” votes must submit his or her resignation for consideration by the Hanover board of directors. The affirmative vote of a majority of the shares of voting stock represented at the Hanover meeting is required to approve the Hanover auditors ratification proposal.
		Additional information on Hanover’s policy with regard to nominees who receive more votes “withheld” than “for” such nominee is set forth in the excerpt from the Hanover’s Governance Principles Concerning Shareholder Election of Directors included in this joint proxy statement/prospectus as Annex F.
		For Universal, the affirmative vote of a plurality of the votes cast at the Universal meeting is required to approve the Universal election of directors proposal, which means that the number of nominees recommended for election by the board of directors, currently three, receiving the greatest number of votes will be elected. The affirmative vote of a majority of the votes cast at the Universal meeting is required to approve the Universal auditors ratification proposal.
Q:		How will the vote on the proposed mergers impact the Hanover directors elected pursuant to the Hanover election of directors proposal and the Universal directors elected pursuant to the Universal election of directors proposal?
A:		If the proposed mergers receive the requisite stockholder approvals at the respective annual stockholders meetings of Hanover and Universal, the Hanover directors elected pursuant to the Hanover election of directors proposal and the Universal directors elected pursuant to the Universal election of directors proposal will serve until all of the other conditions to closing of the mergers are satisfied or waived and the mergers are consummated, at which time they will resign. Upon consummation of the mergers, each of Hanover and Universal will become subsidiaries of Holdings and the board of directors of Holdings will consist of 10 members, half of whom will consist of members of Hanover’s board of directors designated by the Hanover board of directors and half of whom will consist of members of Universal’s board of directors designated by the Universal board of directors, as provided in the merger agreement. More information regarding the Hanover and Universal directors who are expected to serve on the board of directors of Holdings is set forth in “The Mergers — Continuing Board and Management Positions” beginning on page 74.

		If the proposed mergers do not receive the requisite stockholder approvals, or if for any other reason the merger agreement is terminated, then the persons elected as directors at the Hanover annual meeting or as Class A directors at the Universal annual meeting will serve until the 2008 annual meeting of Hanover stockholders or until the 2010 annual meeting of Universal stockholders, as applicable, or until their successors are elected.
Q:		What stockholder approvals are required to approve the Holdings incentive plan proposal and the Holdings stock purchase plan proposal?
A:		For each of Hanover and Universal, approval of the Holdings incentive plan proposal and the Holdings stock purchase plan proposal requires the affirmative vote of a majority of the votes cast and the votes cast must represent over 50% of their respective shares of common stock outstanding and entitled to vote as of the respective record dates. Abstentions and “broker non-votes” will not be treated as votes cast.
Q:		Why are Hanover and Universal stockholders being asked to vote on the Holdings incentive plan proposal and the Holdings stock purchase plan proposal?
A:		Under the terms of the equity incentive plans of Hanover and Universal currently in effect, the vesting of all equity incentive awards made prior to the date of the merger agreement will accelerate as a result of the consummation of the mergers. Holdings intends to implement a new equity incentive plan so it can have the ability to make equity compensation awards to directors, officers and employees of Holdings following the consummation of the mergers. If the stockholders of Hanover and Universal approve the Holdings incentive plan proposal, Holdings will not issue any further equity incentive awards under the existing Hanover and Universal plans following the consummation of the mergers. If the stockholders of Hanover and Universal do not approve the Holdings incentive plan proposal, Holdings intends to use the remaining availability under Hanover’s and Universal’s existing equity plans for additional equity incentive awards following the consummation of the mergers.
		Under the terms of Universal’s employee stock purchase plan, employees of Universal and its subsidiaries have the opportunity to purchase shares of Universal common stock, thereby encouraging employees to share in the economic growth and success of Universal and its subsidiaries. Universal’s employee stock purchase plan allows eligible employees an opportunity to acquire a proprietary interest in Universal’s long-term performance and success through the purchase of shares of Universal’s common stock at a discount from its fair market value with funds accumulated through payroll deductions and without having to pay any brokerage commissions with respect to the purchases. The Universal employee stock purchase plan will be terminated in connection with the consummation of the mergers. If the stockholders of Hanover and Universal approve the Holdings stock purchase plan proposal, then, following the consummation of the mergers, Holdings will implement the employee stock purchase plan, which is substantially similar to Universal’s current employee stock purchase plan. If the stockholders of Hanover and Universal do not approve the Holdings stock purchase plan proposal, then Holdings will not have an employee stock purchase plan.
Q:		How will the vote on the proposed mergers impact the Holdings incentive plan proposal and the Holdings stock purchase plan proposal?
A:		The completion of the mergers is not conditioned upon the approval of the Holdings incentive plan proposal or the Holdings stock purchase plan proposal. However, the approval of each of these plans by Holdings is subject to the consummation of the mergers.
		If the proposed mergers do not receive the requisite stockholder approvals, or if for any other reason the merger agreement is terminated, then the Holdings stock incentive plan and the Holdings employee stock purchase plan will not be implemented.

Q:		What do I need to do now?
A:		After carefully reading and considering the information contained in this joint proxy statement/prospectus, please complete and sign your proxy card and return it in the enclosed postage-paid envelope as soon as possible so that your shares may be represented at your annual meeting. Alternatively, you may cast your vote by telephone or Internet by following the instructions on your proxy card. In order to ensure that your vote is recorded, please vote your proxy as instructed on your proxy card, or on the voting instruction form provided by the record holder if your shares are held in the name of your broker or other nominee, even if you currently plan to attend your annual meeting in person.
		Additional information on voting procedures is located beginning on page 108 for Hanover and on page 156 for Universal.
Q:		What should I do if I receive more than one set of voting materials?
A:		You may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. In addition, if you are a stockholder of both Hanover and Universal, you will receive one or more separate proxy cards or voting instruction cards for each company. Please follow the instructions and vote in accordance with each proxy card and voting instruction card you receive.
Q:		Should I send in my share certificates now?

A:		No. If the mergers are completed, we will send the former stockholders of both Hanover and Universal written instructions for exchanging their share certificates. Holdings shares will be in uncertificated, book-entry form unless a physical certificate is requested by the holder. Additional information on the procedures for exchanging certificates representing shares of Hanover or Universal common stock is set forth in “The Merger Agreement — Procedures for Exchange of Share Certificates” beginning on page 83.

Q:		If my shares are held in “street name” by a broker or other nominee, will my broker or nominee vote my shares for me?
A:		If you do not provide your broker with instructions on how to vote your “street name” shares, your broker will not be permitted to vote them on the proposals related to the adoption of the merger agreement, the Holdings incentive plan proposal or the Holdings stock purchase plan proposal at your annual meeting. You should therefore be sure to provide your broker with instructions on how to vote your shares. You should check the voting form used by your broker to see if your broker offers telephone or Internet voting. If you do not give voting instructions to your broker, your shares will be counted towards a quorum at your respective annual meeting, but effectively will be treated as voting against the adoption of the merger agreement unless you appear and vote in person at your annual meeting. If your broker holds your shares and you plan to attend and vote at your annual meeting, please bring a letter from your broker identifying you as the beneficial owner of the shares and authorizing you to vote.

		Additional information on how to vote if your shares are held in street name is located beginning on page 109 for Hanover and on page 156 for Universal.

Q:		As a participant in Hanover’s or Universal’s 401(k) Plan, how do I vote shares held in my plan account?

A:		If you are a participant in Hanover’s 401(k) Plan, you have the right to vote the shares of Hanover common stock allocated to your plan account on the proposals to be considered at the Hanover annual meeting as though you were the registered holder with respect to such shares. If you are a participant in the Universal 401(k) Plan, you have the right to provide voting directions to the plan trustee by submitting your voting directions for those shares of Universal common stock that are held by the Universal 401(k)

		Plan and allocated to your plan account on the proposals to be considered at the Universal annual meeting. Plan participant voting directions will be treated confidentially. The plan trustee will follow participants’ voting directions unless it determines that to do so would be contrary to the Employee Retirement Income Security Act of 1974. If you elect not to provide voting directions, the Universal plan trustee will vote all of the Universal shares allocated to your account in the same proportion as the actual voting instructions submitted by plan participants at least two days prior to the Universal annual meeting. Because the plan trustee must process voting instructions from participants before the date of the Universal annual meeting, you are urged to deliver your instructions well in advance of the Universal annual meeting so that the instructions are received no later than August 13, 2007.

Q:		What if I do not vote on the matters relating to the mergers?
A:		Because adoption of the merger agreement requires the affirmative vote of a majority of the shares of common stock outstanding and entitled to vote of each of Hanover and Universal as of the respective record dates, if you abstain or fail to vote your shares in favor of adoption of the merger agreement, this will have the same effect as voting your shares against adoption of the merger agreement. If you fail to respond with a vote or fail to instruct your broker or other nominee how to vote on the proposed mergers, it will have the same effect as a vote against the proposed mergers. If you respond but do not indicate how you want to vote on the proposed mergers, your proxy will be counted as a vote in favor of adoption of the merger agreement.
Q:		What if I want to change my vote?
A:		If you are a stockholder of record of Hanover or Universal, you may send a later-dated, signed proxy card so that it is received prior to your annual meeting, or you may attend your annual meeting in person and vote. You may also revoke your proxy card by sending a notice of revocation that is received prior to your annual meeting to your company’s Corporate Secretary at the address set forth under “The Companies” beginning on page 97. You may also change your vote by telephone or Internet. You may change your vote by using any one of these methods regardless of the procedure used to cast your previous vote.
		If your shares are held in “street name” by a broker or other nominee, you should follow the instructions provided by your broker or other nominee to change your vote.
Q:		Do I have appraisal rights?
A:		No. Neither the Hanover stockholders nor the Universal stockholders will have appraisal rights under Delaware law as a result of the mergers.

 

The Companies

 

The Mergers

	•	determined that the merger agreement and the transactions contemplated thereby are advisable and in the best interests of the stockholders of Hanover;
	•	approved, authorized and adopted the merger agreement; and
	•	recommended that the stockholders of Hanover vote for adoption of the merger agreement at the annual meeting of stockholders of Hanover.

	•	determined that the merger agreement and the transactions it contemplates are advisable, fair to and in the best interests of Universal and its stockholders;
	•	approved the merger agreement; and
	•	recommended that the Universal stockholders vote for the adoption of the merger agreement.

	•	Gordon T. Hall;
	•	John E. Jackson;
	•	Peter H. Kamin;
	•	William C. Pate; and
	•	Stephen M. Pazuk.

	•	Stephen A. Snider;
	•	Ernie L. Danner;
	•	Uriel E. Dutton;
	•	Janet F. Clark; and
	•	J.W.G. “Will” Honeybourne.

	•	adoption of the merger agreement by the stockholders of each of Hanover and Universal;

	•	the expiration or early termination of any waiting period applicable to the consummation of the mergers under the HSR Act and, except in certain circumstances, the receipt of approval or expiration of any mandatory waiting periods under applicable non-U.S. antitrust laws, which condition has been satisfied;

	•	the absence of any decree, order or injunction of a U.S. court of competent jurisdiction that prohibits the consummation of the mergers;
	•	the receipt by each of Hanover and Universal of a legal opinion with respect to certain U.S. federal income tax consequences of the mergers;
	•	the receipt of required consents and relief from Hanover’s and Universal’s credit agreements, which have been obtained;
	•	the parties’ satisfaction that financing arrangements have been obtained to allow for the repayment or repurchase of any indebtedness that may be required to be repaid or repurchased as a result of the consummation of the mergers; and
	•	other customary conditions, including the truth and correctness of the representations and warranties and performance of covenants by each party, subject to a materiality standard, and the absence of any occurrence, state of facts or development that has had or is reasonably likely to have a material adverse effect.

	•	the mergers have not been consummated by February 5, 2008, through no fault of the terminating party;
	•	the stockholders of Hanover or Universal have held a meeting to consider the merger agreement but have not voted to adopt the merger agreement;
	•	there is a final and nonappealable legal restraint, injunction or prohibition of the mergers, as long as the terminating party has complied with certain covenants in the merger agreement and has used its reasonable best efforts to remove the legal restraint;
	•	the other party has breached its representations and warranties or failed to perform its covenants or agreements in a manner that would cause the failure of the related closing condition, unless the breach is cured within 90 days after notice of the breach; or

	•	the board of directors of the other party has withdrawn or adversely modified its recommendation of the merger agreement or the proposed transactions or proposes to do the same, recommended a takeover proposal or failed to timely reaffirm its recommendation to stockholders upon request.

 

Matters to be Considered at the Annual Meetings

	•	to adopt the merger agreement;
	•	to approve the Holdings 2007 Stock Incentive Plan, a copy of which is attached as Annex D to this joint proxy statement/prospectus, to be used by Holdings following the consummation of the mergers;
	•	to approve the Holdings Employee Stock Purchase Plan, a copy of which is attached as Annex E to this joint proxy statement/prospectus, to be used by Holdings following the consummation of the mergers;
	•	to elect eleven directors to serve as members of Hanover’s board of directors until the 2008 annual meeting of Hanover stockholders or until their successors are duly elected and qualified;
	•	to ratify the reappointment of PricewaterhouseCoopers LLP as Hanover’s independent registered public accounting firm for fiscal year 2007; and
	•	to transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

	•	to adopt the merger agreement;
	•	to approve the Holdings 2007 Stock Incentive Plan, a copy of which is attached as Annex D to this joint proxy statement/prospectus, to be used by Holdings following the consummation of the mergers;
	•	to approve the Holdings Employee Stock Purchase Plan, a copy of which is attached as Annex E to this joint proxy statement/prospectus, to be used by Holdings following the consummation of the mergers;
	•	to re-elect Thomas C. Case, Janet F. Clark and Uriel E. Dutton to service as Class A members of Universal’s board of directors until the 2010 annual meeting of Universal stockholders or until their successors are duly elected and qualified;
	•	to ratify the reappointment of Deloitte & Touche LLP as Universal’s independent registered public accounting firm for fiscal year 2007; and
	•	to transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

Comparative Stock Prices and Dividends

	•	February 2, 2007, the last full trading day prior to the public announcement of the mergers, and

	•	July 5, 2007, the last trading day for which this information could be calculated prior to the filing of this joint proxy statement/prospectus.

														Universal
		Hanover				Hanover				Universal				Equivalent
		Common Stock				Adjusted(1)				Common Stock				per Share(2)
February 2, 2007		$	19.40			$	59.69			$	61.10			$	61.10
July 5, 2007		$	26.50			$	81.54			$	81.73			$	81.73

(1)		The adjusted per share data for Hanover common stock has been determined by dividing the market price of a share of Hanover common stock on each of the dates by 0.325 and is presented for comparative purposes. As a result of the Hanover merger, each holder of shares of Hanover common stock will have the right to receive 0.325 shares of Holdings common stock in exchange for each share of Hanover common stock the holder owns. The “Hanover Adjusted” value does not represent the value of the consideration that Hanover stockholders will receive per share as a result of the Hanover merger.
(2)		The Universal equivalent per share price is the same as the Universal common stock price because, as a result of the Universal merger, each holder of shares of Universal common stock will have the right to receive one share of Holdings common stock in exchange for each share of Universal common stock the holder owns.

 

Selected Historical Financial Data

		Hanover Compressor Company
		Three Months Ended March 31,								Twelve Months Ended December 31,
		2007				2006				2006				2005				2004				2003				2002
		(In thousands, except per share data)
Statement of Operations Data:
Revenue		$	460,213			$	336,730			$	1,605,232			$	1,349,572			$	1,165,402			$	1,047,978			$	991,287
Equity in income of non-consolidated affiliates			5,683				5,848				19,430				21,466				19,780				23,014				18,554
Gain on sale of business and other income			7,332				30,219				46,001				4,551				3,413				4,088				3,600
Cost of sales (excluding depreciation and amortization)			303,810				216,141				1,049,701				867,483				731,545				643,680				581,899
Depreciation and amortization			50,896				41,968				181,416				182,681				175,308				169,164				148,141
Selling, general and administrative expenses			51,794				48,055				204,247				182,198				173,066				159,870				150,863
Interest expense(1)			26,865				31,640				118,006				136,927				146,978				89,175				43,352
Operating lease expense(1)			—				—				—				—				—				43,139				90,074
Debt extinguishment costs			—				5,902				5,902				7,318				—				—				—
Securities litigation settlement			—				—				—				—				(4,613	)			42,991				—
Goodwill impairment			—				—				—				—				—				35,466				52,103
Provision for (benefit from) income tax			14,445				8,447				28,782				27,714				24,767				3,629				(17,114	)
Income (loss) from continuing operations			25,402				22,141				85,722				(37,148	)			(54,091	)			(117,488	)			(80,211	)
Income (loss) from discontinued operations, net of tax			—				(92	)			431				(869	)			10,085				(3,861	)			(35,857	)
Cumulative effect of accounting change, net of tax			—				370				370				—				—				(86,910	)			—
Net income (loss)			25,402				22,419				86,523				(38,017	)			(44,006	)			(208,259	)			(116,068	)
Earnings (loss) per common share from continuing operations:
Basic		$	0.25			$	0.22			$	0.85			$	(0.41	)		$	(0.64	)		$	(1.45	)		$	(1.01	)
Diluted		$	0.23			$	0.22			$	0.80			$	(0.41	)		$	(0.64	)		$	(1.45	)		$	(1.01	)
Weighted average common stock outstanding:
Basic			103,405				100,759				101,178				91,556				84,792				81,123				79,500
Diluted			117,619				111,428				112,035				91,556				84,792				81,123				79,500
Other Financial Data:
Cash flows provided by (used in):
Operating activities		$	5,234			$	(77,508	)		$	209,089			$	122,487			$	131,837			$	164,735			$	195,717
Investing activities			(64,043	)			(1,315	)			(168,168	)			(104,027	)			11,129				(43,470	)			(193,703	)
Financing activities			42,325				79,767				(18,134	)			(6,890	)			(162,350	)			(84,457	)			(4,232	)

		As of March 31,								As of December 31,
		2007				2006				2006				2005				2004				2003				2002
		(In thousands)
Balance Sheet Data:
Cash		$	56,935			$	49,157			$	73,286			$	48,233			$	38,076			$	56,619			$	19,011
Working capital(2)			202,092				386,803				326,565				351,694				301,893				279,050				218,398
Total assets			3,089,252				2,930,496				3,070,889				2,862,996				2,771,229				2,942,274				2,176,983
Total debt and convertible preferred securities			1,365,669				1,478,442				1,369,931				1,478,948				1,643,616				1,782,823				641,194
Stockholders’ equity			1,088,695				935,990				1,014,282				909,782				760,055				753,488				927,626

(1)		Operating lease expense related to the operating lease facilities has been recognized as interest expense subsequent to consolidation of the operating lease facilities on July 1, 2003.
(2)		Working capital is defined as current assets minus current liabilities.

		Universal Compression Holdings, Inc.
		Three Months Ended								Twelve Months Ended				Nine Months Ended				Twelve Months Ended
		March 31,								December 31,				December 31,				March 31,
		2007				2006				2006				2005(1)				2005				2004				2003
		(In thousands, except per share data)
Statement of Operations Data:
Revenue		$	239,363			$	229,068			$	947,707			$	613,647			$	763,070			$	688,786			$	625,218
Cost of sales (excluding depreciation and amortization)			133,044				127,223				519,056				342,312				452,816				399,305				357,250
Depreciation and amortization			34,863				29,799				122,701				79,899				93,797				85,650				63,706
Selling, general and administrative expenses			35,741				26,581				118,762				65,269				75,756				67,516				67,944
Interest expense, net(2)			14,039				14,057				57,349				40,221				64,188				73,475				36,421
Operating lease expense(2)			—				—				—				—				—				—				46,071
Debt extinguishment costs			—				—				1,125				—				26,543				14,903				—
Provision for income tax			7,079				11,875				42,277				31,053				17,213				17,741				20,975
Income from continuing operations and net income			14,324				20,875				87,656				55,369				33,610				30,787				33,518
Earnings per common share from continuing operations:
Basic		$	0.48			$	0.70			$	2.93			$	1.74			$	1.07			$	1.00			$	1.09
Diluted		$	0.46			$	0.68			$	2.82			$	1.69			$	1.04			$	0.98			$	1.08
Weighted average common stock outstanding:
Basic			29,820				29,629				29,911				31,773				31,392				30,848				30,665
Diluted			30,881				30,700				31,032				32,758				32,224				31,283				30,928
Other Financial Data:
Cash flows provided by (used in):
Operating activities		$	42,547			$	64,594			$	212,211			$	144,873			$	134,056			$	165,248			$	188,591
Investing activities			(72,862	)			(39,960	)			(213,187	)			(110,464	)			(181,476	)			(46,850	)			(107,704	)
Financing activities			25,839				(21,927	)			8,380				(34,734	)			(35,589	)			(69,732	)			(13,849	)

		As of March 31,								As of December 31,								As of March 31,
		2007				2006				2006				2005				2005				2004				2003
		(In thousands)
Balance Sheet Data:
Cash		$	42,895			$	42,232			$	46,997			$	39,262			$	38,723			$	121,189			$	71,693
Working capital(3)			184,367				131,217				184,979				144,714				115,836				174,599				158,405
Total assets			2,434,499				2,137,856				2,342,031				2,095,295				2,022,758				1,972,451				1,953,887
Total debt(4)			856,582				898,050				830,554				923,341				858,096				884,442				945,155
Stockholders’ equity			935,856				861,278				916,430				831,312				861,672				799,235				744,451

(1)		Effective in 2005, Universal’s Board of Directors approved a change to its fiscal year end from March 31, to December 31.
(2)		Operating lease expense related to the operating lease facilities has been recognized as interest expense subsequent to consolidation of the operating lease facilities on December 31, 2002.
(3)		Working capital is defined as current assets minus current liabilities.
(4)		Includes capital lease obligations.

 

Selected Unaudited Pro Forma Condensed Combined Financial Data

	•	have been derived from and should be read in conjunction with the “Exterran Holdings, Inc. Unaudited Pro Forma Condensed Combined Financial Information” and the related notes beginning on page 199 of this joint proxy statement/prospectus; and

	•	should be read in conjunction with the historical consolidated financial statements of Hanover and Universal incorporated by reference into this joint proxy statement/prospectus.

		Three Months Ended				Twelve Months Ended
		March 31,				December 31,
		2007				2006
		(In thousands, except
		per share data)
Statement of Operations Data:
Revenue and other income		$	720,343			$	2,640,284
Cost of sales (excluding depreciation and amortization)			445,186				1,599,700
Depreciation and amortization			100,261				351,105
Selling, general and administrative expenses			84,736				312,658
Interest expense			41,632				178,268
Debt extinguishment costs			—				7,027
Provision for income tax			17,222				53,886
Income from continuing operations			31,737				141,486
Earnings per common share from continuing operations
Basic		$	0.50			$	2.25
Diluted		$	0.48			$	2.17
Weighted average common stock outstanding
Basic			63,427				62,794
Diluted			69,108				67,443

		As of
		March 31, 2007
		(In thousands)
Balance Sheet Data:
Cash		$	99,830
Working capital			(4,277	)
Total assets			6,830,125
Debt			2,270,744
Stockholders’ equity			3,151,012

 

Unaudited Comparative Per Share Data

		As of or for the				As of or for the
		Three Months Ended				Twelve Months Ended
		March 31, 2007				December 31, 2006
Hanover — Historical:
Earnings per share (from continuing operations):
Basic		$	0.25			$	0.85
Diluted		$	0.23			$	0.80
Dividends declared per share of common stock		$	—			$	—
Book value per share of common stock		$	10.25			$	9.81
Hanover — Adjusted(1):
Earnings per share (from continuing operations):
Basic		$	0.77			$	2.62
Diluted		$	0.71			$	2.46
Dividends declared per share of common stock		$	—			$	—
Book value per share of common stock		$	31.54			$	30.18
Universal — Historical:
Earnings per share (from continuing operations):
Basic		$	0.48			$	2.93
Diluted		$	0.46			$	2.82
Dividends declared per share of common stock		$	—			$	—
Book value per share of common stock		$	30.90			$	30.42
Holdings unaudited pro forma combined amounts(2):
Earnings per share (from continuing operations):
Basic		$	0.50			$	2.25
Diluted		$	0.48			$	2.17
Dividends declared per share of common stock		$	—			$	—
Book value per share of common stock		$	48.61			$	48.20

(1)		The Hanover — Adjusted amounts are equal to the corresponding Hanover historical amounts divided by 0.325. As a result of the Hanover merger, each holder of shares of Hanover common stock will have the right to receive 0.325 shares of Holdings common stock in exchange for each share of Hanover common stock the holder owns.
(2)		The Universal per share equivalent amounts based on the combination of Hanover and Universal are the same as the Holdings unaudited pro forma combined amounts because, as a result of the Universal merger, each holder of shares of Universal common stock will have the right to receive one share of Holdings common stock in exchange for each share of Universal common stock the holder owns.

 

In addition to the other information included and incorporated by reference in this joint proxy statement/prospectus, Hanover and Universal stockholders should carefully consider the matters described below to determine whether to adopt the merger agreement and thereby approve the mergers.

 

The value of the shares of Holdings common stock you receive upon the consummation of the mergers may be less than the value of your shares of Hanover common stock or Universal common stock as of the date of the merger agreement, the date of this joint proxy statement/prospectus or the date of the annual meetings.

 

The exchange ratios in the Hanover merger and the Universal merger are fixed and will not be adjusted in the event of any change in the stock prices of Hanover or Universal prior to the mergers. There may be a significant amount of time between the dates when the stockholders of each of Hanover and Universal vote on the merger agreement at the annual meeting of each company and the date when the mergers are completed. The absolute and relative prices of shares of Hanover common stock and Universal common stock may vary significantly between the date of this joint proxy statement/prospectus, the date of the annual meetings and the date of the completion of the mergers. These variations may be caused by, among other things, changes in the businesses, operations, results or prospects of Hanover or Universal, market expectations of the likelihood that the mergers will be completed and the timing of completion, the prospects of post-merger operations, general market and economic conditions and other factors. In addition, it is impossible to predict accurately the market price of the Holdings common stock to be received by Hanover and Universal stockholders after the completion of the mergers. Accordingly, the prices of Universal common stock and Hanover common stock on the date of this joint proxy statement/prospectus and on the date of the annual meetings may not be indicative of their prices immediately prior to completion of the mergers and the price of Holdings common stock after the mergers are completed.

 

The anticipated benefits of combining the companies may not be realized.

 

Hanover and Universal entered into the merger agreement with the expectation that the mergers would result in various benefits, including, among other things, annual synergies and cost savings of approximately $50 million and other operating efficiencies that cannot be quantified at this time. We may not achieve these benefits at the levels expected or at all. If we fail to achieve these expected benefits, the results of operations and the enterprise value of the combined company may be adversely affected.

 

The integration of Hanover and Universal following the mergers will present significant challenges that may reduce the anticipated potential benefits of the mergers.

 

Hanover and Universal will face significant challenges in consolidating functions and integrating their organizations, procedures and operations in a timely and efficient manner, as well as retaining key personnel. The integration of Hanover and Universal will be complex and time-consuming due to the size and complexity of each organization. The principal challenges will include the following:

 

 

The respective managements of Hanover and Universal will have to dedicate substantial effort to integrating the businesses. These efforts could divert management’s focus and resources from other day-to-day tasks, corporate initiatives or strategic opportunities during the integration process.

 

Hanover and Universal will incur significant transaction and merger-related integration costs in connection with the mergers.

 

Hanover and Universal expect to pay transaction costs of approximately $40 million to $45 million in the aggregate, including payments of approximately $10 million made to some of their employees pursuant to change of control agreements. These transaction fees include investment banking, legal and accounting fees and expenses, SEC filing fees, printing expenses, mailing expenses and other related charges. These amounts are preliminary estimates that are subject to change. A portion of the transaction costs will be incurred regardless of whether the mergers are consummated. Hanover and Universal will each pay its own transaction costs, except that they will share equally certain filing, printing and other costs and expenses.

 

Hanover and Universal currently estimate integration costs associated with the mergers to be approximately $35 million to $40 million. Hanover and Universal are in the early stages of assessing the magnitude of these costs, and, therefore, these estimates may change substantially and additional unanticipated costs may be incurred in the integration of the businesses of Hanover and Universal.

 

As a result of the mergers, the repurchase of a significant portion of Hanover’s and Universal’s outstanding debt may be required and additional funds to finance the repurchase may not be available on terms favorable to Holdings, if at all.

 

Hanover has indebtedness related to its outstanding compression equipment lease obligations, the aggregate principal amount of which was approximately $383.0 million in notes payable plus an additional amount of $11.9 million in related minority interest obligations as of March 31, 2007. As a result of the mergers, the equipment trusts that issued the indebtedness will be required to make an offer (with funds supplied by Hanover) to repurchase the equipment lease notes and the related minority interest obligations at a price equal to 101% of the outstanding principal amount, plus accrued and unpaid interest to the date of purchase, unless the obligations of the equipment trusts have been earlier satisfied and discharged. For more information regarding these repurchase obligations, please read “The Mergers — Change in Control Provision in Hanover’s Equipment Leases” beginning on page 78.

 

Hanover and Universal expect that Holdings will refinance any required repurchase of the equipment lease obligations. If Holdings is unable to obtain necessary financing on favorable terms, the earnings and cash flow of Holdings could be materially adversely affected. If Holdings is unable to obtain the necessary financing at all, the equipment trusts would be in default under the indenture relating to the equipment lease obligations, which would cause defaults under Hanover’s other financing arrangements.

 

While the mergers are pending, Hanover and Universal will be subject to business uncertainties and contractual restrictions that could adversely affect their businesses.

 

Uncertainty about the effect of the mergers on employees, customers and suppliers may have an adverse effect on Hanover and Universal and, consequently, on the combined company. These uncertainties may impair Hanover’s and Universal’s ability to attract, retain and motivate key personnel until the mergers are consummated and for a period of time thereafter, and could cause customers, suppliers and others who deal with Hanover and Universal to seek to change existing business relationships with Hanover and Universal. Employee retention may be particularly challenging during the pendency of the mergers because employees may experience uncertainty about their future roles with the combined company. If, despite Hanover’s and Universal’s retention efforts, key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, the combined company’s business could be seriously harmed. In addition, the merger agreement restricts Hanover and Universal, without the other party’s consent and subject to certain exceptions, from making certain acquisitions and taking other specified actions until the mergers occur or the merger agreement terminates. These restrictions may prevent Hanover

and Universal from pursuing otherwise attractive business opportunities and making other changes to their businesses that may arise prior to completion of the mergers or termination of the merger agreement.

 

Failure to complete the mergers could negatively impact the stock prices and the future business and financial results of Hanover and Universal because of, among other things, the disruption that would occur as a result of uncertainties relating to a failure to complete the mergers.

 

The stockholders of both Hanover and Universal may not approve the mergers. If the mergers are not completed for any reason, Hanover and Universal could be subject to several risks, including the following:

 

 

In addition, Hanover and Universal would not realize any of the expected benefits of having completed the mergers.

 

If the mergers are not completed, the price of Hanover or Universal common stock may decline to the extent that the current market price of that stock reflects a market assumption that the mergers will be completed and that the related benefits and synergies will be realized, or as a result of the market’s perceptions that the mergers were not consummated due to an adverse change in Hanover’s or Universal’s business. In addition, Hanover’s business and Universal’s business may be harmed, and the prices of their stock may decline as a result, to the extent that customers, suppliers and others believe that the companies cannot compete in the marketplace as effectively without the mergers or otherwise remain uncertain about the companies’ future prospects in the absence of the mergers. Similarly, current and prospective employees of Hanover and Universal may experience uncertainty about their future roles with the resulting company and choose to pursue other opportunities, which could adversely affect Hanover or Universal, as applicable, if the mergers are not completed. The realization of any of these risks may materially adversely affect the business, financial results, financial condition and stock prices of Hanover and Universal.

 

The merger agreement limits Hanover’s and Universal’s ability to pursue an alternative acquisition proposal and requires Hanover or Universal to pay a termination fee of up to $70 million if it does.

 

The merger agreement prohibits Hanover and Universal from soliciting, initiating or encouraging alternative merger or acquisition proposals with any third party. The merger agreement also provides for the payment by Hanover or Universal of a termination fee of up to $70 million if the merger agreement is terminated in certain circumstances in connection with a competing acquisition proposal or the withdrawal by the board of directors of that company of its recommendation that the stockholders of that company vote for the adoption of the merger agreement, as the case may be. See “The Merger Agreement — Covenants and Agreements — No Solicitation” beginning on page 90.

 

These provisions limit Universal’s and Hanover’s ability to pursue offers from third parties that could result in greater value to Hanover’s or Universal’s stockholders. The obligation to make the termination fee payment also may discourage a third party from pursuing an alternative acquisition proposal.

 

Some of the directors and executive officers of Hanover and Universal have interests in the mergers that are different from the interests of Hanover’s and Universal’s stockholders.

 

When considering the recommendation of the Hanover board of directors with respect to the mergers, Hanover stockholders should be aware that some directors and executive officers of Hanover have interests in the mergers that are different from, or in addition to, the interests of the stockholders of Hanover. These

interests include (1) their designation as Holdings directors or executive officers, (2) the fact that the completion of the transaction will result in the acceleration of vesting of long-term incentive awards held by directors and executive officers and (3) the fact that certain executive officers of Hanover have entered into change of control agreements with Hanover that will entitle them to cash payments and other benefits if the mergers are completed and their employment is terminated or if the executive resigns for good reason, as defined in the agreements.

 

When considering the recommendation of the Universal board of directors with respect to the mergers, Universal stockholders should be aware that some directors and executive officers of Universal have interests in the mergers that are different from, or in addition to, the interests of the stockholders of Universal. These interests include (1) their designation as Holdings directors or executive officers, (2) the fact that the completion of the transaction will result in the acceleration of vesting of equity-based awards held by directors and executive officers and (3) the fact that certain executive officers of Universal have entered into change of control agreements with Universal that will entitle them to cash payments and other benefits if the mergers are completed and their employment is terminated or if the executive terminates his employment for good reason, as defined in the agreements.

 

Stockholders should consider these interests in conjunction with the recommendation of the directors of Hanover and Universal of approval of the mergers. These interests have been described more fully in “The Mergers — Interests of Hanover and Universal Directors and Executive Officers in the Mergers” beginning on page 65.

 

A substantial portion of Holdings’ future cash flows may be used to service its indebtedness, and Holdings’ ability to generate cash will depend on many factors beyond its control.

 

As of March 31, 2007, Hanover and Universal had approximately $2.2 billion in combined outstanding indebtedness. After the consummation of the mergers, factors beyond the control of Holdings will continue to affect its ability to make payments on or refinancings of its outstanding indebtedness. These factors include those discussed elsewhere in these “Risk Factors” and those listed in the “Cautionary Information Regarding Forward-Looking Statements” section of this joint proxy statement/prospectus beginning on pages 22 and 33, respectively. Further, the ability of Holdings to fund working capital and capital expenditures will also depend on its ability to generate cash. If, in the future, sufficient cash is not generated from Holdings’ operations to meet its debt service obligations, Holdings may need to reduce or delay funding for capital investment, operations or other purposes.

 

Holdings may be vulnerable to interest rate increases due to its floating rate debt obligations.

 

As of March 31, 2007, after taking into consideration interest rate swaps, Hanover and Universal had approximately $472 million of combined outstanding indebtedness subject to interest at floating rates. Changes in economic conditions outside of Holdings’ control could result in higher interest rates, thereby increasing Holdings’ interest expense and reducing its funds available for capital investment, operations or other purposes.

 

Hanover’s and Universal’s indebtedness imposes restrictions on them that will affect Holdings’ ability to successfully operate its business.

 

Following the consummation of the mergers, the bank credit facilities and other indebtedness of Hanover and Universal are expected to remain outstanding. These bank credit facilities and the agreements governing certain of this indebtedness include covenants that, among other things, will restrict Holdings’ ability to:

 

 

 

These bank credit facilities and certain other agreements also will require Holdings to maintain various financial ratios. Such covenants will restrict Holdings’ ability to expand or to pursue its business strategies. Holdings’ ability to comply with these and any other provisions of such agreements will be affected by changes in its operating and financial performance, changes in business conditions or results of operations, adverse regulatory developments or other events beyond its control. The breach of any of these covenants could result in a default, which could cause Holdings’ indebtedness to become due and payable. If any of Holdings’ indebtedness were to be accelerated, it may not be able to repay or refinance it.

 

A reduction in oil or natural gas prices, or instability in U.S. or global energy markets, could adversely affect Holdings’ business.

 

Following the consummation of the mergers, Holdings’ results of operations will depend upon the level of activity in the global energy market, including natural gas development, production, processing and transportation. Oil and natural gas prices and the level of drilling and exploration activity can be volatile. For example, oil and natural gas exploration and development activity and the number of well completions typically decline when there is a significant reduction in oil and natural gas prices or significant instability in energy markets. As a result, the demand for Holdings’ gas compression services and oil and gas production and processing equipment would be adversely affected. Any future decline in oil and natural gas prices could have a material adverse effect on the business, consolidated financial condition, results of operations and cash flows of Holdings.

 

Erosion of the financial condition of customers of Holdings following the consummation of the mergers could also have an adverse effect on its business. During times when the oil or natural gas markets weaken, the likelihood of the erosion of the financial condition of customers increases. If and to the extent the financial condition of Holdings’ customers declines, those customers could seek to preserve capital by canceling any month-to-month natural gas compression contracts, canceling or delaying scheduled maintenance of their existing gas compression and oil and gas production and processing equipment or determining not to enter into any new natural gas compression service contracts or purchase new gas compression and oil and gas production and processing equipment, thereby reducing demand for Holdings’ products and services. The reduced demand for Holdings’ services following the consummation of the mergers as described above could adversely affect the business, financial condition and operations results of Holdings. In addition, in the event of the financial failure of a customer, Holdings could experience a loss associated with the unsecured portion of any of its outstanding accounts receivable.

 

There are many risks associated with conducting operations in international markets.

 

Following the consummation of the mergers, Holdings will continue to operate in many geographic markets outside the United States. For the three months ended March 31, 2007, Hanover and Universal derived 48.9% and 30.8%, respectively, of their revenues from international operations. Changes in local economic or political conditions, particularly in Latin America, could have a material adverse effect on the business, consolidated financial condition, results of operations and cash flows of the combined company. Additional risks inherent in Holdings’ international business activities following the consummation of the mergers include the following:

 

 

 

Following the consummation of the mergers, the combined company plans to expand its business into international markets where Universal and Hanover currently do not conduct business. The risks inherent in establishing new business ventures, especially in international markets where local customs, laws and business procedures present special challenges, may affect Holdings’ ability to be successful in these ventures or avoid losses that could have a material adverse effect on its business, financial condition, results of operations and cash flows.

 

There are risks associated with the companies’ operations in Nigeria. Local unrest and violence in Nigeria has adversely affected Hanover’s historical financial results and could result in possible impairment and write-downs by the combined company of its assets in Nigeria if the political situation in Nigeria does not improve.

 

The companies’ operations in Nigeria are subject to numerous risks and uncertainties associated with operating in Nigeria. Such risks include, among other things, political, social and economic instability, civil uprisings, riots, terrorism, kidnapping, the taking of property without fair compensation and governmental actions that may restrict payments or the movement of funds or result in the deprivation of contract rights. Any of these risks, including risks arising from the increase in violence and local unrest in Nigeria over the past year, could adversely impact the combined company’s operations in Nigeria and could affect the timing and decrease the amount of revenue the combined company may realize from its assets in Nigeria.

 

For example, Hanover is involved in a project called the Cawthorne Channel Project in Nigeria in which it rents and operates barge-mounted gas compression and gas processing facilities stationed in a Nigerian coastal waterway. Because of unrest and violence in the region, natural gas flow to the project was stopped in June 2006. As a result, Hanover did not recognize revenue on the Cawthorne Channel Project for the last six months of 2006, and Holdings may not be able to recognize revenue from this project in the future. If the violence and local unrest in Nigeria continues or worsens following the consummation of the mergers, Holdings may experience further decreases in revenue from its projects in Nigeria.

 

At March 31, 2007, Hanover and Universal had combined tangible net assets of approximately $74.1 million related to projects in Nigeria. If Holdings is unable to operate its assets under current projects, it may be required to find alternative uses for those assets, which could potentially result in an impairment and write-down of its investment in those assets in Nigeria, which could adversely impact Holdings’ consolidated financial position or results of operation.

 

There are risks associated with the companies’ operations in Venezuela. Further changes to the laws and regulations of Venezuela could adversely impact the combined company’s results of operations and require it to write-down certain of its assets in Venezuela.

 

Recently, laws and regulations in Venezuela have been subject to frequent and significant changes. These changes have included currency controls, restrictions on repatriation of capital, expropriation and nationalization of certain firms and industries and changes to the tax laws. While these changes have not had a material impact on Hanover or Universal to date, future changes could have a material impact on the combined company. For example, if the government of Venezuela institutes further changes to the laws and regulations of Venezuela, those changes could increase the expenses incurred by the combined company’s Venezuelan operations, resulting in a reduction in its net income or a write-down of its investments in Venezuela. At March 31, 2007, Hanover and Universal had combined tangible net assets in Venezuela, including investments in non-consolidated affiliates, of approximately $291.7 million.

 

Following the consummation of the mergers, Holdings will be exposed to exchange rate fluctuations in the international markets in which it will operate. A decrease in the value of any of these currencies relative to the U.S. dollar could reduce profits from international operations and the value of international net assets of the combined company.

 

Following the consummation of the mergers, the reporting currency of the combined company will be the U.S. dollar. Gains and losses from the remeasurement of balances that are receivable or payable in currency other than functional currency are included in the consolidated statements of operations. The remeasurement has caused the U.S. dollar value of Hanover’s and Universal’s international results of operations to vary with exchange rate fluctuations and, after consummation of the mergers, the U.S. dollar value of Holdings’ international results of operations will continue to vary with exchange rate fluctuations. Hanover and Universal have not hedged exchange rate exposures, which exposes them to the risk of exchange rate losses.

 

A fluctuation in the value of any of these currencies relative to the U.S. dollar following the consummation of the mergers could reduce Holdings’ profits from international operations and the value of the net assets of Holdings’ international operations when reported in U.S. dollars in its financial statements. This could have a negative impact on Holdings’ business, financial condition or results of operations as reported in U.S. dollars. For example, in February 2004 and March 2005, the Venezuelan government devalued their currency to 1,920 bolivars and 2,148 bolivars, respectively, for each U.S. dollar.

 

In addition, fluctuations in currencies relative to currencies in which the earnings are generated may make it more difficult to perform period-to-period comparisons of Holdings’ reported results of operations following the consummation of the mergers.

 

Although both Hanover and Universal attempt to match costs and revenues in local currencies, they anticipate that there will be instances in which costs and revenues will not be exactly matched with respect to currency denomination. As a result, to the extent Holdings expands geographically, we expect that increasing portions of its revenues, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations. Holdings may experience economic loss and a negative impact on earnings or net assets solely as a result of foreign currency exchange rate fluctuations. Further, the markets in which Holdings will operate could restrict the removal or conversion of the local or foreign currency, resulting in Holdings’ inability to hedge against these risks.

 

Many of Hanover’s and Universal’s compressor contracts with customers have short initial terms, and Holdings cannot be sure that the contracts for these compressors will be renewed after the end of the initial contractual term.

 

The length of Hanover’s and Universal’s compressor contracts with customers varies based on operating conditions and customer needs. In most cases, under currently prevailing contract compression rates, Hanover’s and Universal’s initial contract terms are not long enough to enable them to fully recoup the average cost of acquiring or fabricating the equipment. Following the consummation of the mergers, Holdings cannot be sure that a substantial number of these customers will continue to renew their contracts, that it will be able to enter

into new contracts for the equipment with new customers or that any renewals will be at comparable rates. The inability to renew contracts with respect to a substantial portion of Holdings’ compressor fleet would have a material adverse effect upon the business, consolidated financial condition, results of operations and cash flows of the combined company.

 

Hanover and Universal are dependent on particular suppliers and are vulnerable to product shortages and price increases.

 

Some of the components used in Hanover’s and Universal’s products are obtained from a single source or a limited group of suppliers. Hanover’s and Universal’s reliance on these suppliers involves several risks, including price increases, inferior component quality and a potential inability to obtain an adequate supply of required components in a timely manner. The partial or complete loss of certain of these sources following the consummation of the mergers could have a negative impact on Holdings’ results of operations and could damage its customer relationships. Further, a significant increase in the price of one or more of these components could have a negative impact on Holdings’ results of operations.

 

Hanover’s ability to substitute compression equipment under its compression equipment leases is limited, and there are risks associated with reaching that limit prior to the expiration of the lease term.

 

As of March 31, 2007, Hanover was the lessee in two transactions involving the sale of compression equipment by Hanover to special purpose entities, which in turn lease the equipment back to Hanover. Hanover is entitled under the compression equipment operating lease agreements to substitute equipment that it owns for equipment owned by the special purpose entities, provided that the value of the equipment that it is substituting is equal to or greater than the value of the equipment that is being substituted. Hanover generally substitutes equipment when one of its lease customers exercises a contractual right or otherwise desires to buy the leased equipment or when fleet equipment owned by the special purpose entities becomes obsolete or is selected by Hanover for transfer to international projects. Each lease agreement limits the aggregate amount of replacement equipment that may be substituted to, among other restrictions, a percentage of the termination value under each lease. The termination value is equal to (1) the aggregate amount of outstanding principal of the corresponding notes issued by the special purpose entity, plus accrued and unpaid interest, and (2) the aggregate amount of equity investor contributions to the special purpose entity, plus all accrued amounts due on account of the investor yield and any other amounts owed to those investors in the special purpose entity or to the holders of the notes issued by the special purpose entity or their agents. In the following table, termination value does not include amounts in excess of the aggregate outstanding principal amount of notes and the aggregate outstanding amount of the equity investor contributions, as such amounts are periodically paid as supplemental rent as required by Hanover’s compression equipment operating leases. The aggregate amount of replacement equipment substituted (in dollars and percentage of termination value), the termination value and the substitution percentage limitation relating to each of Hanover’s compression equipment operating leases as of March 31, 2007 are as follows:

 

 

 

 

In the event Hanover reaches the substitution limitation prior to a lease termination date, it will not be able to effect any additional substitutions with respect to such lease. This inability to substitute could have a

material adverse effect on Holdings’ business, consolidated financial position, results of operations and cash flows.

 

The tax treatment of the Universal Partnership depends on its status as a partnership for federal income tax purposes, as well as its not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service treats the Universal Partnership as a corporation or it becomes subject to a material amount of entity-level taxation for state tax purposes, it would substantially reduce the amount of cash available for distribution to the Universal Partnership’s unitholders and undermine the Universal Partnership’s cost of capital advantage, which would diminish one of the anticipated benefits of consummating the mergers.

 

The anticipated after-tax economic benefit of an investment in the Universal Partnership’s common units depends largely on its being treated as a partnership for federal income tax purposes. The Universal Partnership has not received a ruling from the Internal Revenue Service, or IRS, on this or any other tax matter affecting it.

 

If the Universal Partnership were treated as a corporation for federal income tax purposes, it would pay federal income tax at the corporate tax rate and would also likely pay state income tax. Treatment of the Universal Partnership as a corporation for federal income tax purposes would result in a material reduction in the anticipated cash flow and after-tax return to its unitholders, likely causing a substantial reduction in the value of its common units.

 

Current law may change so as to cause the Universal Partnership to be treated as a corporation for federal income tax purposes or otherwise subject it to entity-level taxation. In addition, because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. The Universal Partnership’s partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects it to taxation as a corporation or otherwise subjects it to entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution levels of the Universal Partnership may be adjusted to reflect the impact of that law on it at the option of its general partner without the consent of its unitholders. If the Universal Partnership were to be taxed as at the entity level, it would lose its comparative cost of capital advantage over a corporation structure, thereby undermining one of the companies’ key strategic reasons for consummating the mergers.

 

The combined company will face significant competition that may cause it to lose market share and harm its financial performance.

 

The U.S. compression business is highly competitive and there are low barriers to entry. Following the consummation of the mergers, Holdings expects to experience competition from companies that may be able to adapt more quickly to technological changes within its industry and throughout the economy as a whole, more readily take advantage of acquisitions and other opportunities and adopt more aggressive pricing policies. The ability of Holdings to renew or replace existing contracts with its customers at rates sufficient to maintain current revenue and cash flows could be adversely affected by the activities of its competitors and its customers. If its competitors substantially increase the resources they devote to the development and marketing of competitive services or substantially decrease the price at which they offer their services, Holdings may not be able to compete effectively. Some of these competitors may expand or construct newer or more powerful compression systems that would create additional competition for the services Hanover and Universal currently provide to their customers. In addition, customers that are significant producers of natural gas may purchase their own compression systems in lieu of using our contract compression services. In addition, Holdings’ other lines of business will face significant competition.

 

Following the consummation of the mergers, Holdings also may not be able to take advantage of certain opportunities or make certain investments because of its significant leverage, the agreements related to Hanover’s compression equipment lease obligations and Holdings’ other obligations. All of these competitive

pressures could have a material adverse effect on the business, results of operations and financial condition of the combined company.

 

Natural gas operations entail inherent risks that may result in substantial liability to Holdings following the consummation of the mergers. Hanover and Universal do not insure against all potential losses and each could be seriously harmed by unexpected liabilities.

 

Natural gas operations entail inherent risks, including equipment defects, malfunctions and failures and natural disasters, which could result in uncontrollable flows of natural gas or well fluids, fires and explosions. These risks may expose Hanover, Universal or, following the consummation of the mergers, Holdings, as an equipment operator or fabricator, to liability for personal injury, wrongful death, property damage, pollution and other environmental damage. Although Hanover and Universal have obtained insurance against many of these risks, their insurance may be inadequate to cover their liabilities. For example, Universal has elected to fully self-insure its offshore assets. Further, insurance covering the risks Holdings expects to face or in the amounts it desires may not be available in the future or, if available, the premiums may not be commercially justifiable. If Hanover, Universal or Holdings were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if Hanover, Universal or Holdings were to incur liability at a time when it was not able to obtain liability insurance, the business, results of operations and financial condition of the combined company could be negatively impacted.

 

Following the consummation of the mergers, Holdings will be subject to a variety of governmental regulations.

 

Following the consummation of the mergers, Holdings will be subject to a variety of federal, state, local and international laws and regulations relating to the environment, health and safety, export controls, currency exchange, labor and employment and taxation. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including assessment of monetary penalties, imposition of remedial requirements and issuance of injunctions as to future compliance. From time-to-time as part of the regular overall evaluation of the operations of Holdings, including newly acquired operations, Holdings may be subject to compliance audits by regulatory authorities in the various countries in which it operates.

 

Environmental laws and regulations may, in certain circumstances, impose strict liability for environmental contamination, which may render Holdings liable for remediation costs, natural resource damages and other damages as a result of conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior owners or operators or other third parties. In addition, where contamination may be present, it is not uncommon for neighboring land owners and other third parties to file claims for personal injury, property damage and recovery of response costs. Remediation costs and other damages arising as a result of environmental laws and regulations, and costs associated with new information, changes in existing environmental laws and regulations or the adoption of new environmental laws and regulations could be substantial and could negatively impact Holdings’ financial condition or results of operations.

 

Following the consummation of the mergers, Holdings may need to apply for or amend facility permits or licenses from time-to-time with respect to storm water or wastewater discharges, waste handling, or air emissions relating to manufacturing activities or equipment operations in order to comply with new or revised permitting conditions. In addition, customer service arrangements may require Holdings to operate, on behalf of a specific customer, petroleum storage units such as underground tanks or pipelines and other regulated units, all of which may impose additional compliance and permitting obligations.

 

Following the consummation of the mergers, Holdings will conduct operations at numerous facilities in a wide variety of locations across the country. The operations at many of these facilities will require federal, state or local environmental permits or other authorizations. Additionally, following the consummation of the mergers, natural gas compressors at many of Holdings’ customer facilities will require individual air permits or general authorizations to operate under various air regulatory programs established by rule or regulation.

These permits and authorizations frequently contain numerous compliance requirements, including monitoring and reporting obligations and operational restrictions, such as emission limits. Given the large number of facilities in which Holdings will operate, and the numerous environmental permits and other authorizations that will be applicable to its operations, Holdings may occasionally identify or be notified of technical violations of certain requirements existing in various permits or other authorizations. Occasionally, both Hanover and Universal have been assessed penalties for their non-compliance, and the combined company could be subject to such penalties in the future.

 

In addition, future events, such as compliance with more stringent laws, regulations or permit conditions, a major expansion of the combined company’s operations into more heavily regulated activities, more vigorous enforcement policies by regulatory agencies, or stricter or different interpretations of existing laws and regulations could require the combined company to make material expenditures.

 

The price of Holdings’ common stock may experience volatility.

 

Following the consummation of the mergers, the price of Holdings’ common stock may be volatile. Some of the factors that could affect the price of Holdings’ common stock are quarterly increases or decreases in revenue or earnings, changes in revenue or earnings estimates by the investment community, the ability of Holdings to implement its integration strategy and to realize the expected synergies and other benefits from the mergers and speculation in the press or investment community about Holdings’ financial condition or results of operations. General market conditions and U.S. or international economic factors and political events unrelated to the performance of Holdings may also affect its stock price. For these reasons, investors should not rely on recent trends in the price of Hanover’s or Universal’s common stock to predict the future price of Holdings’ common stock or its financial results.

 

The charter and bylaws of Holdings contain provisions that may make it more difficult for a third party to acquire control of it, even if a change in control would result in the purchase of your shares of common stock of Holdings at a premium to the market price or would otherwise be beneficial to you.

 

There are provisions in Holdings’ restated certificate of incorporation and bylaws that may make it more difficult for a third party to acquire control of it, even if a change in control would result in the purchase of your shares of common stock of Holdings at a premium to the market price or would otherwise be beneficial to you. For example, Holdings’ restated certificate of incorporation authorizes Holdings’ board of directors to issue preferred stock without stockholder approval. If the board of directors of Holdings elects to issue preferred stock, it could be more difficult for a third party to acquire it. In addition, provisions of Holdings’ restated certificate of incorporation and bylaws, such limitations on stockholder actions by written consent and on stockholder proposals at meetings of stockholders, could make it more difficult for a third party to acquire control of Holdings. Delaware corporation law may also discourage takeover attempts that have not been approved by the board of directors of Holdings.

 

This joint proxy statement/prospectus and the documents that are incorporated into this joint proxy statement/prospectus by reference may contain or incorporate by reference forward-looking statements that do not directly or exclusively relate to historical facts. You can typically identify forward-looking statements by the use of forward-looking words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast” and other words of similar import. Forward-looking statements include information concerning possible or assumed future results of our operations, including statements about the following subjects:

 

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In addition to the risk factors described in this joint proxy statement/prospectus under “Risk Factors,” as well as the risk factors described in the other documents we file with the SEC and incorporate by reference in this joint proxy statement/prospectus, those factors include:

 

 

 

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You should consider the areas of risk and uncertainty described above and discussed under “Risk Factors” in this joint proxy statement/prospectus and the other documents we file with the SEC and incorporate by reference in connection with any written or oral forward-looking statements that may be made after the date of this joint proxy statement/prospectus by Hanover, Universal or Holdings or anyone acting for any or all of them. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

The discussion in this joint proxy statement/prospectus of the mergers and the principal terms of the merger agreement are subject to, and are qualified in their entirety by reference to, the merger agreement, a composite copy of which is attached to this joint proxy statement/prospectus as Annex A and incorporated into this joint proxy statement/prospectus by reference.

 

The mergers are structured as all-stock transactions. Prior to entering into the merger agreement, Universal formed a new Delaware corporation, Iliad Holdings, Inc., which in turn formed two wholly owned subsidiaries, Ulysses Sub, Inc. and Hector Sub, Inc. Iliad Holdings, Inc. was renamed Exterran Holdings, Inc. on June 18, 2007. The merger agreement contemplates that Ulysses Sub will merge with and into Universal, with Universal surviving the merger. In that merger, which we call the “Universal merger,” the holders of Universal common stock will receive the right to receive one share of Holdings common stock for each share of Universal common stock they hold. As a result, the current holders of Universal common stock will become, temporarily, the holders of all of the outstanding shares of Holdings common stock, and Universal will become a wholly owned subsidiary of Holdings.

 

Immediately following the Universal merger, the merger agreement contemplates that Hector Sub will merge with and into Hanover, with Hanover surviving the merger. In that merger, which we call the “Hanover merger,” the holders of Hanover common stock will receive the right to receive 0.325 shares of Holdings common stock for each share of Hanover common stock they hold. As a result, the current holders of Hanover common stock will become holders of Holdings common stock, and Hanover will become a wholly owned subsidiary of Holdings.

 

We refer to the Universal merger and the Hanover merger together throughout this document as the “mergers.” Immediately following completion of the mergers, based on the number of shares of common stock of each of Hanover and Universal outstanding as of February 2, 2007, the last trading day prior to the public announcement of the mergers, former Hanover stockholders will own approximately 53% of Holdings’ common stock and former Universal stockholders will own approximately 47% of Holdings’ common stock. We intend to apply to the New York Stock Exchange prior to the consummation of the mergers to list Holdings common stock under the symbol “EXH.”

 

From time to time, the board of directors and management of each of Hanover and Universal have examined possible strategic opportunities in an effort to ensure that their respective company is well positioned for future growth in light of industry developments. In the first quarter of 2004, an investment banker met with the management of Universal to discuss the possibility of a combination of Universal with Hanover. This same investment banker also met with Hanover’s management to determine if Hanover was interested in a combination with Universal. Hanover considered the information presented by this investment banker but informed the investment banker that it was not interested in pursuing such a transaction, primarily because companies in the compression industry generally, including Hanover and Universal, were then experiencing a period of relatively weak results of operations and Hanover was then in the process of completing the settlement of an SEC investigation and class action securities litigation. Hanover and Universal did not engage in any direct dialogue regarding a business combination at this time.

 

At various times during 2004, members of management of the two companies had discussions with one another considering various strategic transactions. Specifically, the parties discussed transactions that generally involved the leasing or sale of certain of Hanover’s and Universal’s idle U.S. compression assets to each other to satisfy the needs of each other’s respective customers as well as transactions involving various joint ventures and cooperation arrangements on international compression projects. Hanover and Universal were also requested by a major customer to jointly bid on a large international compression project, though the parties ultimately did not engage in the project. Hanover and Universal entered into preliminary discussions with respect to some of these potential transactions but ultimately were not able to reach an agreement on the terms of any such transaction. As a result of these conversations, however, Hanover offered to sell its Canadian compression assets to Universal. This sale was ultimately completed in November 2004 for approximately $57 million in cash.

 

In the first quarter of 2005, Hanover’s board of directors authorized the company to issue shares of common stock in a registered public offering. Prior to engaging in the offering, management of Hanover decided to contact Universal to discuss the possibility of the parties’ merging. In March 2005, John E. Jackson, President and Chief Executive Officer of Hanover, Lee E. Beckelman, Senior Vice President and Chief Financial Officer of Hanover, Stephen A. Snider, the President and Chief Executive Officer of Universal, and J. Michael Anderson, the Senior Vice President and Chief Financial Officer of Universal, met to discuss the possibility of a merger between the two companies. The parties determined that it was not an opportune time to pursue a merger between the companies for a number of reasons, including complications from a financial, legal and operational perspective associated with such a merger, issues related to Hanover’s capital structure and overall leverage at the time and the parties’ respective stock market valuations relative to one another. At the time, Hanover’s debt-to-capital ratio was relatively high and the equity values of Hanover and Universal were not substantially similar based on the market price of their common stock, thus making it difficult to negotiate a merger of equals. In addition, management of each of Hanover and Universal was concerned that the pressures associated with a pending merger transaction would be too disruptive to the parties given their respective financial conditions at the time. As a result of this determination, management of Hanover and Universal decided not to further pursue merger discussions, and Hanover proceeded with its registered public offering of common stock, which was completed in August 2005.

 

Occasionally in 2005 and the first half of 2006, Mr. Jackson and Mr. Snider discussed the possibility of a transaction involving the companies. The discussions generally related to sales of various U.S. asset packages between the companies or joint venture arrangements for various international projects. None of these discussions, however, resulted in meaningful preliminary negotiations between the parties regarding a merger or any other strategic transaction.

 

In July and October 2006, the Hanover board of directors held regular meetings at which Mr. Jackson made presentations regarding various strategic alternatives that Hanover was in the process of evaluating. Included among those strategic alternatives under consideration was the possibility of Hanover forming a master limited partnership and commencing an initial public offering of units in that partnership as well as a business combination with Universal.